How To Avoid Mortgage Scams in 2024

Scammers take advantage of the fact that buying a home is the biggest financial transaction most people make in a lifetime. They are after the cash you've saved for years for your down payment and closing costs. If you're facing foreclosure, they'll go after your equity and your house. New scams related to real estate crop up all the time.

Understanding how mortgage fraud and scams work can prevent you from making a small mistake with huge consequences.

Takeaways: Avoiding Mortgage Scams

• Mortgage scams involve false promises and primarily work by defrauding people out of their money.
• Scammers look to steal down payment, closing funds, banking information and more.
• To avoid scams, shop around for legitimate mortgage lenders, safeguard your personal information and always question any unsolicited requests from companies claiming to be mortgage lenders or real estate agents.

How Common Are Mortgage Scams?

Every year, consumers lose millions of dollars to mortgage fraud, wire fraud and other real estate scams. According to a U.S. Federal Bureau of Investigation (FBI) report, more than 9,000 people were victims of internet-enabled real estate crimes in 2023 (PDF) at a cost of more than $145 million.

The U.S. Federal Trade Commission (FTC) received more than 26,000 reports of mortgage foreclosure relief scams (PDF) and other debt management scams.

New scams emerge on an ongoing basis. In August 2024, the FTC warned consumers about "title lock insurance," which promises to prevent theft of your home by monitoring your house deed. The FTC notes that you don't need to pay for this service — which wouldn't help you after the fact, anyway. You can keep an eye on any identity theft attempts for free.

How Do Mortgage Scams Work?

Mortgage scams often put homebuyers and homeowners at risk during home purchase, refinancing or payment assistance processes. Scammers try to take advantage at every stage, inserting themselves into what would otherwise be a legitimate process.

In some cases, scammers intercept down payments and closing funds. In other cases, fraudulent companies take advantage of people facing foreclosure.

Criminal mortgage industry insiders such as loan officers, appraisers, mortgage brokers or attorneys can use their specialized knowledge to steal cash and equity from lenders and homeowners.

Common Types of Mortgage and Closing Scams

The good news is you can protect yourself by understanding the difference between a legal transaction and mortgage fraud or scams. Let's get into the details of the different types of scams so you know what to look for.

Wire Fraud

In mortgage wire fraud, scammers ask home buyers to wire large amounts of money to fake accounts. They may do so by impersonating sellers, sending fraudulent down payment information or requesting false mortgage payoff instructions.

The mortgage closing process is targeted as it usually involves a large financial transaction in the tens or hundreds of thousands of dollars. According to the American Bar Association, median losses per wire fraud incident can total more than $250,000 for false mortgage payoff instructions.

Scammers typically hack real estate company and title company email platforms, impersonating these companies and sending seemingly legitimate emails to clients about to close on their loans.

Victims wire their down payment and closing funds to a fraudulent account. The account is typically emptied and closed by the time anyone realizes the fraud occurred. Often the funds are never seen again.

Protect Yourself From Wire Fraud

Before Wiring Funds:

• Call the title company: Use the phone number from the business website or business card, not an email. Remember that fraudsters can send legitimate-looking emails and change the phone number. Confirm wire instructions by voice.
• Forward, don't reply to email: Forward messages and manually enter email addresses when you respond. Check that the email address you enter is correct and matches the address on the company website or a business card. Fraudsters will often make small, easily missed changes to email addresses.
• Be suspicious: Carefully review all emailed wire instructions and changes to wire instructions. Title companies rarely change wire instructions. 
• Review instructions with your financial institution: Your financial institution may be able to identify discrepancies in names, routing numbers and account numbers and check routing numbers and account numbers against past consumer fraud complaints.
• Create strong passwords: Secure accounts with strong passwords and change passwords frequently. Don't use the same passwords across multiple accounts. Consider using a password manager service to help you manage accounts securely.
• Protect your computer: Install a firewall and update your antivirus and malware software. Have software updates set to automatically install.

When wiring funds:

• Use secure, encrypted email or a website portal: Follow title company instructions for using their secure email system or secure website portal. Mail, overnight delivery service and in-person delivery are secure but could slow the process. Your financial information is not secure when sent by regular, unencrypted email.
• Don't open unexpected email attachments: Even if you recognize the sender, an attachment could infect your device with malware.
• Don't use free Wi-Fi or public computers: Free connections and public computers are easier for scammers to target, and easier for you to unknowingly grant access to future users.

After wiring funds:

• Confirm the money was received: Contact the title company within a few hours of wiring the money to make sure the transaction was successful.
• Report any suspected problems: Contact law enforcement and your financial institution within 24 hours to increase the chances of recovering the money if it was stolen.

AI Mortgage Scams

As AI grows in use, be aware of these AI-driven mortgage scams:

• Fake listings and agents: AI can create fake real estate listings and wire fraud through real estate agent impersonations. Be cautious of ads or listings that seem too good to be true. Always ask the seller or property owner for additional information such as photos, rental or property owner history and proof of ownership to help inform your decisions.
• Phishing and smishing: Both phishing and smishing AI scams use fake email and text messages to gather information, including passwords. Always take the time to verify who is contacting you.

AI Voice Cloning

Scammers can pull pieces of buyer, seller and real estate agents' voices to deceive all parties throughout the transaction process. Protecting your personal data and finances from AI voice cloning scams is similar to preventing other types of fraud: 

• Never give out passwords, authentication codes or personal information to a caller.
• Beware of urgent requests.
• Avoid unverified prize offers.
• Hang up, look up and verify the phone number and call the company back. Don't redial the number that just called you or call back a number the caller gives you.
• Report suspected fraud.

Reverse Mortgage Scams

Reverse mortgages can be helpful for seniors needing to tap into their home equity for more income. Older homeowners can apply for a loan to receive a lump sum of cash, monthly installments or a line of credit.

However, predators can con elderly homeowners into signing away their home equity.

Listen for these red flag phrases:

• "You can get free money."
• "Bad credit doesn't matter."
• "All you have to do is sign here."
• "You won't lose your home."
• "You don't need to speak to another lender."
• "Sign this power of attorney to ensure you get your money."

One of the best ways to avoid reverse mortgage scams is to shop for your reverse mortgage with a few different lenders and to speak with a HUD-approved housing counselor. 

Foreclosure Rescue Scams

If you're facing foreclosure, you're vulnerable and the scammers know it. With a quick scan of public records, scammers can target you (PDF), offering to lower your payments, stop the foreclosure process and repair your credit.

In 2024, the FTC announced multiple actions regarding several companies promising to lower monthly homeowner payments or prevent foreclosure but failed to deliver on those promises.

Here are some tactics they will try that can cost you your equity and even your home.

Loan Modification Scams

In these scams, fraudulent companies with official-sounding names might send you mail offering to help you stop foreclosure immediately and save you money. These companies charge high up-front fees for services you could easily do yourself, or they don't perform any services at all.

Scammers often advise the homeowner to stop making mortgage payments and cut off communication with the loan servicer. They claim they will negotiate a modification on the homeowner's behalf while they collect fees and do nothing to help.

If your mortgage lender stops receiving payments and communication from you, your window for pursuing help with them may close without you knowing it.

Lease-Back or Repurchase Scams

In a lease-back or repurchase scam fraudulent companies promise to pay off your mortgage if you sign the deed over to an investor. They say you can stay in your home as a renter, and you'll have an option to repurchase the home when your financial situation improves.

But the new owner doesn't have to sell the property back to you, and they can evict you. According to the FDIC, after you sign away the deed, the property typically changes hands multiple times, and the scammers might take out a new mortgage for hundreds of thousands more than your existing loan.

This nightmare scenario results in homeowners signing away rights to their property and still being responsible for their mortgage payments.

Bankruptcy Foreclosure Scams

Like other scams, bankruptcy foreclosure scams promise to negotiate with your mortgage lender on your behalf and stop a foreclosure. The scammer may ask you to sign over your deed while you continue to make payments to the scammer.

The scammer then pockets your money and files for bankruptcy in your name. This temporarily stops the foreclosure, but if you are unaware of the bankruptcy filing and don't participate in your case, the judge will dismiss the filing. Foreclosure will continue.

This is another scam that could result in you losing your home to foreclosure and having a bankruptcy reported on your credit record.

Equity Stripping

Equity stripping is a way of reducing equity to protect it from creditors. It can be a legitimate tool for homeowners facing foreclosure, but predatory lenders also use it to scam people out of their property.

An investor buys property for a discounted price from an owner facing foreclosure and then rents the property back to the owner.

Scammers might try to pressure the owner into a new, higher-cost loan. When the owner fails to pay, the bank forecloses on the owner anyway. The owner might also be duped into selling the home to the scammer without knowing it. The new owner can hike the rent and evict the now-former owner for not making payments.

The scammer can pay off or refinance the mortgage, taking the equity that the owner may have been building for years.

Protect Yourself From Foreclosure Scams

• Beware of any company calling itself a "mortgage consultant," "foreclosure service," "mortgage rescue service," or other similar name.
• Don't give your information to any company that contacts you or tries to advertise your home as listed for foreclosure.
• Never pay fees upfront. It's against federal law for mortgage relief service providers to request or receive up-front payment before your lender completes the mortgage modification or other agreement.
• Don't send your mortgage payments to anyone but your lender or loan servicer.
• Don't transfer your property deed or title to anyone unless you intend to sell it to them and give up ownership for good.
• Keep communicating with your lender or mortgage servicer. Contact your lender first if you want to refinance or modify your loan.
• If you need help, work with a counselor approved by the U.S. Department of Housing and Urban Development.

Predatory Lending

Predatory lending is another practice that targets vulnerable homeowners and home buyers by misleading or deceiving them about loan terms. Here are a few to watch out for.

Loan Flipping

Loan flipping is a type of predatory lending that involves convincing property owners in financial distress to refinance their homes so the lender can collect fees. The homeowner may get some cash in their bank account from the deal, but the net effect is a loss caused by high fees, increased interest rates and prepayment penalties.

Sometimes the scammers will insert a balloon payment that comes due after just a few years of the new mortgage, forcing the homeowner to refinance again or lose their home in a foreclosure. The scammer will offer to refinance the home again for more fees.

Refinancing Scams

Refinancing scams are another type of predatory lending that promises low mortgage rates and fees while targeting homeowners struggling to make payments via email, text or call.

Scammers often collect personal information they say they need to start the process but use it to steal your identity. In other mortgage scams, homeowners are told to wire fees or sign over the title of the home to the scammer.

Protect Yourself From Predatory Lending

• Don't sign paperwork you don't understand. If you need assistance, ask for help from other professionals. Check the credentials of attorneys, real estate agents, loan officers and mortgage loan assistance companies.
• Shop around for fees and interest rates. Question the lender if either of these seems unusually high.
• Know your credit score and be aware that your credit will affect your loan eligibility. Beware of lenders who say bad credit is not a barrier to qualifying for a loan. It is, and your credit, among other factors, affects the rate you can get.
• Don't sign documents with blank spaces that a lender can fill in later with terms you didn't agree to.
• Never act urgently. If you're being pressured in any way, there is a strong possibility you're being scammed. Always do your homework.

Mortgage Scam Frequently Asked Questions

How Can You Spot a Mortgage Scam?

There are several ways to spot mortgage scams. As with most scams, one of the easiest ways to avoid fraud is to look for offers that seem too good to be true. If the offer isn't documented in writing, that can be a big red flag. Lenders should provide preapproval letters and documentation with estimates that reflect the conversations you and your lender discuss.

How Do You Know if a Mortgage Company Is Legit?

Shop around when looking for mortgage lenders. Once you've nailed down a few companies, find a HUD-certified counselor to help verify a lender's credentials if you have any questions on legitimacy.

How Can I Avoid Mortgage Fraud?

• When getting ready to purchase a home, keep these tips in mind:
• Work with professionals you know and trust.
• Review loan documents every step of the way.
• Don't sign any documents you don't understand.
• If you're ever unsure about your loan documents, consider working with a real estate attorney.

Report Mortgage Scams

If you think you've been the victim of fraud or identity theft, report it to:

• Your local law enforcement
• The Federal Trade Commission
• Your state attorney general's office 
• The Better Business Bureau

Resources

• Beware of Foreclosure Rescue and Loan Modification Scams (PDF)
• Mortgage and Foreclosure Scams
• HUD Approved Housing Counseling Agencies
• Your Mortgage Closing Checklist (PDF)
• Financial Institution/Mortgage Fraud

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