March 13, 1998

Mortgage scams can leave you homeless

By TOM KELLY
The Real Estate Advisor

Home appreciation and equity can cover a variety of sins. They can give us a false impression that we actually can afford a larger home with higher monthly payments because it will eventually be worth a ton (the means justifies the end), or that we can borrow frivolously against the house for vacations and trinkets because appreciation and equity will bail us out down the road (the end justifies the means).

However, not everybody has the luxury of falling back on appreciation and equity. The problem for these consumers often is compounded when interest rates are low and scam artists go out of their way to make any deal sound rosy.

Andi, a Marysville resident, didn't even get far enough to see what the future would bring with a new loan. She paid a Bothell-based company $500 for a new appraisal on her home to start the refinance process. A woman, saying she was a loan officer, said the loan would be closed in "just a few weeks."

The loan never closed. Andi, thinking the new loan would halt the foreclosure process, lost her home a month ago when the lender holding the mortgage foreclosed on the loan.

Tales of scams and mortgage bait-and-switch tactics also have surfaced in Pierce, Kitsap and King counties.

"I lost my whole life here," Andi said. "And I'm telling you this so others won't lose theirs. This place was my only real asset. I ran a daycare here. Now, I'm out of a house, a job and a lot of moms and kids have really no other place to go."

The story began late last fall when Andi, facing larger monthly mortgage payments because of a bankruptcy, put her $125,000 home in northeast Marysville on the market. She said she simply could no longer make the payments and would rather sell, find a less expensive home and start over.

At Thanksgiving, a woman knocked on the door, offering to refinance Andi's home and alleviate the problem of moving to another home. The $500 Andi paid that day for an appraisal was gone, as was the time she thought she had bought from the bank.

"I did pay an attorney to get an extension," Andi said, "but it certainly wasn't for a long enough period. When you've got people telling you the loan will close tomorrow, why spend more money on an extension?"

Andi, in arrears and running out of cash, lost the home a month ago. She received a letter indicating the home had been sold.

"I can still remember the woman constantly telling me to take my for-sale sign down," Andi said. "She didn't want anything to come in the way of taking my money."

The home-loan business centers around collateral (your home) and risk (your ability the repay). If your credit has always been poor and you have a difficult time hanging on to a job, the lender is going to view you as a greater risk than the customer with flawless credit and a 20 years of continual employment with the same company.

In Andi's case, she had to refinance because of bankruptcy. That bankruptcy resulted in higher rates on the loan. Typically, the greater the risk, the greater the interest rate.

To refinance a mortgage you have to go through closing a second time and pay for many of the same reports and fees again. So, when Andi was asked for the $500 appraisal fee to start the process, she figured that was part of the deal. (Consumers might be able to get a break on some of the costs depending on your lender and when you last refinanced).

"What consumers should really be leery of is people knocking on their door saying they will provide these types of services," said Dave Horn, attorney in the Consumer Protection Division of the Washington State Attorney General's Office. "When refinancing is a popular and interest rates are down, shop around for rates and fees. Make sure you know the company who is providing the service and call the references they give you."

Homeowners often resent shopping, even though the drill represents research on the biggest purchase they will ever make. Go the extra mile when it comes to the roof over your head. If people come knocking with a deal that sounds too good to be true, it probably is.

Previous columns:

• How is technology going to change the real estate business?, 03-06-1998
• Big changes area coming to Puget Sound housing, 02-27-1998
• Ads in the age of spam, 02-20-1998
• Be wary of refinancing and home equity loans, 02-13-1998
• 'Phantom' agents are the focus of new rule, 02-06-1998
• Using IRA for down payment not a good idea, 01-30-1998
• The lowest interest rates not always best, 01-23-1998
• Getting money back from FHA, 01-09-1998