Everything To Know About Mortgage Fraud

The risk of mortgage fraud is up by 8.3% from last year. California has seen the highest increase at 14.6%, nearly double the national average. When you are buying a house, taking a mortgage is one of the steps you should take. However, the real estate space is a lucrative target for fraudsters.

Mortgage fraud usually preys upon unsuspecting lenders or homeowners, leading to emotional and financial crises. It is a serious legal offense, and it can be avoided if you have a good real estate attorney. reAlpha can lead you to vetted real estate attorneys near you.

Mortgage fraud is a white-collar crime that involves illegal or deceptive practices that take place during the mortgage lending process. This takes place when a lender, appraiser, broker, or borrower intentionally provides misleading information to get a mortgage loan.

There are two primary categories of mortgage loan fraud which are:

1. Fraud for property- The fraud is committed by borrowers to maintain the ownership of a property. For example, a home buyer may lie about the employment status, property value, and other aspects. This lets them obtain loan approval at favorable loan conditions.

2. Fraud for profit- The fraud is committed by appraisers, mortgage bankers, bank officers, and real estate agents. They use their knowledge to facilitate mortgage fraud during the lending process to make a monetary gain. 

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There are different types of fraud when you are mortgaging a home. They include:

In property flipping, a property is purchased at a low price and sold at higher prices. This is done using false appraisals or misleading documents that inflate the value of the property.

In equity skimming, an investor may use somebody to purchase a property on their behalf. After the person obtains the property, they will pass the property to the investor through a quitclaim deed. So, all the rights of the property and the guarantee of title are dissolved. The investor can rent out the property without the need to make any mortgage payment until its foreclosure.

In this fraudulent mortgage, the loan applicant can rent out or borrow somebody else's assets. This is a ploy to make the lender feel they are qualified for the mortgage.

In this loan fraud, an individual can use a false identity to apply for a mortgage loan. The identity is attained from stolen personal information or fabricating identity to fool the lender.

In a foreclosure scam, vulnerable homeowners are targeted. They may be led to believe that they can save their home from defaulting by putting the name of a third-party investor. The mastermind can profit from selling the property under a false appraisal and stealing the proceeds.

An inflated appraisal takes place when the value of the property is overstated in the appraisal report. The fraud can be committed by an appraiser with the help of other professionals, including a mortgage banker or the bank.

The punishment for mortgage fraud can vary from different jurisdictions and the severity of the offense. The common fines associated with them are:

• Individuals convicted of mortgage fraud can be imprisoned. The length of the sentence varies on the scale of the fraud or any financial losses incurred.
• Mortgage fraud cases incur monetary penalties. The fines depend on the financial losses incurred by the investor, lender, or other parties.
• A court may ask the convicted mortgage fraudster to pay restitution to victims based on the extent of the damages.
• In certain cases, individual assets, properties, or funds can be seized by the authorities.
• An individual may also face civil lawsuits if they are involved in loan fraud.

The best way to avoid mortgage loan fraud is to be responsible during the homebuying process. Follow the best practices to protect against falling prey to mortgage scams.

• You need to deal with reputable brokers, mortgage lenders, or real estate attorneys who are well-versed in these transactions.
• Diligently verify the information of the mortgage process. Check out online reviews and references of mortgage professionals to get better insights about their offering.
• Do a title search to confirm who owns the property and check for any property debts.
• Review the final loan documents and ensure the information is accurate.
• Review the property tax assessment to get a better assessment of the property's value.

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Mortgage fraud is illegal and can be a scary prospect for homebuyers. It entails the falsifying of loans, trying to profit from the mortgage loan process. You may be a target of mortgage loan scams if you don’t know how to avoid them.

When you are taking a mortgage, you need to understand all the risks and check out for potential red flags. Consult a real estate attorney to review your paperwork before closing a property.

With reAlpha, you can receive a significant portion of the buyer agent commission back while gaining access to AI-powered insights on affordability, the right time to buy, and market forecasts.

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