Mortgage Foreclosure Fraud

Mortgage fraud is a crime that entails securing a loan by making fraudulent representations on your application, and it’s becoming more widespread. You are still committing mortgage fraud if you tell a “little white lie” when applying for a loan. You could be putting your house at risk while also breaking the law if you omit facts, under-represent your income or financial condition, or don’t reveal any information about your financial responsibilities, such as loans or credit cards. Whether you purchase a new home or simply refinance an existing one, this is true.

Mortgage fraud can take several forms, but the most common is lying about income, accounting for 25% of all mortgage fraud cases. A typical mortgage fraud is attempting to conceal a terrible credit history, and roughly 20% of mortgage fraud involves lying about one’s work condition.

Failure to inform the lender about the property’s use is another type of mortgage fraud. For example, a borrower may notify the lender that the property is being purchased for their personal use when it is actually being purchased to let. They seek to avoid the higher buy-to-let mortgage rates by doing so.

While individuals conduct most mortgage fraud, organized crime groups increasingly target it.

Mortgage fraud is a broad term that refers to various unlawful operations, including some form of misrepresentation or inaccuracy on mortgage documentation. Mortgage fraud is committed by a home buyer, mortgage broker, or other real estate professionals who submit forged W-2 papers or obtains an exaggerated property evaluation, for example, fraud usually includes two parties: the one who provides false information and the one who relies on that information to complete a transaction. Wire fraud, bank fraud, and conspiracy are some of the most common crimes prosecuted (federal statutes do not directly reference “mortgage fraud”).

The Mortgage Fraud Enforcement Act (FERA) and the Prosecution of Mortgage Fraud

The 2009 Fraud Enforcement and Recovery Act (FERA) broadened the scope of federal law enforcement officers’ ability to enforce mortgage fraud offenses. FERA can result in fines of up to $1 million and prison sentences of up to 30 years. There are also laws in place in some states that handle offenses related to mortgage fraud.

Additional charges of bankruptcy fraud or tax fraud may be filed due to the inquiry. Although investigations usually target unethical mortgage brokers, appraisers, real estate attorneys, and other real estate professionals, house buyers are occasionally arrested for submitting false information.

Mortgage fraud falls into two kinds, according to law enforcement officials:

  • Housing fraud is when a borrower provides fraudulent, incomplete, or erroneous information to qualify for a loan or gain better conditions while purchasing a home.
  • Fraud for Profit is When a real estate professional (appraiser, mortgage broker, etc.) defrauds a property or transaction to profit from it.

What Are the Most Common Types?

Mortgage transactions, which typically include several parties and enormous sums of money, are ripe for deception. Some of these schemes are exceedingly complex and one-of-a-kind; however, the following are the most common:

  1. The loan applicant presents false or altered pay stubs or other fraudulent evidence supporting loan documentation.
  2. Property flipping entails purchasing a piece of real estate, having it evaluated at a falsely inflated value, and swiftly reselling it. Because “flipping” during a housing boom is not always unlawful, the deceptive assessment is what makes this practice criminal.
  3. Straw Buyers: The borrower’s identity is concealed by using a nominee, whose name and credit history are used to make the loan application.
  4. Silent Second: The buyer takes up a second mortgage to cover the initial loan’s down payment. It’s prohibited since the second, smaller loan is obtained without the knowledge of the first lender.
  5. Stolen Identity: A mortgage loan application uses a false or stolen identity. The genuine person’s name, personal information, and credit history are utilized without knowing if their identity is stolen.
  6. Equity Skimming: An investor obtains a mortgage in the straw buyer’s name using a straw buyer, phony credit reports, and false income documents. After closing, the straw buyer signs the property over to the investor, renouncing all property rights. The investor does not make any payments and instead rents the property until it is foreclosed upon.
  7. Inflated Appraisal: To match the buyer’s offer and close the sale, the appraiser conspires with the mortgage broker or loan officer to issue an unreasonably high appraisal value.

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Mortgage Fraud Statutes in Each State

More than a third of the states in the United States, including California, Florida, and New York, have laws outlawing at least one type of mortgage fraud. According to New York law (NY Penal Code, article 187), Residential mortgage fraud is defined as an intentional crime involving representations that contain substantially false information or conceal information to deceive another party. Depending on the seriousness of the offense, the offense is prosecuted as a class A misdemeanor, a class B felony, or both.

Federal punishments are typically harsher for similar mortgage fraud charges than state ones. Speak with a local attorney to learn more about the laws in your state, as well as how to avoid becoming a victim of this crime.

Accused of Mortgage Fraud? Make Contact with a Lawyer

Inflating a property’s worth, lying on a loan application, or conspiring with another investor to buy a property are all probed and punished sternly. If you’re being investigated for mortgage fraud or any other crime, you should speak with a local criminal defense attorney about the details of your case.

Is it easy to get away with mortgage fraud these days?

Many people who try to get away with mortgage fraud, such as lying about their financial situation to receive a home loan, are discovered. This could happen due to standard credit checks or the HMRC, Building Societies Association, and Council of Mortgage Lenders-run Mortgage Verification Scheme.

What methods are used to detect mortgage fraud?

There are a variety of exceptional circumstances that are likely to trigger suspicion, in addition to the typical checks and balances carried out by lenders. Several remortgages and sales of the same property; a significant and unexplained increase in the purchase price; a deposit paid by a third party; and sales proceeds to be given to someone other than the seller are just a few examples.

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