Fraudulent Mortgage Schemes and Scams
There is a fine line between unscrupulous practices
and outright fraud. In many cases, an unscrupulous mortgage
company can hide costs from consumers while still staying
within the letter of the law. According to the FBI,
there are three times the number of reports this year
compared to 2001. Mortgage companies are not the only
perpetrators of fraud, as in the case of predatory lending
practices; but often, legitimate mortgage companies
fall victim to scam artists.
During the first nine months of 2004, mortgage companies
reported 12,100 cases of suspicious activity, and the
FBI currently has over 500 pending mortgage fraud investigations.
A common type of fraud is called “property flipping,”
in which an individual purchases a property that is
priced at higher than market value, and then sells it,
leaving the mortgage holder with a property that is
worth less than the value of the loan. Other types of
scams include forged credit histories, or using false
buyers to conceal a true buyer’s identity. Recently,
the US Attorney General’s office handed down indictments
on an elaborate $20 million mortgage fraud scheme that
involved “straw buyers,” identity theft
These types of mortgage fraud schemes may often include
mortgage insiders, such as brokers or originators. Unscrupulous
mortgage professionals may engage in questionable and
illegal practices designed to take away peoples’
homes by charging unreasonably high interest rates and
fees. One example of mortgage fraud is the home improvement
scam, where a contractor arranges to work on a home,
which the homeowner finances through an equity loan.
The contractor then charges inflated prices for substandard
work, and leaves the homeowner holding the bag.
However, doing your due diligence in selecting a reputable
lender may not be enough to avoid being victim to fraud.
Lenders often sell the servicing of their loans to outside
companies. An unscrupulous servicing company may manufacture
a late payment by manipulating dates, or may charge
an unrelated fee against a principal and interest payment,
creating an artificial partial late payment. The next
payment can then be rejected as insufficient, creating
a two-month deficiency. A “forbearance agreement”
may then be offered that involves several thousands
of dollars worth of additional fees. This can quickly
accelerate as the servicer initiates collection proceedings,
and ultimately strip away all of the borrower’s
equity and ultimately takes their home.