Before servicemembers begin the home buying process, many should know that mortgage fraud is on the rise. In fact, reports of mortgage fraud have tripled to 21,994 in the last two years and the dollar value of these crimes increased to $1.01 billion, according to a Federal Bureau of Investigation report.
In an effort to stop the spread of mortgage fraud the FBI, Internal Revenue Service and the Department of Justice created Operation Quick Flip. This operation is designed to combat and dissolve mortgage fraud rings.
What is mortgage fraud?Mortgage fraud is defined as fraudulent underwriters or lenders who lie about the borrower's income or employment in order to secure a home loan. There are two types of mortgage fraud according the FBI: fraud for profit and fraud for property.
Fraud for ProfitFraud for profit involves industry professionals who may lie about the borrower's income, assets, collateral, and the length of employment. The borrower's debts are not fully disclosed or altered, or he assumes the identity of someone else. Then the borrower informs the lender that he wants to use the property for occupancy, when the he actually wants to use it as a rental property for another party. A down payment is not required or is either disguised with a fraudulent gift letter. Then, the property value is inflated to make up for the lack of a down payment and to generate cash for a profit.
Fraud for propertyFraud for property is also known as fraud for housing. In this type of fraud, the borrower makes a few misrepresentations regarding income, personal debt, or says there are down payment problems. Then, the borrower expresses that he wants the property and promises to repay the loan. The borrower then takes the home and never repays the down payment.
The FBI recommends home buyers use the following precautions:- If it sounds too good to be true -- it probably is! - Never sign a blank document or a document containing blanks. This leaves you vulnerable to fraud. - Don't sign anything you don't understand. - Get referrals for real estate and mortgage professionals. Check the licenses of the industry professionals with state, county, or city regulatory agencies. - Be suspicious of outrageous promises of extraordinary profit in a short period of time. - Be wary of strangers and unsolicited contacts, as well as high-pressure sales techniques. - Look at written information to include recent comparable sales in the area and other documents such as tax assessments to verify the value of the property. - Understand what you are signing and agreeing to. If you do not understand, re-read the documents or seek assistance from an attorney. - Make sure the name on your application matches the name on your identification. - Review the title history to determine if the property has been sold multiple times within a short period. It could mean that this property has been "flipped" and the value falsely inflated. - Know and understand the terms of your mortgage. Check your information against the information in the loan documents to ensure they are accurate and complete.