Recognizing and Reporting Mortgage Fraud

Recognizing and Reporting Mortgage Fraud

How to Report Mortgage Fraud - Suspicious Activity Report or SARThere was an advertisement recently showing a thief breaking into a home just as a woman was driving past.  Of course, she immediately called the police who then came and arrested the thief before he could get away with the stolen goods.  The purpose of the advertisement was, of course, to promote awareness in neighborhoods in order to prevent crime.  Unfortunately, not all crime is this easy to detect and much harder to report. Mortgage fraud is the perfect example.

Mortgage fraud occurs when an individual, group or company takes money from a lending institution which is collateralized by real estate through the use of false information. It may be the tiniest of white lies or the largest of schemes.   Regardless of the type or amount of information that is false, if the information provided to the lender is for the purpose of making a decision as to whether or not to lend money, it is mortgage fraud.

There are really two types of mortgage fraud.  The first, fraud for housing, occurs when a borrower or borrowers falsify the information intended for use by the lending company when making a decision to approve or deny a loan application.  Common fraudulent activities that individuals commit when applying for a loan include:

  • Borrowing money from another lender and telling the mortgage company that it was your savings.
  • Asking someone else to lend you money to put into your account until the bank has verified it.
  • Asking your boss or someone in the company to falsify a verification of employment with a salary higher than what you make.
  • Having a friend say you work for their company part-time when you don’t.
  • Providing a set of false tax returns that shows your income as higher than it actually is.
  • Hiding debt from the lender.
  • Asking a friend that works at a bank to verify that you paid off a loan when in fact you hadn’t.

Many times the borrower sees this type of “fib” as having little consequence and justify it as a means of getting the loan that they know they will repay, but it is in fact fraud.  There is a paragraph at the end of the loan application form that borrowers must sign that spells this out and advises them of the consequences of committing this type of fraud.  These consequences include penalties and fines as well as possible prison time.

The second type of fraud is fraud for profit.  Rather than benefiting the borrower, this type of fraud actually benefits those individuals that are external parties to the transaction. This typically includes loan officers, appraisers, title agents, brokers and individuals who participate in the transaction without having an actual interest in the property.   Many times this type of fraud involves individuals who are unaware of the fraudulent nature of the transaction, but are looking to benefit financially.

One example of this that many individuals were caught up in is that of a straw buyer transaction.  In this scenario the individual wants to buy a house but they know they would not qualify for the loan.  They seek out someone with good credit and persuade them to act as the buyer.  The incentives for doing this may range from a cash payment for their personal information to some actual percentage of ownership.  Often these applications involve falsifying the income and assets of the borrower as well as inflating the value of the property.  Then at the closing the “straw buyer” signs the note and mortgage but the individual actually buying the house has committed to making the payments.  This works fine as long as the actual buyer can make the payments, or the house is rented.  In a housing market where prices are increasing, the property may only be held for 6 to 9 months before it is sold again for a profit.  If the house is a rental and cannot be rented out, there is no cash flow to cover the mortgage payment.  Unfortunately because the “straw buyer” has signed the note and mortgage, they are responsible for making those payments.

How do you report mortgage fraud?

So what to do when you believe you have been unknowingly involved in mortgage fraud or know someone else who has been defrauded?  One of the most difficult things about mortgage fraud is knowing who to tell.  It’s not like the thief breaking into a house.  The police can’t just show up and arrest someone.  Fortunately, there are resources for reporting these types of crimes.

Mortgage lenders, including those that are not banks, are required to report any attempted fraud that occurs within their organization.  This report, called a Suspicious Activity Report or SAR, is completed by the institution and sent to the Federal Financial Institution Examination Council (FFIEC).  These reports are then reviewed and the information is reported to the institution’s regulator.   Individuals who believe they are aware of or inadvertently involved in mortgage fraud should report it directly to the lender so that they can take the necessary action and report the activity to the FFIEC.

A more direct approach is to contact the FBI.  Since the late 1990’s the FBI has maintained a specific task force focused on identifying and stopping mortgage fraud.  You will be asked to supply information on the specific fraud or suspected fraud you are aware of or involved in and will most likely have to discuss the issues and your reasons for reporting it with an FBI agent.

Consumers can also report this type of information to the Consumer Financial Protection Bureau (CFPB).  This can be done on-line by going to their web-site, CFPB.gov and filling out the information requested in the consumer complaint section of the site.  This information will then be reported to the lender involved as well as notification to regulators and the FBI.

Finally, you can also report it to your local police.  While they are not as involved and knowledgeable about this crime, they are becoming more and more involved.  However, the incident would most likely be the responsibility of detectives’ rather just police officers.

Remember, mortgage fraud is a crime that impacts everyone.  This type of criminal activity causes property values to decrease and/or artificially inflate.  Even the most honest homebuyer can become a victim simply because they have borrowed against their property’s value which is based on values pushed by mortgage fraudsters.  Furthermore, these activities are frequently used as part of larger, more systemic crimes such as money laundering and other types of money transfers into and out of the country.  Stopping mortgage fraud is not just an issue for mortgage lenders, it is everyone’s responsibility.

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3 Comments

  1. Hello, A friend of mine has done something really ignorant and gotten herself in quite a mess.
    Here is the scenario:

    She wanted to buy a home but couldn’t qualify for a mortgage loan so in exchange for improving a potential buyers credit (named Ameliano) he could then qualify (credit wise), He purchased a home for her under the following terms:

    1. Maria would put the money down and make all the payments.

    2. After one year, he would just transfer the title over to her.

    3. The day escrow closed, she moved in. This was in March 2012. She has made all of the payments.

    4. In February 2018, when Maria began pressing the issue of title being transferred (after 5 years of making the payments while promised after one year it would be done) Out of the blue she receives eviction papers. Ameliano sold the home to another (possible straw buyer) for about $300K below current market value. The home had gained $250,000 in equity since the purchase in 2012.

    Interestingly enough, out of the$ $40,000 Maria put down only $11,000 reflected in the HUD1. (Obviously, each player received a portion of the $29K not applied to the deal. Each year Ameliano claimed all the interest on his taxes.

    Not knowing what to do she hired an attorney to represent the eviction process who advised her to settle for a payout of $10,000. I believe this was not good advice. But when Maria refused to drop the criminal charges, these people began calling her and making all kinds of excuses saying they didn’t know bla bla bla. Maria has it on good authority this Felicia appeared in court today with the new buyer (who introduced Maria to Ameliano) for the purpose of improving his credit and obtaining the home she wanted) has facilitated a minimum of a dozen or more deals such as this in which the person who paid for the deal, gets evicted and loses everything.
    Obviously this is a well-seasoned fraud ring consisting of some pretty awful individuals. Maria does not know what to do and doesn’t seem to think she could find a criminal attorney who also specializes in real estate who would take her case contingent upon a 40% fee when the case is won and the property sold. If she were granted that equity, the attorney would glean $82,000. This is a lot of money and I think there would be a good attorney who would be able to retrieve her home and the money due as well as put this fraud ring out of commission and into prison where they belong.

    I know that is a lot, but attorney’s usually like the details. Do you think this could be done? Do you know anyone you can refer her to? What is your legal opinion on this scenario?

    One last important fact:
    After the close of this sale, Ameliano was given m$50,000 to buy a home of his own (since Maria had cleaned up his credit) and to start his own plumbing business. While Maria was faced with moving from a home that was supposed to be hers. Since she used her entire 401K to pay the $40K down, she had no funds for an attorney but managed to get someone who knew nothing about real estate to appear with her in court on the eviction. The attorney advised her to accept a $10,000 pay off from the NEW OWNER whom after court called Maria and told her she had no idea of what went on and what these people had done to her.
    The ring leader actually shows up with the new buyer in court today (bringing fraud before the court) and when Maria refused to drop criminal charges they began calling and texting her…first Felicia, and then Paulene (new owner) indicating she was sorry that she didn’t know what Felicia had done.
    Any other advice. My friend really needs a miracle here and would greatly appreciate your kind consideration.

    Warmly,
    T. Williams

  2. I received a call from a company that tried to scam me trying to get my mortgage information, said they were from Ocwen my mortgage company and left this number to call back 214 810 9927, they sound like they were from Ocean at first, because the number was Ocean number, when I called back…..they sound like they were from India, so I called my mortgage company to verify that it wasn’t the first, then I requested a U.S. Rep to speak with, and realize it was a scam…if they were my mortgage company, they would have my information..Never give your information to no one that call.
    Mortgage company send paper work.

  3. Hello I am trying to find out the best way of doing this because it has impacted my families life hugely in a horrible ways. My landlord covered up electrical fire hazards and shock hazards that we had been told about by licensed veteran electricians and used fake electricians to lie in court and say that they were licensed electrical inspectors and used fake license numbers . The landlord also paid off my attorney to ruin our case and he did just that he purposely failed to turn over or evidence and quit on us and lied to the courts why he needed to be relived. I asked myself why would the landlord do all this instead of just fixing the issues and then I found out why. He was telling his mortgage lender he was living in the home to get the better apr and not to have to pay the fees . 9 years he did this I know of for fact and also to show he was living their he held a homeowners policy insurance and the lender made these payments.. the lender wAs Bank of America and he did this coverup because they would have found out about our habitability issue and our loss of over 20,000 in electric bills. Average 1100.00 a month they were . 500% more than all the neighbors every month. But I have the name of both the lender and the insurance company’s. Should I report this to them ? The appeal for the original case is goi g to be heard soon and I wanted to have this maybe to show the appellate judges of the fraud that took place and why. We were treated terribly and lost everything we own from this landlord and his ways. My you g children and my pregnant wife were thrown out 2 days before Christmas last year with nowhere t9 go for we had no family or friends to help. My wife had the baby early and it has just been a nightmare. What do you think about this? I’ve also heard since it has been so long and the lender hadn’t checked to see if they were living their in the home that the lender might also be liable? I would love your thoughts. We haven’t had many help with all this and been threatened with our lives by the Contractor who’s licensed was used in the fraud. He sent the trainee to pretend he was a inspector and let him use his license number as his own. But even the CSLB covered it up for the Contractor. He threatened to gave me and my children killed through text message and stated that I was a poor nobody and he and all the people involved were all rich and didn’t want some bottom feeder to ruin everyone’s careers. Millions of dollars in salary’s and earning the attorneys make and they are goi g through great lengths to stop me. Lately they have even called CPS. and said my children are being neglected to make us look bad. It’s very serious and scary and I need help from any way I can get it. So if you have time than you ahead and if not thank you still and god bless.

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