Types of Mortgage Fraud
Income fraud is a type of mortgage fraud
where the borrower misrepresents his/her income to the lender.
Occupancy fraud occurs when the buyer indicates that the property with which he/she is acquiring the loan for is or will be his/her primary residence; when in fact it will be a second or third home. This non-residential home may be a vacation home or even a rental property designed to bring the buyer extra income.
Failure to Disclose Liabilities
Failure to disclose liabilities occurs when the borrower does not share with the lender all of his/her financial obligations. This could be a newly acquired credit card or loan, or even a financial settlement the buyer is obligated to repay.
Appraisal fraud is actually very common in lenders who want to fudge just a bit to help out a potential buyer qualify for the home mortgage loan. The appraiser will either overstate or understate the value of the home on the appraisal.
An over-inflated appraisal gives equity in the house and allows for the purchaser to qualify for the loan when they may not have otherwise. Additionally, in refinance cases, the over-inflated appraisal can provide cash back to the owners.
An understated appraisal will allow for purchase below the actual value of the house.
Down-payment Gift Repayment Obligations
Down-payment gift repayment obligation fraud occurs when the buyer receives a “gift” for the down payment but the gift isn’t really a gift and has to be repaid. The purchaser tells the bank that the money is a gift and doesn’t require repayment but in fact it does.
Many of these types of fraud skew the debt-to-income ratio most lenders use to approve/disapprove loans. The reason for these ratios is to ensure that home owners will be able to meet all their obligations, to include their mortgage payment.
The moral of the mortgage fraud crisis is that the buyer, seller, and lender all need to be truthful in their circumstances in order for a realistic loan to be issued. If you have any questions about your rights, contact one of our real estate attorneys