How familiar are you with mortgage fraud?
The aim of mortgage fraud is to receive a larger loan amount than you are qualified for through deceptive means. Below are the most common types of mortgage frauds:
1. Title Theft
Title theft is the most common type of mortgage fraud. Better known as identity theft, this involves someone impersonating you using your personal information such as date of birth, name, social insurance number, etc. They then approach a lender to obtain as much credit as they can get, leaving you to clean up the mess.
By stealing the identity of a person, identity thieves then proceed to illegally refinance or sell the property.
2. Income Fraud
Income fraud is another common type of mortgage fraud. This type of fraud involves overstating one’s income to qualify for a mortgage. Upon realizing they do not qualify for a particular mortgage amount, some people falsify their income documents.
This could include falsifying bank statements or pay stubs. Others intentionally avoid disclosing all their debt.
3. Employment Fraud
There have been cases where mortgage applicants provided false employment information. For instance, some claim to be self-employed while in the real sense they are salaried employees or vice versa. Others provide details of a non-existent business, while others lie about their workplace.
A similar type of employment fraud is the boiler room fraud, which involves attempts to validate employment for non-existent companies.
4. Straw Borrowing
In straw borrowing, you voluntarily allow another person to use your name, credit, date of birth, and social insurance number to obtain a mortgage. This type of mortgage fraud is different from title theft, where one’s personal information is stolen instead.
Under normal circumstances, such a person would not qualify for a mortgage. In this case, although you are the purchaser, you have no intention of controlling or using the purchased home. Straw buying is largely illegal.
5. Occupancy Fraud
One commits this type of mortgage fraud if they claim they are looking for owner occupancy, but they actually intend to use the house as a source of rental instead.
6. Inflating Property Value
Providing a lender with an overstated property value is fraudulent activity. Lenders will base their mortgage decisions on the stated value of the property. Providing them with the wrong information is not only unlawful, but it also distorts property market prices.
7. Using a Mortgaged Property for Illegal Activities
It is mortgage fraud to use any unit of real estate for illegal activities. For instance, if illegal substances are produced in a mortgaged property, this is considered serious mortgage fraud.
8. Foreclosure Rescue Fraud
A homeowner in default (or about to default) may respond to an advertisement that offers help to bring mortgages up to date. Usually, they are advised to remain in their property as a tenant and lured into handing over the ownership of their property to the fraudster, who imposes unreasonable terms that a homeowner is unlikely to meet.
As a result, the house is eventually lost to the fraudster, including whatever equity the rightful owner could have laid claim to.
Technically, flipping is a legal activity. The illegal flip begins with a fraudulent appraisal that could indicate renovations were done when in fact they were not. In some cases, the appraisal could indicate renovations were done but in reality, only a few cosmetic changes were made. The fraudulently appraised house is then quickly sold at an inflated price.
This is mortgage fraud because the cosmetic changes amount to an attempt to deceive and lure clients into buying the house at an inflated price and to deceive the lender into approving a mortgage on an overvalued house. Ideally, if you buy a flipped house, you will be paying more than what the property is worth.
10. Appraisal Fraud
As noted above, it is possible for a home to be appraised for more than it’s worth. The home’s value is deliberately inflated beyond the fair market value. In some cases, this is done to help the seller get a price that does not reflect the fair market value of the house or help a buyer receive the desired mortgage by duping the lender into believing the property is worth the erroneously appraised price.
Another common form of appraisal fraud involves altering details of an honest appraisal using digital editing software or bribing officials.
11. Air Loan Fraud
This is one of the most serious types of mortgage frauds in the market. It involves a mortgage broker inventing a non-existent borrower and property. The broker then proceeds to profit from a ‘completed transaction’ to a property that only exists on paper.
Since both the borrower and the property are not real, the broker could dupe a lender by creating mailboxes and fake phone numbers to be used to “verify”, the “borrower’s” home address, credit history, employment, etc. This deception could extend to the property’s value and title history.
The sad thing is that such an ‘air loan’ will ultimately go into default since there is no one paying the mortgage. As a result, the lending institution loses everything since there is no property to hold as collateral. They also cannot sue the ‘borrower’ since he or she does not exist.