Types of Mortgage Fraud Crimes
Mortgage Fraud can be categorized as a form of financial institution fraud (FIF) which relates to mortgage loans. Some people may commit mortgage fraud in order to make a profit, while others might commit the crime in order to retain or attain housing. When done for profit, mortgage schemes are usually carried out by someone that works in or is knowledgeable in the real estate market, and then leverages that knowledge to trick unsuspecting homeowners or homebuyers. In cases where the scheme is done in order to attain or retain housing, the person will commit some sort of illegal action or scheme that allows them to keep a house or get a new one. In this blog we will look at a few (of the many) common types of mortgage fraud schemes that happen across the United States.
Equitable mortgage schemes are the first type of scheme we will examine. “Equitable Mortgages” are transactions that are not technically mortgages, but would be viewed by the courts as a regular mortgage and operate under the rules. Because it never states that it is a mortgage, there is some possibility for those involved with an “equitable mortgage” to try and get around mortgage law. Having an “equitable mortgage” is not illegal on its own, but people are still liable for fraud and under these sorts of agreements it is more likely to occur.
Next, we will look at a category of mortgage fraud called “foreclosure rescue mortgage fraud.” This type of fraud occurs when a third party is able to convince someone whose house is being foreclosed that they can “rescue” the homeowner from foreclosure in exchange for some sort of payment. The first type of foreclosure rescue scheme we’ll look at is the bankruptcy foreclosure rescue mortgage scheme. In these cases, after the person promises to save the homeowner from foreclosure for a fee, they will also ask the homeowner to file for bankruptcy. Filing for bankruptcy will cause a “stay” on the house that stops the process of foreclosure. This allows the fraudulent actor to act as though they have stopped the foreclosure process through the fee at the beginning of the scam. While the homeowner has filed for bankruptcy, there will be no more notices of delinquency or foreclosure notices sent to the house, so they will believe that the fraudulent actor actually kept their promise of “rescuing” the house. When the bankruptcy hearing happens, though, the foreclosure will resume and the fraud will be uncovered.
A second type of mortgage fraud in the foreclosure rescue category is called “loan modification foreclosure rescue mortgage fraud.” Like with the bankruptcy scheme, someone will offer to rescue someone from foreclosure if they pay them a fee. Instead of asking them to declare bankruptcy at this point, however, the person will promise to renegotiate the person’s mortgage for them so that they can pay a lower fee on the house. The person will then tell the homeowner to cease communication with their lender and stop paying their mortgage. Even though the person will keep getting foreclosure notices, the fraudulent actor will convince them that they are being sent by mistake and that they are not actually delinquent on payments. The person orchestrating the scheme will end up keeping the original fee as well as the mortgage payments in a loan modification foreclosure rescue scheme.
A fourth kind of mortgage is the “short sale” scheme. An investor (the fraudulent actor in this case) will reach out to someone who is being foreclosed on and reach an agreement where the homeowner gives the property over to a land trust. At this point, the homeowner will be the beneficiary of that trust, and the investor is the trustee. Around this time, the investor will enter into a negotiation with the mortgage lender about buying the house from the lender. They will end up buying the house for less than the mortgage price, and then they can quickly resell the house for a profit. This is why it is called a “short sale,” as sometimes the resale will occur within a day of the purchase of the house from the lender. This is considered fraudulent because the investor does not tell the homeowner or lender that their intent was to sell the house for a profit so quickly after. Essentially, what the scheme achieves is that it allows someone who knows the real estate sector well and has the money to purchase a house to fraudulently purchase a home and almost immediately sell it for a profit.
The last type of mortgage scheme that this blog will cover is called the “reverse mortgage fraud scheme.” While reverse mortgages are legal, they can become involved in fraud through what is called “equity theft.” The process of this scheme starts when someone purchases a foreclosed, abandoned, or damaged property and transfers the deed to another person. Usually, the fraudulent actor will have a straw buyer, which a person who “buys something on behalf of another person in order to circumvent legal restrictions or enable fraud.” The deed will end up being given to someone that they have manipulated, and it is often an elderly person. The fraudulent actor will then ask the elderly person to get what is called a “lump sum disbursement of equity” in the home. Through fraudulent loans, the fraudulent actor will arrange for the loan to be given to them. The elderly person often ends up remaining in the home, and sometimes getting charged for the fraud even though they were brought into it unwittingly. In some cases the straw buyer will also be charged for fraud when the actual facilitator of the crime is not found in an investigation.
If you end up being roped into a mortgage fraud scheme, it is important that you speak to a skilled attorney so that they can build a case that proves you were not acting in an illegal manner.