Scam Alert: What You Need To Know About Mortgage Fraud this 2022
When purchasing a property, there are numerous things to take into account. There are so many that it can be challenging to keep up. However, having everything in order can do more than reduce your stress; it can also shield you from risky financial and legal situations, such as mortgage fraud.
This article will discuss mortgage fraud, common con artists’ tactics, and how to stay clear of them.
What is a Mortgage Fraud?
The purposeful act of falsifying or omitting facts that a lender or underwriter utilizes to fund, purchase, or insure a mortgage loan is called mortgage fraud. Both borrowers and lenders are capable of committing it.
Mortgage fraud falls into two main categories:
- Fraud for financial gain: Insiders in the sector, such as bank officers, appraisers, mortgage bankers, and others, frequently commit this fraud. These insiders use the mortgage financing process to defraud lenders and homeowners by using it to steal money and equity. The FBI gives fraud for financial gain cases priority.
- Property Fraud: Borrowers frequently use fraud to acquire or retain real estate ownership. For instance, a home buyer may lie about their income or other assets on a mortgage application to secure a fraudulent loan approval or better loan conditions.
Why commit mortgage fraud?
Numerous factors could influence a borrower or industry expert to engage in mortgage fraud.
Borrowers are frequently driven by a desire to keep their current property or acquire a new one when they commit fraud for property. These borrowers believe their chances of getting a loan authorized with honest information are low, so they lie or omit crucial information about their work and income, debt and credit, or property worth to boost their chances of getting accepted and possibly even acquiring better loan terms.
By misrepresenting the financial facts of their clients, professionals in the industry conduct fraud to profit from the transaction. It’s critical to remember that any professional participating in the loan transaction, from the real estate agent to the appraiser to the mortgage banker and beyond, might engage in fraud for profit.
Types of Mortgage Fraud
There are many different mortgage fraud schemes, including foreclosure scams and property flipping fraud. The FBI’s list of the most typical types of mortgage fraud served as the basis for the following instances. Even though these are the most significant schemes, remember that this is not a complete list.
When a borrower makes false claims about whether or not a property will be occupied, this is called occupancy fraud. To gain favorable bank status, the owner will frequently state that the house will be owner-occupied even when living elsewhere. Even if it’s untrue, stating that the buyer will occupy the home enables them to get lower interest rates, cheaper out-of-pocket payments, and larger loan-to-value ratios.
Mortgage Fraud Red Flags: Occupancy Fraud
Lenders should be alert for purchasers who offer proof of living “rent-free” in their home, buyers who provide appraisals that include predicted rent payments, and unusually substantial down payments to detect occupancy fraud.
A Straw Man Fraud
A straw buyer is a person who intentionally misrepresents the nature of the transaction by acting on behalf of the real purchaser. The actual buyer might be trying to hide questionable involvements or have poor credit, both of which could prevent them from being approved for a mortgage. The genuine buyer will receive the property title when the straw buyer has completed the deal.
Mortgage Fraud Red Flags: Straw Man Fraud
When recognizing a straw man fraud, there are a few key indicators to watch out for. The fact that the money is frequently coming from an institution or entity rather than from a single person or that the alleged buyer does not intend to live on the property themselves are signs of a straw man scheme. Another cautionary sign is when tracking indicates that the property title has been transferred soon after the sale or when there has been no communication (phone calls, in-person meetings, etc.) between the lender and the buyer.
Non-Length Arm’s Transaction
A non-length arm’s transaction is another highly typical sort of transaction fraud. This happens when the two parties to the mortgage loan have a personal connection, leaving both the lender and the borrower vulnerable to the other’s manipulation.
Mortgage Fraud Red Flags: Non-Arms Length Transaction
The first clue is that any mortgage transaction between two parties that are acquainted is said to be “non-length.” arm’s The absence of a real estate agent is another crucial feature to watch out for. Having few legally bound parties participating in the transaction who could reveal potential manipulations is advantageous to the criminal.
While buying a property, holding it, or renovating it, then reselling it for a profit is legitimate, buying it below market value and selling it right away at an artificially inflated price constitutes fraud when the property has a false appraisal that deceives the prospective buyer.
Mortgage Fraud Red Flags: Property Flip
A few typical symptoms can likely alert mortgage lenders to an unauthorized home flip. A “flipper” supplying the false evaluation is frequently the middleman or straw buyer indicated above if the purchase is being made through them. Other red flags include the home being recently foreclosed upon, buying at an unusually low price, or having a suspiciously inflated appraisal value.
Income fraud occurs when a borrower makes false claims about the availability or consistency of the source of income needed to repay the loan. Two prevalent forms of income fraud are:
- False Statement of Income: The standardized loan application’s income information has not been thoroughly verified;
- Misrepresentation of Job: The borrower provides phony employment paperwork, such as forged pay stubs and employer records.
Mortgage Fraud Red Flags: Income Fraud
Please pay close attention to any significant differences between the borrower’s life experience, work title, and salary to be on the lookout for falsely declared income. Be thorough when reviewing pay stubs and ensure the claimed employer is a legitimate company with a verified address to avoid job deception.
Disclosure of Mortgage Fraud
Always follow the reporting guidelines your financial institution provides before reporting mortgage fraud. When in doubt, remember to report mortgage fraud by following these important steps:
Gather and arrange all documents, information, and data related to the mortgage scam.
Adhere to the reporting guidelines established by your loan institution.
Inform fraud enforcement and regulatory organizations.
After a report has been submitted, follow up to ensure the right steps are followed and to continue transmitting crucial information.
What Are The Consequences Of Mortgage Fraud?
Mortgage fraud is a severe offense with potentially serious legal repercussions. Local, state, and federal regulations hold borrowers and mortgage providers responsible. According to current federal and state legislation, a mortgage fraud conviction can result in up to 30 years in federal prison and fines of up to $1 million. However, the precise repercussions may differ based on the scope of the fraudulent activity.
How Can Mortgage Fraud Be Prevented?
The best method to prevent mortgage fraud is to buy a home responsibly. To spot the warning signals and stop yourself from becoming a victim of these frauds, use these recommended practices:
Consult a lawyer to analyze all legal documents in detail: This will guarantee that you are signing documents that you understand. Attorneys are knowledgeable in these transactions, so they will see any potential warning signs you need to be aware of.
Verify all participants’ references and recommendations, including loan officials and real estate brokers: Search online to locate testimonials and recommendations for your mortgage specialists. When in doubt, ask for recommendations from dependable friends or relatives.
Look into the property’s title history and confirm it: A title search will determine who is the legal owner of the property you wish to purchase and will reveal any outstanding obligations relating to the property, such as unpaid homeowner’s association dues, unpaid property taxes, and invoices for home improvements.
Examine the final loan documentation to confirm that all the information is factual and accurate: This step might appear easy, but it’s also very important. It can be challenging to keep track of all the procedures and documents that go into the mortgage process, so make sure you read through the final loan documentation to ensure the information is accurate.
To confirm the actual assessed value, investigate and examine the property’s tax assessments: The assessed value, which is used to establish tax rates for a property, is the value that has been assigned to it based on the sales of comparable homes and the results of home inspections. You may ensure you have accurate insight into the home’s value and avoid overpaying by conducting your research on the property.
Mortgage fraud is a serious matter—risky; it’s unlawful and frightening if you don’t know how to prevent it. As a homeowner, you could become a victim of fraud or run the danger of doing it yourself. To protect your success and safety, we always advise speaking with a real estate attorney to check any legal documents before closing a home.
If you think you might be a victim of mortgage fraud, get in touch with your local law enforcement and the relevant organizations immediately.