There are many forms of fraud out there, with scammers and fraudsters inventing all kinds of methods and techniques to trick their way into profits and gains. Mortgage fraud is just one example, and it’s becoming more frequently talked about in modern times, but what exactly is mortgage fraud and how does it work? This guide will introduce you to the basics, with some illustrative examples to help you understand.
The term ‘mortgage fraud’ is quite a broad one, applicable to a wide range of activities, all of which involves some sort of deceit, manipulation, or false claims designed to help someone to get, fund, or insure a loan of some kind. This type of fraud can be committed by both lenders and applicants, with the likes of brokers, real estate agents, and home-buyers all being potential fraudsters.
What’s more, there are many cases in which perfectly innocent individuals or parties become involved in mortgage fraud cases unwillingly. For example, someone looking to buy a home or refinance their mortgage might take advice from a lender, believing them to be trustworthy, but not realizing that they’re actually being instructed to commit fraud in order to benefit the lender.
In general, we can split mortgage fraud into two main forms: those that target lenders and those that target consumers. The former type of mortgage fraud is aimed at trying to get loans or mortgages fraudulently, while the latter variety is seen when lenders or brokers take advantage of consumers for their own gains.
Since a mortgage is usually the biggest loan a person will ever take out in their entire lives, it stands to reason that mortgage fraud can be immensely damaging and life-altering for those involved. It can be very harmful to people on both sides of the equation, including lenders and borrowers too.
Those who are trying to borrow money, for example, may fall victim to mortgage fraudsters who put these people in terrible financial situations, from which there is almost no feasible escape. This can lead to homeowners going deep into debt, losing their homes, or, in less severe cases, paying more than they really needed, simply to line the pockets of the fraudulent party.
Lenders, too, can be damaged by consumers who try to trick them with deceitful applications and fraudulent schemes. For example, a consumer who supplies false information in order to get approved for a loan may be less likely to pay it back later on. This can put the lender at greater risk of default.
In order to truly develop a thorough understanding of how mortgage fraud works, it helps to look at some simple examples. Here are a few techniques that fraudsters may use:
Typically, when it comes to securing a mortgage, applicants will need to prove that they earn sufficient income to cover the costs of repayments. Lenders, however, can be more lenient and will often approve buyers who can provide a down payment.
In some cases, home sellers will actually give the borrower the money to cover this down payment, making it appear that the borrow is in a better financial situation than they really are and tricking the lender into approving the mortgage.
A common method of mortgage fraud is for applicants to lie about how much money they have in savings or how much they earn each year. This is especially common among the self-employed, who have to do their own taxes in a different way to employed individuals.
Self-employed people can lie on their tax forms, failing to note down their full income in order to pay less tax. These individuals can also claim to earn more than they really do when making loan applications, and lenders will make decisions based on these fraudulent figures.
Reverse mortgages are technically legal but can be used for fraudulent purposes. A common scheme is for the fraudster to buy an abandoned or foreclosed property in a straw buyer’s name. They’ll then hand over the deed of the property to an elderly individual, lying about the nature of the exchange.
Once the elderly person has lived in the home for a couple of months, the fraudster will instruct them to apply for a reverse mortgage and make arrangements so that the lump sum payment goes directly to themselves or via the straw buyer. They can then abandon the site, leaving a distressed senior citizen completely unaware that they’re in a home that hasn’t even been paid for.
Mortgage fraud is becoming increasingly prevalent in modern times, and it’s vital for everyone, from lenders to borrowers, to be aware of the risks and act with care whenever mortgages are concerned.