A recent report by the US Federal Trade Commission disclosed some of the most common mortgage scams out there. The FTC has also provided tips to avoid being a victim, so read on before you find yourself in an unsuspecting situation.

9 mortgage scams you need to know about

The “types of mortgage frauds” is a list of 9 scams that you need to know about. These are the most common types of scams that people fall for.

What does mortgage fraud entail? Mortgage fraud is when someone lies or withholds facts in order to finance or insure a mortgage loan. It results in yearly losses of billions of dollars throughout the country.

According to CoreLogic, fraud risk jumped 37 percent above 2020 levels in 2021, with a fraud rate of 1 in 120 loans — 1 in 23 for investment transactions. The previous year’s top three states for mortgage application fraud risk? New York, Nevada, and Florida are three of the most populous states in the United States.

The FBI investigates two types of mortgage fraud: profit-driven fraud and housing-related fraud.

Primary and secondary mortgage markets are related.

Image courtesy of fizkes/iStock.

1. Profiteering by deception

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According to the FBI, persons who conduct mortgage fraud are often industry insiders. According to current investigations and reporting, a large amount of mortgage fraud is committed with the help of bank officials, appraisers, mortgage brokers, lawyers, loan originators, and other industry experts.

Fraud for profit, according to the FBI, is about manipulating the mortgage process to steal money and equity from lenders and homeowners.

Image courtesy of fizkes/iStock.

2. Housing Deception

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It isn’t only industry insiders who can take advantage of the system. The perpetrators of housing fraud are borrowers who engage in unlawful behavior in order to obtain or retain home ownership.

They may do this, for example, by lying about their salary or providing misleading information about their assets on their loan application.

DepositPhotos.com provided the image.

Why Do People Commit Mortgage Fraud?

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Borrowers who are aware that they are not mortgage-ready — whether due to a bad credit history, a low credit score, or a mediocre wage that would likely get them turned down by a lender — may feel compelled to utilize illicit measures to improve their chances of securing a loan.

Professionals in the real estate sector, whether appraisers, real estate agents, mortgage brokers, or anybody else involved in the house buying and selling process, may be driven by the dollar. They may do so if they can look the other way to complete the deal or distort facts to earn their cut of the action.

DepositPhotos.com provided the image.

Mortgage Fraud: What Are the Consequences?

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Mortgage fraud is quite dangerous. It’s usually a crime. A federal conviction for mortgage fraud may result in a 30-year jail term; state convictions can last just a few years. A one-year sentence is possible if the offense is a misdemeanor and the money involved is less than $1,000.

A punishment of up to $1 million may be imposed on a single instance of federal mortgage fraud. Fines for misdemeanors may vary from a few thousand dollars to $100,000 or more for felonies.

Expect to make reparations to the victims and to serve probation after your sentence.

There are various types of mortgage fraud. Scammers are known for their inventiveness. The FBI has compiled a list of mortgage frauds to avoid. Here are a couple of theirs, as well as some more to remember.

Damir Khabirov / iStock contributed to this image.

1. Real estate flipping

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Property flipping isn’t always a bad thing. In fact, if you’re successful at it, adding investment properties to your portfolio may help you generate wealth. But there’s also the dark side of flipping.

It works like this: a property is bought below market value and quickly sold for profit, usually with the aid of a dubious appraiser who inflates the property’s worth. This is prohibited.

DepositPhotos.com provided the image.

2. Skimming Equity

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An investor may utilize a straw buyer, phony income papers, and false credit reports to acquire a mortgage loan in the straw buyer’s name, according to the FBI.

After closing, the straw buyer signs a quit-claim deed to the investor, relinquishing all rights to the property and providing no assurance of ownership. The investor does not pay the mortgage and leases the property until it is foreclosed on many months later.

AaronAmat / iStock contributed to this image.

3. Rental of Assets

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It’s one thing to borrow something blue for your wedding day, but it’s quite another to borrow or rent your best friend’s or loved one’s possessions to improve your credit score. You “borrow” the asset, maybe a large sum of money, and then return it to your accomplice after the mortgage is paid off.

fizkes / istockphoto contributed to this image.

4. Excessive Appraisals

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The kingdom’s keys are in the hands of appraisers. They specify a home’s fair market value. There are a few things that shady appraisers may do that are prohibited. They may either undervalue the property to make a “bargain” for a buyer, or they might overvalue the property. The purpose is to assist a buyer or seller, as well as a homeowner looking to refinance or borrow against their home equity.

Image courtesy of ronstik/iStock.

5. Identity Theft/False Identity

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Theft of identity is on the rise. The Federal Trade Commission received roughly 1.4 million claims of identity theft in 2020, which is more than twice the amount reported in 2019.

Scammers get a fraudulent mortgage on a property they do not own by using financial information such as Social Security numbers, stolen pay stubs, and even false job verification papers. Report identity theft as soon as possible if you’ve been a victim.

DepositPhotos.com provided the image.

6. Scams involving foreclosures

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Talk about kicking someone in the shins. Predators target people who are in foreclosure or on the verge of defaulting on their loans, telling them that changing the deed or placing the property in the name of an investor can rescue their house. When you’re desperate, anything might seem sensible.

When the offender sells the property to an investor or a straw borrower, they make money by establishing equity with a phony assessment and taking the sale profits or fees paid by the homeowners. Typically, homeowners are advised that they may pay rent for at least a year and then buy the property after their credit has recovered.

But that is not the case in this narrative. If the fraudsters fail to make their mortgage payments, the property will most likely be foreclosed. A deep sigh.

DepositPhotos.com provided the image.

7. Air Loan

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Nothing in this design is actual, therefore it may as well be in a movie. An air loan, according to the FBI, is a nonexistent property loan with no collateral.

Brokers create borrowers and properties, set up payment accounts, and keep track of escrow accounts. To fool creditors that seek to check information on loan applications, they may set up an office with a bank of phones, each one acting as a false employer, appraiser, credit agency, and so on.

Image credit: istockphoto/tommaso79

8. Inaccurate Earnings

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A falsehood may be as much about what you leave out as it is about what you say. Because of the way self-employed persons file their taxes, some do not record their whole income. When it comes to a “stated income” loan, a borrower declares a particular amount of income, and an underwriter decides whether or not to grant them a loan based on that number.

It’s no little matter if the borrower speaks a white fib about their salary. It’s a case of mortgage fraud.

isockphoto contributed this image.

9. Gift Money Repayment

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You may get a portion of a down payment on a property, but you are not required to repay the gift. In fact, if you want to utilize gift funds, you’ll need to present a gift letter proving that the funds are not a loan that must be returned.

You may also be requested to submit evidence proving the gift’s transfer to your bank account. This might involve requesting a copy of the donor’s cheque or bank account statement.

It constitutes mortgage fraud if that gift is to be returned. It might also jeopardize your loan eligibility, since all loans must be included in your debt-to-income ratio.

DepositPhotos.com provided the image.

Mortgage Fraud Avoidance and Prevention

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There are a lot of moving pieces and cooks in the kitchen when it comes to purchasing or selling a property. Above all, be honest about everything, and if someone along the path seems to be pushing you in a different route, you might pay a high price for following that terrible advise.

You can play the game on your own, but what about the other people involved? It’s a good idea to seek recommendations for organizations and real estate and mortgage professionals you’ll be dealing with, as well as to double-check state and municipal licenses.

Was your property assessment or evaluation accurate? It could be useful to look at comparable properties to see what they sold for, as well as recent tax assessments of surrounding homes.

Keep your John Hancock safe. Always be cautious when signing documents that are blank or have blank lines.

Signing over the home deed “temporary” is another no-no. It’s possible that this is a ruse. As part of a plot to prevent foreclosure, someone may urge you to hand up your home deed. Be aware that you may lose your home forever.

Image courtesy of fizkes/iStock.

Mortgage Fraud Victims

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If you’re a victim of mortgage scam, what should you do? A report may be filed with your local police station. Another useful resource is your state’s attorney general’s office.

The FBI, on the other hand, is in charge of the majority of mortgage fraud investigations. You may report a crime at tips.fbi.gov. Other government authorities look into mortgage fraud as well, but the FBI is likely to be the best first choice.

SeventyFour/ istockphoto contributed to this image.

The Conclusion

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Mortgage fraud is not uncommon, and it may include both industry insiders and borrowers. Asking your lender questions, visiting our home loan information center, and utilizing a mortgage calculator tool to measure the impact of various down payments are all wise ways to approach the process of receiving a house loan.

More information:

MediaFeed.org syndicated this story, which first appeared on SoFi.com.

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DepositPhotos.com provided the image.

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AlertMe

“Is mortgage.net legitimate” is a question that many people have when they are considering getting a mortgage. The answer to this question is yes, but there are still some scams out there that you need to know about. Reference: is mortgage.net legitimate.

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