Protect Yourself From Real Estate Fraud

Real estate fraud targeting home buyers has been increasing, but you can protect yourself by knowing your rights and opportunities. Read "The Home Buyer's Bill of Rights," presented as a public service by CasaNuevaGuide.com.

1. You have the right to view homes without paying a "showing" fee to a real estate agent.

   Licensed real estate agents work for commissions which are paid by the seller, not the buyer. The selling agent's commission is normally 3% of the sales price and is paid by the seller at closing.* Agents work at their own risk, and if you do not buy a house, the agent receives nothing. To find an agent, get a referral from a trusted friend or associate. Make sure the agent is licensed by checking with the state real estate commission or your local board of Realtors.

   * In the case of a used home, there is also typically a listing agent who also receives a typical commission of 3%. For a "for sale by owner" property or a new home sold by the builder, there may be no listing agent.

2. You have the right to the lowest interest rate that is available to you.

   While it is reasonable for a lender to charge a slightly higher interest rate to someone with a lower credit score or other risk factor, studies have found that many well-qualified Latino home buyers are routinely charged higher interest rates, even when they would have qualified for a lower rate. Know your credit score and check current interest rates. The rate you pay can make a big difference in your monthly payment and how fast you build equity in your home.

3. You have the right to not be charged excessive loan fees.

   Do not pay an excessive application fee or excessive closing costs. While loan fees that are considered reasonable vary, in general the application fee is about $500, and the loan origination fee is typically 1 point (1 point = 1% of the purchase price). You can pay one or more points to lower your interest rate, but that is optional. Beware of loan companies that charge more than 1 point to originate your loan. There have been reports of predatory lenders charging up to 10 points.

4. You have the right to an independent appraisal and property inspection.

   In many scams, a home is sold for more than its fair market value. Understand that in the United States, property values are based on comparable appraisals for homes recently sold in the same neighborhood. An ethical mortgage lender will not lend more than a home is worth. Also, be very cautious of seller financing. Overpaying can make it difficult or impossible to resell. Exercise your right to hire a professional appraiser of your choice. Whether you are purchasing a new or used home, it is always a good idea to hire a professional independent property inspector. Often, an unethical seller will try to cover up major flaws with new paint, carpet, etc. Don't let your excitement about getting a new home cloud your judgment - have the property inspected.

5. You have the right to report predatory lending and other scams if you are not a U.S. citizen.

   Many con artists target Latinos because they believe Latinos will be reluctant to report abuse to legal enforcement authorities. In truth, many Latinos are hesitant to deal with U.S. authorities, whether because of their citizenship status, or due to attitudes about authorities from their home countries. Don't be a silent victim. Major law enforcement agencies have made real estate fraud a priority. If you have questions about how reporting a crime will affect your presence in this country, contact a lawyer or a community group, such as the Association for the Advancement of Mexican Americans or the Mexican American Legal Defense and Educational Fund.

6. You may have the right to a home loan with reasonable terms even if you have issues such as no traditional credit, cash (non W-2) income, or no Social Security number.

   Just because you are not the "perfect" applicant for a home loan doesn't mean you must do business with someone who may be a predatory lender or other type of scam artist. Many applicants are not "perfect," but with recent changes in lending guidelines, they are able to get approved for loans from reputable companies with fair terms. A slightly higher interest rate may be required in some cases, but you can make sure you have the right to refinance in the future at a more favorable rate.

7. You may have the right to participate in programs that can help you with the down payment and closing costs.

   "If it sounds too good to be true, it probably is." This old saying is almost always true, but in this case, it isn't. There are reputable programs that will help buyers with down payments and closing costs, assuming certain conditions are met, such as family income and agreeing to stay in the home for a certain number of years. These "gift" programs are offered by government agencies and non-profit organizations that recognize the importance of homeownership in building stable communities.

8. You have the right to understand what documents you are signing, and you have the right to be given documents in your language.

   Know what you are signing, including the interest rate, fees, the prepayment penalty if any, etc. Don't let anyone pressure you into signing any document you haven't read or don't understand. There have been many stories of scam artists who switch documents from Spanish to English at the last minute, or who sneak in extra documents, tricking buyers into agreeing to higher interest rates and other onerous terms.

9. You have the right to refinance and not pay prepayment penalties.

   Requiring huge prepayment penalties on loans with excessively high interest rates has been one of the predatory lender's favorite tricks. Most reputable lenders will offer borrowers the right to refinance or prepay their loans at a future date with no penalties. Again, ask questions and understand what you are signing.

10. You have the right to know why you were turned down for a loan, and you have the right to re-apply.

    Many predatory lenders succeed because of the desperation that home buyers feel after they have been rejected for a home loan. You have the right to know why you were turned down for a loan, and a good loan officer will advise you of steps you can take to be approved in the future. Typically, it takes no longer than one year (sometimes less) to repair any credit problems or other issues, and to be ready to get approved for a loan with the most favorable rate and terms possible.

First Time Homebuyer