When a party deliberately lies or withholds information used by a mortgage underwriter or lender to purchase or insure the mortgage. Both borrowers and mortgage lenders can commit mortgage fraud. Mortgage fraud is usually committed either for the profit or the property.
Industry insiders like bank officers, appraisers, or mortgage bankers usually commit fraud for profit by misusing the lending process to steal the lender’s and homeowners’ cash and equity. For instance, someone could purchase a property for a lower price and immediately sell it at a higher rate. A buyer typically does this with the help of a corrupt appraiser.
Borrowers generally commit property fraud to get or continue to hold property ownership. Sometimes, borrowers may lie about their income to get terms that are more favorable or simply get approval where they otherwise would not because of a poor credit score, income, or other factors. Some borrowers could fake their assets by borrowing or renting others’ assets so that they can get mortgage approval. After they get it, the money is paid back to the person they rented or borrowed from.
In something known as equity skimming, investors use fake buyers, or straw buyers with fake financial documents. After getting the loan, the straw buyers transfer the property to the original investor through a quitclaim deed where the investor is not responsible for paying back the mortgage. Instead, the person rents the place until foreclosure several months later, profiting from the rental income, without paying back any mortgage.
Other types of mortgage fraud include fake identity mortgage fraud, foreclosure scams, and inflated appraisals. A mortgage fraud conviction could result in up to 30 years of federal prison time and a fine of up to $1 million, though state laws vary on a case-by-case basis.
Make sure to check all your references — whether you’re dealing with a lender or borrower –- before closing the mortgage. check online reviews or with local authorities for information on a party. Get all your paperwork verified by a real estate attorney. Research and review the property’s title history as well as tax assessments to make sure you’re paying the right amount to buy the house.
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