What is Mortgage Fraud?
Mortgage fraud is a serious accusation and is a felony in most states. There are a variety of ways that mortgage fraud can occur and you likely imagine that it involves a team of people and a grand scheme to carry it out. Unfortunately, committing mortgage fraud can be easier than you think.
How does mortgage fraud occur?
There are several ways that this fraud can be committed. The more deliberate forms of fraud that occur on the side of the borrower include;
Straw buyer – using your own identity and credit to purchase a home for someone else who would not qualify
Identity theft – using someone else’s social security number, pay stubs, etc. in order to secure a loan
Fraudulent appraisal – colluding with an appraiser in order to inflate the appraised value of the home, either to qualify for a larger loan or to sell the home for more than it’s worth after purchasing it at a low price
These types of mortgage fraud are deliberate, and the person committing the fraud knows they are guilty of a felony. You should never engage in these acts with anyone and make sure you report them if they approach you about something of this nature. Always make sure you shred sensitive documents so that no one is able to use your identity and complete regular credit checks to catch anything suspicious before it gets out of hand.
Generally, the everyday person who isn’t truthful as to their income, debt and so forth doesn’t realize that they’re committing a felony. They view it as simply stretching the truth in order to obtain a loan they wouldn’t otherwise qualify for. However, lying to your lender in order to get what you want fits the definition of fraud very clearly. While it may be tempting to exaggerate your income or try to leave out debts, lenders require such extensive documentation that it would be very difficult to do this successfully. Not to mention the fact that you’re setting yourself up for failure by obtaining a loan that you really can’t afford.
Individuals might also lie to obtain an investment property. Typically loans on investment properties require a higher down payment, so some individuals believe that it isn’t a big deal if they say that the property will be their residence even though they never intend to live there. After all, who would know the difference? In reality, lenders are keen to the signs that an individual will not be using the property as their residence. If you’re discovered the lender could require full payment on the loan, foreclose, and bring in the FBI. Is that really worth a smaller down payment?
Why would your lender commit fraud?
If you’ve ever seen the film The Big Short or done any research into what caused the real estate crash many years ago, you likely have some understanding of the flagrant lender fraud that can be at work. In many cases however, the fraud you’d experience is much more subtle. Lenders will take advantage of the fact that you have mountains of complicated paperwork to wade through and assume that you won’t read everything. This allows them to say one thing, but work something else into the documentation that you sign. This is why it’s extremely important to work with a trusted and highly recommended underwriter, to read absolutely everything, and to question anything you don’t fully understand. You don’t want to be put in a position where the terms you thought you were agreeing to, are actually costing you much more in the long run.
Building a custom home is an involved process that requires a plethora of paperwork, planning, and decision making. Mortgage fraud of any kind will only make things more difficult. This is why it’s important to partner with reputable individuals, like our trusted lenders, every step of the way. Protecting your family and your investments is always our first priority. Contact us today to learn more about how we can support you as you create your dream home.