CoreLogic reported that for every 134 mortgage applications in 2023’s second quarter, it was likely that one was fraudulent. Mortgage fraud is a serious offense that involves misrepresentation or deception during the mortgage lending process.
Recognizing what constitutes mortgage fraud is essential for both lenders and borrowers to maintain the integrity of the real estate market.
False information
A common form of mortgage fraud involves providing false information on the loan application. This misinformation may relate to the borrower’s income, employment history, assets or debts. Lying about these crucial financial details can lead to a distorted assessment of the borrower’s creditworthiness.
Misrepresentation of property
Individuals may provide an inflated appraisal value for a property to get a larger loan. Another way to perpetrate fraud is to misreport the condition of the property to make it seem more valuable.
False documents
Fraudulent schemes may involve falsifying documentation. This could include forging signatures on property deeds or creating fake supporting documents.
Straw buyers
Straw buyers are individuals who allow others to use their identities and credit histories to obtain a mortgage. This deceptive practice is to conceal the true borrower’s financial situation.
Flipping scams
Fraudulent flipping occurs when individuals buy a property, artificially inflate its value through false appraisals or improvements and then quickly sell it at the inflated price. This practice not only deceives lenders but also contributes to the distortion of property values in the real estate market.
Occupancy inaccuracies
Occupancy fraud occurs when a borrower provides inaccurate information regarding their intended use of the property. For example, claiming that a property will be a primary residence when it is actually an investment property or a second home can lead to mortgage fraud charges.
The consequences of mortgage fraud can be severe. Lenders may face financial losses, and borrowers may find themselves in legal trouble. Convictions for mortgage fraud can result in fines, imprisonment or both, depending on the severity of the offense.