Intro to Mortgage Fraud
"Mortgage fraud" is an overly-broad term for fraud involving a mortgage. I say "overly broad" because mortgage fraud isn't limited to one type of scam; rather (and unfortunately), crooks seem to come up with new types of mortgage fraud on an almost daily basis. It's also important to realize that mortgage fraud can be perpetrated by many different parties, including (but probably not limited to) home buyers, home sellers, lenders, real estate attorneys, closing agents, realtors, appraisers, and mortgage brokers.
Let me give a couple of examples of mortgage fraud:
1. In order to get a loan, a home buyer makes false statements on his loan application ("my annual income is $100,000," when it's actually $50,000) or when signing the closing documents. One popular false statement is for the home buyer to claim that he or she will occupy the property when in fact he or she is an investor, and plans to rent out the property. (Interest rates for investment property are higher than they are for owner occupied property, so the home buyer is lying in order to get a better interest rate.) Note that, in the never-ending quest for a commission, the home buyer's mortgage broker may be encouraging or assisting the home buyer in making false statements to the end lender.
2. Another mortgage fraud scam is known as "flipping," and works something like this: A person (let's call him Sam) buys a distressed property for $60,000. Sam does a very minimal amount of work to the property and, two months later, lists it for sale at $90,000. A friendly (and crooked) appraiser appraises the property at $90,000, and a buyer makes a bid (after having secured an $80,000 mortgage). Once the deal is done, the buyer -- and his or her lender -- discover that the property isn't actually worth $90,000. The buyer and his or her lender are then stuck -- the buyer can't sell the property without losing money (neither can the lender), and the buyer may also not be able to afford his or her mortgage payments.
Cases of mortgage fraud seem to be on the rise in this strong real estate market, and threaten the strength of this real estate market (and, potentially, the economy as a whole). To get a better feel for mortgage fraud, you may want to check out The Mortgage Fraud Blog.
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