What if you were committing fraud and didn’t know it?
The truth is that most people don’t know what mortgage fraud is. And if you don’t know what it is, you might even be doing it by accident.
We’ve put together a complete guide to mortgage fraud. Keep reading to discover the answers and keep yourself safe!
What Is Mortgage Fraud?
Our guide will help you avoid accidentally engaging in mortgage fraud. But we must first start with the basics and answer this question: what, exactly, is mortgage fraud?
Broadly speaking, this kind of fraud happens in a mortgage transaction when one party deliberately deceives another party. Or as the FBI puts it, this kind of fraud is when one party makes a “material misstatement, misrepresentation, or omission relating to the property or potential mortgage relied on by an underwriter or lender to fund, purchase, or insure a loan.”
When you imagine this kind of fraud, you might think that it only happens only with real estate professionals. But law enforcement makes it very clear that the average home buyer or seller is perfectly capable of engaging in fraud.
How can you avoid doing so, especially by accident? By understanding the different types of possible fraud.
Types of Fraud
Make no mistake: this is not a “one size fits all” kind of fraud. Instead, there are multiple types of fraud. To avoid engaging in this fraud, you must understand all of the different fraud types and schemes.
A very common type of fraud is known as “inflated appraisals.” This usually occurs when a seller works with a crooked appraiser to assess the home as being worth more than it really is. When the smoke clears, the buyer is left holding the bag: a home that is worth far less than what they ended up paying.
Another type of fraud is the standard foreclosure scheme. This mostly happens when a home is in foreclosure and a desperate homeowner turns to someone who says they can save the house after the homeowner pays some fees and transfers the deed. Afterward, the “benefactor” doesn’t save the home from foreclosure and instead re-mortgages the home.
In some cases, mortgage fraud happens when there is a case of a fake identity. Because buying a home requires a good credit score, some people may be tempted to steal another’s person’s identity in order to buy a home. This can occur when the buyer directly steals someone’s ID or works with a complicit “straw buyer” (who may even end up taking the fall) in order to obtain a home.
Why Commit Mortgage Fraud?
By now, you might be shaking your head at the many different kinds of mortgage fraud. At this point, you’re probably asking yourself: why would anyone engage in this kind of fraud?
While everyone has their own unique motivations, the reason to commit this fraud usually falls into one of two camps. This includes fraud for housing and fraud for profit.
Fraud for housing is simple enough to understand: this is when someone is committing fraud to obtain a house they intend to live in. But they feel they must lie or omit certain info when dealing with various loan officers and other officials in order to qualify for the loan and buy the house.
Fraud for profit is equally simple: this is usually intended to make a profit on a loan transaction related to real estate. Doing so typically requires lies about employment history, debt, income, credit, and other factors.
Typically, fraud for housing is committed by a single person, though they may get the help of a sympathetic loan officer. By contrast, fraud for profit may be committed by a single professional or even a group of professionals with the simple goal of making money on the transaction and not getting caught.
Air Loan Fraud
Earlier, we described appraiser fraud, which involves someone working with crooked appraisers in order to falsely drive up the price of a home. But another popular type of mortgage fraud is known as air loan fraud.
An “air loan” is a loan for a property that doesn’t exist or a borrower that doesn’t exist. When a group of industry professionals work together, they can create false borrowers, false titles, and other falsehoods (including phone banks and mailboxes to fake employment verifications).
There are many moving parts to such a scheme, but the end result is simple. A bunch of people walk away with money for a loan on a home that doesn’t even exist!
Best Ways to Avoid Fraud
As we have said, even an unknowing homebuyer can accidentally engage in mortgage fraud. Fortunately, you can mitigate the risk of this happening by taking a few easy steps.
It all starts with getting referrals from friends or family members for different mortgage professionals. By going with someone trusted by those close to you, it is easy to avoid the risk of fraud.
You can also do your homework on the average value of homes in a neighborhood. If someone’s asking value is way too high, this might be an indicator of fraud. Similarly, checking the title history of a home may reveal some place that is constantly being sold or re-sold–a possible sign of fraud.
However, the single best thing you can do to protect yourself is to check all the “fine print.” Don’t sign anything you don’t understand without speaking to a qualified lawyer. And review all of the paperwork for accuracy when it comes to your own information.
For maximum protection, make sure you have a legal professional you can call if anything is making you suspicious!
A Professional in Your Corner
Now you know what mortgage fraud is and how to avoid it. But do you know who can help you fight mortgage fraud and protect your good name?
Timothy D. Webb has experience helping those dealing with mortgage fraud, tax evasion, white-collar crime, and much more. To see what he can do for your own case, contact us today!
