When we hear the term fraud we automatically think of criminals with scars on their faces and New York accents. We never suspect people like mortgage brokers, real-estate agents, assessors, or even ourselves are capable of committing something that has the stigma of Fraud attached to it. There are quite a few hard to catch scams that come from very reputable people as well as easy mistakes you can make that might be considered fraud. To avoid these, here is a quick review of things you can do to protect yourself from the “F” word.
How you might commit mortgage fraud:
Occupancy fraud in a nutshell is intending to buy and sell the home for profit instead of living in the home. This could be to flip the house (Buying a home for a lower price, fixing it up and selling it), renting the home, or buying a group of homes to be sold in bulk to another company. You must disclose that you intend to use the home for any reasons that might be considered a business transactions. Rules, regulations, and rates vary greatly on homes that are not going to be a primary residence.
Not including correct income can often get you into a dream home, but likely leave you with a bill you cannot pay. If you are at all familiar with the recent housing bubble, then you are familiar with people getting approved for loans they could not pay. This was caused by federal regulations that allowed lenders to approve you for a mortgage without verifying income. For the sake of your home, the bank, and the economy; be upfront on your income.
Not disclosing other debts is also a form of fraud. If you have multiple mortgages, it is extremely important that you disclose this and all debts that you currently owe. This skews something lenders look at called your debt to income ratio. This of course ends in you getting approved for a mortgage you can’t pay and leads the country to another financial crisis.
How you might be a victim of mortgage fraud
Flop scams are typically done in a ring. A group of investors work with inspectors, mortgage agents, real-estate agents, and appraisers to buy and sell a property. They will then sell the property to another investor in the ring at a higher price to pay off the original loan and split the different between those involved. This falsely inflates the price of the home and the homes in the nearby area by raising a value on something that has in no way grown in value. Eventually they will cap out in their ability to sell the home within the ring and look someone outside of the ring to buy the home at a price well above its actual value.
To avoid this, check public records with both your real-estate agent and county assessor to verify how often your home has been sold in the past few years. If it looks as if the value has jumped on an unrealistic level, it means that there is possibly a flop scam in action. Most real-estate agents are aware of who is doing this kind of activity and can help you avoid buying from these individuals.
You will also run into sellers and agents who omit information in a sale. For instance, if a home is less than 10 years old most insurance companies do not need to inspect the roof in order to certify it for coverage. A seller will file a claim on a damaged roof and instead of replacing the roof pocket the money. When they move to sell they will tell you the roof has already been approved by their insurance company in hopes that you have no one look at the roof. This would leave you with a damaged roof that you may pay for completely out of your own pocket. Always hire an independent inspector who is not affiliated with the seller’s real-estate agent to inspect the entire home. Do not take their word for it.
Another form of fraud is Identity theft. Sometimes this is used in a straw scam will someone will pose as you to be qualified for a home they cannot afford. Whatever the scenario is, do not sign any paperwork from a broker, agent, or seller until you have read it completely. Do not leave any blank fields on any document that could be filled in. Always ask for copies of the document you’ve signed as proof to what you have agreed to.