Mortgage fraud involves a false misrepresentation of the facts that deceive a person into purchasing a residence property or insuring a loan from a lender. Borrowers and industry professionals are motivated to commit mortgage fraud for many reasons, but the main two are for housing and profit.
For example, fraud for housing is committed by borrowers who misrepresent or omit certain facts about their financial situation or employment to obtain ownership in a property.
Another example is the fraud for profit that is done by the industry professionals who falsify information regarding condition or value of the property to maximize profit on a loan transaction. It is crucial to realize that mortgage fraud can be committed by either of the following actors in the professional industry:
- Real estate agents;
- Loan officers;
- Credit or debt counselors;
- Real estate appraisers;
- Property inspectors;
- Insurance agents;
- Title companies;
- Attorneys and;
- Escrow agents.
What Are Some Common Fraud Schemes?
There are several different fraud schemes that are committed. Some of them include property flipping, occupancy fraud, and the straw buyer scam. Property flipping is common and usually not illegal but when used to fraud borrowers.
For instance, when a property is purchased at a lower market value and immediately sold thereafter with the assistance of an appraiser who verified that the property is actually double the price, most likely is committing mortgage fraud. Other ways this scheme operates is through a fraudulent chain of title and the appraisal which includes the buyer, seller and flipper.
Another scam is the occupant fraud, this happens when the borrower claims that the home will be owner-occupied. This helps to obtain better bank status when the property will actually remain vacant. Furthermore, the straw buyer misrepresents to uses or allow someone to use, false identify, credit score and income to purchase property for another buyer who may not usually qualify to do the purchase of the property.
Additionally, identity theft is another common way that mortgage fraud occurs. For example, stolen pay stubs, social security numbers and falsified employment verification letters are utilized to commit the fraud.
How Do I Protect Myself From Mortgage Fraud?
For homebuyers, it is important to research and educate yourself on the potential scams that occur in obtaining a mortgage. Be attentive to documents when dealing with any mortgage loan. You can also take additional measures to ensure that your protected from mortgage fraud, such as:
- Sticking to credible referrals through trustful relationships that can verify the real estate professionals;
- Avoiding aggressive mortgage lenders that insist you sign documents to quickly close on the mortgage loan;
- Not signing any document without properly authorizing it or seek help from a real estate lawyer to review the legality of the documents and;
- Checking your credit report to ensure that there are no new unrecognizable accounts and to prevent identity theft.
What Are the Remedies to Mortgage Fraud?
Mortgage fraud remedies will vary within each state. If you have been a victim of fraudulent mortgage scheme you have the following remedies available:
- Injunctions to stop a home sale based on fraudulent loan documents or injunctions that require additional home inspections;
- Monetary damages;
- Punitive damages;
- Criminal prosecutions against the real estate and;
- Civil claims based on fraudulent contractual theories, misrepresentation or deceit.
What are Some of the Penalties for Committing MortgageFraud?
Mortgage fraud involves serious penalties that vary depending if it is on a state or federal level. It is usually charged as a felony offense but misdemeanor crimes are also possible in cases where only a small amount of money is involved. Prison penalties for mortgage fraud are serious and can result in a 30 year sentence for federal convictions. Fines are high especially when a professional fraud is involved in the scam.
A conviction for a single count of federal mortgage fraud can result in up to $1 million. State fines vary from a few thousand dollars to $100,000 or more for felony convictions. Restitution payments can also be included with the fines for the mortgage fraud convictions. If you are convicted of a mortgage fraud by falsifying documents you may need to pay the lender restitution money in addition to your fines for the state.
Lastly, probation sentences for mortgage fraud last generally at least one year but can be longer. Courts set certain requirements that must be met during the probation period and often require you to regularly meet with the probation officer submit random drug testing and prohibit you from committing other criminal acts.
Do I Need a Lawyer if I’m Dealing with Mortgage Fraud Issues?
Although purchasing a home can be a new and exciting time for you and the family, there are precautionary measures you need to take in order to avoid mortgage fraud. However, if you have been a victim of mortgage fraud, you have several remedies available to ensure your compensated for any damages.
It will be helpful to seek out a real estate lawyer to assist with you planning on purchasing a home if you are unsure about the process and the various scams that can occur.