As much as the FBI works to combat it, mortgage fraud is still one way that unscrupulous individuals can make a fast – and illegal – buck. It can put you at risk of losing thousands of dollars if you don’t know what to watch out for. Though it may be impossible to know exactly how rampant this problem is, statistics show it’s growing.
CoreLogic is a property analysis company that releases a yearly mortgage fraud report. According to the most recently available data, during the second quarter of 2017, 0.82% of all mortgage applications were found to have the characteristics of potential fraud. This is up from 0.7% last year. While that doesn’t sound like a lot, when looked at in the context of all mortgage applications in the quarter, it represents 13,404 applications.
There are several third parties involved in getting a mortgage, which means there’s a propensity for individuals involved in the transaction to commit conspiracy. Among others, those parties can include mortgage brokers, appraisers, attorneys, title company employees and investors.
What’s Mortgage Fraud?
Mortgage fraud is the act of lying or omitting details on a mortgage application in order to get a loan approval or obtain more favorable terms. We’ll get into the types of fraud below, but they fall into two categories: fraud for property and fraud for profit. Let’s briefly go over each.
Types of Mortgage Fraud
The FBI has a list of the different types of mortgage fraud that are commonly perpetrated. Here are a few of the big ones.
Inflated appraisals: The appraisal is artificially inflated to make the home seem like it’s worth more than it actually is.
Foreclosure scams: Homeowners who are at risk of defaulting their loans or whose homes are in foreclosure are led to believe that someone can save their home in exchange for a deed transfer and upfront fees. The perpetrator will re-mortgage the property without actually saving the property from foreclosure.
Using a false identity: A person’s identity and/or credit history is falsely used to apply for a loan. This may be done with the knowledge of the person (who’s then known as a “straw buyer”), or it may be a case of identity theft.
Asset rental: This is when people borrow the assets of others in order to make themselves appear more qualified for financing. The money is then paid back to whomever it came from at a later date.
Equity skimming: An investor uses a straw buyer along with a false credit history and false income information to apply for a loan. After the loan closes, the straw buyer then signs the property over to the investor, who then rents out the property (without making mortgage payments) until the property is foreclosed.
Property flipping: The act of buying a property, fixing it up and selling it at a profit. This is not an illegal act unless the acquisition of the property involved falsifying loan documents such as income information, appraisals, etc.
How to Avoid Mortgage Fraud
If you’re getting a mortgage, the best thing to do is just be honest on your application. Every mortgage lender wants to be able to put people into a house they can afford. Mortgage fraud is also a serious federal crime. You could face fines and jail time.
On the other hand, a mortgage is a big financial transaction involving several people. There are bad actors out there who might wish to take advantage of you. That said, there are several things you can do to protect yourself from becoming a victim of mortgage fraud:
- Make sure you get referrals for real estate and mortgage professionals from trusted friends and family.
- Find out what other homes in the area have sold for in comparison to the property you are looking at as well as tax assessments to verify the property’s actual value.
- Make sure you understand everything you’re signing. Don’t sign anything you aren’t comfortable with. If there’s something you don’t understand, be sure to consult an attorney. And be wary of any documents that contain blanks, as this can leave you vulnerable to fraud.
- Review all the loan documents to ensure all the information – even including your name – is accurate and true.
- Check the title history to find out how often the property has been sold and re-sold. It could be an indication the property’s value has been falsely inflated and the property illegally flipped.
- Don’t be pressured into borrowing more than you can afford to repay.
Buying a home is a large investment – for most of us, it’s our biggest. So it’s important to look out for signs of fraud to avoid becoming a victim. To find out more about how to avoid mortgage fraud, visit StopFraud.gov. And always choose a real estate agent and mortgage banker you can trust. If you have any questions, you can leave them for us in the comments below.
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