Tips for Avoiding Mortgage Fraud

Mortgage fraud continues to be a major problem for banks, mortgage lenders and consumers.  Mortgage fraud is action that is not only investigated by local law enforcement but will be investigated by the Federal Bureau of Investigation as well.  In fact, engaging in mortgage fraud can be punishable by up to 30 years in federal prison or $1,000,000 fine, or both.  Mortgage fraud scams impact banks and mortgage lenders with loans that default as well the real estate profession, the economy and a significant number of individual homeowners.

Robert D. Grant, Special Agent-in-Charge of the Chicago Office of the FBI recently commented in a press release that, “We will not stand by while real estate professionals and others exploit the financial system for their personal gain.  Mortgage fraud – and the foreclosures and boarded up houses that often follow from it – has a real and significant effect on neighborhoods and property values.  The FBI is working tirelessly in every part of the country to protect communities and financial institutions from the effects of mortgage fraud.”

For those consumers that are buying a new home, refinancing an existing mortgage, or searching for help to reduce their home loan debt and other debts, they could be a target of mortgage fraud by individuals and mortgage professionals.

Mortgage fraud is defined as a material misstatement, misrepresentation, or omissions relied upon by an underwriter or lender to fund, purchase, or insure a loan.  The FBI puts out notices that remind individuals that it is illegal for a person to make any false statement regarding income, assets, debt, or matters of identification, or to willfully overvalue any land or property, in a loan and credit application for the purpose of influencing in any way the action of a financial institution.

There are two general types of mortgage fraud, fraud used to acquire property and fraud used purely for profit.  Mortgage fraud that is used to purchase a home or acquire property usually involves a borrower who is committing fraud on a single home loan transaction.  Often, the individual committing fraud is buying the property to occupy it and fully intends to repay the home loan.  Though the intentions may not sound bad, the borrower makes misrepresentations about their income or their debts, the value of the home or falsifies data about the down payment.  At times mortgage and real estate professionals are involved in assisting the home loan borrower so that they qualify for the mortgage and can purchase or refinance the home.

Fraud that is committed for the motive of turning a profit will involve mortgage or real estate industry professionals.  These cases of mortgage fraud generally involve several home loans and can often be for millions of dollars.  Mortgage fraud cases with professionals can be much more complex and involve issues as wide spread and complicated as having straw buyers which involves a borrower that assumes the identity of another person, property value that are fraudulently inflated, scam down payments that do not exist or are borrowed and disguised as the borrowers own funds, as well as flagrant misrepresentations including: overstating income, overstating assets, overstating collateral, fictitious employment and other related untrue facts and figures.

Some tips for recognizing and avoiding being part of a mortgage fraud transaction include:

Make sure to read and understand everything you are signing.  Speak to another mortgage professional or an attorney if you need something explained.  Don’t sign anything you don’t understand at anytime in the purchase, mortgage application or closing process.

Do not sign any home loan documents that contain inaccurate information, such as inflated or inaccurate income, sources of the down payment, incorrect sales price, type and length of your employment, your intent to occupy the property as your primary residence, existing debts, etc.

Don’t sign any mortgage loan documents with information left blank.  Blank spaces can be filled in later by other parties to the transaction yet still has your original signature.

Know and understand the terms of the home mortgage.  Check your information against the information in the home loan documents to ensure they are accurate and complete.

Do not agree to a price above your asking price.  If there are any unusual circumstances regarding the purchase price, take a second look at the transaction and ask for assistance if the arrangement seems unusual.  This may be particularly important if you are asked to refund the difference after the closing or if the extra money is to be used for repairs or improvements that you know are unnecessary.

Do not let someone else use your name or social security number to buy a property, especially if he or she offers to pay you for using it.

Deal directly with the mortgage lender or the mortgage broker.  Do not let a third party arrange your mortgage loan.

Make sure to get a complete set of the mortgage loan and related closing documents at the time of settlement.

Review the title history to determine if the property has been sold multiple times within a short period.  It could mean that this property has been flipped or bought and sold recently and the value can possibly be falsely inflated.

It is always sound advice to get referrals for real estate and mortgage professionals before filling out the mortgage loan application or signing a contract.  Check the licenses of the real estate professionals and mortgage lenders involved in the transaction with the local licensing authorities.

Shopping and comparing mortgage loans and mortgage rates involves some work, don’t skimp on the process since the long term costs of a mistake can be significant.