Mortgage fraud risk has increased by 8.3% in 2024. Coupled with this, over 50% of mortgage fraud cases involve application issues, potentially leading to thousands of dollars in theft.
However, a mortgage preapproval can help homebuyers avoid mortgage scams. A pre-approval gives you a clear picture of your borrowing power and helps you stay in control of the home-buying process.
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What Is Mortgage Fraud?
Mortgage fraud is a type of an illegal mortgage practice. It occurs when someone intentionally misrepresents or omits information on a mortgage application. The goal is to secure a loan under false pretenses like, their income, job, or property value.
This fraud can involve buyers, sellers, or even industry professionals. When caught, it can lead to severe legal consequences.
What Are the Types of Mortgage Fraud?
Here are the mortgage frauds that you must be aware of.
- Property Flipping: Fraudsters buy a property, inflate its value, and quickly resell it for a profit. The goal is to steal money from lenders, and it can involve real estate agents, appraisers, or mortgage brokers.
- Loan Fraud: Borrowers lie about their income or assets to qualify for a bigger loan. They might inflate their income or hide debt to qualify for a loan.
- Identity Theft: Buyers steal someone’s identity to get a mortgage. This occurs when a buyer lies on their loan application or the mortgage underwriting process.
What Is The Penalty For Mortgage Fraud?
The punishment for mortgage fraud are severe. If convicted, you could face up to 30 years in federal prison. Fines can reach up to $1 million. Additionally, a conviction can ruin your credit score and prevent you from obtaining future loans.
In some cases, civil lawsuits may also follow. Victims of fraud can sue for damages. This legal action can result in hefty settlements or judgments against the perpetrator.
How To Avoid Mortgage Fraud?
Here are some key steps to protect yourself:
- Verify the Mortgage Application: Double-check every detail on your mortgage application. Ensure your income, employment history, and debts are accurate.
- Work With Authorized Lenders and Agents: Choose licensed and reputable real estate agents, appraisers, mortgage brokers, and lenders.
- Know About Potential Fraud Schemes: Stay informed about common fraud schemes. The more you know, the better equipped you’ll be to spot fraud.
- Protect Your Personal Information: Safeguard your details and only share them when required. This can help you protect yourself from identity theft.
Can Mortgage Fraud Happen To You?
Fraud is a serious issue that can happen to anyone. The advantage of knowing about it is that you can take steps to protect yourself. However, the downside is that even the most cautious individuals can fall victim to sophisticated schemes.
Stay informed and always verify the legitimacy of any mortgage-related transaction. Taking these precautions can help you avoid becoming a victim of such fraud. Moreover, look for homes for sale that matches your budget and interest.
Frequently Asked Questions
Who commits mortgage fraud?
Real estate professionals who want to inflate the property value commits mortgage fraud. This can involve buyers, sellers, or even industry professionals.
How can I report mortgage fraud?
If you suspect mortgage fraud, you can report it to the following agencies:
- Federal Bureau of Investigation (FBI)
- Department of Housing and Urban Development (HUD)
- Consumer Financial Protection Bureau (CFPB).
How can I protect myself from mortgage fraud?
To avoid mortgage fraud you must verify the mortgage application and work with authorized lenders.
