Common types of mortgage fraud

Red flags

Mortgage fraudis a crime that involves an intentional misstatement, misrepresentation, or omission of information that a lender or underwriter relies on in making, buying, or insuring a mortgage loan secured by real property.  Possible perpetrators include borrowers, loan officers, real estate agents, appraisers, attorneys, escrow and title officers, and others. Offenders may be prosecuted in both federal and state court.

Common types of mortgage fraud           

Common examples of mortgage fraud include the following.

Applications. There many ways for a loan application to be fraudulent. For example, a borrower may attempt to obtain a loan on a property intended for investment at low interest rate by fraudulently stating that the borrower will occupy the property as a residence. In another context, the borrower may overstate income, understate liabilities, or make a false claim about employment to qualify for a loan.

Appraisals. An appraised value may be overstated or understated. Overstating may enable the borrower to obtain more money from the lender, possibly to share with the seller or an agent. Understating may allow a buyer to obtain a property at an artificially  low price.

Multiple loans. A borrower may obtain more than one loan on the same property, creating unknown liabilities for lenders who have junior mortgages and requiring all the lenders to engage in litigation.

Lien stacking. Perpetrators may record multiple deeds of trust or assignment documents on the same property in a short period of time so that the liens won’t be discovered in a title search. In this way, multiple lenders may be induced to make loans on the same property.

Identity theft. A person using a stolen identity may obtain a loan and abscond with the proceeds without making any payments to the lender. The person whose identity has been stolen may be left liable.

Straw borrowers. The credit information of an individual who is not the true buyer may be used to obtain a loan where the actual buyer would not qualify.

Loans. A buyer with poor credit may be qualified for a loan without being required to provide documentation of employment, income, assets, or indebtedness.  When the borrower cannot repay the loan, the lender takes the collateral and profits from the fees and down payment.

Red flags                     

Inflated appraisals, inflated contract prices, missing or incomplete documentation, recently changed ownership, loan anomalies, and other such irregularities are red flags that may indicate that some sort of mortgage fraud is in progress. Associates should take note and report concerns to their brokers.

Mortgage fraud is a felony in Florida. The felony is one of the third degree if loan documents show a loan amount under $100,000, and second degree if it is greater. Florida’s mortgage fraud statute can be viewed at