Owning your own home comes with many benefits, but unfortunately, there are some drawbacks, including homeowner scams. Homeowner scams can cost homeowners hundreds if not thousands of dollars if they’re not careful.
And it isn’t just new homeowners who should be on the lookout for these scams; seniors who have lived in their homes for years are equally as susceptible to these scams too.
Homeowner scams come in various forms, including identity theft, robocallers, fake letters, and more. However, the good news is that there are things you can do to help protect your hard-earned retirement fund from being stolen by these criminals.
This article will discuss the different scenarios, how each scam works, and how to avoid falling victim to these scams. Knowing what to look for, being proactive, and steering clear of these scams can even save you from losing your home.
Plus, if you suspect someone of trying to scam you or have fallen victim to one of these scams, you must take action in reporting it to the proper authorities. By taking the time to turn in these criminals, you will be doing two things, helping to prevent others from falling prey to these fraudsters as well as possibly recovering any of your lost money.
To report these scams, you will want to contact the Federal Trade Commission (FTC) via phone at 877-FTC-HELP (382-4357) or on the FTC website.
Homeowner Scams
- Bait and Switch Loan
- Previous Owner Utility Bill
- Overdue Utility Bill
- Homeowner Warranty Insurance
- Equity Stripping
- Bi-monthly Mortgage Payments
- Home Repairs
Bait and Switch Loan
The Scenario: You are looking to buy a new house, and when you find your dream retirement home, you apply for a loan. Unfortunately, the loan approval you receive is far from the ideal terms you had anticipated, often due to lower credit scores. However, shortly after applying, you start receiving unsolicited offers for loans that fall within your budget with more appealing terms.
The Scam: These unsolicited loan offers usually fall into the too good to be true category, but when you look over the terms of the loan, things look great and you happily sign the papers.
But just before closing, the loan company contacts you with a revised loan agreement. Because it’s just before closing, many people don’t have the option of backing out and are forced to sign the new contract.
Some of the more common lender modifications include “typos,” added processing fees, or additional payments required at closing.
How to Avoid it: Before house hunting, take the time to get prequalified for a loan, that way, you will know your budget limitations and will be able to shop around for the best interest rates.
It is also best to avoid communicating with unsolicited loan companies since this is where many people get caught up in a scam.
And before signing anything, request your financial advisor or a lawyer to look over the loan agreement first.
Another vital thing to know is that since 2009 lenders are now required to do a three-day review for specific scenarios to avoid unwanted surprises the day of closing. The three changes that fall into the three-day review are:
- Increases in your APR if it is greater than 1/8 on fixed loans or 1/4 on adjustable loans
- Prepayment penalties
- Loan product changes
Previous Owner Utility Bill
The Scenario: You recently bought a house, but you didn’t talk to the previous owners about the utility services or verified the utility bills were paid up.
The Scam: Shortly after taking ownership of the home, you are contacted by a utility company, such as the energy company, threatening to cut off your services if the previous outstanding bill is not paid. These scammers know that people don’t want to deal with the inconvenience and hassle of having their services cut; they go ahead and pay the scammer.
It is essential to note that some states associate financial responsibility with the property and not the person, which aids the scammer because their claims sound more legitimate and it is harder for the new owner to verify past payments.
How to Avoid it: Contact the utility company independently to determine whether or not the claim of an outstanding bill is legitimate. And if you receive one of these calls, never give your personal or payment information over the phone
Overdue Utility Bill
The Scenario: Whether you are a new homeowner or have been in your home for years, the overdue utility bill scam works for everyone. Because there is usually just one energy company for each area, it is easy for scammers to find out the local company’s name.
The Scam: This scam frequently comes in the form of a robocall, with the computer stating that they are with XYZ utility company. The”caller” will tell you that you must pay them immediately to avoid your services shut off later that day. After being transferred to a live representative, the scammer will begin to badger and threaten the senior, often to the point of confusion to get them to make the payment over the phone.
How to Avoid it: First, if you receive a robocall hang up immediately, utility companies do not contact their customers for overdue bills via robocalls. Also, a robocall is an early indicator that it is a scam. Most utility companies send letters notifying residents if there is an overdue balance on their account.
If you are still concerned that the call was legitimate, call your utility directly to determine if you have an outstanding bill due.
Homeowner Warranty Insurance
The Scenario: Though this scam often impacts new homeowners, similar service contracts are available for those who have owned their homes for a while. A homeowner warranty insurance plan is generally appealing for many since everyone knows things can break down and are often expensive to repair.
The Scam: When the homeowner contacts the warranty company to file a claim, one of a few different things can happen:
- They require the homeowner to use a specific contractor that is not required to do the work within any particular time frame or may provide less than flawless workmanship.
- The deductible to get the appliance fixed is higher than the homeowner was prepared to pay
- The warranty company claims it was a pre-existing issue that does not fall under warranty.
- The company claims the appliance did not receive proper maintenance, which voids the warranty for that item.
How to Avoid it: According to an article published by Consumer Reports, they recommend avoiding signing up for homeowner warranty insurance or service contracts. Consumer Reports state that most of these warranties are not worth the cost and that homeowners would better off saving their money for a rainy day.
Indeed, you should always be careful with insurance, as there are many scams out there.
Equity Stripping
The Scenario: Equity stripping is a way to protect one’s assets when in debt, and lenders and creditors are looking to collect overdue bills. For those facing foreclosure on their house, equity stripping may seem like an excellent option to keep their home, especially for seniors on a fixed income.
The Scam: Scammers contact those with significant financial debt and claim to offer help by distributing the debtor’s assets, including taking over ownership of their home, with the promise of a buyback.
However, when the homeowner is in a more favorable financial position and goes to buy their home from the creditor the price of buying it back has been extremely inflated or the lender has sold it to another party.
How to Avoid it: If you find yourself in unexpected debt, the first thing you should do is cut back on all unnecessary expenses such as TV subscriptions and eating out.
Next, contact the companies you carry debt with and make payment arrangements you can stick to. Most companies are happy to work with their customers on figuring out a new payment plan.
Check out possible refinancing opportunites, changes in interest rates, and plan your monthly budget carefully.
Consider downsizing; if you are a retiree with the kids all moved out. It may be best to find a smaller place with a lower monthly payment. Plus, smaller living spaces often have lower utility bills.
Bi-monthly Mortgage Payments
The Scenario: Bi-monthly mortgage payments can help pay off your mortgage faster and save you thousands of dollars in interest. Bi-monthly payments are set up to pay half your monthly mortgage amount every two weeks. By setting this up, homeowners will end up making an additional payment each year.
The Scam: There are intermediary companies that approach homeowners and claim to help them save money while also shortening the life of the loan. However, most of these intermediary companies are not offering to help out of the goodness of their heart. Frequently intermediary companies charge various monthly fees, which can cost the homeowner even more money.
One such company was sued by the Consumer Financial Protection Bureau for swindling $49 million in frivolous fees.
How to Avoid it: Contact the lender that holds your mortgage and make bi-monthly payment arrangements with them; this will avoid unnecessary fees. Also, it is critical you contact the lender before making bi-monthly payments on your own since not all mortgage companies accept these payment arrangements.
Home Repairs
The Scenario: Some of these scams are initiated by the fraudster, whereas others wait to be contacted by the homeowner. There are several different home repair scams that seniors need to be aware of to keep their money safe.
The Scam: Since there are several home repair scams out there, here is a brief list of the most common:
- Overcharging for work and materials
- Requesting partial or full advance payment and never returning to do the work
- Using low quality materials or cutting corners, resulting in the issue needing to be fixed again
- Offering free inspections and then creating damage for them to repair
For more information about the home repair scams that target seniors, click here.
How to Avoid it: The best way to avoid a home repair scam is to avoid the scammer; if you are contacted for a free inspection or someone stops by offering to do repair work, decline their offer, even if you need work done.
If you have home repairs that need to be taken care of, ask a friend or family member for a referral. Or check out a third party site, like Angie’s List, to read honest reviews and feedback about various contractors and businesses.
Though it is legitimate for some places to request an upfront deposit, never pay the full amount upfront. And always choose companies that are bonded or insured.
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