Mortgage fraud is commonly defined as the deliberate use of mis-statements, misrepresentations or omissions to fund, purchase or secure a loan. Simply put, mortgage fraud is any scheme designed to obtain mortgage financing under false pretences, such as using fraudulent or stolen identification or falsifying income statements.
Stolen and counterfeit identification and financial documents – such as job letters, tax forms, RRSP slips and pay stubs – are tools that underpin mortgage fraud. Methods of obtaining personal and financial information range from theft and online data mining to compromising corporate databases and using black-market websites that sell stolen data. Criminal groups use the stolen and counterfeit information to compile fraudulent identities and financial profiles and to obtain mortgages illegally.
Mortgage frauds commonly involve the cooperation of mortgage industry insiders. Any individual within the mortgage industry can potentially be involved in mortgage fraud; from the purchaser, vendor, real estate agent, and mortgage broker to the lawyer, credit agency employee, lender and title insurer. These insiders may, for example, knowingly or unknowingly accept the use of false personal or financial information, use inaccurate appraisals, or transfer mortgage funds to an individual knowing they will be misused.
Mortgage fraud schemes range widely in terms of sophistication and complexity. Common features in these schemes include misrepresentations of the borrower’s income and/or identity and manipulation of the property’s age, size and value. Generally, borrowers fraudulently overstate their income and use false names on mortgage documents. In addition, the targeted property is often fraudulently described as newer, larger and in better condition than it is in reality.
Mortgage fraud can be separated into three general categories though more than one category of fraud may be involved in each overall criminal enterprise:
- fraud to further other criminal activities
- marihuana grow operations
- clandestine drug laboratories
- money laundering.
- fraud for profit
- Appraisal fraud – inflating property values
- Illegal property flipping – repeatedly and fraudulently selling a property between colluding individuals. Property repeatedly repurchased at increasingly higher values and then sold to a phantom buyer (created with stolen identity).
- Air loans – obtaining a loan for a property that does not exist
- Title fraud – using stolen identity the criminal poses as the home owner and obtains new financing or sells the property without homeowner’s knowledge.
- Foreclosure fraud – targets are low income home owners who are facing foreclosure. Criminal offers a debt-consolidation scheme and legitimate owner typically receives a cash payout from the fraudster to address immediate bills and remains in the home paying “rent” or “consolidated debt payments” to the fraudster. However, in contrast to legitimate debt consolidation programs, the fraudster pockets all payments from the owner and ignores bills and taxes which leads to debt-collection procedures against the owner. The fraudster then may re-mortgage or sell the property to an accomplice leaving the owner without the property title, homeless and in debt.
- fraud for shelter
- falsifying actual income to obtain higher mortgage that person can barely afford and when hard economic times are experienced are unable to make payments and loses their home.
MORTGAGE FRAUD RED FLAGS
- someone offers you a fee to use your name and credit information to obtain a mortgage
- you are asked to leave signature lines or other important areas on a loan application
- The loan amount on the mortgage is significantly higher than the value of the property
- The seller or investment adviser discourages you from seeing or inspecting the property you are offering to purchase
- Obtain a credit history report on a yearly basis