Financial crimes involving mortgages experienced an increase in attention with the foreclosure crisis, and reading examples of residential mortgage fraud will help the public understand how these criminal acts are committed. When lenders are taken advantage of in this manner, consumers end up paying more when they want to arrange financing for their home purchase.
Examples of Residential Mortgage Fraud Defined
Residential mortgage fraud can include false statements made by the borrower to qualify for financing. A person who claims to earn more than they really make in order to get a mortgage is committing residential mortgage fraud.
Other examples of residential mortgage fraud include the following:
In this instance, property flipping involves buying a property and then having it appraised at a false (higher) value. The home is then sold to a new buyer, who pays far more for it than it is really worth. The fraud in this scenario occurs when the false appraisal is obtained. The scheme also involves kickbacks to disreputable home appraisers, loan brokers, and title company employees.
Second Mortgage Scheme
Another type of mortgage fraud occurs when the buyer of the property does not use his or her own money for the down payment. Instead, he or she borrows the funds from the seller in a second mortgage that is not disclosed to the primary lender. The mortgage lender falsely believes that the buyer's own money was used to finance the down payment.
False Identity on Mortgage Documents
In some cases, a person may apply for a mortgage using another individual's identity. In this example of residential mortgage fraud, an application for financing is made using another person's name, personal history, and credit information.
Equity Skimming by an Investor
This form of fraud occurs when an investor works with another individual to buy a property. This person applies for a mortgage using false income information and obtains a mortgage in his or her name.
Before the transaction closes, the buyer signs the property over to the investor using a quit-claim deed. This document means that the buyer gives up all rights to the property and there is no guaranty to title. The investor does not make any mortgage payments and earns an income from the property by renting it out until the lender forecloses on it. This process takes months, during which time the investor is collecting money from the tenants.
How to Recognize Signs of Mortgage Fraud
Signs that may indicate a red flag for mortgage fraud include the following:
- A particular appraiser is suggested to prepare a valuation for the property, particularly if you are told that you must use one specific appraiser and not allowed to choose your own
- The seller agrees to provide a large decorator or home improvement allowance
- There is a suspicion that the owner does not intend to occupy the property, either because the commute to his or her job is not reasonable or he or she will not be selling his or her existing home
- Reported level of income is not in line with the applicant's stated occupation
- Buyer reports a dramatic increase in income due to a raise or getting a new job
- The name on the sales contract, title deed, and appraisal don't match the seller's name
All the documents prepared for selling a property should be examined carefully. The examples of residential mortgage fraud listed above are only a few examples of ways that highly creative but dishonest individuals can attempt to commit financial crimes.