Avoiding Mortgage Fraud
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. To protect your home and home 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 know 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 and the belief that no one will check the information. However, lenders detect fraud for housing schemes by thoroughly reviewing and validating documents and keeping diligent records. It is a federal crime to lie in connection with the loan application and these individuals may be at risk of criminal prosecution.
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.
- 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:
Mortgage Fraud Schemes
Mortgage fraud is becoming more common. To protect your home and your home equity it is important to understand and recognize the signs of mortgage fraud. It’s also important to know how to report fraud to state and federal authorities so they can stop scam artists from preying on innocent borrowers.
Scam artists will often target homeowners already 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. Fraud schemes may sound good, but ultimately the goal is to take your home – not help you keep it.
Here are several common frauds being reported today:
Foreclosure Rescue Scheme
If you have fallen behind on your mortgage payments, this may seem like an attractive solution – but beware. A foreclosure rescue scheme often begins with a scam artist offering a promise to pay off your delinquent mortgage, allowing you to stay in the home as a renter with the option to purchase the home back when your financial situation improves.
But what really happens is a series of steps designed to cash out the equity in the home and disappear:
- As part of the “rescue,” the homeowner will be required to deed the property to a new borrower who is often “investing” in a rental property, but who is really part of the scam.
- The proceeds of the sale pay off the delinquent loan and the new borrower removes all the equity in the house, never to be seen again.
- The distressed homeowner is now merely a renter in a home they no longer own, unaware that the new borrower is not making payments.
- When the new borrower defaults on the loan, the homeowner is evicted from the home – they have lost the house and all the equity in it.
Scam artists are very crafty and will often vary the scheme depending on the homeowner they are talking to, so be cautious. Some warning signs that a scam artist may be trying to set you up as a victim of a foreclosure rescue scheme include:
- Being approached by a stranger with an unsolicited “rescue” offer.
- Receiving an unsolicited call, mail or flyer about “foreclosure rescue” or saving your home.
- Participating in a complicated deal that you don’t fully understand.
- Signing documents that have blanks or false statements. Regardless of what you are told, this is never okay.
The best solution when you face financial difficulties that may endanger your home is always to talk to your lender or a reputable counselor. Get your FreddieMac Mortgage Guide, Click Here
Flipping is a legitimate practice where an investor purchases a property in need of repairs or upgrades, makes the necessary changes to the property in a very short amount of time and sells the home for a profit.
We’ve all seen the TV shows about flipping and they’re fun to watch. But there are scam artists who use flipping to make money illegally.
Often times, the scam artist will offer much more than the asking price of a home with a stipulation that the “surplus” amount over the asking price is given back to the borrower at closing.
At closing, the inflated value of the home will be attributed to home improvements that were never made. The scam artist will pocket that surplus money and default on the loan.
As a homeowner, especially one whose house has been on the market a long time, this may seem like an attractive deal but remember – falsifying documents is fraud.