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5 Most Common Mortgage Scams & How To Avoid Them

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As a consumer in the real estate industry, an awareness of mortgage scams is crucial to protect yourself from falling victim to them. 

A mortgage scam is when someone intentionally misrepresents information for their own profit or benefit. There are dozens of different mortgage scams, which can be perpetrated by mortgage lenders, real estate agents, investors and others.

Mortgage scams can happen to almost anyone. In 2021, consumers reported a total of 11,578 internet real estate scams, costing victims over $350 million.[1]

The best way to avoid succumbing to a mortgage scam is to educate yourself and stay vigilant. To help defend yourself against mortgage scammers, we’ll explain some of the most common mortgage scams and how fraudsters may try to trick you into making a bad decision.

Common Mortgage Scams

Mortgage scams can take various forms, but they often contain elements of the five most common mortgage scams.

1. Bait-and-switch

A bait-and-switch mortgage scam entails a lender falsely advertising a low interest rate to attract borrowers (the bait), then sharing a higher rate or additional fees when a borrower expresses interest or submits an application (the switch).

A lender using a bait-and-switch may claim you don’t qualify for the advertised rate or say it’s no longer available. Other red flags include evasive lenders who refuse to show the loan terms in writing, avoid answering questions or change the terms at the last minute.

Borrowers may fall for a bait-and-switch scheme because they think they won’t qualify for a better rate or because they feel invested in the loan after spending time and effort doing all the paperwork.

2. Foreclosure scams

Foreclosure scams attempt to take advantage of homeowners by pretending to help them avoid a foreclosure situation.

A foreclosure scam can be as simple as someone claiming to keep your home out of foreclosure for a fee or posing as your lender and asking for money to prevent foreclosure. More elaborate foreclosure scams may involve “temporarily” transferring the deed and ownership rights, with the option to rent the home or buy it back later. 

Unfortunately, once you sign the deed and transfer ownership to someone else, you surrender all your rights to the home.

Telltale signs of foreclosure scams may include someone posing as a foreclosure or mortgage consultant or anyone promising to help you avoid foreclosure in exchange for money or the deed to your house.

If you’re worried about foreclosure, contact your lender directly or speak to a U.S. Department of Housing and Urban Development (HUD) counselor to discuss your options. HUD counselors never charge a fee.

3. Loan flipping

Loan flipping (aka loan churning) happens when lenders convince borrowers to continually refinance their mortgages. Each time a borrower refinances, the lender profits from the fees they charge. While there are many legitimate reasons to refinance, which can benefit the borrower, loan flipping refers to the unethical practice of pushing borrowers to refinance when it isn’t advantageous to do so.

With loan flipping, predatory lenders use deceptive tactics to persuade borrowers to refinance, like pushing them toward a cash-out refinance or claiming there’s a new or better loan product.

Before you refinance, carefully review the new loan terms. Pay particular attention to the mortgage closing costs and fees, the interest rate, your new monthly payment amount and the length of the loan.

If a lender pushes you to take on a higher interest rate or extend the loan term, it may be a sign they’re attempting to churn the loan.

4. Reverse mortgage scams

Reverse mortgage scams tend to target older adults, with scammers profiting from the reverse mortgage payout. This type of scam can dupe victims into thinking a reverse mortgage will relieve them of a financial burden or persuade them to use the money to buy another property.

Fraudsters in reverse mortgage scams may help homeowners apply for a reverse mortgage, only to skim from the proceeds or convince homeowners to use the money they receive for a specific purpose. 

For example, unscrupulous real estate agents or lenders might push someone to use a reverse mortgage to buy a fixer-upper to flip. The scammer tells the homeowner they can make a profit without putting any money down. Sadly, the lender and real estate agent are actually conspiring to get a commission and don’t have the homeowner’s best interests in mind.

Another example of a reverse mortgage scam can come from contractors, specifically those who advise homeowners to use a reverse mortgage to pay for repairs or improvements.

Red flags for reverse mortgage scams include unsolicited offers to help you apply for one, asking for upfront payments or pushing you to use the proceeds to pay for a house or home renovations.

Though they might get a bad rap, there are plenty of times when a reverse mortgage can be the right financial decision.

5. Equity stripping

Equity stripping (aka equity skimming) scams usually impact homeowners struggling to make their mortgage payments. An investor will offer to buy the home for the remaining amount on the mortgage to help the homeowner avoid foreclosure. The investor might tell the homeowner they can repurchase the home later and continue living there if they pay rent. 

The homeowner agrees and signs the deed over to the investor, who now has the homeowner’s equity in the property. With the ownership rights to the home, the investor can then raise the rent or evict the previous homeowner, stripping them of the equity they built in the home.

Homeowners who fall for equity stripping schemes usually think the investor is buying their home for a fair price or that they’ll get to keep their home.

You might be dealing with a con artist who’s trying to steal your equity if they offer to pay off your mortgage balance or ask you to transfer ownership of your home temporarily.

How To Identify a Mortgage Scam

Regardless of the type of scam, most mortgage scams involve certain unusual requests or behaviors.

As a rule, you should always be on the lookout for giveaways that indicate you’re face-to-face with a mortgage scam in the making.

These clues include:

  • Demanding a fee in advance: There are plenty of fees when you take out a mortgage, but you won’t pay them in advance. Steer clear of anyone who demands an upfront fee for a home loan. The exception is giving legitimate  mortgage lenders a good faith or upfront deposit to begin working on your loan. This deposit will go toward your closing costs. It’s recommended to verify that the lender accepts deposits and the specific costs the deposit covers.  
  • Recommending you stop contact with your lender or other advisors: If you have a question or concern about your mortgage, your lender or trusted financial advisor should be who you speak to. In fact, it’s illegal for someone to tell you to stop communicating with your lender or mortgage servicer.[2]
  • Advising you to stop making mortgage payments: You should always try to make your mortgage payments. Anyone who advises you to stop making mortgage payments is likely attempting to take advantage of you. Only your lender can permit a temporary pause on mortgage payments, and it should always be in writing.
  • Telling you to send your mortgage payment to anyone other than your loan servicer: Mortgage spoofing is a scam where someone pretends to be your lender, using official-looking phone numbers, email addresses and logos. Spoofers may try to deceive you into thinking you’re speaking to your lender, then tell you to send payments to them. Never send your payment to anyone besides your usual lender. If you’re ever in doubt, contact your lender directly.
  • Telling you your credit score doesn’t matter: Lenders use your credit score to determine whether you qualify for a mortgage. If someone tells you about a loan where your credit score doesn’t matter, it should serve as a warning that you may be dealing with a scam artist or loan shark.
  • Any offer that’s too good to be true: You know how the saying goes: if it’s too good to be true, it probably is. Avoid any offers of something for nothing, interest rates that are unusually low and anyone claiming they can fix your problems.

Understand who is at higher risk

While no one is immune to mortgage scams, certain groups of homeowners are more vulnerable to attacks by swindlers.

People who are at higher risk for mortgage scams include:

  • First-time home buyers
  • Anyone experiencing mortgage delinquency
  • Homeowners over the age of 62 (the minimum age required for a home equity conversion mortgage)
  • Homeowners who are behind on their bills or struggling financially

If you find yourself among these higher-risk groups, it’s crucial to remain vigilant when shopping for a mortgage. Always check to make sure you’re working with a licensed, reputable lender by looking at their website, checking their credentials and reading online reviews.

How to Avoid Mortgage Scams

Avoiding a mortgage scam is partly in your power. The more you know, the more likely you’ll be to stop an attempted scam in its tracks.

Use the following tips to help avoid mortgage scams:

  • Avoid unsolicited offers: If you receive a solicitation from someone offering to help you solve a problem, it could be a scam. Unless you reach out and ask, it’s best to avoid any offers to provide you with mortgage relief, a way out of foreclosure or other unsolicited pitches.
  • Verify professional credentials: Do your research and make sure the person you’re speaking to is qualified and licensed. You can verify mortgage professionals on the Nationwide Multistate Licensing System (NMLS) website. Real estate professionals can be verified online by visiting the state real estate commission’s website.
  • Shop multiple mortgage lenders: Mortgage lenders should never discourage you from exploring your options. Before agreeing to a mortgage, shop around and get quotes from multiple lenders. To ensure the mortgage is legit, use the NMLS search to verify your mortgage broker. For additional guidance, here are three tips for choosing a mortgage lender.

How to Report a Mortgage Scam

Mortgage scammers can target anyone and strike anytime. Even those who are well-prepared can fall victim to mortgage fraud, which is why you should act swiftly if you (or someone you know) suspect mortgage fraud is occurring. 

You can report a mortgage scam by:

  • Contacting your mortgage lender
  • Reporting suspected fraud to local law enforcement, the Federal Bureau of Investigation (FBI), HUD and the Federal Trade Commission (FTC) – either online or by phone
  • Notifying your state’s attorney general or department of consumer affairs
  • Consulting a HUD-certified counselor 

Be the First Line of Defense

Mortgage scams are scary, but you can take solace in knowing you’re the first and strongest line of defense against fraud. Recognizing the red flags associated with mortgage scams can help you defend yourself from connivers and crooks. So trust your instincts and avoid anyone who makes unsolicited offers, discourages you from speaking to your lender or gets too pushy.

Get approved to buy a home.

Rocket Mortgage® lets you get to house hunting sooner.

The Short Version

  • Mortgage scams can happen to almost anyone. In 2021, consumers reported a total of 11,578 internet real estate scams, costing victims over $350 million [1]
  • Loan flipping (aka loan churning) happens when lenders convince borrowers to continually refinance their mortgages
  • Reverse mortgage scams tend to target older adults, with scammers profiting from the reverse mortgage payout
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  1. Federal Bureau of Investigation. “Internet Crime Report 2021.” Retrieved October 2022 from

  2. Federal Trade Commission. “Mortgage Assistance Relief Services Rule: A Compliance Guide for Business.” Retrieved October 2022 from

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