Mortgage Fraud Popular Across the Country

Insiders usually part of schemes involving mortgage fraud

The housing boom of the last five years has been great for homeowners, investors, and mortgage brokers. Prices have shot through the roof, investors have made money, owners have seen their home equity increase and criminals have been making money like never before.

Recent reports indicate that hundreds of millions of dollars worth of mortgage fraud has been conducted throughout the country during the last five years, and much of it has been committed by people working in the lending industry.

A new report by the Mortgage Asset Research Institute shows that mortgage fraud is still thriving, with Georgia, South Carolina, Florida and Utah the four states with the greatest incidence of theft. The fraud occurs in a number of ways, but most of it is a result of a conspiracy between a number of essential parts of the home selling process - the appraiser, the mortgage broker, and sometimes attorneys. The most common mortgage scam involves “flipping” of property. A broker or an accomplice will purchase a piece of property; usually one that’s run down or in a poor neighborhood. A fraudulent appraisal follows, where the home is appraised at a value that exceeds its actual market value. 

The home is then sold to an unsuspecting buyer at the higher price, with the broker, appraiser and any accomplices sharing the profits. Sometimes this is done with a number of similar properties in the same neighborhood. This has the effect of driving up prices throughout the neighborhood and increasing property taxes for everyone, even the people who aren’t party to the fraud. It’s not uncommon in such instances for several of these buyers to default on their mortgages, which leaves the entire neighborhood with vacant, unsellable houses and the lender on the hook for the inflated property, which must be sold at its actual market value.

This sort of scam has been quite rampant, with a recent arrest and conviction in Atlanta involving some $20 million worth of fraudulent loans. The resulting investigation revealed that every single person in the chain of appraising, financing and selling the home was part of the scam, which had been going on for years. 

Other mortgage scams remain popular these days. The deed theft scam, with lenders offering help to owners who are threatened with foreclosure, remains one of the most popular home equity scams. Another popular ruse is one where a lender, who may be vaguely acquainted with a homeowner, offers to assist in refinancing the owner’s home at a more favorable interest rate. The offer seems reasonable until the paperwork is signed and the owner realizes that he or she has been stuck with excessive closing costs that may be double or triple the usual amount and perhaps an unreasonably high interest rate, too. This scam works particularly well in Utah, where members of the Mormon church are often encouraged to do business with other church members. Cries of “But he was a member of the Church!” are often heard after the scam artist has long since left town.

The lesson here - confirm appraisals. Know your lender, and get references. Don’t accept refinancing offers that come out of the blue. Your home is your most valuable asset. Take care of it.