Borrowers Beware: Mortgage Fraud –

 

Mortgage fraud is on the rise, and borrowers are increasingly likely to encounter it and may even knowingly or unknowingly become part of it. According to the FBI, mortgage fraud can best be understood as a material misstatement, misrepresentation, or omission relied upon by an underwriter or lender to fund, purchase, or insure a loan. In some situations, people intentionally engage in mortgage fraud because they see it as a “get rich scheme.” Other times, people do it without knowing or understanding that their actions are defrauding a lender. Although most fraud schemes target first-time homebuyers, seniors, and minorities, more people are becoming targets as credit requirements tighten because of the upheaval in the sub-prime markets and as foreclosures increase as a result of declining property values.

 

Although there are many types of mortgage fraud schemes, generally, they fall into two categories–fraud for property and fraud for profit. Fraud for property includes such things as asset fraud and employment/income fraud. It is generally committed by homebuyers attempting to purchase homes for their personal use. It may involve material misrepresentation or omissions of information with the intent to deceive or mislead a lender into extending credit that would likely not be offered if the true facts were known. While you may not consider it fraud because you believe you are doing it for the right reasons and you fully intend to pay off the mortgage, unfortunately, federal laws still view these actions as fraud.

 

Common fraudulent acts involve misstating the financial ability to repay the loan or one’s employment on the loan application, giving false income records, or lying about the source or existence of a down payment. While deliberately misstating information on a loan application is fraud, failing to correct false or misleading information also constitutes fraud. You should refuse to sign any documentation that contains inaccuracies. Ultimately, regardless of who prepares the loan application, you are responsible for reviewing the application and making sure the information is correct.  If you have questions and concerns, speak with an attorney who can explain the mortgage application and the terms of your loan, along with the options available to you in your situation.

 

Although people do occasionally commit mortgage fraud to acquire property, most of the time, mortgage fraud is committed by people looking to make money. Fraud for profit almost always involves a concerted effort by more than one individual to abuse the system for financial gain. While people involved in your transaction may recommend “a guy they know” to provide you some service, seriously consider insisting on using your own independent service providers, including your own attorney, even if it costs you a few extra dollars.

 

Some common fraud-for-profit schemes include the following:

  

Flipping:  Flipping property involves acquiring a property with the intent to resell it for a profit. In some cases, through the actions of unscrupulous owners, appraisers, and other real estate professionals, the price of a property is artificially inflated through sham transactions. If there have been several sales within a short period of time it could indicate inflated values. You should have your own real estate agent or appraiser independently establish the value. If the value has been artificially inflated, you and your lender may be left with a property that is not worth what you paid for it.

 

 

Debt Elimination Schemes: There are various methods whereby people, for a fee, convince borrowers that they can eliminate their mortgage through the use of creative paperwork. These schemes include using fake checks to pay off the mortgage, filing false releases, or claiming the loan was invalid and no longer needs to be paid. These plans do not work, and the homeowner generally ends up in foreclosure.

 

 

Forged Documents or Impersonation: Sometimes people will forge documents to falsely convey title or to release existing mortgages or they may impersonate a property owner to execute documents.

These are just some of the methods by which people attempt to take advantage of others in an attempt to make money. There are many other schemes out there and there are new ones being created every day. Whenever you are involved in a situation that does not seem quite right or seems too good to be true or you think you have been a victim of fraud, speak with an attorney. Without independent counsel, you may end up with less (or, perhaps, more) than you bargained for.

 

 

David S. Veleber is title counsel for CT Attorneys Title Insurance Company and is a member of CT Mortgage Bankers Association and is on the CMBA Closing & Compliance Committee.