Knowing the Most Common Mortgage Frauds

We have to admit that there are a lot of ethical violations and even criminal activities in banking, financial, and housing industry. This article will discuss about frauds in the mortgage industry, to help people to avoid them. Mortgage fraud is not only unfair practices that may be done by mortgage industry professionals, but also the ones that may be done by the borrowers. There are many reasons why borrowers and industry professionals do mortgage fraud, but we can group them into two types – fraud for housing and fraud for profit.


Mortgage fraud for housing is unfair practices done by borrowers, in which they provide false details about their employment, income, and other things that may influence their ability to be approved for a mortgage. The goal is of course to get or maintain property ownership. This kind of fraud is not only being done by people who need a place to live, but also by investors who intend to turn the property into a source of income by renting or re-selling it.

Mortgage fraud for profit is done by industry professionals. Usually this kind of fraud is done by providing false details about their clients or their own condition in order to maximize profit on a mortgage loan transaction. Mortgage industry professionals that may commit such fraud include real estate sales agent, real estate appraiser, real estate builder, loan officer, credit or debt counselor, mortgage broker, insurance agent, property inspector, title company, escrow agent, and attorney. Sometimes mortgage industry professionals commit fraud together as a network to maximize the fees and share profits on all of their services.

Common Fraud Schemes and Scams in Mortgage

The most common mortgage fraud schemes that are being done by investors are occupancy fraud, property flipping, and the straw buyer scam. In general, property flipping is not illegal. However, it became unfair when a property is purchased below market price with help from a corrupt real estate appraiser and then being sold at profit. Occupancy fraud is being done by investors by claiming that the home will be owner-occupied. This will allow them to gain favorable bank status even though the property will actually be vacant. Occupancy fraud also allows them to get lower mortgage rates. The straw buyer fraud is being done by investors in which they use their identity credit and other information to obtain mortgage for a buyer who may not qualify for a mortgage.