2020 has been a difficult year for us all. With COVID-19 pandemic and the overall world crisis, even the best of people are being afraid of financial downfall. Sadly, whenever the poverty is in the rise, so is the number of scams. In a world where foreclosure is lurking behind the corner, mortgage frauds are becoming more and more common.
Taking the current state of economy into the consideration, it is no wonder that the number of mortgage frauds is increasing. No one wants to lose a house, so we are desperately clinging onto anything that can help us save our house – or get the best deal on finding a new place to live. However, you have to know that lenders have probably seen it all. Here are some common mortgage fraud schemes and why it’s not smart to do any of them.
Sometimes, we want a bigger house, and for that we’ll need a bigger loan – even so big that the chance are high we won’t be able to repay it. This is why people report false income. This is one of the most common mortgage frauds, but it’s the easiest one to be caught while committing it. Even if you falsify the W-2s or pay stubs, if you don’t have anything else to back up your claims, the lender might suspect that it’s not true. Especially if you have next to nothing on your bank account, but claim to earn six digits. This is why lenders have the rights to demand that you sign a 4506-T form, which essentially allows the IRS to verify your income.
If you are applying for a loan for a property that you plan to live in, you will usually get better interest rate, lower down payment or even use a government-backed loan, as these can usually be used only for primary residences. This is why many people who intend to rent out their new property state that they plan to use it for themselves. Keep in mind that the lender will know whether you already own a house or not and that they will be rather suspicious if you claim that you want to have two primary residencies – or that you plan to rent out the older one. If you get a loan approved for a property you called primary, but then rent it out, you can end up in a huge trouble, as the lender can sue you for committing mortgage frauds.
People who don’t have good credit score can often try to deceive the lender, but also the homeseller, by hiding under the identity of another person with good credit score. In other words, the fake buyer will qualify for the mortgage, but once they’ve bought the house the deeds will be transferred to the real buyer. This is especially dangerous as the fake buyer might not even know of this happening as they themselves have been a subject of an identity theft.
Fake Home Appraisal and Flipping Houses
These mortgage frauds are actually committed by homesellers and not buyers. If the homeseller has an ‘insider’, either in the appraisal agency or as a lender, they might inflate the value of a property. In other words, the unsuspecting buyer will be offered a house at a much higher price than it’s actually worth. This can be spotted if the homeseller claims that the house is freshly renovated or that it has many innovations, but none of the paperwork to back it up. Even if they falsify documents, this can usually be checked on the appraisal report.
On the other hand, flipping houses means that the property was bought and resold by one or more ‘straw’ buyers, so the house can establish a falsely higher value. Once again, this will deceive the final, innocent buyer.
Protect Yourself from Mortgage Frauds
Although anyone can fall a victim to various mortgage frauds, there are several ways to protect yourself.
It is important to never lie on a mortgage application! If you are caught lying, the lender might demand that you either repay the entire loan at once or foreclose on your property. Not to mention that the FBI might get involved!
Understand every document that you sign. Be sure that you have read everything carefully and that everything is clear. Another good option is to always request a Loan Estimate form which can prevent any additional document changes. Also, stay away from aggressive lenders, appraisers or even agents. If anyone is putting any pressure on you to sign anything that you don’t like – get away from that situation as fast as you can.
To ensure that the value of the house is as stated, always work with an appraiser and inspection. This way you will make sure that the property is exactly as stated and that there are no underlying issues that haven’t been disclosed.
Don’t Ever Try To Commit Any Mortgage Frauds!
Mortgage fraud is a serious crime that you can be prosecuted for – and most scammers are quickly caught. If you are worrying because your credit score isn’t as good as you’d like, there are legal ways to get approved for a loan even if your FICO is below 670. And if you plan on selling your house but are afraid that the buyer might want to scam you – you can always find a trusted real estate investor, such as Sparks Property Investors LLC, which will buy your house in cash for as quickly as seven days. In times such as these frauds are a common occurrence and one of the best ways to avoid them is to avoid mortgage completely.