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There a variety of ways mortgage fraud can occur.

Fraud to Qualify
Homebuyers often find themselves in trouble as a result of a new law called 'fraud for house' or 'fraud to qualify'. In these instances, the borrower usually provides false information, i.e. income amounts, source of down payment, employment history or intentions of property occupancy.


Silent Second
Another type of fraud is called a 'silent second'. This is when the seller lends the buyer money that will be used as a down payment on the property. The financing is achieved via an unrecorded second mortgage. When this occurs, lenders assumes that the borrower is merely investing their own money. This type of scheming is common even though the lender is the one taking the risk. The critical issue is that this type of lending misrepresents the financing picture of the real borrower.

No matter what type of fraud or scheme is going on, the primary goal is the same: to help a borrower achieve financing for a mortgage that they would not normally qualify for. In the instance of silent second scamming, the borrower wants the property and does has full intentions of repaying their loan.

Fraud for Profit
Another type of scheme that occurs is called 'fraud for profit'. This is a much more advanced type of mortgage fraud that includes the involvement of industry insiders, i.e. real estate agents, appraisers, lenders and/or closing attorneys.

Even though there is a countless amount of variations on fraud for profit, featured below are the most common:

Flipping - There are two types of house flipping. One is legitimate, and one is not. The legitimate occurs when homes are purchased, improvements are made and the houses are resold with the seller making quick profits. This is commonly known as 'quick turns'. However, it is very common for sellers to lie about improvements that were made to homes that they are 'flipping'. When this occurs, the seller will obtain a fake appraisal and a grossly inflated sales price.

Straw buyers - Another type of commonly used scheme is when 'straw buyers' are utilized to keep the identity of the real borrower hidden. 'Straw buyers' have good credit and unknowingly help those that would not normally be able to qualify for a mortgage. They are tricked into thinking that they are investing in real estate that is going to be rented out. They are told that the rent is to be used as payments for the mortgage. However, no payments are made and the lender eventually forecloses on the property. It is also common for the straw buyer to be in one the scam, and are making a profit from the earnings.


Appraisal fraud - Most mortgage schemes involve appraisal fraud. The value of a property will be inflated by a deceitful appraiser. Once the seller receives their check at the closing for the phony amount, they pay off the appraised and everyone else involved. Typically, the borrower fails to make any payments and the house eventually goes into foreclosure.

Foreclosure scams - This type of fraud is especially malevolent because it involves the preying on individuals with large enough financial issues that they are in danger of losing their homes. A homeowner in the beginning stages of foreclosure will be contacted by a scammer claiming that they can assist the homeowner in getting rid of their debt; helping them save their house. An upfront fee is required, which the scammer takes and then vanishes. Another variation of this scheme occurs when a homeowner is approached by a fraudster who offers to assist the homeowner refinance their mortgage. The homeowner signs all of the involved documents only to discover that in actuality they just sold their home the scammer and are evicted.

**Homeowners need to be careful when refinancing with bad credit. There are many lender out there that prey on those in desperate times.

Top Articles:


Fighting the Assessment of Your Home
Determining What Fair Market Value Is
Is an Area a Buyer's Market or a Seller's Market?


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