Mortgage fraud is a pervasive problem and one that the Federal Bureau of Investigations struggles to combat year after year. Mortgage fraud takes many forms, but schemes typically fall into one of two categories: fraud for profit and fraud for property.
Fraud for property is unique in that people who commit it are generally not trying to hurt anyone. Everyday individuals who simply desire to own their own homes commit this type of fraud most frequently. While seemingly innocent, fraud for property can lead to unnecessary foreclosures, which cost homeowners, lenders and the U.S. government trillions of dollars in lost property values and other damages each year. For this reason, fraud for property is a crime that carries harsh penalties. Mortgage applicants should familiarize themselves with the two main types of fraud for property schemes so they can avoid committing them.
Fraud for property schemes
There are two main types of fraud for property schemes that people commit. According to Quicken Loans, those are asset rental and false identity.
A person engages in an asset rental scheme when he or she borrows other peoples’ assets for the purposes of qualifying for financing. Once the home transaction is complete, the borrower will repay the assets to whoever lent them.
In a false identity scheme, a mortgage applicant will use another person’s identity and/or credit history on the application instead of his or her own. In some cases, the true holder of the identity knows about his or her “role” in the scheme, in which case he or she is a “straw buyer.” In cases in which the owner of the identity is not aware of his or her involvement, the mortgage applicant is also guilty of identity theft.
Why people commit fraud for property
According to Rocket Mortgage, the primary motivation for committing fraud for property is the ability to either obtain a new home or retain an existing one. Offenders typically feel as if they would not qualify for a mortgage if they were honest on their applications, and so they either misrepresent themselves or omit relevant information related to assets, income, employment, debt and credit. The goal for these applicants is to either receive loan approval and/or to obtain more favorable terms.
Fraud for property may seem like an innocent enough crime, but the truth is that it places a significant burden on lenders, other homeowners and the economy. To avoid accidentally misrepresenting themselves, aspiring borrowers should seek professional help during the application process.