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Understanding and Avoiding Mortgage Fraud: Here’s Everything You Need to Know

April 11, 2023 by Mark Mellor

When it’s your home on the line, you can never be too careful. Mortgage fraud is becoming increasingly more common. You can protect yourself from fraud by understanding the different types, being aware of potential risks, and knowing what to do if you suspect fraudulent activity.

Types of Mortgage Fraud

This type of fraud comes in two primary forms: fraud for housing and fraud for profit. Fraud for housing often involves borrowers who try to hide their true financial situation or take on a loan they can’t afford to keep their home. 

Fraud for profit usually involves industry insiders such as real estate agents, appraisers, and lenders who are engaged in activities like inflating property values or manipulating paperwork to increase commissions.

Here are some common mortgage fraud schemes:

  • You obtain a first-time homeowner’s loan and then immediately turn that property into a short-term rental
  • You falsify your income to qualify for a loan you wouldn’t otherwise be eligible for
  • You state that you will occupy the property as a primary residence, even though you intend to rent it out
  • You don’t disclose any financial liabilities or other debts on your loan application

Maybe you’ve been honest during the home-buying process but you suspect your lender hasn’t. Here are some red flags to keep in mind:

  • You’re asked to sign a blank document before the closing
  • The terms of your loan are changed unexpectedly at the last minute
  • Outlandish promises (such as “We’ll get the best rate and save you thousands!”) are made without any evidence or real explanation
  • Your lender requests payment in cash (or gift cards, prepaid cards, or wire transfers)
  • Your lender is offering a loan that’s too good to be true (with no income verification requirement and low interest rates)

If you encounter any of these signs, do some digging as soon as possible. Talk to other buyers who have gone through the same process, contact the Consumer Financial Protection Bureau, or talk to a real estate attorney.

Risks and Consequences of Mortgage Fraud

Fraud can have serious financial and legal consequences. Fraudulent borrowers may find themselves facing foreclosure or bankruptcy, losing their home, damaging their credit score, or even going to jail.

In addition to these personal risks, fraud also affects the larger economy. Fraudulent activity drives up prices in some markets and damages public trust in the banking system. Research has suggested that mortgage fraud played an important role in the housing market crash and economic disaster of 2008.

Protecting Yourself from Mortgage Fraud

The best defense against mortgage fraud is to be aware. Ask questions and don’t accept any answers that seem too good to be true. Get everything in writing and read all documents carefully before signing anything. Watch out for changing terms at the last minute and never give cash to a lender. If your lender is pushing you to act quickly, be suspicious.

If something doesn’t feel right, don’t be afraid to speak up. Talk to a real estate lawyer who can help you understand the process and look out for potential risks.

Protect Your Home With Mellor Law Firm

You may not be able to control the real estate market, but you can protect yourself from mortgage fraud. At The Mellor Law Firm, we are committed to helping our clients navigate the complex world of real estate law. 

With years of experience in the real estate industry, we can help you avoid fraud and protect the things that matter most to you. Contact our experienced team today!

Filed Under: Mortgage Law News Tagged With: Mellor Law Firm, mortgage fraud, real estate law

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The Mellor Law Firm, APLC
6800 Indiana Avenue, Suite 220
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