Mortgage Scams
These mortgage scams provided to you by Red Door Home Loans, your Colorado home loan mortgage company.
Low, low rates … courtesy of the 10-day lock
Low, low mortgage rates … courtesy of discount points
Low rate … no points … what's the catch?
The 1% Mortgage (negative amortization loans aka deferred interest loans)
Failure to provide a Good Faith Estimate (GFE) and Truth in Lending (TIL) document
How to avoid becoming a victim of trigger leads
Low, low rates … courtesy of the 10-day lock
Mortgages are priced differently depending upon the lock period. It's easy to understand why a lender would want to charge a little bit more for a 60-day lock rate than a 10-day lock rate. If they are going to promise you a rate that is good for 60 days from today, it is going to cost more than a rate that is only good for 10 days. It's not a huge difference in price, but it's a difference nonetheless.
In addition to quoting rates based on stellar credit, ample down payment, and a host of other A+ factors, the average mortgage broker makes it standard practice to quote a short lock term. They aren't actually lying to you (or so they rationalize it), but they aren't exactly being honest either. The only person who can close in 10 days is a person who is refinancing an existing mortgage who just happens to have all of their financial documents sitting in a tidy stack on the kitchen counter. Everyone else needs a longer lock period. Standard lock periods are 30, 45 and 60 days.
The very dishonest brokers quote lock rates of 3 days! Although rare, a 3-day lock does exist. It works well for a person who has had a loan go south at the last minute and needs to close on a house in the next few days. This does happen, but as I said, it's extremely rare. Realize that virtually every print ad you see, every pop up that says "mortgage rates lowest in a hundred years," and virtually every phone quote are based on the shortest lock period that exists. It's misleading, but it's what mortgage brokers do to get people through the door.
Also realize that a 60-day lock rate may not be any more expensive than a 30-day lock rate, or the difference may be negligible. Don't put off applying for a mortgage because the savings isn't worth the potential problems. If you need a mortgage, it's best to get the ball rolling.
Low, low mortgage rates … courtesy of discount points
"5% Mortgages - Don't miss out - Call TODAY!" — We've all seen these ads. Did you catch yourself thinking, "How can they offer such low rates?" As you would expect, there's a catch. The fine print on these types of offers is known as the discount point. When a borrower pays a discount point (1% of the loan), they are doing so to buy down the interest rate. The lower the rate, the more discount points required. It could take 2 or 3 discount points ($5,000-$7,500 up front on a $250,000 loan) to get a rate that sounds really "good" to a borrower. That's a lot of money up front, and it takes a long time for a borrower to recoup that amount of paid discount points.
I can put you in a super low interest rate mortgage and so can every other mortgage broker on the planet. The problem is that you are going to pay thousands of dollars up front in discount points in order to get such an unbelievable rate. If it sounds too good to be true, you can bet that it is. It can be a good deal to pay points to buy down your interest rate, if you plan on keeping that mortgage for a number of years. What is not fine is for unscrupulous companies to practice deceptive advertising.
Low rate … no points … what's the catch?
Here is a simple analogy. The interest rate is like the cost of a movie ticket. The APR (Annual Percentage Rate) is like the cost of the ticket PLUS the cost of your popcorn or the total cost to see the movie.
The easiest way for a shady mortgage broker to offer a low rate and still rake you over the coals is to charge exorbitant fees while at the same time charging you: a low rate and no points. The trick to this scam is that the customer doesn't understand the difference between interest rate and APR. The APR is the Annual Percentage Rate or the annual cost of the loan. The APR takes into account ALL of the costs associated with the loan—not just interest rate and points.
The APR is basically the total cost to the borrower. It takes into account interest rate, points (paid to lower interest rate), and other fees. The "other fees" is where you can get taken advantage of.
The APR is designed to protect consumers from companies who do not disclose fees or discount points but instead dangle a particularly low and enticing interest rate in front of the consumer. Because consumers are not educated about APR, they are still falling for the oldest trick in the book. Consumers often look at the interest rate and points, but they fail to look at the total cost of the loan.
The Truth-in-Lending Disclosure (TIL Disclosure) details the calculation of the APR. It is also required by law for your mortgage professional to provide you with this document. If you do not receive a TIL within 3 days of submitting your mortgage application, watch out … your broker either forgot, or your broker is hiding something.
The scam happens when a company (often a big name national company) offers you a super low rate with no points. You think, "Hey, they're a big company … no points … low rate … I'll take it." That's a big mistake. The scam in this situation is that the rate is indeed a low rate and there truly are no points. The scam is in the "other fees" which can include administrative fees, origination fees, underwriting fees, and a host of other fees. The reality is that you could wind up paying $10,000 in unnecessary "other fees" on a $200,000 loan. The APR takes care of this. It takes into account the total cost of the loan so that you can compare "APR" instead of "interest rate." To get the APR, make sure that you get a Truth-in-Lending Disclosure.
One important point: once the loan is made, the APR is NOT the rate that you pay. The significance of the APR goes away after the loan is made. Realize that the APR takes into account the interest rate plus extra points and fees paid at closing. Once those fees and points are paid at closing, you just pay the interest rate, not the APR.
The 1% Mortgage (negative amortization loans aka deferred interest loans)
There is a fancy name for the 1% loan—it's called a negative amortization loan. If a borrower can't afford the monthly payments on a home they want to buy, no problem! A dishonest mortgage broker can help with this dilemma. If you want to buy a home but you can't afford the monthly payments, some brokers will put you in a negative amortization loan, also known as a 1% loan. These are the loans often advertised using such enticing offers as, "$500,000 mortgage for as little as $1,300 a month!" Does it sound too good to be true? It absolutely is too good to be true, so watch out when you see such tempting offers. These loans aren't really 1% mortgages. They are loans with 1% payments. There is a big difference.
Here's how it works. These loans give the borrower a lower monthly payment based on a 1% annual rate, for example. Unfortunately, the real rate will be much higher … let's say 7% in this example. The borrower pays the affordable monthly payment based on the 1% rate, but the real rate is actually 7%. The difference is added to the total loan amount each month. The reality is that these loans are deferred interest loans. That means that the total amount owed grows each month. In a short period of time, the borrower could be upside down. It's only a matter of time before the borrower owes more on the house than the house is actually worth unless the borrower lucks out and the house appreciates dramatically.
In these cases, the mortgage broker preys on the uneducated borrower. The borrower thinks, "I can't believe it … I got a 1% mortgage." The reality is that no one gets a true 1% mortgage. The too-good-to-be-true rule applies here. A 1% mortgage is an equity-eating-monster. Never accept mortgage terms based on monthly payment alone.
Another important point is that negative amortization loans aren't just sold to borrowers who have poor credit. There are a lot of A-credit borrowers who get sucked into these deals too. As a mortgage broker, it makes me sick to think of people going in the hole to the tune of $1,000, $1,500 or even $2,000 each and every month and not even realizing it. People who go for these deals often wake up months later to a financial nightmare. The danger is most serious to those borrowers who have minimal or no equity to begin with. Such an unsuspecting borrower could wind up seriously upside down, perhaps resulting in the financial tragedy of foreclosure.
Not all negative amortization loans are bad, though. Sometimes a negative amortization loan can be a really good deal for the right borrower. If you purchase a property in an area where property values are going through the roof, your home's appreciation could outpace the negative equity. If you purchase a home and the appreciation makes up for the negative amortization, you could come out even-steven or even better. The low payment in this situation could allow the borrower to use the extra cash for other purposes. Many high income borrowers find these negative amortization loans to be a good fit for their financial situation. They understand the negative equity, but they are willing to bet that the appreciation will outpace the amount added to the total loan each month. The reality is that a negative amortization loan is only a scam if the borrower doesn't fully understand how the loan works. Many savvy borrowers can and do use negative amortization loans to their benefit.
A negative amortization loan may also be right for someone who has a seasonal career. A tax accountant, for example, might enjoy the ability to make smaller payments during the slow part of the year. Still, most borrowers should stay away from negative amortization loans.
When the FBI investigates a company for mortgage broker fraud, one of the first things they do is dust the windows. You see, fraudulent mortgage brokers like to put one of your signed documents up on the window against the sunlight so that they can easily trace your signature. That way they can put your signature on any document they want. When the FBI raids a shady mortgage company, the dusted windows will reveal hundreds of signatures on the windows.
A shady mortgage broker might trace your signature onto a prepayment penalty addendum, locking you in to prepayment penalties without your permission. A prepayment penalty is basically a fine for paying off the loan early. A typical prepayment penalty is 6 months interest (which is just shy of 6 months mortgage payments less insurance and taxes). The prepayment penalty period can range from 1 to 5 years. A prepayment penalty is only a scam when it is done without your knowledge. If you agree to a prepayment penalty, it can actually be a good thing as long as it is done with your consent. But we'll get to that later.
How do you avoid a prepayment penalty? The first thing to do is to make sure that your broker or banker gives you a Good Faith Estimate (GFE) and a Truth-in-Lending Disclosure (TIL). If you get these documents, you will see:
Prepayment: If you pay off your loan early, you ( X ) may ( ) will not have to pay a penalty.
However, this doesn't work if your mortgage broker is fraudulent. Your paperwork might say that you don't have to pay a penalty, but you could find out otherwise when you get to the closing table. If a mortgage broker traces your signature onto a prepayment penalty addendum, your closing documents could contain a prepayment penalty. The best thing to do in this scenario is to walk away from the closing table and get another broker—and quick. Of course, this could open up a whole box of worms. You could lose the house. The seller might have received a higher offer after accepting your offer, and now you'll have to pay more. It can be a real mess. What most borrowers do is go ahead and close on the loan. They feel confused and helpless, and who can blame them?
The best thing to do is to go with an honest mortgage broker. The great thing is that most mortgage brokers are honest, hard working people. However, mortgage broker scam artists do exist. If you are on the lookout, it's a lot easier to spot a con artist. The failure to provide a GFE and TIL should be a big red flag. Both documents should be provided to you within 3 days of making a formal mortgage application.
Also realize that not all prepayment penalties are bad. Sometimes a prepayment penalty can be a very good thing. In today's times when people are moving every few years, lenders want to know that a loan isn't going to be repaid right away. Lenders have a lot of costs just to get a loan going, so they don't want you to turn around and pay it off (or refinance) right away because they could actually wind up losing money. To ensure that the loan will be in place for a few years, lenders are willing to offer a lower rate in exchange for a prepayment penalty. The good news is that prepayment penalties are often very reasonable. They still allow you to pay a little extra on your mortgage—say 20% of the loan balance each year with no penalty at all. However, if you pay more than 20% of the loan balance or refinance, the prepayment penalty kicks in. The prepayment penalty comes with the benefit of a lower rate—say ¼ of a percent. If you are happy with the interest rate and you plan to pay no more than a little over your normal payment, then a prepayment penalty can be a good thing as long as you agree to it.
I don't have to tell you that there is no such thing as a free lunch. A lot of quasi-legitimate companies have been touting "no cost" loans, which really means "no out-of-pocket costs" at closing. There is, of course, a catch—and it's a big one. The catch is that borrowers who take advantage of "no cost" loans will pay higher rates, plain and simple. What might not be so plain and simple is that the same companies who push "no cost" loans often rely on dishonest tactics to sweeten the deal, such as changing the deal at closing. There is probably a good chance that the closing numbers will be different from your original quote. Don't believe everything that you read, and be skeptical of low-ball quotes.
Some advertised "no cost" loans are actually zero point loans. They may entail substantial fees of other types. False advertising abounds in this business. The best insurance policy is to get to know your mortgage broker and use your good judgment in deciding who to work with.
It's fine for a mortgage broker to offer a no-cost loan to a client, as long as the client understands that the interest rate will be higher. If you qualify for a loan but you're short on cash for closing, this type of loan would be a good fit for you. Just realize that you'll pay a higher rate than a loan that contains standard closing costs.
Failure to provide a Good Faith Estimate (GFE) and Truth in Lending (TIL) document
Our congressmen were looking out for all of us when they wrote this law. It's good for a mortgage broker to have to put things in writing. The law requires the Good Faith Estimate and Truth in Lending statement to be delivered to you within 3 days of the time that you make a formal mortgage application. Dishonest brokers make it standard practice to never send out these documents. That way they can change the deal later on, hoping that you won't remember the original terms. And some mortgage brokers simply forget to send out the documents. But do you really want to work with a mortgage broker who "forgets" things? If your mortgage broker fails to comply with the law, be it intentional or not, consider jumping ship and switching to someone who is more on the ball.
You told your broker to lock the rate, and you were given an assurance that it was taken care of. Weeks later, you find out that the rate was never locked. Your broker denies that he was supposed to lock the rate, so it's his word against yours. The end result is that your rate didn't get locked, rates went up, and your closing is just around the corner. It's too late to switch brokers. What happened, anyway?
The first thing that might have happened is that your broker simply forgot to lock the rate. The second possibility is that your broker was betting that interest rates would go down, and he hoped to make a small profit by not locking your rate and pocketing the difference. There are some mortgage brokers who fancy themselves financial whizzes. They gaze into their crystal-mortgage-ball and proceed to play the market while holding on to your mortgage application without locking the rate (even though they were told to do so). They sit around holding your mortgage application between their clinched, sweaty palms, waiting to see if their gamble will pay off. Some of these guys will actually make up the difference if rates go up, and you'll never know that anything abnormal transpired. But most of these unscrupulous market jockeys will just hope that you can't remember whether or not you told them to lock the rate. It's a dangerous game—and totally unethical—but some brokers play it anyway.
How do you protect yourself? When a rate is officially locked, the lender sends out a loan lock commitment letter. Tell your broker that you want to receive that letter, and make sure that you get it. Most good brokers will not provide this letter unless you ask for it. They just stick it in the loan file and go on about their business. If you want to make sure that you're covered, just ask for the letter. An honest broker will produce it promptly.
Some mortgage brokers are in really tight with their appraisers. The appraiser wants the business that the broker sends him, so he wants to keep the mortgage broker happy. On the other hand, the mortgage broker wants the house to appraise for what you have agreed to pay for it, so he needs the appraisal to come in at the purchase price or higher. Mortgage brokers sometimes put pressure on appraisers, and some crooked appraisers are willing to tweak the appraisal to show that a home with a real market value of $300,000 is worth $350,000. The appraiser gets paid. The mortgage broker gets paid. And you move in to your new home.
Shortly thereafter you decide to pull some of the equity out of your home. Maybe your kid is going off to college, and you need the money for tuition. You get a home equity line of credit based on the crooked appraisal. Later on when you decide to sell the home, everything comes crashing down. You find out that you owe more than the home is worth, and you're in the midst of a financial nightmare.
This sort of disastrous scenario is actually more common than you would think. If you had been dealing with an honest mortgage broker, he would have called you up and delivered the bad news: "Your appraisal came in $50k under what you offered to pay for the house. You need to get the seller to come down on price or back out of the deal." Of course, your honest mortgage broker doesn't make a penny in this case, but at least he can sleep at night. Moreover, a good broker knows that you will be thankful and wind up doing a different loan down the road.
How do you protect yourself? It's difficult. First, you need to find an honest mortgage broker. Second, you can hire your own appraiser. The lender will require you to use one of their approved appraisers, but you can buy an additional appraisal out of your own pocket. It could be well worth the money.
Mortgage brokers only get paid if your loan closes. A lot of mortgage brokers work hard for clients only to have deals fall apart through no fault of their own. A borrower might miss a mortgage payment just after applying for a new mortgage. A borrower might run out and max out their credit cards on Christmas presents just after making a mortgage application. All sorts of things can happen, but deals fall apart, brokers work hard, and they don't make a dime. It just happens. It's part of the business.
But sometimes a mortgage broker knows that a loan won't be approved based on the application "as is." Dishonest brokers have all sorts of tricks. Sometimes they commit outright fraud by falsifying documents. Let's say that your income isn't sufficient to get approved for the loan you want. No problem. The dishonest mortgage broker pulls some blank W2 forms out of his desk and inputs your information with an annual salary sufficient to make the loan go through. This sort of fraud is rampant in the industry, and brokers are getting prosecuted every day. Sometimes borrowers get tangled up in a broker's web of deceit, and it can get messy for the borrower. The borrower is the one who signs the application, so the borrower is responsible if facts are misrepresented to the lender. Often the borrower is not aware of the fraud, but it can still get messy for the borrower if a broker gets caught breaking the law. Some brokers even go so far as to falsify borrowers' signatures. You don't want to wind up having to prove legally that you didn't know what was going on. Some borrowers have to hire a lawyer, sit through depositions, and endure sleepless nights only to be proven innocent in the end. Great—your innocent—but you had to go through a giant mess just to prove what you already knew.
How do you protect yourself? The best practice is to use your own judgment. The only way to do that is to get to know your mortgage broker. Don't just call a guy up out of the phone book, get a low ball rate over the phone and start handing over all of your financial documents. Go to the mortgage broker's office. Have a cup of coffee. Get to know the broker. Size him up. If you don't trust your own judgment, take someone with you. Spend a long time in your mortgage broker's office. Ask a lot of questions. If the broker is a scam artist, something won't feel right, and you can find another broker. Have you ever felt uneasy talking to a car salesman and decided to buy elsewhere? It works the same in this industry. The no-good brokers are easy to spot if you'll just take the time.
There are scam artists who pose as mortgage brokers who offer their services for an "advanced fee." People who get taken in by these con artists often say, in retrospect, "But she sounded so nice and friendly." These con artists advertise in classifieds, free publications and on the Internet. They talk the talk, make you feel totally comfortable, and then they request a fee to get your loan application processed. The money is usually sent by cashiers check or money order. Once the money is sent, there is no more contact.
A lot of these companies are based in Canada so that they can avoid prosecution by United States authorities. Victims who get taken in often find that the company's telephone number is out of service just days after the money has been sent. Law enforcement often says, "We simply can't catch up with them."
How do you protect yourself? The out of country address should be a dead giveaway. The other red flag is the advanced fee. Mortgage brokers don't charge advanced fees for their services. Sure, you'll have to pay for things up front like a credit report or an appraisal, but you do not pay for the broker's services up front. Real mortgage brokers only make money when loans close.
One of the best ways to protect yourself is to do business with a local company. Doing business with a real person offers a lot of protection. Meet with a mortgage broker face-to-face in your own local area. You are going to be borrowing hundreds of thousands of dollars. For most people, a mortgage is the biggest transaction they ever make. This is the one transaction that you don't want to mess up. You can recover from getting scammed by a door-to-door salesman, but it can be financially devastating to get conned by a dishonest mortgage broker.
There are a lot of dishonest companies that are glad to help you refinance your home in order to put a few extra thousand dollars in your pocket. You could use a few thousand, right? I'm sure that you could, but what you don't need is to get that money at the cost of excessive fees, prepayment penalties, or a balloon payment at the end of the new mortgage. At best, a loan flipping mortgage broker will put some money in your pocket that will be offset by equal or greater transaction fees. At worst, there could be a balloon payment inserted into the fine print, resulting in the need to refinance the house again in two, three or five years.
Also remember that lenders charge a higher rate if you take cash out when refinancing. You could wind up paying a higher rate on your entire mortgage just to get access to a few thousand dollars. It happens every day. A naïve borrower needs access to cash, so they turn to a mortgage broker to refinance their mortgage. They wind up with the cash but with much less favorable mortgage terms. Be careful when refinancing. If you really need cash, an honest mortgage broker will let you know if refinancing would be disadvantageous. A good mortgage broker will help you come up with a more sensible plan for getting the cash that you need, even if the broker doesn't make a dime. An honest broker knows that if he steers you in the right direction, you'll come back when you need to do a legitimate refinance down the road or when you purchase your next home.
Also beware that it could be your current lender who tries to suck you in on a loan flipping scam. Lenders call up their customers all the time with offers for fast cash. Borrowers often have a false sense of trust with their current lender, so they many times fall for bad deals. Beware of refinancing offers. Don't refinance on a whim just to get a few bucks in your pocket. Refinance only when absolutely necessary (when you have to have the cash and can get it no other way) or when refinancing makes good economic sense.
Have you seen …
"Rates at historic lows (with a dancing guy in the background)."
"Find a lender in your state."
"$300,000 loan for $999 per month. Act now."
"See lowest mortgage rates in your city (with dancing alien beside a super low rate quote)."
"Let mortgage firms compete for your business."
These types of advertisements are done by lead generation firms. Typically, these people can't and won't actually provide a loan for you. What they want is your information. They want your home phone, cell phone, email address, credit status, annual income, street address, employment status, year of birth and any other information that you will provide. These companies are often run by techno-geeks who know how to put together a fancy website and capture your information. They then turn around and sell your information for $100 or $500 or $1,000 to anyone who will buy it. The next step is that your phone rings off the hook, and you find yourself talking to the lowest mortgage scum in the business. Also remember that your information will be sold to lots of people, not just one buyer. The end result is that your personal information will be sold again and again and again until it's no longer worth anything.
I talked to one mortgage broker colleague (although I use that term loosely), and she told me that she pays $75 per lead. She gets a name and phone number, and then she contacts the person. Laughing and somewhat incredulous, she told me that "These people give me their personal information including their social security number without knowing anything about me. They don't even have my contact information." She continued in more detail, saying that when the conversation is about to end she usually has to ask them if they want her contact information just so they have it. They usually reply with something like, "Oh, yea, go ahead and give it to me." The point is that this woman makes a good living by cold calling people who willingly give out their sensitive personal information including social security number to someone who just called them at random. It's really scary how trusting we are as a society. It's also a good thing that this woman isn't a scam artist; she's a real mortgage broker. I wonder how many identity thieves are out there buying mortgage leads, posing as mortgage brokers and scamming innocent people. I bet there are plenty.
Stay away from most Internet advertising. If you are looking for a mortgage broker, ask a friend, respond to legitimate advertising, or search for an organic Internet listing (the ones listed by Google, MSN, Yahoo, etc. that aren't paid listings). Do NOT input your personal information into an Internet submission form UNLESS you know that you can trust that company. You wouldn't put your personal information on a bumper sticker; don't put it on the Internet either.
You've been working with a real estate agent shopping for houses. You finally find a house that you want, and you strike a deal with the seller. Now it's time to get a mortgage for your new home purchase, so you turn to the person that you know and trust—your real estate agent. After all, she's so "nice" and you've established a relationship and everything has gone so smoothly up to this point. You ask your real estate agent who she recommends to do your mortgage, and she eagerly gives you a name and phone number. You call up the mortgage broker and get a loan without even calling anyone else.
I have to admit that I did this myself. Before I was in this business, I bought a home and went with the mortgage broker referred by my real estate agent, no questions asked. What I know now is that kickbacks from mortgage brokers to real estate agents are commonplace. A lot of real estate agents do not give out unbiased referrals. Fortunately, a lot of real estate agents do give out honest referrals. There really is no way to know who is and who is not getting kickbacks, but suffice to say, a lot of real estate agents are indeed getting kickbacks from mortgage brokers, an unethical and illegal practice.
In fact, there are a lot of agents who demand kickbacks. They won't refer business to any mortgage broker who doesn't offer a kickback. As you can imagine, the mortgage brokers who are willing to pay unethical and illegal kickbacks probably won't do the best job for you.
It's frustrating because you should be able to turn to your real estate agent for a referral. After all, your agent works with mortgage brokers all the time, so your agent should know which mortgage brokers are good as well as who to avoid. It's natural to turn to your agent for help. How do you protect yourself? An easy way to protect yourself is to ask your agent to give you two or three mortgage brokers to call. You can also ask a friend for a referral or do an Internet search for an organic (non-paid) listing in your local area.
How to avoid becoming a victim of trigger leads
You're just not going to believe what the credit bureaus are doing behind your back. I'm talking about the big boys—Experian, TransUnion and Equifax. These sneaky, no good credit bureaus are engaging in the—dare I say skanky?—practice of selling your private information. We tend to expect a certain level of professionalism from "big" companies, but the three credit bureaus are profiting in a big way from the downright disgusting practice of peddling private information. Here's is how it works:
You do your homework, or you get a referral from a friend who had a good experience with a certain mortgage broker. Either way, you select someone to do your mortgage, fill out the official application, and your mortgage is in the works. Your mortgage company pulls your credit, and this is where the trouble starts. When your credit report is pulled by a loan officer, the credit bureaus automatically add you to a "trigger list." They then sell your private information—such as name, credit details, address and phone number—to basically anyone who wants to buy it. Within 24 hours, a borrower can be barraged with phone calls from slick talking mortgage brokers offering too-good-to-be-true deals. Even worse, a lot of the phone calls are nothing more than voice recordings.
If you become a victim of "trigger leads," you will find yourself talking to the bottom of the barrel of the mortgage industry. This sort of thing used to go on with lawyers, which is how the term "ambulance chasers" came to be. You see, when a person is hurt in an automobile accident, police reports are filed. Scavenger-type lawyers would then pay someone at the police department for the names of the victims and then call that person the next day. Many times the accident victim was still in the hospital! Lawyers calling hospital rooms resulted in a lot of angry citizens, so eventually legislators passed laws outlawing the shameful practice. A lot of state legislators are up in arms about trigger leads, but for now, the practice is totally legal.
One company that sells trigger leads actually calls themselves juicyleads.com. Their logo is a little guy sitting on an orange. You can see a sample of the type of information they sell at http://www.juicyleads.com/samplelead.html. It includes everything from email address to cell phone number to credit rating. Some unlucky trigger lead victims keep getting phone calls a full year after they have closed on their loan.
The mortgage brokers who use trigger leads are bottom of the barrel in the mortgage industry. These guys use lines like, "We need to complete your application," or "We need to update your information." They can also give you any rate that you want. Would you like a 1% rate? They've got it. How about a less than 1% rate? They have that too. The problem is that these rates don't actually exist. But if you choose to do business with the scum of the mortgage industry, you'll find that out at closing. Your jaw will drop when you go to closing and find out what your 1% loan has morphed into. You'll quickly realize that you did business with the dark side of the force and that you get to move in to your new dream home courtesy of the world's worst mortgage terms. You might say, "But I had a lock agreement. This can't happen." Who are you going to call? Who are you going to complain to? Sure, you can lodge a complaint somewhere, but what about your obscene mortgage payment and outrageous closing costs? Are you going to sue the scumbag mortgage broker who got you into the whole thing? He probably doesn't have any assets anyway. You can also refuse to close when you get to the closing table, but then you have a different set of problems, such as not having a place to live. If you fail to close, the seller might also decide to go with a higher offer that was received just after they accepted your offer. It can be a real mess.
The sale of private information constitutes an outrageous violation of privacy rights. It's downright scary, but for now, it's totally legal.
How to protect yourself:
- You can opt out of the trigger lists by going to www.optoutprescreen.com. If you don't have access to the Internet, you can call their toll-free number at 888-567-8688. (Yes, it's ridiculous that you have to opt out of something that you never opted in to, but until the law is changed, that's the way it works.)
- Put yourself on the Colorado No-Call List by going to www.coloradonocall.com. Remember to add BOTH your home and cell phone numbers to the no-call lists!
- Also register on the National No-Call List by going to www.donotcall.gov or call them toll-free at 888-382-1222. Remember to add BOTH your home and cell phone numbers to the no-call lists!
Here's how it works. You do Internet searches and find "movers ready to compete for your business." Sounds good, hey? You speak to someone on the phone or in person, and they sound very "nice" and "professional." The arrangement is made for that company to do your move, and they come to pick up your stuff. You drive to your new home, which could be states away, and the moving company drives your belongings in the big truck. When the truck finally arrives (sometimes weeks late if you picked a disreputable company), the scam begins to unfold. The moving guy explains that you had more possessions than originally estimated, so the price has gone up—by thousands of dollars. You protest, but you are told that if you don't pony up the dough, your precious belongings (including pictures of the kids, family heirlooms, etc.) will be sold at auction to cover the bill. Sometimes these companies provide a written estimate, sometimes not. If the estimate is written, it will likely be in cubic feet rather than weight. Cubic feet can be fudged because all they have to do is move furniture and boxes around in the truck, resulting in higher cubic feet. Interstate moves based on cubic feet are now illegal, but shady companies don't care about breaking laws. You talk things over with your spouse, and the two of you come to grips with the fact that your belongings are being held for ransom. You pay the money, and then you go crying to a series of government agencies, only to find out that no one cares—and most importantly, the chance is slight that any action will be taken against the shyster moving company.
A person caught in the midst of a moving scam might receive an estimate for $2,500 to find out later that the moving company has bumped the price to $5,500. When there is a written contract, the innocent victim often discovers that information was written into the contract afterwards. Never accept a phone quote; those are the horror stories of moving. No matter how very "nice" the person sounds on the phone, verbal quotes are worthless. A dishonest mover will also find some way to make their case sound almost legitimate. After loading the truck a dishonest mover might inform you, saying, "The cubic feet of your goods exceeds the estimate …" In the worst cases dishonest movers demand $10,000 or more in excess of the original quote. Also realize that these guys aren't bluffing when they say that they will sell your goods at auction. If you don't pay up, your stuff is gone.
Sometimes incompetence can cause just as much grief as an outright scam. It has been known to happen where the moving truck that arrives is not the same moving truck that packed the household goods. Moving companies often subcontract to other companies, particularly in the busy summer months. They load your goods into one truck, take it to a central loading station and proceed to place your possessions on a different company's truck. With all that shuffling and fork loading of goods, things can get lost. It has been known to happen where the moving company shows up with only have the stuff, and they have no idea what happened to the rest of the household contents—most likely they were loaded mistakenly onto another truck and sent to who knows where.
Be wary of small companies. They don't do enough business to staff regular crews, so they pluck day laborers off the street. The problem? Inexperienced workers are more likely to damage possessions. The guy carrying your plasma television might be semi-homeless.
Also beware of exorbitant extra fees. Movers have been known to charge an arm and a leg for packing supplies. There can also be extra charges if the movers are unable to park directly in front of your home for unloading purposes. If the movers have to walk a significant distance from your home to the truck, there will be extra fees. Movers charge more for "extra heavy" items such as pianos and giant armoires. You might also be confronted with a "transportation surcharge." No one has yet determined what that is, but be on the lookout because you might be charged for it.
Remember that moving companies overbook just to keep you from taking your business elsewhere. July and August are the busiest moving times of the year, so if you have a moving crew booked, don't count on them to show up. It's also common practice for the movers to keep promising to show up any minute when they know that the crew is busy on another job. The idea is to keep you on the hook until it's too late for you to book another crew.
The Department of Transportation (DOT) receives between 3,000 and 4,000 complaints each year, and of course, that doesn't include people who were scammed who didn't bother to file a formal complaint. The personnel at the DOT devoted to this issue is paltry—sometimes just 6 or so investigators. When fines are assessed by the DOT, moving companies often refuse to pay the fines, opting to close down and reopen under a different name instead. And don't count on the DOT getting your possessions returned. The police won't get involved because they consider these situations to be civil matters. The FBI might investigate if the alleged crime is interstate, but they won't try to get back the goods; that's not their priority.
In the 1990s Congress chose to deregulate the moving industry, and that's when organized crime moved in. There are a lot of thugs in the industry. Sometimes they don't even try to bilk the client for more money. They just arrive on moving day, load up the goods and take off.
One last word of advice: make sure to tip movers who do a good job. These guys work hard, and they deserve a tip for a job well done. $25 each is customary. Donuts, bottled water and soda are also appreciated.
To avoid getting scammed, here are a few tips:
- Always get a written estimate
- Don't just pick the lowest quote; choose a good company, even if the price is higher. If the price seems too good, it probably is.
- Get in-person estimates. The quote will be more accurate if the company representative can see your actual possessions. If you take the easy route and go with a phone quote, don't complain when you get burned.
- If you get an hourly quote, make sure to ask about the minimum and maximum charges.
- Make sure that the company isn't going to subcontract the move; only one company should handle your move.
- Don't go through with the deal if the mover arrives in an unmarked truck. That's a big red flag that the guy is a fly-by-night subcontractor who has nothing to lose.
- Ask if the company uses day laborers. Pick a moving company that runs a regular crew.
- Don't count on mover's liability insurance. It pays out at a paltry rate per pound. If damaged, you could get $50 for your plasma television. To be on the safe side, consider getting a rider on your homeowner's policy.
- Use the Internet cautiously. It's a hotbed for scam artists.
- Consider using a well-known, reputable company such as www.upack.com, www.broadwayexpress.net, or www.mooversinc.com.
- Call the Better Business Bureau to inquire about complaints against a particular company. I'm not a check-with-the-BBB kind of guy myself, but I would on this issue. The Better Business Bureau gets thousands of complaints each year about movers. It's a hot topic at the BBB. What's more important than the number of complaints is the type of complaint.
- If you can't replace it, take it yourself or mail it. If you can't pack family photos with you in the car, ship them. If you can't afford to lose something, don't let the movers touch it.
- Be hesitant to move during the last 10 days of July or August as those are the busiest times of the year for moving companies.
- Think seriously about using a company that belongs to the AMSA, the certified movers association.
- If you work for a big company, consider using their preferred moving company to move your belongings.
- Consider moving yourself. A lot of companies give a moving allowance of $15,000, for example. If you are moving 6 states away, you will incur the following estimated costs: $2,500 to rent the truck, moving blankets and dolly; $500 for a crew of guys to pack the truck; $500 for a crew of guys to unpack the truck; $2,500 auto transport for two cars; $1,000 plane tickets for the wife and kids; $1,000 gas. The hitch? You drive the truck from point A to point B. You'll also need to budget $750 allocated to hotel accommodations for the wife and kids while you drive the big beast from state to state. Still, the total estimated cost to move yourself? $8,750—which means a total savings of $6,250 ($15,000 less $8,750 = $6,250 savings). It can cost slightly more to use a service like www.upack.com, but either way, you will still save considerably more than paying a semi-truck to move your belongings door to door. Moving yourself is worth considering. Run the numbers, and see what you think.
To protect borrowers, compensation for referrals of real estate business when little or no services are performed violates the federal Real Estate Settlement Procedures Act (RESPA), which is enforced by HUD.
A lot of borrowers are getting scammed. Home builders, real estate agents and mortgage brokers set up shell companies to take money out of your pocket. It works like this. Your home builder sets up a shell company called "Horizon Title USA." You think nothing of it, but there really is no "Horizon Title USA." The real owner's title insurance (read more about owner's title insurance) is underwritten by a real title insurance company. The borrower pays an owner's title insurance premium of $1,000 at closing. "Horizon Title USA" (which is really just your home builder) pockets half of the title insurance premium, his compensation for "referring" the business to the real title insurance company. The premium should have cost the home buyer a mere $500, so the home buyer was effectively scammed out of $500.
As of late, a half dozen major home builders and one of the nation's largest title companies have reached settlements with the government for violating RESPA laws.
The good news is that there is an easy way for home buyers to protect themselves. Good, old-fashioned shopping around will do the trick. Make a few calls to make sure that the owner's title insurance premium you are being quoted is competitive.
Watch Out for Home Improvement Scams!