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In recent times, mortgage fraud has become a major issue. Lenders and fraudulent lending practices have cost millions of people their homes. In addition to lenders, there have been persons who acquire property using illegal tactics. These practices have brought media and government attention to the financial markets. While the government works to help those who have been impacted by the predatory lending practices, it is essential to discuss common lender mortgage frauds.
Lenders commit two different types of mortgage frauds. They are fraud for profit and fraud involving property. When a lender works to profit off the mortgage loan itself it is called fraud for profit. This occurs when the lender inflates the numbers associated with the mortgage process and charges more than the market alllows.
The second type is fraud for property. When the borrower provides false information in order to obtain a mortgage loan, in which they would otherwise be unqualified for it is fraud for property. These two types of fraud include property flipping, silent second, straw buyers, fictitious/stolen identity, inflated appraisals and equity skimming.
Property Flipping: Property flipping occurs when a property is acquired and then resold for a profit, based on an inflated price. The process usually involves two persons. The person who “purchases” the home is known as the straw buyer. The straw buyer acquires the loan and splits the excess amount from the loan with the flipper.
Silent Second: The silent second is the process of parties, the buyer and seller, work to get a second mortgage, without the notification to the mortgage holder. The seller provides a down payment towards the property and the buyer repays the seller with money from the inflated mortgage.
Straw Buyers: As touched upon in the property flipping section, a straw buyer is a person who qualifies for the mortgage loan. Usually a straw buyer is used when the actual purchaser is unable to qualify for a mortgage loan due to credit issues. In exchange, the straw buyer is compensated with monies from the loan proceeds.
Fictitious/Stolen Identity: In some cases, fake or stolen identities are used to acquire mortgage loans or properties. Information such as names, social security numbers and credit history of people are combined with fraudulent information to create a false identity.
Inflated Appraisals: Inflated appraisals are used to obtain mortgage loans. This is when a property’s value is inflated to qualify for a larger mortgage loan amount. It is one of the key documents for mortgage fraud.
Equity Skimming: Equity skimming is when a person can obtain a mortgage loan for 100% or more of the property value, without notification to the mortgage lender.
If you are in the market to purchase a home, there are ways to avoid falling into one of these mortgage scams. The most important thing you can do is to read all paperwork. Do not sign anything that you do not understand. Knowledge is the key to avoiding lender fraud. One of the best precautionary steps you can take is to talk to your lender about your mortgage.
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