Mortgage Fraud

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Mortgage Fraud

Definition of Mortgage Fraud

Mortgage fraud is often done with the goal of getting a loan approved for a higher amount than would have been allowed if the application had been conducted honestly. by, for instance, knowingly providing false information on a mortgage application. Schemes involving mortgage fraud include duplicate sales, air loans, and straw purchases.

In addition to organized scams on a big scale, individuals can conduct mortgage fraud. “Operation Malicious Mortgage” was launched in 2008 as a special operation by the U.S. Department of Justice and the Federal Bureau of Investigation (FBI) to look into and prosecute 144 mortgage fraud cases. Mortgage fraud is punishable by penalties, restitution, and jail time, with sentences averaging 28 months. Mortgage fraud falls into two categories.

Click Play to Learn All About Mortgage Fraud (And How to Avoid It)

Fraud for profit

The perpetrators of this kind of fraud are often those with intimate information or power in the sector. These insiders include of loan originators, bank officials, appraisers, mortgage brokers, lawyers, and other professionals working in the mortgage sector. Fraud for profit uses the mortgage loan procedure improperly to steal money and equity from lenders or homeowners instead of securing homes. For-profit fraud cases are given top priority by the FBI.

Fraud for housing

This kind of fraud is often characterized by wrongdoing committed by a borrower driven to obtain or preserve home ownership. For instance, the borrower can lie about their assets and income on a loan application, or they might pay an appraiser to inflate the worth of a property.

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Breaking Down Mortgage Fraud

Mortgage fraud is a kind of financial crime that includes altering loan paperwork or attempting to benefit unlawfully from the mortgage loan process in other ways. According to the FBI, mortgage loan fraud is defined as a substantial untruth, misrepresentation, or omission on which a lender relies. Mortgage fraud refers to a deception that affects a bank’s choice, such as whether to grant a loan, accept a lower payback amount, or agree to certain repayment arrangements. The definition of mortgage fraud has been expanded to encompass fraud that targets troubled homeowners by the FBI and other enforcement organizations tasked with looking into the crime, especially in the aftermath of the 2008 housing market collapse.

Other kinds of mortgage fraud outside lying on a loan application include:

  • The genuine buyer or the true nature of the transaction is concealed by straw purchasers, who are loan applicants employed by fraudsters to get mortgages.
  • An air loan is a loan made to a fictitious or straw buyer for an unrealized asset.
  • When a mortgage note is sold twice, it is to different investors.
  • When a property is acquired and then resold at an artificially increased price using a falsely inflated assessment, this practice is known as “illegal property flipping.”
  • Ponzi, investment club, or chunking scams include the selling of properties at inflated prices that are then marketed as investment possibilities to gullible real estate investors who are promised absurdly large returns and few risks.
  • A builder bailout occurs when a seller offers the buyer significant financial incentives while also raising the sales price, hiding the incentive, and utilizing an artificially inflated appraisal to permit a larger loan amount.
  • When a homeowner is current on their mortgage but their house is underwater (whose value has dropped below the amount owing), they apply for a purchase-money mortgage on another property. The borrower who will purchase and bail will permit the original house to enter foreclosure once the new property has been secured.
  • Foreclosure “specialists” who guarantee to assist the borrower in avoiding foreclosure are involved in a foreclosure rescue scam. Many times, borrowers pay for services they never get and end up losing their houses.
  • The goal of short sale fraud is to prevent the servicer from making an educated short sale decision by hiding dependent transactions or fabricating crucial information, such as the real worth of the property.
  • An untrue purchase offer is made by the homeowner’s accomplice (straw buyer) in a non-length arm’s short sale scam in an effort to deceitfully lower the debt on the property and let the borrower to stay in their house.
  • In a short sale flip scam, the offender tricks the lender into allowing a short payback while hiding a quick contingent sale to a pre-arranged end buyer at a much higher sales price.
  • In a reverse mortgage scam, the criminal tricks an elderly person into taking out a reverse mortgage and then steals the money from the victim.
  • Affinity fraud takes advantage of the camaraderie and trust that exist in groups that are united by a shared interest. Groups that are connected to race, religion, career, or age are often targeted.
  • When a borrower commits reverse occupancy fraud, they purchase a house as an investment and declare the rent payments as income in order to be approved for a mortgage. The borrower then uses the property as their main residence rather than renting it.
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