When most people want to buy a home, they cannot do so by paying cash. Instead, they take out a loan. The lender will want them to sign for a mortgage, which is the contract that gives the mortgage lender (typically a bank) the right to take back the property if the borrower does not repay the loan. In other words, a mortgage is a security interest that attaches to real property; the property serves as collateral for the repayment of the loan that the individual took out to pay for the property.
The mortgage transaction involves two important documents, which are (1) the promissory note and (2) the mortgage, also called a deed of trust.
A promissory note is a type of contract, the terms of which state that the borrower will repay a specific amount of money to the lending party, such as a bank, in a given time frame. A promissory note holds the borrower responsible for repaying the loan even if they sell the property.
The mortgage, or deed of trust, is a document that acts as a lien on the property. If the borrower does not repay the loan, the financial institution that provided the money may force the borrower to repay the loan by selling the property. The deed of trust guarantees that the lending institution will get its money back even if the borrower does not make the required loan payments.
What Is Mortgage Fraud?
Mortgage fraud occurs when the borrower makes a meaningful misstatement, misrepresentation, or omission to a lender to obtain a mortgage. If the lender or underwriter relies on an untrue statement to fund, purchase, or insure a loan, then mortgage loan fraud has occurred.
A simple form of fraud such as this may take on multiple forms. Any misstatements, misrepresentations, or omissions may become fraud in the right context. Even slightly exaggerating something like the borrower’s income may be considered fraud.
Mortgage fraud can have serious consequences. If a lender discovers any part of a loan application is false, it may demand immediate repayment of the mortgage loan. Additionally, mortgage fraud is a crime.
The most common type of fraud is “fraud for housing,” where the borrower makes a misrepresentation on their application. “Fraud for profit” is another type of fraud, typically committed by mortgage industry insiders with specialized knowledge about the industry and its rules and regulations. Fraud for profit is used to abuse the system to steal funds and equity from lenders or homeowners.
Any type of mortgage fraud is considered a serious criminal offense and is usually charged as a felony. Punishment upon conviction may include 30 years in prison and up to $1 million in fines. The Federal Bureau of Investigation (FBI) considers fraud for profit a higher priority for investigation than fraud for housing.
Recently, mortgage loan fraud has become one of the fastest-growing types of white-collar crime. The recent increase in the number of foreclosures has allowed criminals to make a quick profit at a homeowner’s expense.
What Is a Foreclosure?
Foreclosure occurs when a homeowner cannot make the monthly mortgage payments required by the lender. After a certain number of missed payments, the lender will evict them from the property. The lender has the authority to foreclose due to the contract signed by the buyer of the home or property with the seller or lender. Foreclosure can be devastating because foreclosure means the borrower loses their home.
Some lenders allow a grace period in which the mortgage payments can be caught up before they foreclose on the property. However, this is a short period, usually only a few months. Typically, if a borrower is behind on their payments, it is difficult to catch up. The fact that the lender will assess late fees means that the possibility of getting out of debt and avoiding foreclosure is even more unlikely.
What Are the Different Types of Foreclosure Fraud?
There are several different types of foreclosure fraud. They all take advantage of a vulnerable homeowner desperate to avoid losing their home. One common type of foreclosure fraud occurs when a scammer promises that for a fee, they can stop the foreclosure. The scammer has no such power, does nothing, and pockets the payment.
A more extreme type of foreclosure fraud occurs when a scammer promises to pay off a mortgage for the homeowner. According to this scam, the homeowner can remain on the property as a renter and will be given the option to purchase back the property in the future. As part of the agreement, the homeowner must deed the property to someone who claims to be investing in the property but is part of the scam. The new person strips the home of its equity, and the scammers disappear. In the end, the homeowner is now only a renter of the home and will eventually be evicted.
Another common type of foreclosure fraud occurs when a foreclosure predator simply signs documents in a homeowner’s name without their knowledge. They may also trick a homeowner into signing documents and altering them to suit their fraud scheme.
Yet another type of foreclosure fraud occurs when the homeowner is contacted by an individual or group claiming to be a mortgage counselor or consultant. These people supposedly provide counseling or other services to a homeowner facing foreclosure and charge fees for their services. These are services the homeowner could have obtained elsewhere, free of charge.
How Can I Avoid Being a Victim of Foreclosure Fraud?
You can take steps to avoid being a victim of foreclosure fraud. It is important to remember that if something seems too good to be true, it probably is. You should be careful whom you trust, especially in cases where someone is offering to alleviate any or all of your mortgage debt.
You should learn about the mortgage and foreclosure processes. You should also only work with trustworthy professionals and companies. If you are unfamiliar with the individual or business offering help, research them. If you cannot find the information you need to verify the company’s validity, give that supposedly trustworthy professional a pass.
You should always read any documents before signing them. It is best to have an attorney review them as well before signing. Most importantly, you should pay attention to your instincts. If something seems unusual or shady, research the issue further and contact an attorney.
Should I Consult a Lawyer for Mortgage and Foreclosure Fraud Issues?
Yes, it is essential to have the assistance of an experienced criminal fraud attorney for mortgage and foreclosure fraud issues. An attorney can review your case, determine what actions may be taken against the lender, and represent you during any court proceedings, if necessary.
If you have been accused of loan fraud, it is essential to have the help of an experienced criminal fraud attorney to protect your rights, advise you on the best way to move forward with your case, and represent you during any court proceedings, if necessary. Hiring an attorney as soon as possible is important to avoid major financial issues or a criminal conviction.
