Mortgage Fraud Frequently Asked Questions
What exactly is “mortgage fraud”?
Mortgage fraud is the intentional misstatement, misrepresentation, or omission by an applicant or other interested parties relied on by a lender or underwriter to provide funding for, to purchase, or to insure a mortgage loan. Combating mortgage fraud effectively requires the cooperation of law enforcement and industry entities. No single regulatory agency is charged with monitoring this crime. The FBI, the Department of Housing and Urban Development-Office of Inspector General (HUD-OIG), the Internal Revenue Service, the Postal Inspection Service, and state and local agencies are among those investigating mortgage fraud.
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I pay my mortgage on time. Why should I care?
You should care because this kind of fraud affects the entire economy. Much of the recent recession can be blamed on the national “mortgage meltdown.” As housing prices stabilized or fell, lenders were left with too many shaky loans for properties that were overvalued. These bad loans forced the lenders into a dire financial situation, and they, in turn, helped bring down the entire U.S. economy.
Is property flipping illegal?
Property flipping—buying a house, fixing it up, and selling it for more than the original purchase price—itself is not illegal. However, when the owner uses false appraisals and fraudulent loan documents, he has crossed the line into illegal behavior. As an example: a person buys a property for $100,000 and has it fraudulently appraised at $200,000. The person then sells the property for $200,000 to a “straw buyer” who gets an 80 percent loan from a lender (a $160,000 loan). The subject pockets the difference between the original purchase price he paid and the loan proceeds he received ($160,000 - $100,000 = $60,000 profit). The bank eventually repossesses the home and is left with a $160,000 mortgage on a $100,000 house. If the loan was FHA-insured, the government absorbs the loss.
What is a foreclosure scam?
These scam artists target the most vulnerable homeowners, promising them they can help save their home and get back on solid footing. In the end, the homeowner loses even more money plus the home. Often times, the subject will take an up-front fee and transfer the title of the house to himself. You think you are making payments, but he pockets the payments and sends nothing to the lender. Eventually, the lender forecloses and you lose your money and your house.
I am going through foreclosure. What precautions should I take?
There are several steps you should consider:
1. Only work with a non-profit HUD-approved counselor. You can find a list of local HUD-approved counseling agencies at www.hud.gov.
2. Look for counselors who don’t require hundreds—or thousands—of dollars in fees. Most will do no-cost or very low-cost counseling. Do not pay a fee before the counselor helps you.
3. A reputable counselor will not guarantee success. Every case is different, and no one can say for sure whether or not you will be able to keep your house. Also, make sure you get everything in writing.
4. Make sure you understand any paperwork the counselor wants you to sign… and don’t sign any blank forms. Talk to an attorney if the counselor asks you to transfer the title of your home to another party.
What is a “mortgage debt elimination scheme”?
These solicitations usually come in the form of an e-mail or web-based ad. The scammer says you can eliminate your mortgage loans, credit card, and other debts if you pay an up-front fee (sometimes in the thousands of dollars) for him to prepare the documents needed. Terms you may see include “declaration of voidance,” “bond for discharge of debt,” “bill of exchange,” or “redemption certificate”. Bottom line: there is no easy way to get rid of debt. You end up with your original debt—plus the loss of the funds paid to the scammer.
What is a “predatory lending scheme”?
Predatory lending schemes involve a lender who encourages or pressures a borrower into a mortgage that he can’t afford, that involves excessive fees or interest rates, that strips the borrower of equity or puts the borrower into a risky loan.
What is a “straw buyer”?
A scam artist will find a “straw buyer” to “purchase” a home that the buyer has no intention of ever living in. The subject may pay the buyer a few thousand dollars to sign the fraudulent mortgage documents, and in return, the subject makes tens of thousands more. Here’s an example: The subject identifies a house close to foreclosure. The straw buyer “purchases” the home, but immediately defaults on the mortgage by never making a payment. The subject goes to the lender and arranges a short sale—meaning the lender takes much less than is owed on the house. The lender never knew the short-sale (and resulting loss) were pre-meditated. The subject turns around and sells the house for full value.
How can I protect myself from any kind of mortgage fraud?
1. Get referrals for real estate and mortgage professionals. Check their licenses with state, county or city regulatory agencies.
2. Be wary of strangers and unsolicited contacts. Don’t fall for high-pressure sales techniques.
3. Understand what you are signing and don’t sign blank paperwork. Seek out an attorney if you are unsure what the paperwork means.
4. Make sure your broker/lender/appraiser use your legal name and other identifying information on any applications or paperwork.
5. Review the title history of the home you are buying to determine if the property has been sold multiple times within a short period of time. It could mean that this property has been “flipped” and the value inflated.
6. Check recent comparable sales in your area as well as documents, such as tax assessments, to verify the value of the property.
7. Be wary of “no money down” loans. This is sometimes a gimmick to entice consumers to purchase property they likely cannot afford or are not qualified to purchase.
8. Do not allow a lender or broker to inflate your salary, employment or net worth to help you qualify.
9. If it sounds too good to be true, it probably is!!