Common Mortgage Fraud Schemes
What Constitutes Mortgage Fraud?
Borrowers can inadvertently commit mortgage fraud by confusing information, and by making mistaken omissions on their applications. But, intentional omissions and lies do occur during the mortgage application and approval process. All states have laws in place that punish this type of activity. Some states have specific laws for it, while others do not. Mortgage fraud is also a federal, prosecutable offense.
Here are a few examples of common mortgage fraud schemes:
These are undisclosed deals between a buyer and seller that are not included in the mortgage documents. For example, if you strike a deal with a home seller that involves you receiving money to pay for a new roof and the lender is unaware because it's not detailed in the purchase contract, addendum, or estimated closing statement, that falls under mortgage fraud.
Silent Second Mortgage
This is a second mortgage placed on an asset for down payment funds but isn't disclosed to the original lender on the first mortgage. A borrower without a down payment can commit mortgage fraud by borrowing the down payment from the seller in exchange for giving the seller a silent second mortgage.
Falsifying Employment Income
Mortgage fraud occurs when borrowers overstate their income levels.
Non-Owner Occupant Claiming Occupancy
Lenders offer higher interest rates and less favorable terms to non-owner occupants because the lender's risk is higher. If you don't intend to live in the property, don't promise that you will.
Down Payment Gifts You Will Repay
Both parties, the giver and the recipient, commit mortgage fraud if the gift is to be repaid. Gifts cannot be repaid. When this type of a gift is repaid, it's actually a loan in disguise.
Inflated Purchase Price
This is when borrowers state on the purchase agreement that a deposit was paid to the seller when in fact it was not.