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3 Types of Mortgage Fraud

Posted on February 26, 2014 by Mintzer Law

Once the nationwide shock over the collapse of the real estate and mortgage markets subsided, federal and state officials began to see an increase in complaints of mortgage fraud. The Federal Bureau of Investigation noted that those involved in the planning and execution of mortgage fraud schemes included:

  • Mortgage brokers and mortgage lenders
  • Real estate appraisers
  • Mortgage underwriters
  • Real estate brokers and sales agents
  • Real estate developers and builders

Prosecutors and investigators observed an increase in mortgage fraud involving loan applications and origination, but they also reported an increase in fraudulent schemes involving:

  • Foreclosure rescue
  • Investment in real estate
  • Short sales
  • Flipping property illegally
  • Reverse mortgages
  • Loan modifications

Legislators in Texas believed the widespread mortgage fraud in the state was so great that they approved legislation to create the Residential Mortgage Fraud Task Force under the state attorney general. The task force is authorized to crackdown on mortgage fraud through investigations and prosecution.

1) Falsification of Documents or Information

Mortgage fraud at the loan origination level usually involves the falsification of a borrower’s income or misrepresenting employment to permit the person to qualify for a mortgage loan or qualify for to borrow more money than their true income might allow. It can also involve inflating the value of the property to be mortgaged through the use of a phony appraisal.

This type of fraud frequently includes participation by a borrower, a mortgage broker and a real estate appraiser working together to deceive a lender. The criminal conduct might include the falsification of employment records and tax documents to make it appear that a borrower employed in a better paying position than might actually be the case.

2) The Use of Straw Buyers

Straw buyers accept cash payments in return for their cooperation in pretending to be the buyer of real property. This form of mortgage fraud is usually perpetrated by industry insiders such as mortgage brokers or other real estate professionals with access to a loan processor or underwriter at a lending institution who is willing to cooperate in the scheme.

The mortgage lender is presented with documents making it appear as if the seller, who is involved in the scheme, is selling to the straw buyer. By inflating the appraised value of the property, the buyer can qualify for a higher loan than one based on the true value of the property. Once the loan closes, those involved in the scheme take the money and leave the phony buyer to default on the loan.

3) Property Flipping

Buying a home in need of repair as an investment, making repairs to increase its market value and selling it at a profit is also known as flipping property. Flipping is a legitimate investment opportunity until the parties involved in the transaction use a fraudulent appraisal to inflate the market value of the improvements performed on the property.

Mortgage Fraud Lawyer

Mortgage Fraud is a serious offense with severe consequences. Just about anyone who has gotten in trouble with mortgage fraud will tell you that you need a proficient criminal defense attorney to walk you through the legal process. Contact Rand Mintzer today by calling 713-862-8880.