What is Mortgage Fraud and When Does it Occur?
Mortgage fraud is a serious offence that occurs when an individual defrauds a private lender or financial institution through the mortgage process. It is considered as a white-collar crime as it’s usually done by agents or large mortgaging companies that can process documents and information that would let someone secure a loan even if they’re not qualified for it.
There are various ways by which fraud can be done such as failure to disclose liabilities, appraisal fraud, house flipping, identity theft, cash-back schemes and occupancy fraud. Mortgage fraud could also be fraud for profit, fraud for house or fraud to qualify. The first is a deliberate, malicious act committed to get a large amount of money. Fraud for house and fraud to qualify usually involve providing of false information to get either the loan or the property.
What Does Fraud Mean?
The Fraud Act 2006 covers fraud by failure to reveal information where there may be a legal obligation to divulge the required information and fraud by false representation. False representation can be committed implicitly by not rectifying false facts or explicitly by providing false facts.
What Happens to a Mortgage Acquired through Fraud?
Under the Proceeds of Crime Act 2002, the value of a mortgage acquired through fraud will be considered as proceeds of crime. A person gets this money or becomes involved in an agreement regarding the transferring of the money will be considered as someone who have committed a money laundering offence.
Types of Mortgage Fraud
There are various types of mortgage fraud. It can be divided into two different categories – large scale mortgage fraud and opportunistic mortgage fraud.
Large Scale Mortgage Fraud
Large scale mortgage fraud is done as a large scale and often involves several properties. Criminal groups often commit this crime. There are certain markets that are at prone to large scale mortgage fraud. At present, the buy-to-let property market is very vulnerable to mortgage fraud. Criminal organizations will often be involved in purchasing large scale renovation projects and new-build apartment buildings.
Large scale mortgage fraud usually happens when the nominated purchasers who are getting the mortgage have no valuable interest in the property and will often be fabricated or when the property’s value is high and the mortgage will be pursued for the higher inflated value. In most cases, the property owner is not able to pay for their mortgage. When this happens, the property deteriorates and is just used for other illegal activities like unlicensed gambling, drug production and prostitution.
Opportunistic Mortgage Fraud
Opportunistic mortgage fraud happens when a person gets a higher mortgage than they should receive by providing misleading or false information or by failing to give certain information that by law they’d be required to reveal.
It often occurs when an individual gives deceptive or incorrect or misleading information about his or her identity, income, other debt obligations and employment, property value, other sources of money for the purchase other than the mortgage, price to be paid as well as whether any payments will be or have been made directly between the buyer and the seller.
What Happens when the Bank Seeks Payment for the Mortgage?
When the bank tries to get payments for the mortgage, the process will start again as the criminal group or person will often apply for another mortgage with a different bank through another fabricated buyer. This means that they have successfully sold the property back to themselves.
It is common for the second mortgage to be inflated in value, allowing them to repay the first mortgage and make a large amount of income in the process. Criminal groups will often repeat the same thing many times and this is where they make real money through mortgage fraud.
What Happens when the Bank Forecloses on the Property?
When the bank forecloses on the property due to the poor condition it has been left in after the purchase, the property’s value will be lower than the current mortgage.
There are also some things that you must be aware of. The use of existing corporate structures, non-bank lenders and non-bank lenders will be assessed when dealing with large scale mortgage fraud. Private funding sources are available for the property’s purchase. A property club that will give money to buyers is one of the best examples of private funding sources. Criminal organizations will usually get money from property clubs or from buyers of land abroad when in fact it is just a field with no property built on it yet.
Most of the time, fraud is done by selling the property between related private companies instead of fabricated individuals. A property is often sold a lot of times between off-shore companies at repeated inflated prices. This means that by the time the mortgage is sought from another institution or bank, the price is massively inflated.
Economic Downturn and Mortgage Fraud
Even with the economic downturn, there have been various cases of mortgage fraud. Some of these cases are still not yet clear. As such, the National Fraud Authority has warned lenders that they should continue to fight the crime. The number of products that attracts mortgage fraud like desired buy-to-let properties has decreased during the economic downturn. However, as the economy recovers, the availability of these products will increase again. According to the National Fraud Authority, the yearly cost of mortgage fraud is at £1 billion.
Those who have been wrongly accused of mortgage fraud and those who don’t have any idea that what they’ve done is illegal can get the help of a mortgage fraud lawyer. These professionals are knowledgeable and skilled in defending individuals who have been wrongly accused of mortgage fraud.
If there’s enough evidence and witness that the individual has been dealing fair and doesn’t know that the company he is working with is scamming, he can file a case against that company and claim compensation for the damage done to his reputation and life.