Understanding Mortgage Fraud and Its Types

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Fraud is deliberate deception and misinterpretation where one party deceives the other one by presenting misleading facts, figures, and information. So, mortgage fraud is a lot more than predatory lending practices, which targets specific borrowers. This is why it is important to consult an experienced fraud lawyer to protect yourself from such frauds.

According to the FBI or Federal Bureau of Investigation, mortgage fraud is any type of misinterpretation, material misstatement, or omission related to a property or possible mortgage relied upon by a lender to fund, insure, or purchase a loan. So, mortgage fraud can be carried out by both industry professionals and individual borrowers.

Why Commit Mortgage Fraud?

Professionals and borrowers are motivated to commit such fraud for several reasons, particularly these two:

  1. Fraud for profit: It is committed by professionals in the industry who misstate, omit, or misinterpret relevant details about their client’s or personal income and employment, credit, debt, or property condition and value to maximize gains on a loan transaction. 
  2. Fraud for housing: It is carried out by borrowers who, usually with the aid of loan officers and other people, omit or misrepresent relevant details about debt and credit, employment and income, or property condition and value with the aim of maintaining or obtaining real estate ownership.

Any professional involved in the loan transaction procedure like real estate sales agent, builder, mortgage broker, loan officer, debt/credit counselor, property inspector, real estate appraiser, title company, insurance agent, escrow and attorney agent can commit fraud for profit.

Industry professionals can work as a network, in concert, to defraud lenders, underwriters and borrowers, and increase fees and distribute profits on every mortgage-related service. The motive behind these actions is either the desire to gain extra sales commissions or increase an investment position.

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Popular Mortgage Fraud Scams and Schemes

The most popular investor mortgage fraud scams and schemes dealt by fraud lawyers are different kinds of occupancy fraud, property flipping, straw buyer scam and identity theft.

  1. If you purchase a house, fix/hold it, and then resell it for profits, it is not considered as an illegal property flipping. In the case that you buy the property below market and sell it immediately at profit with the support of a corrupt appraiser who confirms that the property’s value is actually 2x the initial purchase amount, you are committing mortgage fraud. 
  2. Occupancy fraud is used by investors to become eligible for increased loan-to-value ratios as well as decrease out-of-pocket expenditures on purchases, along with lowered mortgage rates. It happens when a borrower claims that the house will be occupied by an owner to attain favorable bank status, while, in reality, the property will remain vacant. 
  3. A straw buyer will use or allow someone else to use their credit score, income, and identity to attain a property for some other buyer who might not be qualified for a mortgage. Straw buyers are used mostly by investors, either unknowingly or willingly, to conceal multiple layers and other forms of fraud. 
  4. Identity theft and asset/income falsification is the most common type of individual mortgage fraud schemes. It happens when a buyer fraudulently gets financing by using an unaware and unwilling victim’s personal information like birth dates, Social Security numbers, and addresses.  


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