Mortgage 101: Common Mortgage Fraud
Mortgage Fraud Basics
Generally speaking, mortgage fraud is the process by which one uses illegal or nefarious means to receive a loan that is larger than otherwise would have been issued based on one’s ability to borrow money, credit rating, and other important factors. This type of fraud can be committed in a number of different ways, often through sheer ignorance or laziness surrounding the many steps and procedures necessary to obtain a mortgage loan. More importantly, you can become a victim of mortgage fraud if you are not aware of what signs to look for. Mortgage fraud is a federal crime, and one for which a convicted fraudster can serve up to 30 years in prison, along with paying some hefty fines. There are many types of mortgage fraud one can commit, and many ways to avoid them. Read on for a list of the most common types of mortgage fraud, and what you can do to steer clear of trouble.
This type of identity theft is much worse than having your credit card stolen. Identity theft in the realm of mortgage loans means that someone has stolen your identity in order to get a loan that they otherwise could not have gotten. Fortunately, this is avoidable if you carefully protect your personal and financial information, both online and off. This is also a key reason why prospective homebuyers should carefully monitor their credit.
Income is one of the most important factors that real estate agents and lenders use to determine whether or not you are eligible for a mortgage loan. This also means that many potential homebuyers falsify their income so they can “afford” a loan that is much higher than they can actually afford to pay back. Avoid this pitfall by remaining honest on your W-2 forms, tax returns, and bank account summaries.
This occurs when potential borrowers state on their applications that they are the primary resident of their home and/or that they use it as a second home when in actuality they intend to utilize the property as purely an investment. Lenders typically charge higher rates for non-occupied properties.
Another way mortgage fraud is committed is when a home is purposefully and deceitfully over- or under-appraised. This means that if the appraisal value is over-stated, then the borrower receives more money that he can use for personal gain. When the appraisal is understated, the borrower can obtain a lower price on a foreclosure. Either way, the appraiser who aids the potential purchaser receives a portion of the check, and foreclosure happens almost immediately.
There are also other ways in which mortgage fraud can occur with industry professionals. These may involve multiple loan transactions and confabulations, including a number of misrepresentations of income, occupation, and other information. This does not occur often, but it does happen.
Avoid These Tragic Mishaps
It is easy to avoid these tragic instances of mortgage fraud by being careful and responsible with your personal and financial information. Another way to be safe is to remain in close contact with your bank, real estate agent, and lender throughout the entire home buying process. It is also important to research the integrity of your real estate agent, your lender, and anyone else involved in assisting with the purchase of a home.
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