Solution Manual for Financial Accounting, 11th Edition by Robert Libby, Patri...
Protect Yourself from Predatory Lenders and Loan Fraud
1. Don’t Be A Victim of Loan Fraud
Protect Yourself from Predatory Lenders
Buying or refinancing your home may be one of the most important and complex financial decisions you’ll ever
make. Many lenders, appraisers and real estate professionals stand ready to help you get a nice home and a great
loan. However, you need to understand the homebuying process to be a smart consumer. Every year, mis-
informed homebuyers, often first-time purchasers or seniors, become victims of predatory lending or loan fraud.
Don’t let this happen to you!
11 tips on being a smart consumer
7
Before you buy a home, attend a Do NOT let anyone convince you to borrow
1 homeownership education course offered more money than you know you can afford
by a U.S. Department of Housing and Urban to repay. If you get behind on your
Development (HUD)-approved, payments, you risk losing your house and all
non-profit counseling agency. of the money you put into your property.
Interview several real estate professionals Never sign a blank document or a document
8
2 (agents), and ask for and check references containing blanks. If information is inserted
before you select one to help you buy or sell by someone else after you have signed, you
a home. may still be bound to the terms of the
contract. Insert “N/A” (i.e., not applicable)
3 Get information about the prices of other or cross through any blanks.
homes in the neighborhood. Don’t be fooled
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into paying too much. Read everything carefully and ask questions.
Do not sign anything that you don’t
4 Hire a properly qualified and licensed home understand. Before signing, have your
inspector to carefully inspect the property contract and loan agreement reviewed by an
before you are obligated to buy. Determine
attorney skilled in real estate law, consult
whether you or the seller is going to be
with a trusted real estate professional or ask
responsible for paying for the repairs. If you
for help from a housing counselor with a
have to pay for the repairs, determine
HUD-approved agency. If you cannot afford
whether or not you can afford to make them.
an attorney, take your documents to the
5 Shop for a lender and compare costs. Be HUD-approved agency near you to find out
suspicious if anyone tries to steer you to just if they will review the documents or can
one lender. refer you to an attorney who will help you
for free or at low cost.
Do NOT let anyone persuade you to make a
6 false statement on your loan application,
10 Be suspicious whenup if cost don’thome the
the of a
such as overstating your income, the source improvement goes you accept
of your down payment, failing to disclose the contractor’s financing.
nature and amount of your debts, or even
Be honest about your intention to occupy
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how long you have been employed. When
the house. Stating that you plan to live
you apply for a mortgage loan, every piece of
there when, in fact, you are not (because
information that you submit must be
accurate and complete. Lying on a mortgage you intend to rent the house to someone
application is fraud and may result in else or fix it up and resell it) violates federal
criminal penalties. law and is a crime.
-1-
2. What is Housing counselors with
PREDATORY
a HUD-approved agency
LENDING?
can help you be a smart
In communities across America,
people are losing their homes and
consumer. To find a
their investments because of
counselor near you, call 1-800-569-4287
predatory lenders, appraisers,
mortgage brokers and home
or go to HUD’s web site www.hud.gov.
improvement contractors who:
Sell properties for much more
than they are worth using false
WHAT TACTICS
appraisals.
DO PREDATORS USE?
Encourage borrowers to lie about
their income, expenses, or cash
A lender or investor tells you that they are your only
available for down payments in
chance of getting a loan or owning a home. You
order to get a loan.
should be able to take your time to shop around and
Knowingly lend more money than compare prices and houses.
a borrower can afford to repay.
The house you are buying costs a lot more than
Charge high interest rates to other homes in the neighborhood, but isn’t any
borrowers based on their race or bigger or better.
national origin and not on their
You are asked to sign a sales contract or loan
credit history.
documents that are blank or contain information
Charge fees for unnecessary or that is not true.
nonexistent products and services.
You are told that the Federal Housing
Pressure borrowers to accept Administration insurance protects you against
higher-risk loans such as balloon property defects or loan fraud — it
loans, interest-only payments and does not.
steep pre-payment penalties.
The costs or loan terms at
Target vulnerable borrowers for closing are not what you agreed
cash-out refinance offers when to.
they know borrowers are in need
You are told that refinancing can
of cash due to medical,
solve your credit or money
unemployment or debt problems.
problems.
“Strip” homeowners’ equity from
You are told that you can only get a
their homes by convincing them
good deal on a home improvement if
to refinance again and again
you finance it with a particular lender.
when there is no benefit to the
borrower.
REMEMBER
Use high pressure sales tactics to If a deal to buy, repair or refinance a house
sell home improvements and
sounds too good to be true, it usually is!
then finance them at high
interest rates. -2-
HUD-2003-01-H