Chunking. Chunking is a variation on property flipping that often starts as a seminar or program where the scam artist pitches real estate investments to an investor or group of investors.
B is correct because multiple mortgage applications by one borrower is a red flag for chunking because chunking involves a third party submitting loan applications on various properties to multiple financial institutions.
The process whereby a lender solicits an existing borrower to refinance their current mortgage with little to no financial benefit to the borrower with a different or the same investor. Churning involves repeatedly refinancing a loan with additional closing costs and fees on top of the original principal amount.
It is not illegal to “stack” loans, but financial institutions lose billions of dollars every year to the process because many loan stackers commit application fraud – intentionally default on the loans they take out. There are three types of loan stacking: credit shopping, credit stacking, and fraud stacking.
The most common churning scenario: Soon after a buyer closes on a home, rival lenders offer to refinance the mortgage. The poachers offer the unsuspecting borrower a lower interest rate, but they have to pay closing costs all over again, and perhaps some additional fees -- so there is little or no real savings.
Key Takeaways. Mortgage lenders verify employment by contacting employers directly and requesting income information and related documentation. Most lenders only require verbal confirmation, but some will seek email or fax verification.
Shotgunning: Occurs when multiple loans for the same home are obtained simultaneously for a total amount that may be in excess of the actual value of the property.
Packing. You receive a loan that contains charges for services you did not request or need. "Packing" most often involves making the borrower believe that credit insurance must be purchased and financed into the loan in order to qualify. Hidden Balloon Payments.
Redlining. Redlining is the practice of denying a creditworthy applicant a loan for housing in a certain neighbor hood even though the applicant may otherwise be eligible for the loan.
Regulation Z prohibits certain practices relating to payments made to compensate mortgage brokers and other loan originators. The goal of the amendments is to protect consumers in the mortgage market from unfair practices involving compensation paid to loan originators.
What interest rate do predatory loans have? Many predatory loans have interest rates in the triple-digits. Payday lenders typically have a 391% APR. Personal finance experts cite 36% as the cap for affordable loans.
The appraisal may include red flags symptomatic of inflated value. Many of the same red flags that accompany a traditional flip also apply to cash-out purchase fraud – straw buyer, false source of funds and false occupancy.
If the mortgage goes into default or is foreclosed, it will be reported under the straw borrower's name and his credit will be ruined. Misrepresentation of identity on a federally related mortgage transaction is a criminal offense punishable by up to 30 years imprisonment.
Flipping Fraud
In this reverse mortgage scam, smooth-talking realtors seek out seniors and get them to take out a reverse mortgage to buy a lower-cost house, without having to put any money down. Unfortunately, these homes are often distressed properties that are given a facelift but are really in poor condition.
How many days before closing do you get mortgage approval? Federal law requires a three-day minimum between loan approval and closing on your new mortgage. You could be conditionally approved for one to two weeks before closing.
Lenders won't approve your home loan if you don't have enough income to make the loan's monthly payments. You may be able to quit a part-time job if you aren't using the income to qualify for your loan. But it's best to avoid any big changes until after the loan closes.
If you lose your job before you close on a mortgage, you should tell the lender immediately and explain what happened. Failure to do so will be considered mortgage fraud. Remember that your mortgage provider verifies your employment status and income before approving the loan.
Straw buying is when an individual makes a purchase on behalf of someone who otherwise would be unable to make the purchase. This buyer has no intention of using or controlling the purchased item. In many cases, straw buying is an illegal activity.
A straw buyer is used when the real buyer cannot complete the transaction for some reason. However, the act of using a straw purchaser is considered illegal where the transaction involves fraud or purchasing goods for someone who is legally barred from making the purchase themselves.
A second mortgage is an additional mortgage on one piece of property. It is considered “silent” if that second mortgage or loan is used to secure down payment funds and then not disclosed to the original mortgage lender prior to closing.
If you plan to purchase a flipped home with an FHA loan, you must abide by the FHA 90-day flipping rule. This rule states that a person selling a flipped home must own the home for more than 90 days before home buyers can purchase the property.
Do a 1031 Exchange. The IRS lets you swap or exchange one investment property for another without paying capital gains on the one you sell. Known as a 1031 exchange, it allows you to keep buying ever-larger rental properties without paying any capital gains taxes along the way.
Micro-flipping is a type of short-term real estate investment that involves buying properties in need of renovations and reselling them quickly for a profit, usually without improvements.
Predatory lenders often have terms that result in creditor profits when you can't make payments. Examples of predatory lending could include high late fees, penalty interest rate or even seizure of loan collateral (like repossessing a car).
Key Takeaways. Loan sharks lend money at extremely high interest rates and often use threats of violence to collect debts. They are often members of organized crime syndicates. Payday lenders are similar to loan sharks in many ways but operate legally.