Understanding Mortgage Fraud

In the wake of a housing epidemic that has affected real estate sales across the board, mortgage fraud is more rampant that ever. In fact, the FBI considers it one of the top white-collar crimes in the U.S. As with any problem, understanding is the first step towards reaching a solution.

How Does Mortgage Fraud Work?

There are more opportunities than before to swindle someone in the real estate business. Since lenders are more active, more people have been able to purchase homes with a line of credit and a smaller down payment. Unfortunately, the recent increase of defaults and foreclosures connect to an increase in fraud.

Since many mortgage loans did not require considerable verification, such as the income of the borrower, lenders became easier fraud victims. The scammers purposely create a situation in which everyone is accountable. The lender loses money and the buyer or seller has ruined credit plus a loan that costs more than the property.

Homeowners who are struggling to make payments have run into foreclosure fraud, wherein the scammer claims to help them by paying off the mortgage. However, they refinance the house through loans, thus turning a profit without actually paying the lender. The homeowner, who does not know they are not making the payments, is forced into foreclosure.

How To Prevent Mortgage Fraud

Knowing the different types of mortgage fraud scammers use can help cut down on the number of vulnerable victims. Everyone in the loan industry, in addition to buyers and sellers, should be aware of ways to prevent mortgage fraud.

Keep an eye out for predatory financing, title frauds and unexplained costs or sudden jumps in the interest rate. Learn how to avoid mortgage fraud by familiarizing yourself with common schemes like lease-options, straw buyers and illegal property flipping.

Looking for red flags before you are stuck will help you stay out of financial ruin. If you are considering buying or selling property, be sure to talk to a real estate professional to help guide you through the process so you can avoid mortgage fraud.