Mortgage fraud is one of the fastest growing financial crimes! In 2011/2012, mortgages, the largest portion of household debt, were at about $8 trillion in the US, £140 billion in the UK, and $1 trillion in Canada. The portion representing mortgage fraud was an estimated $35 billion worth in the US, £1 billion in the UK, and $400 million in Canada.

Mortgage fraud can be classified in these 3 general categories:

  • for Shelter
  • for Profit
  • to further criminal activities

 

The types of mortgage fraud include the following. See this Wikipedia article for some explanations.

  • Occupancy Fraud
  • Income Fraud
  • Employment Fraud
  • Failure to Disclose Liabilities
  • Appraisal Fraud
  • Cash-back Schemes
  • Shotgunning
  • Working the Gap
  • Identity Theft
  • Illegal Property Flipping
  • Air Loans
  • Title Fraud
  • Foreclosure Fraud
  • Money Laundering
  • Value Tampering

 

Check out these tips on how to prevent and protect yourself from mortgage fraud.

 

 

For those who work in the mortgage industry, here are some prevention/detecting tips (summarized from Canada Guaranty)

1. Commute to work

  • Is the distance reasonable?

2. Down Payment

  • Is it consistent with income?
  • If gifted, are there other liquid assets declared that could have been used instead?

3. Income

  • Is it consistent with the type of occupation and job tenure?
  • Does the date of hire fall on a weekend or holiday?

4. Employment

  • Is signatory using a generic title?
  • Is company phone # a cell?
  • Is the tenure consistent with borrower’s age?

5. Borrower

  • Is it an investment property but currently renting home?
  • Buying property from current landlord?

6. Credit Report

  • Have trade lines been opened over time or at the same time or recently?

7. Sale & Purchase Agreement

  • Is property available online (e.g. MLS)?
  • Is sale private, arm’s-length?
  • Is deposit going to vendor instead of solicitor trust account?

 

 

Report it if you see it!

 

 

Be a trusted advisor! Recommend buyers obtain Title Insurance:

  • Less than cost of fire insurance for a year
  • Premium only paid once
  • Good as long as you own the home
  • Can be transferred to heirs

Won’t prevent fraud, however:

  • protect in many ways
  • policy picks up all costs to defend innocence and compensate for any loss

 

Also possible to buy identity theft insurance for very little.

 

And you can buy bad hair day insurance…. kidding J

 

Ref:

http://www.consumer.equifax.ca/about_equifax/newsroom/en_ca?ncId=1187895492214

https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/118530/annual-fraud-indicator-2012.pdf

http://business.financialpost.com/2012/02/21/mortgage-fraud-on-the-rise/

http://www.fbi.gov/about-us/investigate/white_collar/mortgage-fraud/mortgage_fraud

http://www.canadaguaranty.ca/lenders/mortgage-fraud-prevention/

http://mortgageconsumer.org/how-to-prevent-and-protect-yourself-from-mortgage-fraud

 

 

25 Comments
  1. Thank you for the heads up. I had no idea Mortgage frauds were growing so rapidly as you stated. Never owning a home yet, I will keep this in mind, when I am buying my first house.

  2. Wow, I’m impressed, that’s a big list. I’m not in that kind of a situation right now but it is always good to be prepared. And of course I just want to know what happens in this world we all live in.

    • As someone who is just about to enter a mortgage, this scares me a little. It’s scary enough trying to get prepared for something entirely new for me, but this throws in another wrench (or two!) to worry about.

  3. Those figures are astonishing, 1 billion pounds for the UK alone, l should not be so surprised as l was aware of mortage fraud after the housing bubble burst. A lot of people that got houses before the bubble burst in the UK purchased houses through brokers and a lot of brokers were not legit which resulted in people losing homes due to the fraud that was commited to purchase the property.

  4. I had no idea of the extent of mortgage fraud. It’s massive. As is often the case with fraud, people are quite enterprising and creative and, as we see from those figures, they are reaping ginormous illegal rewards.

    This is a topic that needs more attention so that buyers and sellers — as well as the mortgage industry professionals — can take the necessary precautionary steps. And title insurance, in this context, is an amazing bargain for what it offers.

  5. I’ve heard about this many times in the past several years. Most cases involed someone illegally selling a home (currently owned in good standing) to a buyer (who has no idea what’s really going on). The buyer and owner, both victims, don’t find out until the buyer goes to move in and finds the home was never up for sale. Obviously this has two victims: the owners and the buyer. THe onles ones who profit are the scammers.

    Regardless, it’s a very disturbing trend, one everyone must guard against. Great tips ad links for resources.

    • Certainly that’s an issue that may even deserve a spotlight of it’s own. I believe that mortgage fraud is probably a lot more reasonable of an issue to solve however, as I’m not sure what you could do to prevent a fraudulent sale. While the homeowner may be a victim, the homeowner doesn’t lose any money in that case. I guess it comes down to being very careful who you pay, especially when it comes to housing.

  6. I had no idea that mortgage fraud was such a huge problem. Those figures are just huge. I’m wondering if the amount of mortgage fraud is really preventing the economy from making a recovery….

  7. This is scary stuff. Now a days there are so many ways to become a victim to fraud, you need to be vigilant with just about everything you do. You credit, your identity, through email and even your house! Thanks for the warning Mr. Papp!

  8. It seems like there are more scams and fraudulent acts occurring every year in all parts of the lending industry. I never knew that there were this many ways and means to commit mortgage fraud. However, the reason that I chose to comment on this article is that you broke my heart. I am saddened greatly by the realization that bad hair day insurance is a myth. I could have really used that!

  9. I originally thought that this was going to be an article about the mortgage industry scamming homeowners when I read the title. Apparently not! I can see where you are coming from with the tips above. Especially after almost everyone with a wage was receiving a home loan in the past 15 years or so.

  10. Wow, impressive list. I had no idea there were so many ways of mortgage fraud. Great tips, as always. Thanks for sharing the information.

  11. That’s a big list! I had no idea mortgage fraud was this big. Thanks for the warning!

  12. This is rather interesting, as I wasn’t aware that this was a potential problem. I’m on the cusp of looking for a place and starting up a mortgage, I didn’t realize this was something I would encounter. That being said, is this from small private brokers, or even a possibility when dealing with large (inter/national) banks?

    • I found it to be interesting for the same reason. I am also about to look for a home and I’ll be taking out a mortgage. I think it applies to both small brokers and the larger banks. Fraud knows no limits.

  13. I’m actually really glad to read this. Mortgage fraud has recently affected a member of my family, and seeing a list of ways it can be prevented is very useful. It’s not what I would immediately expect to see on a technological blog, but it seems this site is getting more and more relevant to me by the day. Thanks David, for brining this to my attention!

  14. I think mortgage frauds have been prevalent for a long time. It’s good to know people are spreading more information on it in the internet. That said, I might have to study about it more in the context of my own country because I think it’s pretty rampant here, just that people do not mind it much because they’re used to it.

  15. Thank you for sharing such a useful information on Mortgage Fraud. I didn’t even know some of the lists! I have to make sure I won’t be one of the victims. I will be looking for a house soon, and I am going to listen to your advice! Great post!

  16. This is an imposing awareness that need to be spread because there have been hike in the number of cases against this fraud. Mortgage fraud is prosecuted with penalties up to thirty years imprisonment. As the incidence of mortgage fraud has risen over past few years, there is every necessity for its prevention measures to be spread all over. There is no wonder seeing such immense numbers in UK, US and Canada as there are many cases reported these days.
    This is an impressive analysis so far and thanks for taking this initiative to share the protection steps.

  17. These tips are sound and should be followed by anyone involved in this area. I especially liked the article on how to prevent and protect yourself from mortgage fraud. It was a bit eye opening for me.

    I can’t believe so many people still become victims of mortgage fraud when there are so many good articles on how to prevent this. They probably don’t prepare themselves before actually signing things and paying or else there would be a lot less victims.

  18. I have read a lot of real estate articles in my day and I have to say that what I just read here was very insightful. Looking into a borrowers commute time is something only an experienced eye would know about.

  19. That list is huge. I want to be a home owner one day but now I am having second thoughts about it. I do not understand why people would be so money hungry that they have to cheat other people out of their money that they worked hard for. I knew about a lot of frauds but this one. Thank you for the information.

  20. Having gone through being exposed to fraud is like editing the elephant of your life. It’s hard and there are many tricks that people play. Before you know it, you’ve lost like a chapter or two from the best story of your life and all you get is a bunch of sorry this and sorry that. I don’t think the local governments have enough resources to police these things, and sometimes I get misdirected by the scrambles of information out there regarding what is happening and the trends. Especially on the prevention part.

  21. It’s amazing how sophisticated scams get every single day. Many famous schemes and scams have been re-labeled today, like how today, Vector Marketing and other “multi-level marketing” companies are really just Ponzi schemes on the inside. Some people try to trick average computer users into thinking they’ve been “hacked,” and then ask them to install some remote management software, and extract as much data as possible from the computer before the user realizes what’s going on. I don’t know why people do this kind of stuff when they can make legitimate money just as easily.

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