Foreclosure Mortgage Frauds

It’s difficult to say no to the promise of “quick money in real estate.” Consumers who willfully misrepresent facts may be found to be complicit in mortgage fraud. Mortgage fraud is the intentional falsification of information in order to acquire mortgage financing that would not have been given if the truth had been known. The following are examples of mortgage fraud:

• omitting information about your job, your pay, or the amount of time you’ve worked there
• claiming to be a full-time salaried employee despite not being one
• falsifying the size of your down payment or the source of it
• alleging that the owner occupies a rented property
• not reporting any other loans or mortgages
• omitting information to raise the property’s value
• Putting the names of buyers on the mortgage application who will not be taking responsibility for the loan they are operating as or employing a “straw buyer” — someone whose good credit is exploited to obtain a mortgage on someone else’s behalf.

Borrowers who provide false information and straw buyers who allow a property to be purchased in their name commit mortgage fraud and will be held accountable for any financial loss if the loan has defaulted. They may also face criminal charges as a result of their deception.

Take precautions.

When applying for a mortgage, never intentionally give false information. Furthermore:

• Please don’t sign your name to someone else’s mortgage unless you intend to pay it back.
• Don’t sign anything until you’re sure you understand it. Seek legal advice or have them translated if necessary.
• If you put down a deposit on a house, don’t give it to the seller right away. Make sure the seller’s realty company or a lawyer/notary holds it “in trust.”
• Get the property’s sales history from the land titles office or have it inspected and appraised before you buy it. Check with a lawyer to see if anyone other than the seller has a financial stake in the property or if any liens or tax arrears exist.
• Always be aware of who you’re dealing with. Deal with mortgage and real estate specialists who are licensed or accredited.
• Seek independent legal or notary counsel. Speak with them about title insurance or other forms of protection.

Anyone who approaches you with an offer to make “easy money” in real estate should be avoided. If an offer appears too good to be true, it most likely is.

Types of mortgage fraud

• Occupancy fraud happens when a borrower applies for a mortgage to purchase an investment property but states on the loan application that the property will be used as a primary residence or a secondary dwelling. If the borrower goes unnoticed, they are likely to get a lower interest rate than is justified. Because lenders often charge a higher interest rate on non-owner-occupied homes, which have traditionally had higher default rates, the lender earns an insufficient return on capital and is over-exposed to lose compared to the transaction’s expectations. Furthermore, lenders approve higher loans for owner-occupied residences compared to loans for investment properties. When occupancy fraud happens, it’s possible that gains taxes aren’t paid, which leads to more fraud. Because the borrower grossly misrepresented the risk to the lender to secure more advantageous loan terms, it is considered fraud.

• When a borrower overstates their income to qualify for a mortgage or a more significant loan amount, this is known as income fraud. This was especially common with so-called “stated income” mortgage loans (also known as “liar loans”), in which the borrower, or a loan officer working on behalf of the borrower with or without the borrower’s knowledge, stated the income required to qualify for the loan without verification. Income fraud is evident in traditional full-documentation loans. To justify the inflated income, the borrower falsifies or edits an employer-issued Form W-2, tax returns, or bank account data. All lenders get an authentic IRS transcript, which must match the tax returns submitted by the borrower. It is deemed fraud since, in most situations, the borrower would not have qualified for the loan if the genuine income had been disclosed. Large numbers of borrowers in places with rapidly rising property values lied about their income, bought homes they couldn’t afford, and then defaulted, contributing to the “mortgage collapse.” Many of the problems of the past are no longer present.

• When a borrower asserts self-employment in a non-existent firm or a higher position (e.g., manager) in an honest company to justify a deceptive portrayal of the borrower’s income, this is known as employee fraud.

• Failure to disclose liabilities: To lower the amount of monthly debt indicated on the loan application, borrowers may conceal responsibilities such as mortgage loans on other properties or newly acquired credit card debt. The debt-to-income ratio, which is a fundamental underwriting criterion used to establish eligibility for most mortgage loans, is artificially lowered due to this absence of liabilities. It is deemed fraud because it allows the borrower to qualify for a loan that would not have been allowed if the borrower’s genuine debt had been declared or to be eligible for a larger loan than would have been granted if the borrower’s actual debt had been disclosed.

• Cash-back schemes: When the genuine value of a property is artificially inflated in order to pay cash-back to transaction participants, most commonly borrowers, who receive a “rebate” that is not revealed to the lender. As a result, the lender extends too much credit, and the buyer either keeps the excess or splits it with other parties, such as the seller or the real estate agent. To deceive the lender, this strategy necessitates appraisal fraud. The courses of “Get Rich Quick” real estate gurus usually rely mainly on this mechanism for profit.

• Identity theft occurs when a person takes on another’s identity and uses it to obtain a mortgage without the victim’s knowledge or agreement. The crooks disappear without making mortgage payments in these methods. The schemes are usually found when the lender tries to collect on the victim, who may have to pay a lot of money to prove their identity has been stolen.