Mortgage loan fraud is one of the white-collar crimes with the quickest rate of growth in the U.S., according to the FBI.
Mortgage fraud frequently manifests as a borrower giving fraudulent information to obtain a loan. But more and more mortgage fraud cases employ tricks that target homebuyers.
Any major deception, misrepresentation, or omission that a lender or underwriter relies upon to fund, purchase, or insure a loan is referred to as mortgage fraud under federal law. In its most basic form, mortgage loan fraud is when a borrower fabricates a fact on a mortgage application to be approved for a loan.
Of course, there are a variety of additional ways that mortgage loan fraud occurs. In mortgage lending, any false statement of fact, distortion of data, or omission of material facts might amount to fraud.
Mortgage fraud can have negative effects. If a borrower’s lender discovers that any information on their loan application was fraudulent, they may be required to immediately and fully return the mortgage loan.
The lender can seize the property if the borrower cannot make payments. Fraudulent mortgage transactions are likewise illegal.
Most people assume that mortgage fraud occurs when a home buyer lies on a mortgage loan application, but there are two distinct types. One type is fraud committed by real estate agents, appraisers, mortgage lenders, and brokers.
Mortgage fraud is typically considered in the context of housing fraud. Fraud for profit, however, is typically committed by insiders of the mortgage industry, such as brokers or appraisers, who have specialized knowledge about the industry and how it operates. This is where a homebuyer makes a false statement to obtain or maintain homeownership by getting a first or second mortgage loan.
Abusing the system to steal money from lenders or homeowners is the goal of fraud for profit. For instance, mortgage brokers have been known to take out loans for wholly fake home purchases. No actual borrower and no actual property are involved. Instead, the broker keeps the money from the loan. When the loan is not repaid, the lender realizes there is no real estate to foreclose on.
According to reports, federal authorities prioritize investigating fraud for profit over fraud for housing.
What Components Make Up Mortgage Loan Fraud?
Federal officials may bring a case against mortgage fraud in federal court, or local authorities may do so in state courts.
The offense would undoubtedly be charged as wire fraud or mail fraud, which have comparable characteristics if brought before a federal court by federal authorities. The following would be the elements of the crime in this situation:
- The offender either created a “scheme to defraud,” engaged in one while aware that it was fraudulent, or took part in a conspiracy to get money or property by making false statements.
- The criminal used either the U.S. mail system or electronic communication, like a text message, email, or fax, to carry out the plan to defraud or to obtain money or property via false claims.
- The perpetrator acted with “intent to defraud.”
State courts will define criminal fraud differently in each state. However, in most cases, The following would be the ingredients if the crime were to be prosecuted in a state court by a local authority, such as a municipal or county district attorney:
- The perpetrator intentionally misrepresented an important (“material”) fact,
- The falsehood of the representation was known to the perpetrator,
- The misrepresentation was conveyed to the victim, who had a good reason to rely on it, and
- The victim suffered losses as a result of that reliance.
What Methods of Mortgage Loan Fraud Are Most Frequently Used?
Applicants should ensure that all information on their loan application is genuine and accurate to the best of their knowledge to avoid a mortgage fraud claim. One type of mortgage loan fraud includes falsifying facts on a mortgage application. This could include anything from a mortgage loan applicant lying about their income to a credit card applicant lying about their balances or other unpaid bills.
The following groups of information may trigger a mortgage fraud investigation:
- False Statements: Behavior like fabricating information on a mortgage application, such as omitting information regarding the applicant’s ongoing obligations, and other misrepresentations and omissions meant to deceive the lender into approving a loan that it would not make if the true facts were reported;
- Lack of Disclosure: concealing or neglecting to disclose to the lender some important facts, such as the existence of a second lender or a second mortgage;
- Identity Theft: using someone else’s name and information without that person’s knowledge or consent is known as identity theft.
- Occupancy Fraud: Giving misleading information regarding the use of the property, such as failing to disclose whether it is intended to be the buyer’s primary residence, an investment property, or is to be left vacant, is known as occupancy fraud.
- Income Fraud: Making fictitious claims regarding the applicant’s earnings; or
- Straw Buyers: A straw buyer is someone who permits another individual to purchase property using their identity or credit information when the real buyer might not be eligible for the best interest rates or a mortgage.
How Is Mortgage Fraud Against Home Buyers Committed?
Most mortgage loan fraud instances involving home buyers involve exaggerating a property’s value beyond what it is worth.
The con artist makes money when the buyer inadvertently pays this greater price and obtains a mortgage for this sum. These mortgage frauds frequently target first-time purchasers who are unaccustomed to the home-buying process.
Mortgage Fraud Warning Signs
It can be exceedingly challenging to spot fraud in these situations because the con artists are frequently real estate professionals and may appear trustworthy. However, there are some warning signs you should be aware of:
- If a broker pushes you to pick a certain lender, be skeptical.
- Find out more if a lender presses you to borrow more money than you can afford.
- Every loan document should be provided to you in duplicate; therefore, if you don’t get these papers, there may be a problem.
What if My Lender Fraudulently Obtained a Mortgage?
Lender fraud was one of the contributing factors to the 2008 subprime mortgage crisis. Many mortgage lenders were unable to furnish the loan paperwork they required to foreclose on their loans when foreclosures started to become common. To move through with a foreclosure, lenders frequently faked new documents.
The fake documents were frequently prepared haphazardly, with spelling mistakes, wrong names and dates, and other obvious mistakes. As a result, several courts loosened the standards and were more open to accepting mortgage fraud as an argument against foreclosure.
Although new rules have increased the legitimacy of the loan process in the United States, fraud is possible in every transaction. Telling the truth is the wisest action on a mortgage loan application.
It is best to speak with a real estate attorney as soon as possible if someone suspects they are a victim of lender fraud.
How Can Mortgage Fraud Be Prevented?
In addition to the warning signs listed above, you should never buy a home without viewing it firsthand. Pictures of properties used in mortgage fraud with lovely fronts but utterly demolished backs can be found on the FBI website.
Additionally, if you want to know the property’s real value, it is worthwhile to employ a third-party assessor.
Should I Get a Legal Consultation for Mortgage Fraud?
You should hire a lawyer if you are concerned that you are a victim of mortgage fraud. A mortgage lawyer can assess your position, inform you of potential issues, and take appropriate legal action if necessary.