There are many kinds of financial or banking fraud that occur, including fraud related to mortgages. These large financial instruments take decades to pay off and involve a company making a large financial transfer so that an individual, a married couple or a business can purchase real property.
The property itself serves as collateral for the loan, which means that the mortgage lender will likely foreclose on the property to recover what it invested at the time of purchase in the event that a borrower defaults on their obligations. It is often during the foreclosure process that lenders become aware of mortgage fraud. In general, there are two main categories of mortgage fraud, and both of them may lead to serious criminal charges, possibly even federal prosecution.
What are the two types of mortgage fraud?
Mortgage fraud for profit
For most people, the word fraud conjures images of a professional of some sort intentionally lying to others, and that can absolutely occur during mortgage fraud cases. Mortgage fraud for profit is about making money off of a transaction. People may fabricate buyers or fabricate property transfers as a means of getting a bank to fund a loan. Unfortunately, then when the lender seeks to foreclose later, there is no collateral property to claim or buyer to take to court. Mortgage fraud for profit can lead to devastatingly large losses for the financial institutions affected, and such schemes frequently involve industry insiders such as real estate agents, mortgage brokers or even property inspectors.
Mortgage fraud for housing
Fewer people recognize that those who want to buy a home are likely to commit mortgage fraud as well. It is illegal to lie on a mortgage application, and yet many people think nothing of providing a friend’s phone number as their employer’s line for verification purposes or inflating their income artificially on paperwork. They may take such steps under the assumption that if they get the mortgage, then they will do whatever they need to make all of the payments. When lenders uncover such misconduct, often during foreclosure proceedings, the homeowner could potentially face prosecution.
Financial crimes often lead to financial penalties in addition to a possible jail sentence based on the charges a prosecutor pursues. Seeking legal guidance and learning more about financial crimes may benefit those under investigation or facing accusations of illegal financial conduct or fraud.