AFSCME 3357-HOF'S BLOG

Some times Mortgage companies commit fraud. Sometimes they get defrauded. . .

As consumer attorneys, we frequently handle cases where mortgage lenders and brokers scam consumers. We call that "mortgage fraud".

The lenders use the term "mortgage fraud" to describe a type of scam where the lender is the victim. In short, the scammers identify properties in a depressed area. They want properties that, due to high square footage or proximity to pricier neighborhoods, will support at first blush a high valuation. They obtain the property. They get a straw buyer to apply for a loan to buy the property from them at an inflated price. They use a fraudulent appraisal to justify the loan. The lender loans the money. The scammers skip out, and the house is left a decrepit shell, blighting a neighborhood.

Below is a link to an indictment on this type of scam against mortgage companies. Notice that you have the full weight of the US Attorney's office going after these fly by night scammer, but when a multi-billion dollar company flips mortgages, issues deceptive loan documents etc. as corporate practice, thereby systematically taking the life savings or working men and women, the US Attorney's office is no where to be found.

3 cops indicted in mortgage scheme

Ironically, it is much easier for the mortgage company to avoid being scammed than the average person who is desprite for a home equity loan. Here's what they can do:
1) Pay attention to the history of the property. A large short term change in sales price should raise a red flag.
2) Check the identity of the people they are dealing with. Identity theft is a common problem in these scams
3) Follow certain minimum standards in appraisals. Bad appraisals result in bad loans.
4) Subscribe to a fraud prevention services. There are a couple of companies who have database products that are designed to catch these fraudulent transactions.

I'm biased, but I think the term "mortgage fraud" should only extend to the scams by folks in the mortgage industry. When the lenders get ripped off because they loan too much on a property on a sale to a straw buyer, that's "property flipping".