mortgage flipping scam

Mortgage Scam: Loan Flipping

Loan flipping mortgage scams prey on the twin problems of financial anxiety and ignorance. Educate yourself to mount a defense.

When going through a refinancing, be sure to question every fee so you don't fall victim to a scam. Image: Jose Luis Pelaez, Inc/Blend Images/Getty Images

The loan-flipping mortgage scam is the evil twin of the helpful home equity loan, which can help put some cash into your pocket for smart purchases like your child’s education or a car you need for commuting.

How can you tell the scam from the legit loan? If you’ve fallen into the clutches of a lender who’s pressing you to take one loan after another, stretching the boundaries between what you need and what you want, you may have become the victim of a con artist.

Are you vulnerable?

If you have some equity in your home but bills to pay, you’re especially likely to catch the interest of a scammer who over-encourages you to use your home like a piggybank.  

It will start innocently enough: You get a call out of the blue. Scammers may simply have a call center set up to target neighborhoods where they think there’ll be ripe pickings and, they hope, unsophisticated home owners.

What do loan-flipping scammers do to you?

Scammers, posing as legitimate lenders, ask if you want to refinance your mortgage and get some cash back — the so-called cash-out refi.  

A legitimate lender would stop there. But loan-flipping scammers keep coming back: You like your new car? Then take another loan for a showroom kitchen. Two weeks in Hawaii. A catamaran.

Scammers are counting on you to be so entranced by their smooth line and all the goodies that you don’t notice the repayment bills piling up, or the hefty fees they charge to arrange these loans, which may be substantially higher than the 3% to 6% legit lenders charge.

When the con artists have pushed you to take every dime of equity from your house, they disappear into the night, leaving you with repayments you can’t afford. You might even lose your home. Meanwhile, they’re flush with all the fees and prepayment penalty fees they’ve charged you again and again.

Protect yourself against loan-flipping scammers 

  • Don’t sign with a lender you’ve never heard of who calls you up with a persuasive line on tapping home equity. Deal with well-known banks.
  • When going through a refi, question every fee. Ask about any item you don’t understand. Walk away if the lender is evasive.
  • Delay closing until you’re 100% sure about the details.