There is a big number of financial transactions and entities involved in the process of buying and financing a new home, all of which at one point or another provide the perfect opportunity for mortgage fraud to occur. Buyers have to be made aware that providing misleading or false information in a home loan application is a serious crime. However, they should also be may aware that there are some other forms of mortgage fraud that can occur with the buyer knowing that one is happening, resulting in substantial losses.
Common Mortgage Frauds
The most common ones are property flipping, using stolen or fake identities, falsifying appraisals or equity skimming.
Under normal circumstances, property flipping isn’t a crime, a house is bought, it gets fixed up and then sold for a profit. However, when the house is bought under market price and then its immediately put on the market at a much higher price with the help of a corrupt appraiser, then a mortgage fraud is being committed.
The use of fake or stolen identities constitutes the most common form of mortgage fraud, accompanied by fraudulent documentation regarding income or assets statements. This happens when the alleged buyer obtains financing using someone else’s information without them knowing. Including social security numbers, legal addresses, and birth dates. There are also pay stubs, bank records, and tax return, all of which were illegally obtain for mortgage purposes. Even property ownership documentation can be doctored, so it is imperative to check and double check them if necessary, or the alleged buyer may end up with a mortgage on a home that does not belong to them.
Another way someone may use fake or stolen identities is to try an convince someone else to co-purchase a home together. Always be sure that you are choosing your co-purchaser wisely as you don’t want to end up in the middle of a huge mortgage fraud and get left with a mess when they skip out. However, co-purchasing a home is a great way to get one’s foot in the door of real estate.
Finally, there is appraisal fraud, this is the most common form of professional mortgage fraud known in the industry. Here, a loan is given in order to obtain a nonexistent property where a group of people has created a fake borrower with all the necessary documentation.
Steps To Avoid Mortgage Fraud
In order to avoid falling victim of a mortgage fraud, the Federal Bureau of Investigation’s Fraud Division suggests following these steps:
- Get as many referrals as possible. When deciding about selling/buying a house, it is important to know who you are dealing with. Getting referrals from real state agencies or mortgage professionals is a good idea. But you should also check their credentials.
- Research is important. Ignorance isn’t bliss. There are people willing to take advantage of you. When buying or selling a home, take your time and do research about the selling prices of a home similar to yours, as well as checking tax assessments.
- Do not fall for “no money down” loan schemes. These sorts of promotions are meant to get people in debt by buying houses they can’t afford.
- Don’t sign anything you haven’t read. Do not sign any document until you have read it in depth at least a couple of times. If someone asks you to sign a blank paper, don’t do it.