» Mortgage Fraud

Mortgage Fraud

In plain English, mortgage fraud is when someone misrepresents or forgets to include information on a mortgage loan application to a) get a loan in the first instance or b) get a bigger loan than they could have gotten had the potential lender known the true facts.

In the United States, mortgage fraud on the federal level is usually prosecuted as money laundering, wire fraud, mail fraud and bank fraud, and the penalties may run up to 30 years in prison. With the dramatic increase of mortgage fraud, many states are now enacting their own penalties for this crime.

Mortgage fraud is not the same thing as predatory mortgage lending, which happens when a consumer is deceived by the lender. However, it often goes hand-in-hand with mortgage fraud.

There are a number of different types of fraud, which include income fraud, occupancy fraud, employment fraud, failure to disclose liabilities, appraisal fraud, fraud for profit, shotgunning, cash back schemes, identity theft, working the gap and falsifying loan applications done by the lender.

Income fraud: borrowers overstate their income to qualify for a mortgage or bigger loan

Occupancy fraud: when borrowers want an investment property and say they will live there, thus getting a lower interest rate.

Employment fraud: borrowers say they are self-employed and run a non-existent company, or state their position as owner/president in a real company, but do not hold that position.

Failure to disclose liabilities: borrowers hide their true financial obligations to lower the monthly debt they show on a loan application.

Appraisal fraud: when a property is deliberately overvalued or undervalued.

Fraud for profit: a group of people, often including mortgage lenders, trying to defraud the lender of big amounts of money.

Shotgunning: when various lenders for a total approve multiple loans for the same property massively over the actual property value.

Cash back schemes: illegally inflating the real price of a property to offer cash-back to borrowers; a rebate not revealed to the lender.

Identity theft: using someone else’s identity to get a mortgage.

Working the gap: extreme lien stacking on a specific property, with incredibly short timeframes, done by serial recording of assignments of note or deeds of trust.

Falsifying loan applications done by the lender: when a borrower applies for a mortgage but has a low income, and the lender falsifies the monthly income without the borrower’s knowledge to get them approved.