Types of Mortgage Fraud
Fraud for Housing/Property: involves illegal actions such as minor misrepresentations regarding income or employment history by the loan applicant for the purpose of acquiring a primary residence under false pretenses.
Although borrowers in this case may exaggerate income and conceal debt, they usually have all the intentions of repaying the loan.
Fraud for Profit or Industry Insider Fraud: involves about 80% of all reported mortgage fraud losses. This category of fraud is more serious and is of most concern to law enforcement and the mortgage industry.
Fraud for profit involves multiple loans, gross misrepresentations concerning appraisals and loan documents and elaborated schemes to gain illicit proceeds from property sales, such as: revolving equity, falsely inflating the value of the home, or issuing loans based on fictitious properties.
People involved in this type of scheme are frequently paid for their participation. Until recently, perpetrators seized the opportunity to take advantage of the relaxed lending practices to commit fraud for profit.
Professionals who are familiar with the mortgage loan process such as mortgage brokers, accountants, and lenders are the most common suspect occupations associated with this relatively low-risk, high-yield criminal activity.
Illegal property flipping is the most common form of mortgage fraud, involving false appraisals and other fraudulent loan documents.
ILLEGAL PROPERTY FLIPPING EXAMPLE:
- Perpetrator/house flipper buys a house for 40.000 Dollars.
- House flipper has the house illegally appraised for 160.000 Dollars.
- House flipper sells the house for 160.000 Dollars to a straw buyer who obtained a 80% loan of $128.000 given the perpetrator a profit of $88.000 Dollars.
- House usually results in delinquency, default, or foreclosure.
- The bank/financial institution is left with a $128.000 mortgage on a $40.000 property for a loss of 88.000 Dollars.
The recent rising on foreclosures in America has created a new scheme aimed to exploit and defraud vulnerable homeowners seeking financial guidance: The Foreclosure Fraud.
The Foreclosure Rescue: Upon payment of up-front fees, the perpetrator convince homeowners that he can save their homes from foreclosure through deed transfers. This involves manipulation of the deed process and preparation of forged deeds.
In some cases, schemers will sell the property or obtain a second loan without the property owner’s knowledge.
Foreclosure-rescue scams are also being used as a new method for fraudulently acquiring properties to facilitate illegal property-flipping and equity-skimming.
Predatory lending is the process of forcing lower income and challenged credit borrowers to pay exorbitant loan origination/settlement fees, sub-prime or higher interest rates, and unreasonable service fees which result in forced refinancing, mortgage payment default or foreclosure.
Falsified information frequently used:
Fraudulent appraisals, created W-2s, pay stubs, credit letters, social security printouts to obtain mortgages in the names of straw purchasers.
Mortgage Fraud Penalties
Although there is no federal mortgage fraud statute, this type of fraud can be charged as bank fraud when a federally insured bank is involved, or may be charged as wire fraud/mail fraud if involving an institution not insured by the FDIC.
In some states mortgage fraud is charged as GRAND THEFT theft or covered by specific statute in others.
People involved in these types of fraud are usually convicted on conspiracy, bank fraud, wire fraud, and money laundering charges with up to 30 years in prison sentencing and up to 1 million Dollars in fines.