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Former Assistant District Attorney
Former Assistant U.S. Attorney

How to avoid exposure to mortgage fraud

On Behalf of | May 11, 2020 | Firm News

Real estate transactions involve many consumers and professionals: buyers, sellers, appraisers and brokers. If you work in the mortgage lending field, potential offenders may expose you to fraudulent activity. 

Mortgage fraud can have serious consequences. If you believe authorities are targeting you in an investigation, taking action quickly can make a huge difference in your future. Protect yourself by understanding as much as possible about mortgage fraud. 

What is mortgage fraud? 

Law enforcement agencies consider any misrepresentation, misstatement or omission as fraud. In the case of mortgage fraud, this often occurs during property valuation or loan processing. It may involve identity theft or fictitious buyers. 

Who may commit fraud? 

Buyers may commit fraud to obtain housing. They may produce falsified income documentation such as tax returns and pay stubs. Buyers may use stolen identities or straw buyers whose credit rating can secure bigger loans or better terms. They may also purchase a property as a residence, only to use it as a rental. 

Industry professionals may commit fraud for monetary profit. These schemes are often collaborative efforts. A buyer may purchase a house, get it appraised at an inflated value, then immediately resell it for a profit. The buyer and appraiser then split the profit between them. Another scheme involves a buyer using a fictitious identity to acquire a house as a rental. The buyer never makes mortgage payments but collects rent until the lender forecloses. 

How can I protect myself? 

To avoid involvement in buyer fraud, examine all paperwork carefully for signs of falsification. While preparing contracts, double-check numbers for inadvertent errors. Courts may interpret misstatements caused by sloppiness, such as extra zeros or misplaced decimals, as fraud. Be cautious when dealing with unfamiliar appraisers. When possible, work with reputable professionals you know. Take referrals only from trusted colleagues. 

Sometimes even the most careful and prepared mortgage lenders can become entangled in mortgage scams. If you believe that someone suspects you of mortgage fraud, know your rights and advocate for yourself. You should not have to pay for someone else’s dishonesty.