Everything Borrowers Need To Know About Avoiding Mortgage Fraud


You Could Be Committing Mortgage Fraud Without Even Knowing It

A growing trend in the real estate market right now is mortgage fraud. According to the FBI, mortgage fraud is when someone knowingly employs “some type of material misstatement, misrepresentation, or omission relating to a real estate transaction,” in order to get approval for a mortgage-related deal. With up to 10 percent of all mortgage applications in the U.S. containing false information, it’s surprising that a number of borrowers who have committed mortgage fraud have done so without realizing the full implications of what they’ve done. This occurs because a lot of borrowers have been misled or are simply unaware that what they’re doing is wrong. There have been many cases when an industry professional has assured a borrower that it’s OK to embellish on their annual income or to leave out important facts. However, even if the borrower is fully capable of paying the mortgage on time, exaggerating, omitting, or giving the wrong information in order to get a mortgage is considered mortgage fraud. So, how does a borrower go about avoiding mortgage fraud? Here’s what you need to know. SEE ALSO: Top 3 Real Estate Scams Exposed

Fraud For Housing Vs. Fraud For Profit

There are two types of mortgage fraud a borrower can commit: fraud for housing or fraud for profit. Both types of fraud deal with borrowers knowingly giving false information, but the difference between the two is in the intent. Fraud for housing, which is the most common, is with the intent to keep or maintain a property, while fraud for profit is with the intent to make money. Common ways borrowers commit these types of mortgage fraud include:
  • Falsifying documents (income, employment, bank statements, tax returns, etc.)
  • Omitting information (not disclosing debt, recent employment termination, or that you’re in the process of purchasing another property, etc.)
  • Undisclosed kickbacks, side deals, or deals after closing
  • Non-owner occupant claiming occupancy
  • Being part of a real estate/Ponzi (investment fraud) scheme

The Penalties Can Be Severe

Since mortgage fraud can involve other crimes on both the state and federal level, the range of penalties varies greatly. A state misdemeanor, for instance, can land you on probation, a few years in jail, and/or $100,000 or more in fines and restitution. On the other hand, the FBI warns that mortgage fraud committed on a federal level is punishable by up to 30 years in federal prison, a $1,000,000 fine, or both. However, federal prosecutions usually target professional fraud that involves federal agencies or institutions, or crosses state lines, so regular borrowers are usually safe. To give a clearer picture of how the punishment suits the crime, Freddie Mac gives the example of an Alaskan woman who had to pay a restitution payment of over $160,000 and was sentenced to 37 months in prison for mortgage fraud, along with counts of forgery, computer fraud, and bank fraud. It turns out that when she submitted a pay stub to her lender to document the amount of income she made, she failed to mention that she had recently been terminated from her job for transferring money from her work to her own bank account.

It’s OK To Make Mistakes

What if you accidentally enter the wrong information or make an error in filling out your data? Is that considered mortgage fraud? Luckily, no, it’s not. You have to knowingly provide false information with the intent to get approved for a loan or mortgage deal, for it to be considered fraud. However, proving that you are innocent of the mistake might take some doing, so it’s better to avoid having to deal with it in the first place.

The Best Thing You Can Do Is Be Careful

Now that you are aware of what mortgage fraud entails and what the consequences are, you’re better prepared to avoid it. However, to protect yourself, here are a few other things you should keep in mind when going through a mortgage application and approval process:
  • Be completely honest – it will save you a lot of hassle in the long run.
  • Only work with people you trust – it’s important to make sure the people you work with have your best interest at heart.
  • Read everything before agreeing to anything – if there is something you don’t know, ask questions.
  • Never sign documents that are incomplete – you never know what can be added in after they have your signature.
  • Get copies of every document you sign – having your own copy can always come in handy.
  • Don’t accept payment for information or services – this is a red flag that something shady is going on.
SEE ALSO: Everything You Need To Know About Mortgages Remember, a lie is a lie no matter how small. So, if you’re tempted to tell a little white lie in order to get a bigger loan for that dream house you’ve always wanted, don’t. Even if you can afford to pay the loan back in full, there’s always a chance you can get caught and end up losing more than just a home.
Date of original publication:
Updated on: November 10, 2015

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