When you are applying for a mortgage, you may be tempted to overstate your income, or play down other debts, especially if the house you are looking at is “just the one,” or you feel your family needs this home. If you are tempted, just don’t do it! Lying on a mortgage application, even what you think is a minor white lie, amounts to mortgage fraud.
Understanding Mortgage Fraud
The definition of mortgage fraud, according to the FBI, encompasses any material misstatements or omissions that a lender or underwriter relies on when deciding whether to fund, purchase, insure or otherwise give you a mortgage loan. To avoid committing mortgage fraud inadvertently, you should become familiar with the common ways that such fraud is committed. Here are a few examples:
- Second mortgage with seller – If you don’t have money for the down payment, you might commit mortgage fraud by borrowing the down payment from the home’s seller. You do this, and in exchange you pay the seller for this “silent second mortgage,” which is not recorded at the time of closing and that is not disclosed to the lender.
- Closed door agreements with the seller – If you and the home’s seller strike a deal to exchange money (outside of the mortgage closing process) and if your mortgage lender is not aware of this arrangement, then you are committing mortgage fraud.
- False employment information – Sometimes lenders allow for “stated income” loans, which are designed or self-employed people whose income varies and is hard to track. Unfortunately, some employed mortgage applicants use this to wrongfully pad their income.
- You are not the primary occupant but say you are – If you are purchasing an investment property that you don’t intend to live in, your mortgage interest rate will be higher because the risk is higher. Because of this, some borrowers commit mortgage fraud to keep the interest rate lower, saying they intend to live in the property, when they do not plan on it.
- Down payment fraud – You commit mortgage fraud if you say that the down payment you received was a gift, but you intend to repay it. According to the law, you cannot repay a true gift. You also commit fraud if you say that your deposit will be paid offline (outside of contracts, etc.). Down payments must be recorded.
Getting Help
In addition to knowing these common schemes, don’t assume that your mortgage professionals – real estate agents or appraisers or even some mortgage loan representatives – won’t try to “help” you commit mortgage fraud to make a lucrative deal. Numerous professionals have been in the business for years, and go undetected when leading borrows to commit fraud. To avoid this, make sure you consult with an experienced attorney before agreeing to anything that seems inappropriate and that you consult with an experienced lawyer to make sure your mortgage loan is on the up-and-up before signing any documents.
