Is a little white lie on your mortgage application really a big deal? Back in the free-wheeling heyday before the mortgage crisis of 2007-2008, a lot of less-than-scrupulous mortgage brokers may have turned a blind eye to application fraud (or even encouraged it), but things have significantly tightened.
Currently, it’s estimated that one out of every 131 mortgage applications involves some kind of fraud, and that can lead to significant fines and time in prison for those involved. What exactly constitutes mortgage fraud? Here are some examples:
False information on a mortgage application
Inflating your income, misrepresenting your employment status or length of employment and falsifying pay stubs or bank statements to obtain a mortgage is illegal. It’s probably also the most common kind of mortgage fraud. If your lender tries to encourage you to “pad” your application so that it makes it through underwriting, don’t go along with their plan.
Straw buyer schemes
In a straw buyer scheme, a person with good credit and financial standing poses as the borrower on behalf of someone who would not qualify for the mortgage. This scheme sometimes aims to deceive the lender into providing a loan to an unqualified borrower – while other times it involves an “air loan” on a fictitious property.
Property flipping fraud
Property flipping involves buying a property, artificially inflating its value through false appraisals or repairs, and quickly reselling it for a higher price. This can involve collusion between real estate professionals, appraisers and loan officers.
Equity skimming occurs when an individual or group obtains a mortgage loan using false information. Then, they purposefully fail to make mortgage payments while collecting rental income from the property until the bank is forced to foreclose. This can end up “bleeding” away all of the equity there is in a property, costing the bank a significant amount of money.
Unfortunately, aggressive prosecutors may misinterpret ordinary mistakes with a confusing mortgage process as criminal activity. If you’re accused of mortgage fraud, the wisest thing to do is seek legal guidance about your defense options.