Mortgage fraud is on the rise. It is especially
prevalent during periods of economic chaos and upheaval in the housing market
as more homeowners face foreclosure, and scammers target overwhelmed lenders.
Unscrupulous lenders can also get into the act by targeting distressed
homeowners. There are two types of mortgage fraud – fraud for housing, which targets
lenders and fraud for profit, which targets borrowers.
Fraud for Housing
Fraud for housing occurs when borrowers misrepresent
or omit information used by lenders to qualify them for loans. Examples include:
Because self-employed borrowers tend not to report
their full income on their tax returns, lenders often allow them to claim a
“stated income” on their application. If their stated income is higher than
their actual income, it is mortgage fraud.
Under the table exchange
Buyers who accept down payment money from a seller
to qualify for a loan are committing mortgage fraud.
Lenders charge lower mortgage rates for borrowers
purchasing owner-occupied properties. If it turns out that the borrower is
purchasing the property as an investment, it is mortgage fraud.
Foreclosure rescue scheme
Foreclosure scammers prey on borrowers who are about
to lose their homes to foreclosure. They convince borrowers they are there to
“rescue” them only to vanish once the borrower pays them a fee. In many cases,
the borrower loses both the money and their home.
Fraud for Profit
Fraud for profit occurs when mortgage officials,
such as brokers, loan originators, or attorneys, abuse their position of
authority to profit from the mortgage process at the expense of a homeowner or
borrower. Examples include:
For appraisal fraud, a real estate agent teams up
with an appraiser and loan officer to artificially increase a home’s value to
increase their commissions. Alternatively, an appraiser may undervalue a
property to help another person purchase the property at a lower price.
Predatory lending fraud
A corrupt lender may falsify borrowers’ income to
enable them to qualify for a loan they cannot afford. This activity was at the
center of the housing crisis in 2008.
How Borrowers Can Protect Themselves
Mortgage scams tend to be very complicated, and they
are often difficult to detect. Borrowers who think they are being asked to
break the law should seek the counsel of a reputable real estate attorney or
their state’s licensing authority.