Tips for Avoiding Real Estate Fraud

Although the real estate market has taken a nosedive in the last few months, it doesn’t mean that people have stopped buying or selling. It also means that if you’re one of those people, you need to be aware of real estate fraud. The last thing you want when investing in real estate is to run into a scam. Here are some ways to avoid getting caught.

Lease-Options -- Not Really An Option

Lease-options occur when real estate investors save you from foreclosure through buying your home and leasing it back to you. These deals sound attractive, but the problem is that even if you can buy your house back, the contract may not have the lease payment go toward buying your home back.

Do not sign a lease-option if the monthly lease payment is the same or more than your current mortgage. One missed payment means that the investor can legally evict you. If you really need to get out of your mortgage, get out of the house by selling it. You can avoid foreclosure by reaching a settlement with a real estate investor, thus saving your credit and moving into a home you can afford.

Buying On Assumption

The “Sub-To” scam occurs when a real estate investor agrees to assume the mortgage with the idea that they will get to share the sale of the home. Then the investor leases the house to someone else, collecting the payments without paying the mortgage. Once the payments start slipping, you’re in trouble.

Selling on assumption is not a safe bet, since it doesn’t eliminate legal obligations. If your house goes into foreclosure and your loan is assumed, creditors can still hit you up. Even though it looks like a quick fix, buying on assumption could mean future denial of a loan.

Stay Away From Straw Buyers

Straw buyers pretend to be a buyer to the mortgage company for a loan, but claim they will live in the property to get the lender to lower the interest rate. What happens is you end up selling your house to an identity theft while the lender hands the money to someone who was not going to live in the house or pay the mortgages. Make sure the person bidding on your house will be taking over the same mortgage loan. Using a straw buyer is a federal crime and those involved can end up in prison.

One last note -- do not agree to sell your home for a number over your asking price if you’re told to refund the difference after it closes. If the contract says that this extra money earned will go toward house repairs, just say no.

This is a red flag to get money from the mortgage lender and makes you a liable partner in the scam. Additionally, if you ever feel that you may be caught in a scam, get a real estate attorney to help you sort out contracts and uncover any deception you feel you are encountering.

Things to Consider When Thinking About Reverse Mortgages

Reverse mortgages are intended for the senior set. They allow you to have a bank buy back your home while you’re living in it. You can take a lump sum, a monthly payment or a line of credit. Although it sounds like an amazing opportunity, consider a few things before you or someone you know takes part.

Age And Time

As mentioned earlier, reverse mortgages are for people who are at least 60 years of age. The older you are, the more you benefit, since your home has more equity and your life expectancy is shorter. In short, if you’re 73 instead of 63, then a reverse mortgage is to your advantage.

Another thing to think about is how long you intend to stay in your home. If you are thinking of moving, then this is not right for you. However, if you are planning to live out your life in your home, this is a good way to fund home repairs, health care equipment or an active retirement.

Lenders And Interest Rates

Look for a trustworthy lender and independent counseling before signing anything. Legally, you must meet with a counselor. Your bank has a recommended list of people in the area to help you determine whether a reverse mortgage is the right answer. You’ll probably be pitched other products like annuities or health insurance, but you don’t really need them.

Keep in mind, these mortgages require repayment upon selling your home. The fees are higher than a typical mortgage, around five percent of the home’s value. Remember that if you move away, you need to pay the money back plus interest. Make sure you have enough so when the time comes to move, you do so without coming up short.

Other Options To Consider

If a reverse mortgage is not the best choice for you, mull over the idea of selling the house and moving into something smaller, such as a condo. If your children do not want to inherit your home and a house is too much upkeep, selling will provide you with the capital to purchase something smaller and with less hassle.

If you still need extra income, look at government benefit programs for seniors. Check out home equity loans or credit offers for emergencies.