Mortgage fraud – How to recognize

Mortgage fraud is accomplished through the use of false documents, identity theft, straw buyers, and sometimes the witting or unwitting assistance of real estate professionals. To protect themselves and their clients, real estate agents must be able to distinguish between legal and illegal mortgage practices.  There are a number of different ways in which the real estate agent may inadvertently become involved in these schemes or involve their seller clients.  Agents may be asked to interfere in the appraisal process, alter or not include parts of the purchase agreement that is provided to the lender or Title Company, intercept verifications of income or employment history or help out by hand carrying verifications provided by the buyers or others working with the buyer.  Any of these activities could be a part of a mortgage fraud scheme. 

Some common examples of mortgage fraud as described by the FBI include:  

Property Flipping – Property is purchased, falsely appraised at a higher value, and then quickly sold. What makes property flipping illegal is that the appraisal information is fraudulent. The schemes typically involve one or more of the following: fraudulent appraisals, doctored loan documentation, inflating buyer income, etc. Kickbacks to buyers, investors, property/loan brokers, appraisers, title company employees are common in this scheme. A home worth $200,000 may be appraised for $400,000 or higher in this type of scheme.

Silent Second – The buyer of a property borrows the down payment from the seller through the issuance of a non-disclosed second mortgage. The primary lender believes the borrower has invested his own money in the down payment, when in fact, it is borrowed. The second mortgage is usually not recorded to further conceal its status from the primary lender.

Nominee Loans/Straw Buyers – The identity of the borrower is concealed through the use of a nominee who allows the borrower to use the nominee’s name and credit history to apply for a loan.

Fictitious/Stolen Identity – A fictitious/stolen identity may be used on the loan application. The applicant may be involved in an identity theft scheme: the applicant’s name, personal identifying information and credit history are used without the true person’s knowledge.

Inflated Appraisals – An appraiser acts in collusion with a borrower and provides a misleading appraisal report to the lender. The report inaccurately states an inflated property value.

Equity Skimming – An investor may use a straw buyer, false income documents, and false credit reports, to obtain a mortgage loan in the straw buyer’s name. Subsequent to closing, the straw buyer signs the property over to the investor in a quit claim deed which relinquishes all rights to the property and provides no guaranty to title. The investor does not make any mortgage payments and rents the property until foreclosure takes place several months later.

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