Florida has the dubious distinction in 2006 of having more mortgage fraud cases than any other state, passing the state of Georgia. (Georgia authorities made major strides in a fraud crackdown, even raiding title closing offices during closings.) The FBI has made mortgage fraud one of its top priorities in the last two years because of the huge volume of losses to banks and investors.
Mortgage brokers, appraisers, real estate licensees, sellers, buyers, builders and others have been found guilty of financial fraud, identity theft, mail fraud and other charges, carrying sentences of up to 30 years in prison.
FBI fraud cases include:
- Property flipping—Property is purchased, improperly appraised at a higher value, then quickly sold. This practice involves fraudulent appraisals, doctored loan documentation, inflated buyer income, etc.
- Silent second mortgage—The buyer borrows the down payment from a seller though the issuance of an undisclosed second mortgage. The lender on the first mortgage thinks the buyer has invested his own money in a down payment, when in fact, the funds are borrowed. This is also done sometimes by builders who have a large inventory of unsold homes. In other cases, a buyer agrees to pay a much-inflated price for property, with the difference in the inflated value and the fair value of the home in a “disappearing second” held by the mortgage broker. After the closing, the mortgage broker tears up the second mortgage papers, then sells the loan as a 75% loan-to-value (“safer”) loan when the borrower truly paid nothing down.
- Nominee loans—The identity of the borrower is concealed through the use of a nominee (also called a Straw Buyer) who allows the borrower to use the nominee’s name and credit history to apply for the loan.
- Stolen identity—The applicant’s name, personal identifying information, and credit history is used without the true person’s knowledge.
- Equity skimming—An investor may use a straw buyer, false income documents, or false credit reports to obtain a mortgage in the straw buyer’s name. After closing, the straw buyer signs over the property with a quit claim deed to an investor. The investor rents the property without making payments on the mortgage until foreclosure takes place several months later.
- Air loans—This loan is totally false. The mortgage broker invents a property and a borrower. The broker sets up a bank of telephones for verifications, and poses as the employer, another as the appraiser, another as the credit agency, etc.
- Chunking–A swindler holds a seminar promising to show investors how to get rich buying property with no money down. Using the investors’ personal information, the swindler submits multiple mortgage applications, pocketing the loan proceeds.
The FBI has compiled a list of activities which it believes could indicate mortgage fraud:
- Inflated appraisals, usually involving the exclusive use of one appraiser;
- Higher than customary commissions and fees paid to brokers and appraisers;
- Falsification of loan applications, with mortgage brokers showing buyers how to falsify the application, or asking a borrower to sign a blank application;
- Fake supporting loan documentation, with buyers being asked to sign blank employee or bank forms;
- Purchase loans disguised as refinance, typically requiring less documentation by the lender.
Tips to protect you from becoming a victim of Mortgage Fraud
- Get referrals for real estate and mortgage professionals. Check the licenses of the industry professionals with state, county, or city regulatory agencies.
- If it sounds too good to be true, it probably is. An outrageous promise of extraordinary profit in a short period of time signals a problem.
- Be wary of strangers and unsolicited contacts, as well as high-pressure sales techniques.
- Look at written information to include recent comparable sales in the area, and other documents such as tax assessments to verify the value of the property.
- Understand what you are signing and agreeing to–If you do not understand, re-read the documents, or seek assistance from an attorney.
- Make sure the name on your application matches the name on your identification.
- Review the title history to determine if the property has been sold multiple times within a short period–It could mean that this property has been “flipped” and the value falsely inflated.
- Know and understand the terms of your mortgage–Check your information against the information in the loan documents to ensure they are accurate and complete.
- Never sign any loan documents that contain blanks–This leaves you vulnerable to fraud.
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