Mortgage Freedom and the Myth of Line of Credit Protection
Nov 20th, 2014 | By FCT
In my last blog, Why we launched retire your home , we focused on the “Perfect Storm” of uninsured (no title insurance) seniors’ homes, and how they could be the perfect target for real estate fraudsters – extended absences, rental home, and/or a mortgage-free house.
Many people believe that putting a ‘new mortgage’ on a house that is mortgage-free may be easier as it would raise fewer questions from lenders, insurers and mortgage brokers, than trying to obtain a second mortgage on a house. As a result, One strategy that a number of lenders, financial planners and mortgage brokers have assumed would protect their client’s homes from real estate fraud is to put a line of credit on a home when it is mortgage free. At first blush it may appear that a line of credit would make the prospective fraudulent mortgage appear more conspicuous.
However, having a second mortgage is not that uncommon to see. For example, there are many press stories about the “Bank of Mom & Dad” – where parents helping their children with their first mortgage by re-mortgaging their own home have been commonplace in many high priced housing markets in Canada. So it would not appear out of place for homeowners who had long-term mortgage freedom to suddenly put a new mortgage on their home.
Fraudsters are determined to be undetected. Their plan is to remain undetected until they receive the proceeds from the new fraudulent mortgage they put on your house. If they have stolen your identity they may likely be aware of the line of credit on your home. As such, they will pay off the line of credit from some of the new mortgage and abscond with the rest of these mortgage funds. Many times the fraudsters will also pay the new mortgage themselves for a few months allowing them more time to cover up their tracks and get away with the funds.
As such simply putting a line of credit on your home is not a preventative measure, it is just simply a small hurdle that the fraudster must maneuver. A line of credit is not your best defense against the negative consequences of real estate fraud. Title insurance will provide a remedy if you are left to defend yourself against a fraudulent mortgage.
Remember twice every week FCT declines to insure a suspicious transaction with an average mortgage value of $360,000.
When you pay off your mortgage there is a strong sense of freedom and celebration. In the last year of paying off the mortgage you may have a heightened awareness of possibilities – Where to travel? Whether to buy a winter home in the Sunbelt? How to spend the disposable income?
When you become mortgage free make sure that you add another question to this list- how will I protect the possibilities of my mortgage freedom?