At Merchant of Homes, we care about your safety. Your time with us searching for and purchasing property should be a safe experience and our professional agents will be with you every step of the way.
When searching for the right real estate agent for you, always check their credentials, references, and other information. Reputable, professional, and experienced agents will never pressure you into doing something you’re not comfortable with or engage in illegal acts.
Here is what you need to know about the four most common mortgage fraud schemes.
What Is Mortgage Fraud, Anyway?
According to the official definition from the FBI, mortgage fraud is any sort of “material misstatement, misrepresentation, or omission relating to the property or potential mortgage relied on by an underwriter or lender to fund, purchase, or insure a loan.”
There are two types of mortgage fraud:
- Fraud for profit: Often industry insiders using their knowledge or authority to commit or facilitate the fraud to steal cash or equity from lenders or homeowners.
- Fraud for housing: Fraud committed by borrowers wanting to obtain or maintain ownership of a home.
Mortgage fraud is not only harmful to you but your community! Foreclosures, loss of home equity, and the loss of benefits from government-sponsored enterprises like Freddie Mac are just some of the negative effects of mortgage fraud.
You Are Offered Loan Modification Schemes
Loan modification schemes occur when a borrower is delinquent in their monthly payments, perhaps they are experiencing hardship, and a third party offers help. The scammers promise to help the borrower renegotiate the terms of their loan with the lender, demanding large upfront fees. When it comes time to renegotiate the loan, scammers negotiate unfavorable terms or do not negotiate at all, causing the borrower to eventually lose their home.
You Are Pressured Into Using A Straw Borrower
Another mortgage fraud scheme disreputable lenders and agents use is what is known as a “straw borrower”. A straw borrower is an entity that makes a purchase on behalf of someone who cannot afford the purchase themselves, like a parent purchasing a car for child. While a straw borrower in and of itself is not illegal, it is illegal when they are used to purchase a property for someone who legally cannot, or to secure financing from multiple lenders with the same property as collateral.
Sometimes, the straw borrower is just as unaware of fraud as the borrower, such as in the case of foreclosure rescue.
You Are Promised Foreclosure Rescue
Like a loan modification scheme, the borrower is misled to believing that transferring the deed to their home to a straw borrower as collateral will help save them from foreclosure. Scammers, calling themselves investors, then promise to pay off the borrower’s debt, allowing them to “rent back” their home.
Upon closing, the borrower is evicted from their home while the scammer pockets the home equity and the straw borrower defaults on the loan.
You Are Encouraged To Lie On Documents
If your lender or agent encourages you to lie on documents, leave and find another to work with. Don’t forget to report them to the correct agency!
Lying on legal documents is a serious crime. In addition to getting into legal trouble, you can find yourself behind on payments for a property you couldn’t afford.
If you are presented papers to sign with blank spaces, do not sign it. This can cause you to “agree” to terms you didn’t approve that the agent can write in later. If you see blank lines on your documents, ask that they are filled in first, or put “N/A”.
Immediately Report Mortgage Fraud
If you suspect mortgage fraud or are a victim, contact the proper authorities immediately!
- Your state Attorney General
- The Federal Trade Commission (FTC)
- The S. Department of Housing and Urban Development (HUD)
- The Consumer Financial Protection Bureau (CFPB)
These agencies are designed to help protect you and other consumers from fraud and take action when fraud is suspected. Reporting mortgage fraud also helps raise awareness and prevent it in the future.