Mortgage Fraud Comes in All Shapes and Sizes - Although most people think of banks behaving badly when they think of the term “mortgage fraud”, over the past few years, there have been creative new schemes that have cost banks an estimated $16 billion each year! And, it’s not just the banks that are getting hit hard by these schemes. Scammers are also taking advantage of short sales and underwater mortgages to manipulate buyers that are suffering from financial hardships.

The most common type of fraud in the housing industry tends to be something called “origination fraud”. This type of fraud occurs when a person lies or is deceitful on their mortgage application or falsifies data. You would think that employment or income information would be easy to check, but people are either finding creative ways to beat the system, or sometimes the bank just simply misses red flags.

One way that scammers are beating the system is by providing a fake phone number to the company that they allegedly work for. Then, they hire someone or ask a friend to answer the phone, sound professional, and back up the “facts” on the application. Typically, this type of fraud allows a person to purchase a home they can’t truly afford or get a mortgage that they wouldn’t otherwise qualify for. And, unfortunately, these people put everyone at risk – because if they default on the home, their neighbors are stuck with a foreclosure that’s going to drag down property values!

Identity fraud is also plaguing the housing market. In this scenario, the scammer will steal another person’s identification to purchase a home. If a person has your information and social security number, it’s difficult for a bank or lender to have any reason NOT to believe you are the one making this purchase. Although banks are getting better about picking up on suspicious activity, it’s important that you check your credit report on a regular basis to ensure there are no discrepancies.

Another type of fraud involves temporarily, or even permanently, reducing the home’s value. Many times investors will purchase a home, spend some money fixing it up to add value to it, then sell it to make a profit. This process is commonly known as “flipping” homes – but when the scam version comes into play, it’s called “flopping” homes.

In “flopping”, scammers make their homes look unappealing to banks before a short sale so that the home sells for less than what it should. Scammers will plant suspicious smells, steal appliances, or rip out ceiling fans to ensure the home sells for a lesser price. This scam is most effective when they partner with the person buying the home in the short sale. That way, the scammer can turn around and sell the home later for a higher price and, thus, a bigger profit!

One scam skips the banks and goes after homeowners – specifically, homeowners who are either underwater on their mortgages or who are behind on their mortgage payments.  People or groups, posing as legitimate companies, sell mortgage relief refinancing opportunities to unsuspecting citizens. Desperate homeowners may spend thousands of dollars thinking they are going to get relief, only to realize later that they have been scammed!

If you are a homeowner, always be wary of anyone who seems to be too good to be true. If you have any questions, contact authorities before you sign on the dotted line. All of these mortgage scams are hurting the lending industry, and unfortunately, law enforcement only has limited resources to investigate them. As a result, you need to be proactive. Check your credit report often, and listen to your gut. If something doesn’t feel right, it probably isn’t.