Debt Free

Reuters is reporting this morning that one of the main contributing factors to the recent, widely publicized problems plaguing the sub-prime mortgage industry is rampant mortgage fraud. How can you avoid being caught up in a mortgage fraud? What are the main types of mortgage frauds perpetrated by mortgage hucksters anyway? Well, check out some of these whoppers. 

First of all, one amazing statistic is that about 30% of the mortgage fraud cases investigated by the FBI last year originated in only three states; Michigan, Illinois and Ohio! That says to me there were some pretty large operators running mortgage schemes in those areas. Couldn’t they leave some room for the rest of the country?

Here are some of the main types of mortgage frauds that can affect you, your lender or both:

Mortgage Fraud 1 – The “straw buyer” –

This bit of financial underhandedness actually involves several different individuals, like several of the mortgage fraud types investigated by law enforcement officials. In the straw buyer fraud, a second buyer is used with better credit, or the buyer uses a fake or stolen identity and forged financial records to get a mortgage loan for a property. A crooked appraiser and title company employee are involved in the scheme to inflate the value of the property and allow a larger loan to be secured than is necessary to purchase the property. The seller is then paid the full price for the home. The extra money is split between the fraud perpetrators, and they go on to their next victim. What they do not do, however, is pay the mortgage. The lender is left holding the bag on this one.

Mortgage Fraud #2 – Property flipping fraud -

Flipping fraud entails using a team of crooks to, as the name suggests, buy a property and then “flip” or quickly resell it for a profit. Nothing is wrong with that, thousands of successful, legitimate real estate investors do it every day (although not as many as last year!). The fraud comes in when those perpetrating the fraud do a little ambitious appraising (seeing a common thread here?), and then fudge the loan docs and buyer financial records to allow the whole thing to proceed smoothly.

The FBI has investigated such frauds and found that almost all parties involved in the transaction can be in on the scheme; the real estate agent, the appraiser, title company employees and the buyer. The one who gets stung is the last buyer, who ends up with a home that’s not worth nearly what was claimed. Use your own appraiser to check the value of a property you’re thinking of purchasing.

Mortgage Fraud #3 - Troubled homeowner pre-foreclosure scam –

Here’s one where the seller, who’s in financial hot water already, gets scammed. In this scheme, people in financial trouble whose homes are in pre-foreclosure are targeted. The crooks swoop in with promises of saving the homeowner’s credit and some of their home equity, if they have any. The problem arises when the homeowners are asked to either quitclaim or transfer their property’s deed to the fraudsters. When that happens they fraudster’s don’t of course fulfill their part of the deal, they just abscond with the equity in the property.

Mortgage Fraud  #4 – Can’t get no satisfaction –

In this scheme, the fraud perpetrators file forged loan satisfaction docs with the appropriate government agency, usually the county, claiming the property is free and clear. In fact the mortgage is still outstanding. One variation of this scam involves renting a property, then forging the legitimate homeowner’s signature and other requisite financial documentation to get loans from unwitting lenders. The scary part comes when the lenders show up on the real homeowner’s doorstep claiming their right to the property because the payments on the fraudulent loan were never made.

Mortgage Fraud #5 – Fake wife fraud –

This is my favorite. Some people just have no shame at all. In this fraud, the husband actually uses his girlfriend to impersonate his wife! The girlfiend gets fake ID with the wife’s information, which obviously the husband has complete access to. She shows up at the mortgage signing claiming to be the wife, so the husband and “wife” team can get a second mortgage or a HELOC against the equity in their home. Then the two vanish to Mexico, leaving the unsuspecting wife holding the bag, the kids, and a home she now owes far more than she should on.

These are just some of the rising tide of mortgage frauds that are swamping the mortgage industry and contributing to its problems of late. Most of the frauds affect the mortgage lender, but some directly affect the homeowner, you, so be careful. If you're trying to get debt free, make sure the debt is legit, not paying for someone's new, red Lambo or Mexican vacation. Have a great weekend.