Fraud involves a “scheme or artifice” to convince someone to give up property or cash based on false pretenses. Fraud occurs if someone knowingly lies about an important or key fact in a transaction, and the other party relies on that misrepresentation of fact and suffers financial harm.
Loan Fraud Lawyers
What is Loan Fraud?
Fraud can happen in any situation involving a loan. Some examples of loans where fraud is common involve credit cards or bank applications; mortgages; loans for automobiles, boats, or other recreational vehicles; home improvement contracts; and general personal loans.
There are several different types of loan fraud. The three most common are (1) application fraud, (2) fraud for profit, and (3) identity theft.
(1) Application Fraud: Application fraud is when an individual applies for a loan by providing inaccurate or incomplete information on the application form. This could include providing false employment history or exaggerating their income level to obtain a larger loan or better terms.
For example, someone who wants to get approved for a mortgage, who wants a larger loan, or who wants a more favorable interest rate than they would be entitled to may report higher income than they make or claim that a piece of property they own is worth more than its true value.
(2) Fraud for profit: Those who commit this mortgage fraud are industry insiders using their specialized knowledge to commit or facilitate it. A high percentage of mortgage fraud involves collusion by industry insiders, such as bank officers, appraisers, mortgage brokers, loan originators, and other professionals engaged in the lending industry.
It is important to note that any professional in the loan transaction chain can commit fraud for profit. That includes those listed above and also the following:
- The builder
- A property inspector
- The real estate sales agent
- A credit/debt counselor
- An insurance agent
- An agent at the title company, including an escrow agent
Industry professionals have been known to work in concert as a network to defraud underwriters, lenders, and borrowers and maximize fees and share profits on all mortgage-related services. These actions are often motivated by the desire to gain extra sales commissions.
The most common industry professional fraud scams are air loans and appraisal fraud. An air loan is obtained on a nonexistent property or for a nonexistent borrower. A group of professionals creates a fake borrower and a fake title chain. The fraud chain may include phone banks and mailboxes to create fake employment verifications, home addresses, and borrower telephone numbers. The air loan scam simply puts cash into the hands of the perpetrators, and no property is ever bought or sold.
Appraisal fraud involves a real estate agent, builder, appraiser, or loan officer working together to maximize a purchase price and loan amount to increase their commissions. Sometimes corrupt appraisers undervalue a property to ensure a fellow investor can purchase the asset.
(3) Identity Theft: Scammers can steal a person’s identity and use their personal information, such as their social security number, birth date, or credit history, to apply for a loan in that person’s name. Many lending agencies only require a small amount of information in their credit or loan origination process. This makes it easy for identity thieves to use stolen information to get a quick loan. Short-term “payday” loans typically require little verification, making it easy for thieves to obtain cash in someone else’s name.
Or worse, with enough stolen details, they could open up a legitimate car, home, or business loan. Some attackers use phishing emails and malicious websites; others use a variety of ways to install malware on a targeted user’s local device; and some local thieves steal unshredded paperwork from garbage cans to collect private information.
What is Mortgage Fraud?
The most common type of loan fraud is in the business of granting mortgages. Mortgage fraud can be initiated by the buyer (application fraud) or by the lender (fraud for profit). Some common examples of mortgage fraud include exaggerating income, claiming you are employed when you do not have a job, and trying to avoid higher interest rates by claiming you will occupy the property when you intend to buy it as an investment property.
Often with the assistance of loan officers or other personnel, mortgage applicants misrepresent or omit relevant details about employment and income, debt and credit, or property value and condition.
Another form of mortgage fraud is predatory lending. The lender, not the borrower, commits this. It occurs when a financial institution offers a high-interest rate loan to someone in exchange for valuable collateral, like the deed to a piece of property. If the buyer cannot repay the loan in full, which often happens due to the high-interest rate, the lender will foreclose on the property. The lender makes money off the original borrower (whose mortgage payments to date will not be refunded), and then the bank re-sells the property to make even more profit.
What are Some Potential Consequences of Loan Fraud?
Victims of loan fraud can press criminal charges. They may also file a civil case to get an award of damages to reimburse them for any money they lost due to the fraud. The criminal penalties can be severe if a large sum of money is involved or if there is a pattern of committing loan fraud. The criminal penalties can be severe if a large sum of money is involved, or if there is a pattern of committing loan fraud. Some possible consequences are fines and prison time.
Another consequence of committing loan fraud is that conviction can affect immigration or citizenship status The defendant may lose some future job prospects. A bank or other corporate entity will suffer a damaged business reputation and loss of future business opportunities.
What are Some Possible Defenses to a Charge of Loan Fraud?
The following are common defenses to loan fraud:
- Coercion: The accused could claim they were forced to participate in fraud – whether it be a borrower providing false information or a lender misstating the loan terms. This can be hard to prove.
- Mistake: The accused could claim that there was no fraud and that any misrepresentation was honestly based on a mistake of fact.
- Lack of Damages: In a civil action, the defendant could claim that the victim of loan fraud did not suffer any damages (money or otherwise) due to the fraudulent behavior.
Do I Need a Lawyer If I Have Been Charged with Loan Fraud?
It is important to know what constitutes loan fraud and what rights you have if you experience it. If you are accused of loan fraud, being educated about the consequences and any possible defenses you may have will be very helpful if any criminal charges or other legal action results. Loan fraud is a serious offense with criminal and civil legal consequences. Hiring a fraud lawyer to help with loan fraud charges brought against you is a good decision. A lawyer can look through your records and help formulate your defense.
On the other hand, if you are a loan fraud victim, you must cooperate with the criminal investigation brought against your lender. You can also consult a business lawyer to determine if you can get money damages from loan fraud. Consulting with a criminal defense lawyer or a real estate lawyer is a good idea if you think you have been defrauded during a mortgage transaction in these or other ways.
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