9 Most Common Types of Mortgage Fraud

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According to the Federal Bureau of Investigation (FBI), mortgage fraud is any false representation or omission relating to the property or mortgage on which an underwriter or lender relies to fund, buy, or insure a loan. Both borrowers and lenders can commit mortgage fraud.

Types of mortgage fraud you should be aware of

Look at any industry – debt settlement, debt consolidation, real estate; scams are rampant everywhere. Here are the nine common and uncommon types of mortgage fraud you should be aware of.

  1. Appraisal fraud – This type involves real estate agents, builders, appraisers, and loan officers’ cumulative effort to inflate the purchase price and home loan amount to boost their commissions. Corrupt home appraisers, on the other hand, will frequently undervalue a property to help a fellow investor purchase the property.
  1. Foreclosure rescue scams –The culprits locate homeowners who are delinquent on their mortgage loans, underwater, or on the verge of foreclosure. Fraudsters dupe homeowners into believing they can avoid foreclosure by transferring the property deed or title to the name of an investor. The scammers make money by selling the house to an investor, creating equity through a fraudulent appraisal, and confiscating the seller’s proceeds. Homeowners are occasionally told they can pay rent for a year and then buy back the property once their credit has been restored. However, the property is foreclosed when the fraudsters don’t make mortgage payments.
  1. Occupancy fraud –Occupancy fraud is a scam where a borrower falsely claims that the property will be owner-occupied to get desirable bank status when, in fact, it will remain vacant. The straw buyer uses or permits someone else to use their identification details, fico score, and income details to purchase property for another buyer who may not be able to obtain a mortgage at low-interest rates. Investors frequently use straw buyers to conceal other types of fraud.

Investors use occupancy fraud to qualify for the best mortgage rates and higher LTV (loan-to-value ratios) on real estate investments.

  1. Air loan fraud –A loan obtained on a nonexistent property or for a fictitious borrower is referred to as an air loan. A group of fraudsters will frequently collaborate to create a fictitious borrower, a fictitious chain of titles, and a fictitious title and homeowner’s insurance binder. Furthermore, this mortgage fraud chain may use phone banks and mailboxes to generate bogus employment verifications, addresses, and phone numbers. The air loan scam transfers money to the culprits; no property is ever purchased or sold.
  1. Loan modification scams – These scams involve fraudsters claiming to help homeowners who are behind on their mortgage payments and on the verge of foreclosure. Fraudsters reassure homeowners that they would renegotiate with lenders and modify their loan terms. Scammers charge huge upfront fees before offering any debt solution. In most cases, they don’t negotiate at all. At other times, they negotiate unfavorable terms for their clients. As a result, homeowners lose their homes to foreclosure.
  1. Identity theft –Identity theft and income/asset falsification are the two main types of mortgage fraud scams. Identity theft occurs when the actual buyer obtains loans fraudulently using the information of a reluctant and completely oblivious victim, such as Social Security numbers, dates of birth, and residential addresses. Hacked pay stubs, bank statements, income tax returns, W-2s, and utterly fabricated employment verification letters are all examples of identity theft for mortgage purposes. Even home ownership documentation can be misused, allowing borrowers to obtain a fraudulent mortgage on an apartment they do not own or occupy.
  1. Property flipping –Property is bought, appraised incorrectly at a higher value, and then immediately sold, which is illegal property flipping. The incorrect appraisal information or inaccurate information presented during the home buying process makes property flipping illegal. Fake appraisals, fabricated loan documentation, overstated buyer income, or bribes to buyers, investors, brokers, appraisers, and title firm personnel are all common elements of the scams.
  1. Silent second mortgage – A non-disclosed second mortgage is used by a buyer to borrow the down payment from the seller. The primary lender assumes the borrower put his own money down on the house when, in fact, it was borrowed. The second mortgage may not be reported to keep the primary lender in the dark about its existence.
  1. Income fraud – It is a common type of mortgage fraud where potential borrowers report a more significant income than they earn. Income fraud has become easier to commit due to the rise of online crime, as various websites now offer services such as fraudulent income or employment verification, counterfeit W-2 forms, and fake tax returns for a fee.

What to do if you are a victim of mortgage fraud

If you have been a victim of mortgage fraud, you can collect the data, keep it in a folder, and report the matter to the following authorities.

Mortgage Fraud

Housing and Urban Development (HUD) Office of the Inspector General

451 7th Street, SW

Washington, DC 20410

(800) 347-3735

Fax: (202) 708-4829


Mortgage Loan Modification Fraud

Consumer Financial Protection Bureau (CFPB)

(877) 411-2372


Prevent Loan Scams


Federal Trade Commission Complaint Assistant (877) FTC-HELP www.ftccomplaintassistant.gov

You should also report the matter to the law enforcement agencies.

To file a police report, contact any local law enforcement officials. If possible, request a copy of the police report.

District Attorney – Get in touch with the district attorney’s office.

Attorney General – Report the fraud to your attorney general’s consumer protection office and prosecuting unit. www.naag.org has contact information.

Contact your local FBI field office or make an online tip at http://tips.fbi.gov. Go to www.fbi.gov/contact-us/field to find your nearest field office.