Home Buyers Beware of Mortgage Fraud

Let's say you want to buy a house in the current down economy. Beware of unethical real estate agents who might try to get you involved in illegal and unethical deals that constitute mortgage fraud, in an attempt to make your buying a home sound more appealing. If you are already a home owner and are behind in your payments, be especially aware of anyone that wants to "rescue" you, because that person may also be involved in mortgage fraud.

In the current slow economy, there are a lot of such people trying to take advantage of buyers. Because you may not know any better, some sellers may try to get you to hedge numbers or slant the facts in some way and tell you what they are doing is no big deal. If you allow a seller to get you involved in a mortgage fraud scheme, you might face having to pay immediately for your six figure loan, pay fines of hundreds of thousands, or possibly go to jail. If something sounds too good to be true, it probably is, and you should report those involved in any fraudulent scheme to the police or FBI.

Suppose someone offers to lend you the money to pay the down payment on your house. Naturally, there is a catch. He wants there to be a silent second mortgage, which he won't report to the lender. If such a deal is not disclosed in your purchase contract, addendum, or closing statement, that is mortgage fraud.

Again, if a seller offers to give you a large amount of money to make an improvement, such as buying new carpeting or a new roof but does not want to report it on the purchase contract, closing statement, or addendum, that is illegal. It is mortgage fraud.

If you falsify your income in any way on documents, that is mortgage fraud. One type of loan is a stated income loan. That was created especially for self-employed people, because their incomes are difficult to prove, but one can get in trouble for misstating his income.

Don't allow a seller to offer you a "gift" to pay for a down payment to buy a house, if he expects the money to be repaid. You and the seller would be committing mortgage fraud. A gift is a gift in the eyes of the law.

Don't ever claim you will occupy a house if you won't. Lenders do not offer terms that are as good for someone who is not an owner but occupies a house. Their risk is greater.

Beware of a seller who wants two purchase contracts, one with a higher sales price than the other. It is mortgage fraud in such cases to send the contract with the higher purchase price to a lender to get a higher appraisal.

If there is no earnest money deposit when purchasing a house, it is illegal to state that such a deposit was paid out of escrow.

Don't think that whatever a seller does is fine because he has been in business a long time. One mortgage broker in Pennsylvania was sentenced to 30 years in prison after defrauding more than 800 borrowers. He had been involved in his Ponzi scheme for 20 years.

According to the FBI, one reason there is so much mortgage fraud, besides the bad economy is a lack of mandatory fraud reporting.

"A significant portion of the mortgage industry is void of any mandatory fraud reporting, the FBI reported in its official publication," Financial Crimes Report to the Public."In addition, mortgage fraud in the secondary market is often under reported. Therefore, the true level of mortgage fraud is largely unknown. The mortgage industry itself does not provide estimates on total industry fraud. Based on various industry reports and FBI analysis, mortgage fraud is pervasive and growing."

"Property flipping is best described as purchasing properties and artificially inflating their value through false appraisals," the report described one type of fraud. "The artificially valued properties are then repurchased several times for a higher price by associates of the 'flipper.' After three or four sham sales, the properties are foreclosed on by victim lenders. Often flipped properties are ultimately repurchased for 50 - 100 percent of their original value."

Freddie Mac, a federally charted organization that is government subsidized and which purchases mortgages, also reports that mortgage fraud is becoming more common.

If you are already a home owner and are behind in your payments, beware of anyone that wants to help you out of your situation. One type of mortgage fraud involves someone offering to buy your home and let you stay on as a renter, until your financial situation improves. Supposedly, you will then have the opportunity to buy the home back.

Under the scheme, you will have to deed the property to an investor, who invests in real estate property. The scam artist will use the proceeds of the sale to pay off the delinquent loan and remove all equity in your house. You will never see that equity again. You will only be a renter in the home, and the person who "helped" you out will not make payment on the house he now owns. After the crook defaults on the loan, you will be evicted from the house you once owned.

There are various types of the above scheme, so beware of any stranger who wants to rescue you. Also beware of any unsolicited mail or phone calls about your situation.

If you are thinking of buying a home or are already a home owner and are behind in your payments, beware of scam artists and mortgage fraud. You will be glad you did.

Citations:

Mortgage Fraud - How to Avoid Mortgage Fraud, by Elizabeth Weintraub, Homebuying.about.com

Financial Crimes Report to the Public, no author listed, FBI.gov

Mortgage Fraud Schemes, no author listed, Freddiemac.com