Avoiding Mortgage Fraud

Mortgage fraud is becoming increasingly common. Scam artists often target homeowners struggling to meet their mortgage commitments or anxious to sell their homes.

There is help available when facing financial problems or foreclosure, but make sure you are dealing with a reputable organization before getting involved. A good rule of thumb is that unsolicited help, whether in person, on the phone, or by mail should be fully researched before accepting any help.

To protect your home and home’s equity and avoid falling victim to fraudulent schemes, recognize and understand the signs of mortgage fraud. Know how to report fraud to state and federal authorities so they can stop scam artists from preying on innocent borrowers.

Start by learning the motives behind mortgage fraud. They are generally classified into one of two categories:

• Fraud for property or housing
• Fraud for profit

Fraud for property

Fraud for property, also known as fraud for housing, generally occurs when a borrower wants to purchase a property they cannot afford. Borrowers are often aided by dishonest mortgage industry professionals who submit or encourage the submission of false information about the borrower’s employment, income or assets in order to qualify for a loan.

Borrowers are often tempted to engage in this type of fraud by a strong desire for homeownership or for a home beyond their current financial means.  The belief that no one will check the falsified information is wrong. Lenders detect fraud for housing schemes by thoroughly reviewing and validating documents and keeping diligent records. It is a federal crime to misrepresent any information in connection with the loan application. Anyone who is caught will be at risk of criminal prosecution.  What a borrower may think is a little lie to help buy their house is not only illegal, it risks a borrower’s credit and investment.

To prevent fraud for property, make sure all the information is correct and all documents are completely filled out before you sign. Don’t believe someone if they tell you that misrepresenting information on your loan documents is not a big deal. It’s against the law, and it could cost you your home.

• View a real example of fraud for property

Fraud for profit

Fraud for profit schemes often involve a group of people who defraud a prospective homebuyer or mortgage lender. For example, a dishonest mortgage broker may partner with a loan processor to create a fictitious credit profile, and with an appraiser to inflate the property value. Additionally, "straw borrowers," who falsely represent themselves, may be enticed to participate through the promise of financial gain.

Fraud for profit schemes are also attractive to criminal enterprises lured by the opportunity for greater profits, fewer dangers than those commonly associated with violent crime, and reduced sentencing or jail time. Illegal property flipping is the fraud scheme commonly employed.

Make sure you are not a party to fraud by making sure all the information in your loan documents is correct.

• View real examples of fraud for profit

Important Resources

• If you are facing financial difficulties that are making it difficult to pay your mortgage, or if you feel you might be falling prey to a fraudulent scheme, the best solution is to talk to your lender or a reputable counselor.  Also, be wary of individuals who promise to rescue you from financial difficulty or possible foreclosure. 
• Read more about common fraud schemes:
  • Foreclosure rescue scheme
  • Illegal property flipping