Fear is a powerful, and sometimes blinding, emotion, especially for homeowners who need money. They fear the consequences if they can't close on their home equity loan, a fact that dishonest lenders love to exploit. Here's a brief description of three fraudulent mortgage tactics, as well as tips on how you can protect yourself against them:

Credit Insurance Packing

Sneaky lenders like to include credit insurance-packaged as life or disability insurance-as part of your closing costs. The worst lenders won't disclose the cost at all, or will threaten you with having to rewrite the loan if you question it. Avoid this scam by asking if the loan includes credit insurance or by checking your Good Faith Estimate before you close. If you need the insurance, make sure the rate and coverage is right for you. Don't buy apples if you need oranges.

Mortgage Servicing

After your loan closes, mortgage servicing fraud can be initiated by the company that collects your mortgage payments. Tactics include phony late payment charges, extra fees for a loan payoff, and assertions that you need extra property insurance (which the servicing company just happens to offer). To protect yourself, track all charges on your billing statements, and keep records of all cancelled checks. You should contact the Better Business Bureau or other consumer watchdog groups if you feel that you're being scammed.

Signing Over Your Deed

If you can't make your monthly mortgage payment, a lender may ask you to deed your property to them. If you do, they have the power to evict you from your home if payments are late. They can also borrow equity against your property, or even sell your home to another lender. Never deed your property to anyone. Consult an attorney or a trusted family member about other options available to you to get through your financial crisis.

Fraudulent lenders are happy to prey upon your fears, and sock it to you when you're in a jam. By taking the time upfront to become aware of three common types of fraud, you've taken important steps towards defending your family from a dishonest lender.

Published on December 27, 2006