Mortgage Fraud

Mortgage Fraud

In 2014, a report released by the Federal Trade Commission rated Identity Theft as the number one complaint category for calendar year 2013. Over one million complaints were fraud-related. Consumers reported paying over $1.6 billion in fraud complaints. Florida is the state with the highest per capita rate of reported fraud and other types of complaints. Over 77,000 of the consumers reported frauds in mortgage lending. Loan fraud increased almost 28% in 2013 with an increase of 25.7% in the real estate loan subcategory.

It is evident that real estate fraud continues to be a problem. The federal government has aggressively struck down individuals, businesses and organizations for their reckless fraudulent mortgage practices. Federal agencies such as the FBI and the IRS have aggressively prosecuted cases, which resulted in the issuance of multimillion dollars in restitution orders against individual entities engaged in fraudulent real estate lending activities.

According to the FBI, mortgage fraud is defined as:

“Any material misstatement, misrepresentation or omission relied upon by an underwriter or lender to fund, purchase or insure a loan”.

By definition, such fraud can be committed by both lenders and applicants, even though they think their misrepresentations or exclusions may not be cause for concern.rorist organizations, organized crime members, and individuals who obtain stolen data for personal use.

Mortgage fraud is a broad term that can refer to many activities including but not limited to:

  • Overstating an appraisal with the purpose of obtaining a mortgage for more that the property is worth
  • Posing as a borrower on behalf of someone else who is actually making the purchase
  • Inadequate borrower claims of income or assets
  • Pretending to provide financial help to struggling homeowners in order to take equity from the home
  • Illegitimate creation or altering documents with the purpose of facilitating approval of mortgage loans

One form of mortgage fraud is fraud involving actions taken in an effort to defraud a lender such as trying to acquire a loan that one cannot legitimately qualify for.

Other frauds target consumers, such as scams related to foreclosure prevention or loan modifications in which unethical deceitful individuals try to defraud homeowners in financial distress.

Mortgage fraud is more prevalent in recent years. It is also heavily prosecuted on a more regular basis by the FBI and other national, state and local law enforcement agencies. Hefty fines and jail/prison sentences are not unusual since the federal laws enacted after the collapse of the real estate marked in 2007 – 2009 have made these penalties much tougher.

Consumer Sentinel Network Complaint Category Details

In response to the rise in financial crimes during recent years, the IRS among other federal agencies has increased its participation in deterring real estate and mortgage fraud. In 2013, the IRS aided in the conviction of William Michael Naponelli who was sentenced to prison and ordered to pay $3.1 million in restitution. He was found guilty to bank fraud and conspiracy to commit transactional money laundering. According to court records, as a former real estate developer and loan officer, Naponelli and another co-conspirator participated in a scheme to obtain various loans. Then they sold these properties to straw buyers.

During the loan approval process, they submitted documents with material false statements that included representations that the borrowers would provide down payment or cash to close real estate transactions. When the fraudulently acquired loan disbursements were received, these were deposited into accounts controlled by Naponelli or other co-conspirator. The properties obtained from this mortgage fraud scheme went into foreclosure resulting in substantial losses to the lenders. This scheme included the involvement of other licensed real estate agents and escrow agent.

Individuals in California were sentenced to 120 months in prison for a mortgage fraud scheme that caused more than $5.5 million in losses. Samuel, a licensed real estate broker, was the owner and operator of Liberty Real Estate & Investment Company and Liberty Mortgage Company. Evidence presented during trial demonstrated that there were fraudulent sales transactions where Samuel was the real estate agent for the buyer of the home sales and represented the seller in multiple transactions. The transactions involved false statements on loan applications to aid unqualified buyers to qualify for the loans. These involved inaccurate statements about income, employment, and rental history. Fabricated documents were submitted to lenders to support these lies. Purchase prices were falsified, and at times minor children would be named as building contractors so that money could be funneled back to buyers.

The FBI has also designated a task force that fights against mortgage fraud. This force has already made its presence by prosecuting criminals who engaged in unsafe unlawful mortgage lending practices.

We recognize the negative impact that mortgage fraud and foreclosures have on our economy and on our communities. We cannot merely investigate after the fact. We must use intelligence and sophisticated techniques to identify and stop those who seek to defraud American homeowners. We will continue to work with our partners across the country to ensure the integrity of the housing market, and to keep our communities safe,”

FBI Associate Deputy Director Perkins

As the federal scrutiny has been intensifying against Real Estate and Mortgage Frauds. Organizations should promote awareness and conduct the adequate due diligence when engaging in business with real estate or mortgage lenders. This will protect against potential fraud and re-ensure compliance with established regulation.

A contributing factor to the increase in real estate fraud is the lack of public awareness against reputational risks, potential monetary losses and legal consequences.

The FBI provides publications of Mortgage Fraud and Awareness. These precautionary measures can protect you from being a victim of mortgage fraud;

Keeping these tips in consideration will limit the exposure to fraud and possible legal scrutiny. Federal enforcement efforts against the oversight of safe and sound mortgage lending practices can be costly

New regulatory requirements are being implemented to help identify and report suspicious activity related to potential mortgage fraud. The Financial Crimes Enforcement Network (FINCEN) has already created and advisory to help residential mortgage lender and originators report suspicious activity and illicit actors

  • Get referrals for real estate and mortgage professionals. Check the licenses of the industry professionals with state, county, or city regulatory agencies.
  • If it sounds too good to be true, it probably is. An outrageous promise of extraordinary profit in a short period of time signals a problem.
  • Be wary of strangers and unsolicited contacts, as well as high-pressure sales techniques.
  • Look at written information to include recent comparable sales in the area and other documents such as tax assessments to verify the value of the property.
  • Understand what you are signing and agreeing to. If you do not understand, re-read the documents or seek assistance from an attorney.
  • Make sure the name on your application matches the name on your identification.
  • Review the title history to determine if the property has been sold multiple times within a short period. It could mean that this property has been “flipped” and the value falsely inflated
  • Know and understand the terms of your mortgage. Check your information against the information in the loan documents to ensure they are accurate and complete.
  • Never sign any loan documents that contain blanks. This leaves you vulnerable to fraud.
  • Before purchasing a home, research information about the prices of homes in the neighborhood.
  • Shop for a lender and compare costs. Beware of lenders who tell you that they are your only chance of getting a loan or owning your own home.
  • Beware of “No Money Down” loans. This is a gimmick used to entice consumers to purchase property that they likely cannot afford or are not qualified to purchase. Beware of the mortgage professional who falsely alters information to qualify the consumer for the loan.
  • Do not let anyone convince you to borrow more money than you can afford to repay.
  • Do not let anyone persuade you into making a false statement such as overstating your income, the source of your down payment, or the nature and length of your employment.
  • Never sign a blank document or a document containing blanks.
  • Read and carefully review all loan documents signed at closing or prior to closing for accuracy, completeness and omissions.
  • Be aware of cost or loan terms at closing that are not what you have agreed to.
  • Do not sign anything you do not understand.
  • Be suspicious if the cost of a home improvement goes up if you accept the contractor’s financing.
  • If it sound too good to be true—it probably is

In conclusion, the real estate lending industries are being closely monitored by the federal agencies in efforts to combat improper mortgage lending practices. Federal law enforcement efforts against individuals/entities engaging in illegal mortgage lending activities have resulted in prison sentences, along with milpons of dollars of legal restitution cost for violations. Value must be added to fraud awareness as it can aid in the prevention of fraud. New regulatory requirements are being implemented to help identify and report suspicious activity related to mortgage fraud.