Mortgage fraud is a serious crime that can result in huge losses for victims and severe legal consequences for those who commit it. 

Mortgage Fraud 101

Mortgage fraud is the deliberate act of lying or omission of information by the mortgage underwriter or lender in order to fund, purchase, or insure a mortgage loan. Mortgage fraud can be committed by both lenders and borrowers which is why mortgage fraud is broken down into major two categories:  fraud for profit and fraud for property. 

• Fraud for profit: This type of fraud is usually committed by appraisers, real estate brokers, or loan originators. This misuse of the lending system strives to steal cash and equity from lenders or homeowners. 

• Fraud for property: Borrowers typically commit this type of fraud in order to obtain or hold on to property. Lying about income, credit, employment status, and other financial information makes the person committing this type of fraud seem qualified for the type of loan they are seeking. 

There are a number of different schemes used to commit mortgage fraud. Some of the FBI’s most common types of mortgage fraud are listed below, but there are even more ways of fraudulently obtaining a mortgage or stealing during the process. 

Common Mortgage Fraud Schemes

Fraud for Profit Examples 

Mortgage Payoff Fraud: This occurs when a criminal intercepts the communication between a mortgage servicer and a title company or law practice. Fraudsters provide false payoff statements to the settlement office that contain instructions to send the payoff funds to the criminal’s account rather than the bank that is actually owed the payoff funds. 

This type of fraud is on the rise with the increased number of refinance transactions and new home sales that are taking place all over the country. 

Property Flipping Fraud: This happens when a criminal buys a property with the intent to re-sell it at an artificially inflated price for a considerable profit, even though they’ve only made minor improvements to the property. The criminal enlists the help of a friend to act as a “straw buyer” who submits a loan application for the inflated priced home. The help of an appraiser is also needed, so the criminal pays the appraiser a fee to submit a false inflated appraisal of the home to the bank. 

Once the loan is obtained, the criminal pays the “straw buyer” and the crooked appraiser their fees, then keeps the rest of the money for themself. The bank is then forced to foreclose on the property taking a huge loss because the home isn’t worth what they approved a loan for. 

Fraud for Property Examples

False Identity Usage: Stolen social security numbers, pay stubs, and other identity related documentation can be the starting point for securing a mortgage in another person’s name. Information obtained from a data breach can also be used to make counterfeit documents that can be used to secure a mortgage. 

Foreclosure Rescue: Criminals prey on homeowners facing foreclosure by offering to help save their home. This scheme usually begins by the homeowner receiving communication through the mail or email about a private investor willing to help them stay in their home and help them with mortgage payments. The homeowner is told they can stay in their home and “rent” it from the investor, but they end up deeding the property over to the investor and when it is foreclosed on, the investor takes any equity and splits, leaving the homeowner with nothing. 

How Not to be a Victim 

There are some guidelines to follow to make sure you do not end up a victim of mortgage fraud. These include: 

• Using an attorney to review all legal documentation 
• Checking references and referrals of all lenders, appraisers, and real estate brokers 
• Researching the title history of any property you intend to buy 
• Previewing final loan documents to make sure all information is correct 
• Checking the tax assessments for the property you intend to buy to ensure the assessed value is correct 

Being aware of the different types of mortgage fraud schemes is also a way of protecting yourself against being a victim. If something feels off, it probably is. Trust your instincts and never feel bad about re-checking any information or documentation. 

If You’re Accused of Any Type of Mortgage Fraud 

If you are accused of any form of mortgage fraud, your first step should be securing legal counsel from an experienced law office, like the Law Offices of Robert J. DeGroot. A conviction of mortgage fraud can lead to hefty fines and even lengthy prison sentences, so choosing the right attorney is important. The team at the Law Offices of Robert J. DeGroot can guide you through the legal process and provide the best advice based on your individual circumstances. 

Some other things to keep in mind if you are accused of mortgage fraud is to preserve all evidence and refrain from destroying anything. You should cooperate with the authorities but also lean on your attorney for direction on what to do. 

Have you or someone you know been accused of mortgage fraud? Reach out to the team at the Law Offices of Robert J. DeGroot today!