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How to Avoid Falling Victim to Mortgage Fraud

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How to Avoid Falling Victim to Mortgage Fraud

Kenya’s property market is thriving and everyone is looking to have a piece of this vibrant sector. With good economic environment and financial systems, there has been an increase in the mortgage uptake. According to the Central Bank of Kenya, the demand for mortgages in the country stands at 80,000 facilities every year - a clear indication of the strong uptake.

Dan Karua, Managing Director of online property portal Lamudi Kenya, said, “However, one needs to take precautionary measures to avoid falling victim to mortgage fraud, particularly as a lot of money is involved in property transactions. The fraudsters are smart, so you need to outsmart them by not rushing into making decisions”.

The Central Bank of Kenya indicates that the financial market has provided Kshs 138 billion out of the potential Kshs 800 billion available in the mortgage market. As more Kenyans take on home loans to finance their property purchases, Lamudi shares its top tips to avoid mortgage fraud.

Be cautious of upfront payments

Look out for the hidden costs when applying for a mortgage loan. Some lenders may hide the charges, therefore inflating the loan repayment. You are advised to read all documents the lender gives you before signing them. Do not make upfront payments as some lenders ask you to pay for services such as document preparation, even though you might later find you have not been granted the mortgage facility. You can only make the payments when the lender has given you a letter of offer and you, as the borrower, have consented to the offer.  

Conduct due diligence before signing

It is highly recommended that you conduct due diligence on the property you intend to buy. This will ensure you do not lose your hard earned money as it is devastating to find the property you are mortgaging was acquired illegally after paying for it or has encumberances tied to it. However, lending institutions also conduct their own due diligence to ensure that they do not lose their money too. Despite the measures being put in place, both the buyer and the lender need to take precautionary measures. Due diligence on the title will also enable you to know the number of times the property has been sold.

Be aware of straw buying

In straw buying, a third person comes in to secure a mortgage facility for the initial buyer who cannot acquire the mortgage loan. Though this practice is not illegal, the property will bear the borrower’s name while you will be making the payments. Therefore, the borrower may refuse to sign over the property to you after making the payments. You will therefore need to have a memorandum of understanding with a conveyancing lawyer in order to change ownership before proceeding with the mortgage application. 

Be extra vigilant about foreclosures

Equity stripping is the process whereby the homeowner facing foreclosure signs the title to a third party so as to rent the property, then later on buy them off when they are financially capable. During the foreclosure or mortgage transfer, you need to be extra vigilant about the process. The person or institution coming to salvage the foreclosure may fraudulently pocket the rent you are paying them and not pay the mortgage facility, potentially leading to eviction and loss of your property. For this reason, you need to have a signed agreement with the individual or institution involved. 

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