The evaluation may include symptomatic warning signs of an inflated value. Many of the same red flags that accompany a traditional change also apply to cash-out fraud: fake buyer, false source of funds, and false occupation. There are several different types of mortgage fraud and they can be difficult for lenders to detect. This blog looks at the five most common types of mortgage fraud, how to identify warning signs of mortgage fraud, and how to report mortgage fraud cases.
Mortgage lenders will most likely perceive an illegal change of ownership with some common indicators. If the purchase uses an intermediary or a fake buyer mentioned above, that person can often be a “flipper” who provides the fraudulent appraisal. Other indicators may include that the property was recently foreclosed or that it was purchased at an abnormally low price, or that the appraised value is suspiciously inflated. I'm a special agent with the FBI.
And this is A Mortgage Minute for the average citizen. If someone asks you to participate in an illegal property change plan, or if you know of one that is already in place, we encourage you to contact your local FBI office. While the process of buying a property, maintaining or improving it, and reselling it for profit is not illegal, buying it below the market and reselling it immediately at an artificially inflated price is fraudulent. While there are several different types of mortgage fraud, there are some that are more common and each has its own red flags on how to spot them.
Before the recent mortgage crisis, investing in properties was a common way to make money in the real estate business. Indicating that the home will be occupied by the buyer, even when this is not true, allows the buyer to qualify for lower mortgage rates, lower out-of-pocket purchase costs, and higher loan-to-value ratios. Often, the funds will come from an entity or institution rather than an individual or the alleged buyer has no intention of personally occupying the property, which may be indicative of a straw man scam.
