According to the FBI, mortgage fraud is a “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.” Mortgage fraud may be committed both by individuals and institutions.
There are two distinct areas of mortgage fraud—fraud for profit and fraud for housing. Individuals who commit fraud for profit are often specialized within the industry and use their tailored and expert knowledge to commit or facilitate the fraud. Reports indicate that most mortgage fraud involves professionals in the field including bank officers, appraisers, mortgage brokers, attorneys, and loan originators. Fraud for housing is usually conducted solely by the borrower. The borrower is usually motivated to commit fraud to acquire or maintain ownership of a house under false pretenses such as misrepresented income or falsified asset information on a loan application.
There are several types of mortgage fraud schemes. The most common investor fraud schemes are different types of property flipping, occupancy fraud, and the straw buyer scam. Property flipping is not illegal when associated with buying a house, fixing the house, and reselling it for a profit. This process becomes illegal when a property is bought below market value and immediately sold at a profit with the help of a corrupt appraiser, who verifies the value of the property at a value that is much higher than the initial purchase amount.
Occupancy fraud occurs when a borrower claims that a hoe will be occupied by the owner in order to obtain a favorable loan. However, the property is not occupied but instead remains vacant. These schemes usually result in lower out of pocket costs on purchases made by investors and lower mortgage rates. Similarly, a straw buyer uses his or her identity credit and income to obtain property for another buyer who may not qualify. Straw buyers are usually investors who either willingly or unknowingly act in a manner that covers up other forms of fraud.
The most common mortgage fraud schemes committed by individuals are identity theft and income and asset falsification. Identity theft occurs where the buyer obtains the financing using an unwilling or unaware victim’s personal information. This information may include the victim’s Social Security number, birth dates, addresses, stolen pay stubs, bank records, tax return, and falsified employment verification letters. In some cases, property ownership may be falsified and a borrower can obtain a fraudulent mortgage on a property than he or she neither owns nor occupies.
The FBI and Main Justice have created task forces to investigate lending, banking, and borrowing related to real estate mortgages. The federal government has employed a Financial Fraud Enforcement Task Force and Mortgage Fraud Working Group to help combat mortgage fraud. These forces use intelligence sharing and collaboration with other governmental agencies to collect information about the mortgage industry and sport emerging trends and patterns.
For more information on Mortgage Fraud, a free initial consultation is your next best step. Get the information and legal answers you are seeking by calling (212) 500-3273 today.
Russ Kofman is a founding partner in Lebedin Kofman LLP. He has extensive litigation experience defending clients accused of felonies, misdemeanors and DWI/ DUI crimes.