Real estate transactions are legal in nature, and thus everyone involved will have to sign a variety of legal documents. If anyone includes falsified information or leaves out important information that affects the financing of the purchase, it is mortgage fraud.
On the federal level, the IRS, the FBI, the Postal Inspection Service, and the Department of Housing and Urban Development may investigate potential mortgage fraud. State and local agencies may also become involved in mortgage fraud investigations. However, even though the investigation may encompass multiple entities, the fact that there is not a single agency responsible for mortgage fraud oversight often makes it difficult to identify.
There are three broad categories of mortgage fraud.
1. Fraud for profit
This type of mortgage fraud targets consumers, and industry insiders such as the following typically initiate it:
- Mortgage lenders
- Bank officers
- Appraisers
- Attorneys
- Mortgage brokers
- Real estate agents
Any of these or other professionals may work independently or create partnerships to facilitate the fraudulent activity.
Fraud for profit may involve offering loan modification or foreclosure prevention programs targeted to homeowners who are experiencing financial crises. It could also take the form of overinflating property values or the use of straw buyers.
2. Fraud for property
Prospective homebuyers may discover that they do not qualify for a loan or cannot borrow enough to purchase the home they want. On the application, they may claim more income by creating false pay stubs or bank statements, or fail to disclose all their debt.
3. Fraud for criminal enterprise
This type of mortgage fraud involves the use of real estate in illegal endeavors, such as money laundering. The goal of money laundering is to conceal where the money came from and its current use, and property flipping is a common way to reach this goal.
