Educate Yourself on Mortgage Fraud

Mortgage fraud is soaring throughout the country, but you can do something about it.

November 1, 2005

With reports of mortgage fraud on the rise all over the country, real estate practitioners must be on guard for this white-collar crime and go out of their way to make sure they aren’t involved in a fraudulent deal.

Ralph Roberts, a Warren, Mich.-based real estate broker who has created a Web site to fight mortgage fraud, says the illegal schemes that have grown more complex over the past several years and are seriously hurting the nation’s communities.

Some 721 cases of mortgage fraud are pending in the United States this year, up from 436 in 2003, according to the FBI. What can you, a real estate practitioner, do about it? You can educate yourself about the common fraud scenarios so you can identify a scheme if you encounter one.

There are more than a half-dozen mortgage fraud schemes that you should look out for, the FBI says. In its 2005 Financial Report to the Public, the FBI said these are the most prevalent:

  • Property flipping. Property is purchased, falsely appraised at a higher value, then quickly resold. This typically involves one or more of the following: fraudulent appraisals, doctored loan documents, and inflated buyer income. Kickbacks to buyers, real estate brokers, appraisers, and title company employees are common.
  • Silent second. The buyer borrows a downpayment from the seller through a nondisclosed second mortgage, which may not even be recorded. The primary lender believes the borrower has invested his or her own money.
  • Nominee loans/straw buyers. The identity of the borrower is concealed through the use of another person's identity for the purpose of hiding an applicant's name and credit history when applying for a loan.
  • Fictitious or stolen identity. May be used on a loan application.
  • Inflated appraisals. An appraiser acts in collusion with a borrower and provides misleading appraisals to the lender.
  • Foreclosure schemes. Homeowners at risk of defaulting or whose houses are already in foreclosure may be solicited to transfer the deed to their home. They do so, believing they can save their home. The perpetrator profits by re-mortgaging the property or pocketing fees paid by the homeowner.
  • Equity skimming. False credit reports and income documents are used to secure loans to purchase property, then the buyer signs the property over to an investor in a quitclaim deed, relinquishing rights to the property and providing no guaranty to title. The investor does not make mortgage payments and rents the property until a foreclosure suit is brought several months later.

Tips for Staying Safe From Fraud

There are many precautions you can take to make sure that you and your clients steer clear of deals involving mortgage fraud. Remember that if a deal seems too good to be true, it probably is.

  • Get referrals. Encourage clients to get referrals from mortgage professionals and to check the licenses of industry professionals with state regulators.
  • Look out for unusual promises. Be wary of unsolicited contacts and high-pressure sales tactics. A promise of extraordinary profit in a short period signals a problem.
  • Verify the value. Check out recent comparable sales of property in the area where you are buying, and other documents, such as tax assessments, to make sure the value of the property is not inflated.
  • Seek out title history. Review the title history to determine if the property has been sold multiple times within a short period, which could indicate that values were falsely inflated.
  • Know the loan terms. Understand terms of your mortgage and check that information against information in other loan documents.
  • Protect your signature. Never sign loan documents that contain blanks.

If you’re aware of a mortgage fraud scheme in your market, you can contact your local FBI office and ask to speak with the white-collar crime unit.

(c) Copyright 2005 Realty Times. Reprinted with permission.

More Resources

2005 FBI Financial Report to the Public: Mortgage Fraud General Overview (Mortgage Bankers Association)

Blanche Evans is a writer/editor and CEO of evansEmedia. Formerly, she was a senior editor with Realty Times, where she was named by REALTOR® Magazine as one of the most influential people in the real estate industry.

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