Mortgage fraud is a growing problem in the housing industry. Educating yourself on mortgage fraud schemes can help you avoid becoming a victim.
Predators target homeowners who are behind on their mortgage payments or facing foreclosure and try to convince them that they can save their homes by transferring the property deed or selling it.
1. Know Your Rights
Mortgage fraud can be committed by borrowers, lenders or mortgage-related professionals for profit. Swindlers may pretend to be a lender, credit or debt counselor or real estate agent or even an appraiser. They may also lie about their income or use stolen identity information to get a loan or purchase property.
Scammers often target homeowners in financial trouble by promising to help them modify their mortgage or save their homes from foreclosure. They might ask the borrower to transfer the deed of their home in exchange for upfront fees, even though this is illegal. They might also promise to “guarantee” a loan modification or tell them to stop paying their mortgage.
If you think you’re a victim of mortgage fraud, report it to your local and federal authorities.
The federal Mortgage Assistance Relief Services (MARS) rule and Tennessee law require companies that promise to help you with your mortgage to obtain a written offer from your lender and get your approval before taking any money. They also must provide you with a copy of your mortgage documents.
Scam artists use tactics like these to take advantage of vulnerable homeowners who are falling behind on their mortgage payments or facing foreclosure. They often call, email or even come to your door, saying they can reduce your monthly payments and/or eliminate back debt to save your home.
A common type of mortgage fraud is income fraud, where a borrower or mortgage professional misreports their income to qualify for a loan they can’t afford. Another common mortgage scam is occupancy fraud, where borrowers falsely state their intention to occupy the property they are trying to buy. For example, they might say they will reside in the house when they plan to rent it out.
3. Do Your Research
Mortgage fraud can be committed by a variety of people, from mortgage professionals to homebuyers themselves. The FBI typically investigates large fraud-for-profit schemes involving housing industry employees, but even the smallest dishonesty can result in hefty fines and prison time.
For example, fraudsters sometimes pose as mortgage loan modification experts and charge fees for services they never provide, luring homeowners by telling them they can help speed up the process or reduce their monthly payments. These scams can be very dangerous, especially for new homebuyers who are not familiar with the mortgage process.
Also, fraudulent lenders may swindle victims by asking them to falsify financial information on their applications. This could be as simple as omitting debt or inflated property values, which can quickly lead to problems down the road. The good news is that by doing your research and checking the credentials of anyone you do business with, you can minimize the risk of being victimized.
4. Check the Credentials
Mortgage fraud is a huge problem in the lending industry. It involves individuals falsifying documents, such as income statements or employment verification forms, to qualify for a loan that they would otherwise not be able to obtain. It also includes people renting or borrowing assets to make them more qualified for a loan. In some cases, real estate professionals may even purchase property on behalf of other individuals, known as straw buyers.
These scammers may promise to negotiate a loan modification for the homeowner in exchange for an upfront fee. They may also try to drain the homeowner’s equity or steal the home itself. These scams can be difficult to detect because they usually involve false or stolen identities, a P.O. box address and fake company names or website addresses.
It’s always a good idea to check the credentials of anyone who works with you on your mortgage, especially those who claim to work for a government agency. You can also protect yourself by placing a credit freeze on your report, which will prevent fraudulent lenders from accessing your information.
5. Don’t Pay Upfront Fees
When dealing with mortgage fraud, it is important to avoid paying any upfront fees to a third party. These companies often take advantage of homeowners who are desperate to restructure their mortgage and may charge large fees in exchange for little or no results. If you are in need of assistance, always contact your lender directly rather than using a third party. If you need a mortgage as part of a retirement plan, it’s better to look for credible sources that know about it.
Some common individual mortgage fraud scams include identity theft, income and asset falsification, and appraisal fraud. Industry professionals may also engage in mortgage fraud for profit by misstating or omitting information to obtain a loan. Other common types of mortgage fraud include foreclosure rescue, mortgage reduction, and loan flipping (or churning).
Be on the lookout for red flags such as inconsistencies in communication channels (e.g. phone, email, or text) and unusual language or spelling errors. Additionally, beware of any company that tries to sell you a mortgage relief service without being approved by the government.
The purchase of a new home is one of the largest financial decisions you will make in your lifetime. That’s why it is so important to protect yourself from mortgage fraud and scams that can occur during the homebuying process.
For example, fraudsters may pose as mortgage modification experts who charge up-front fees to help homeowners reduce their monthly payments or stop foreclosure. This type of fraud is known as loan modification or equity stripping scams. Fraudsters may also try to steal the homeowners’ property deed, a document that proves ownership of a property.
People who commit mortgage fraud for profit often want to swindle people out of large sums of money, Opperman says. Some scammers target people who are behind on their mortgage payments or living in disaster-stricken areas. They exploit their vulnerability, warning them of delinquent mortgage payments or home foreclosures and promise solutions such as mortgage relief or loan modifications, he adds.
6. Don’t Be Misled
Mortgage fraud for profit is typically committed by those with a background in the industry, such as mortgage bankers, loan officers, appraisers and more. They may falsely inflate a property’s value to obtain a mortgage or steal cash and equity from lenders or homeowners. They may also target financially distressed borrowers and convince them to sign over their deed in exchange for help modifying or saving their mortgage.
Be wary of anyone who charges an upfront fee to negotiate a mortgage modification or to prevent foreclosure, even if it sounds reasonable for someone in your situation. You can seek assistance for free through a U.S. Department of Housing and Urban Development (HUD)-certified counseling agency or your lender. You should also stop making payments to your mortgage servicer if you’re being asked to do so by anyone. Companies are legally barred from telling you to do this. Instead, try to cut spending on unnecessary expenses and consider taking on a second job.
7. Don’t Be Pressured
Mortgage fraud is a serious crime that can have devastating consequences. Identity thieves can use stolen personal information to apply for mortgages in your name and empty your bank accounts. They can also falsify property ownership (deed fraud) and even take over your mortgage payments (equity skimming).
Some scams include loan modification scams, which involve phony loan modification experts who charge upfront fees for services they never provide. These scams exploit homeowners who are struggling to pay their mortgage.
Other mortgage scams include occupancy fraud, which involves borrowers who falsely claim that they will reside in a home when they intend to rent it out. This type of fraud can result in a lender rejecting a mortgage application or charging higher interest rates.
If a mortgage arrangement sounds too good to be true, it probably is. Avoid scams by getting referrals from trusted sources, and always do your homework before agreeing to anything that involves money. Be especially wary of unsolicited contacts, high-pressure sales tactics, and documents that leave blanks that a fraudster can fill in with fraudulent terms.
In a foreclosure rescue or repurchase scam, fraudsters tell you to sign your property deed over to them and stay in the home as a renter, promising that they’ll buy back the property when you’ve got your finances straightened out. In reality, the scammers often sell the property or take out a new mortgage on it for hundreds of thousands more than your current loan, leaving you with an unaffordable monthly payment and possibly eviction.
Another common fraud scheme is mortgage spoofing, where the fraudsters pretend to be your lender and trick you into sending your payments to them instead of to your servicer. Be sure to never send your mortgage payments to anyone other than your lender, and compare all documents carefully before signing.