In today’s society where there is a mountain of information available at our fingertips because of the Internet, it is interesting to me that so few people take the time to check on the background of the people and companies they do business with. In a financial transaction, this is especially true. Most of us will ask around to friend and family to find the name of a good mortgage loan officer when we are looking to refinance our homes or to purchase a new one, but we don’t take that extra step of researching the individual before doing business with them.

Before conducting a financial transaction as large as a mortgage, you need to make sure you research the credentials and background of your loan officer. While trusting a referral from friends and family is usually a good idea, I would like to suggest that taking that extra step can help protect you from fraud. While it does not guarantee that you are not doing business with a crook, it can help you look for the red flags.

Consider the many cases of mortgage fraud in Utah. While Dodd-Frank has helped clean up many of the criminals, there are still a few out there. Consider the case of Chad and Portia Louder. According to an article in the Salt Lake Tribune, they were indicted in October 2011 for using straw buyers to purchase homes in Highland at inflated prices. If their strategy followed what others have done in the past, they would pay the seller what they were asking and then get a refund from the seller of the difference between the asking price and the sales price. In the case of the Louders, this added up to millions of dollars if we are to take the amount the Feds are asking them to forfeit. I would like to say the Louders have only been indicted and not convicted, but I will continue to monitor the situation carefully.

So what lesson should you take from this? If you are selling your home, be careful of investors who approach you and offer to purchase your home for more than you are asking and then offer to refund your money. If it seems too good to be true, it probably is. At the least your life will be scrutinized when the investor you sold your home to defaults on their loan. I am not sure I would want any Federal agency breathing down my neck. Even if you didn’t do anything wrong, the stress would be incredible.

Second, be very careful when an investor offers to purchase your home and then lease it back to you and let you live in it. While not all investors who offer this option are crooks, there are plenty of examples where the landlord does not pay their mortgage and pockets the monthly rent from their tenants. In that scenario you will lose you home when it is foreclosed on and you are evicted. Because of the time it takes to foreclose on a home right now, that could be up to a year or more. The investor may tell you that you can purchase the home back in the future for an agreed upon price and that part of your rent will go towards the purchase price. While there are viable transactions that occur using this strategy, I would suggest hiring an attorney to review the contract and that the money dedicated towards the purchase price be put into escrow.

In both cases, more than likely it takes a mortgage loan officer — really a whole web of people — who is complicit in these transactions. At the least go to the Utah Department of Real Estate website (found here) and see if the individuals you are doing business with are lisensed. They have a great look-up tool that will allow you to search your loan officer and real estate agent to determine if they are lisensed and if any disciplinary action as been taken against them. While these are not gaurantees they are honest, it is a good start.

The bottom line on rent-to-own and lease-backs is this — don’t do it. Do the research on the people you are doing business with because even if they have the best of intentions right now, what will you do if they hit hard times and don’t make their payments? Do you think you will ever recover your money? Having seen the scenarios I described happen to people I know, let me tell you that you owe it to yourself and your family to look into the people you will be doing business with if you smell anything fishy.