Understanding Mortgage Fraud
Mortgage fraud has become one of the fastest growing financial crimes in the history of the United States. So much so, that the federal government has convened a special task force to deal with mortgage fraud as a type of white collarcrime. In 2005 alone, the FBI reports that over one billion dollars in loans and property were lost due to mortgage fraud. 1 Unfortunately, the public is ill-informed about mortgage fraud and how these schemes work. If you are here, obviously you have concerns about what you and your business can do to avoid getting caught in the trap of mortgage fraud.
Mortgage fraud occurs two ways: "fraud for profit" and "fraud for property." Within each type, there are numerous schemes and purposeful misrepresentations that are used by buyers, sellers, mortgage brokers, real estate agents, appraisers and other industry professionals for financial gain from property sellers and legitimate lenders. Mortgage fraud for profit typically involves professionals in the real estate, appraisal and banking businesses. These individuals may engage in numerous illegal activities in order to skim equity; overstate income, assets, or collateral value; steal identities to secure or transact loans; overstate appraisal values for the purposes of selling the property multiple times; and invent fictitious properties and buyers to secure loans. Fraud for property, or housing fraud, involves single borrowers who intend to repay loans, but misrepresent themselves and their financial qualifications in order to secure a mortgage. The following are examples of mortgage fraud schemes and the parties that typically are involved.
- Real Estate Fraud: In cases of real estate fraud, an individual may use fraudulent documents to steal the title or deed to the property of a legitimate owner. Most commonly, the perpetrator will then obtain a loan on the property with intent to commit mortgage fraud. They will then often take the money and default on the loan, leaving the legitimate owners with the outstanding debt.
- Appraisal Fraud: A common example of appraisal fraud involves property flipping. Here a property is purchased using an initial mortgage. The property is then appraised at a much higher value, using an unscrupulous appraiser. It is then resold quickly for maximum profit. Other appraisal fraud involves inflating the value of a property in order to obtain a second mortgage or to pad the commissions of real estate brokers or agents.
- Mortgage Loan Fraud: A potential buyer obtains a loan using fraudulent income, credit, employment or appraisal documents to obtain a mortgage for which they are not qualified. This type of fraud hurts lenders as many unqualified buyers are eventually forced to default on their loans. Often, these buyers are assisted by professionals who hope to increase their profits.
The signs of mortgage fraud for profit or property may be hard to spot. However, there are some basic steps to take to avoid falling victim to this type of fraud:
- Be wary of property brokers that insist that a buyer use a particular lender.
- Always insist on copies of signed documents.
- Hire third party appraisers.
- Get referrals for mortgage and real estate professionals with an established record.
- Don't sign documents that have missing information.
- Finally, take advantage of professional services that report on mortgage fraud and collaborate with the federal government.
Your staff and efforts, as well as those provided by MARI, a ChoicePoint® service, may help you to defend against mortgage fraud more effectively. With a little diligence and invested time, you will make it much harder for mortgage fraud to make a victim of your business.
Learn more about Loan Fraud Alert Service today.
1 Federal Bureau of Investigation, "Operation Quick Flip Stats", p 3, available at: http://www.fbi.gov/page2/dec05/chartsandgraphs.pdf
