Mortgage Fraud Remedies

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 What is Mortgage Fraud?

Mortgage fraud is the intentional misrepresentation or omission of facts to trick someone into purchasing a residential property or securing a loan from a lender. Borrowers or industry professionals can commit this type of fraud, with the primary motivations being housing and profit.

For example, fraud for housing occurs when borrowers misrepresent or omit information about their financial situation or employment to acquire property ownership.

Fraud for profit involves industry professionals falsifying details about a property’s condition or value to maximize profit in a loan transaction.

Who Commits Mortgage Fraud?

Mortgage fraud can be committed by professionals such as:

  • Builders;
  • 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 Mortgage Fraud Schemes?

Mortgage fraud schemes include property flipping, occupancy fraud, and straw buyer scams.

Property Flipping

Property flipping, while often legal, can become fraudulent when a property is purchased at a low market value and quickly resold with the help of an appraiser who falsely verifies an inflated price. Fraudulent property flipping may involve a deceptive chain of title and appraisal, encompassing the buyer, seller, and flipper.

For example, an investor purchases a run-down property at a low price of $50,000. They make minimal cosmetic improvements and then collaborate with a dishonest appraiser, who inflates the property’s value to $150,000. The investor then quickly sells the property to an unsuspecting buyer, who takes out a mortgage for the inflated amount. In this scenario, the buyer, seller, and appraiser are all involved in the fraudulent property flipping scheme.

Occupancy Fraud

Occupancy fraud occurs when a borrower falsely claims that a property will be owner-occupied to obtain more favorable bank terms, despite the property remaining vacant.

For example, a borrower applies for a mortgage loan to purchase a property they intend to use as an investment or rental.

To receive better interest rates and loan terms, they falsely claim on their mortgage application that the property will be owner-occupied.

Once the loan is approved, the borrower rents the property without ever living there, benefiting from more favorable financing terms based on their deceit.

Straw Buyer Scams

Straw buyer scams involve the misrepresentation or use of someone’s false identity, credit score, and income to purchase property for another buyer who may not qualify for the purchase.
Imagine a person with poor credit cannot qualify for a mortgage loan.

They collaborate with someone else, the “straw buyer,” who has a good credit score and income.

The straw buyer applies for a mortgage, using their own information, to purchase the property on behalf of the person with poor credit.

After the loan is approved and the property is purchased, the straw buyer transfers the property to the actual buyer, who was unable to qualify for the loan themselves.

Identity Theft

Identity theft is another common method of committing mortgage fraud, using stolen pay stubs, social security numbers, and fabricated employment verification letters.

For example, an individual obtains another person’s social security number, pay stubs, and other personal information through identity theft.

They then use this stolen information to apply for a mortgage loan, falsifying an employment verification letter to support their application.

Unaware of the fraud, the lender approves the loan based on the false information provided. The identity thief then purchases the property, leaving the victim with mortgage debt and damage to their credit history.

How Do I Protect Myself From Mortgage Fraud?

Homebuyers should research and educate themselves about potential scams related to mortgage loans to defend against mortgage fraud.

Be vigilant when reviewing documents and consider the following protective measures:

  • Seek credible referrals to verify the authenticity of real estate professionals;
  • Avoid aggressive mortgage lenders that pressure you to sign documents quickly;
  • Refrain from signing any documents without proper authorization, and consult a real estate lawyer to review their legality;
  • Monitor your credit report to identify unfamiliar accounts and prevent identity theft.
  • Obtain a copy of your property’s appraisal report and thoroughly review it for inconsistencies or errors. If something seems off, discuss your concerns with the appraiser or a trusted real estate professional.
  • Research your chosen mortgage lender and real estate professionals online. Look for reviews, testimonials, and any negative reports or disciplinary actions. This will help you make an informed decision about the professionals you work with.
  • Ensure all verbal agreements with mortgage lenders, real estate agents, and other professionals are documented in writing. This will provide a clear record of the agreed-upon terms and conditions.
  • Compare loan estimates from multiple mortgage lenders before making a decision. This will help you determine if a particular lender is offering an unusually high or low rate, which could indicate potential fraud.

What Are the Remedies for Mortgage Fraud?

Remedies for mortgage fraud may include:

  • Injunctions to halt a home sale based on fraudulent loan documents or to mandate additional home inspections;
  • Monetary damages;
  • Punitive damages;
  • Criminal prosecution against real estate professionals; and
  • Civil claims based on fraudulent contract theories, misrepresentation, or deceit.

What Are the Penalties for Committing Mortgage Fraud?

Penalties for mortgage fraud are severe and differ based on whether the case is handled at the state or federal level.

Mortgage fraud is typically charged as a felony, with misdemeanor charges possible in cases involving smaller sums. Federal convictions can result in prison sentences of up to 30 years.

Fines are substantial, particularly when professionals are involved in the fraud.

A single count of federal mortgage fraud can lead to fines of up to $1 million. State fines range from a few thousand dollars to $100,000 for felony convictions.

Restitution payments and fines for mortgage fraud convictions may also be required. If convicted of mortgage fraud by falsifying documents, you may be required to pay restitution to the lender and your state fines.

Probation sentences for mortgage fraud generally last at least one year or longer. Courts establish specific requirements to be met during the probation period, often including regular meetings with a probation officer, random drug testing, and prohibitions on committing other criminal acts.

Do I Need a Lawyer if I’m Dealing with Mortgage Fraud Issues?

If you are dealing with mortgage fraud issues, it is highly recommended that you seek the assistance of a mortgage lawyer. Mortgage fraud is a serious offense with significant consequences, including financial losses and potential legal action.

A lawyer with experience handling mortgage fraud can provide valuable guidance and support throughout the process, helping you understand your rights and options and representing you in court if necessary.

LegalMatch is an online service that can help you connect with qualified lawyers in your area who handle mortgage fraud cases. To use LegalMatch, you simply need to provide some basic information about your case, and LegalMatch will match you with lawyers with experience in handling similar cases.

LegalMatch offers a free initial consultation with a matched lawyer, which can be a great opportunity to discuss your case and determine if the lawyer is a good fit for you.

Use LegalMatch to help make an informed decision about whether or not to hire a lawyer and which lawyer to choose.

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