DEFINITIONS AND TYPES OF MORTGAGE FRAUD
The word "fraud" traces its origin from Latin to a Sanskrit word that means, "He bends injures." The Black Law dictionary defines fraud as “the intentional perversion of truth for the purpose of inducting another in reliance upon it to part with some valuable thing belonging to him or surrendering a legal right.”
Mortgage fraud can be committed by:
1. Application Fraud is the intentional misrepresentation of an applicant's income, assets, liabilities, credit history, credit scores or job information.
2. Real Estate Value Fraud is the intentional misrepresentation of the real property value by a real estate appraiser or other professional.
3. Real Estate Title Fraud is the intentional misrepresentation of the liens, judgments, lis pendens, survey problems or other "clouds on the title" by a title company.
4. Transaction Fraud is the participation in a real estate scheme to obtain a loan though misrepresentation of facts.
There are two types of fraud:
1. Fraud for Housing
2. Fraud for Profit
Freddie Mac and Fannie Mae do not distinguish between Fraud for Housing and Fraud for Profit.
Frauds for Housing - The borrower and/or other parties in a real estate transaction can misrepresent facts to a lender to help a borrower obtain a loan and, therefore, a home. Other parties to the transaction include real estate brokers, mortgage brokers, appraisers, title companies, closing agents, lenders' account representatives, accountants, etc.
It is still fraud, no matter how admirable the idea sounds that a "professional" is helping a customer obtain a loan and hence a home. The lender should have the right to all the facts and they should make the decision whether or not to loan to the applicant. "This is not a noble cause, this hurts our reputation," states Jack Nunnery, Chase Manhattan's National Customer Risk Manager. Obviously, un-professionals profit from this fraud.
Fraud for Profit - An investor deceives a lender into making a loan so that the investor makes a profit. The investor may or may not have the help of other parties in the transaction. Investor fraud includes the following schemes:
1. A Straw Buyer
2. Land Flips
3. Equity Skim
A Straw Buyer is a person used to buy property to conceal the actual owner. The Straw Buyer’s income and credit is used to fraudulently obtain the loan. The Straw Buyer, the actual property owner and anyone else involved in the scheme are guilty of fraud. Straw Buyers are sometimes used in the following occasions:
• Investors who want the more favorable interest rate, loan-to-value and other terms available on owner occupied property
• Builders who want to obtain working capital
• Sellers who want to illegally get money from their property
• Borrowers who could not obtain a mortgage on the subject property
A Land Flip is when real property is bought at or below market price and is resold at a price higher than market value. The higher sales price is used to obtain an illegal higher mortgage loan amount. The cooperation of at least a dishonest real estate appraiser is necessary.
An Equity Skim example is as follows: The real property owner obtains a high loan-to-value mortgage on tenant occupied property. The owner collects rent from the tenant(s), but does not pay the mortgage. The owner skims equity from the property during the prolonged collections and foreclosure proceedings.
Fraud can be committed by misrepresentations on the following types of documents:
• Application Documents
• Appraisal Documents
• Credit Reporting Documents
• Income Documents
• Asset Documents
The red flags in these documents are numerous. The most prevalent fraud is income documentation.
Unfortunately, the computer has been a "double-edge" sword in the mortgage industry. On one side, it has provided technology to speed up and automate mortgage processes. On the dark side, with scanners, laser printers and graphic programs, high quality fraudulent documents have been easier to create.
This is not the conclusion but the beginning of a five to seven year window of unfortunate opportunity for the criminal defense attorney to provide capable legal services to white-collar defendants along with expert litigation support from forensic mortgage fraud accountants. Take the time to explore the idea of adding mortgage fraud to your practice.
Gary Opper is the managing member of Levie-Opper, LLC, a mortgage fraud litigation support firm. He has a CPA and a CFP license. Opper is past President of the FAMB - Miami Chapter and the FICPA - Gold Coast Chapter. Opper is a member of the NAMB, FAMB, AICPA and the FICPA. Mr. Opper has been the NAMB’s Writer of the Year and Featured Writer of the Year. Mr. Opper was the FAMB’s Broker of the Year. He has been president of mortgage lender since 1984. Mr. Opper is available to speak to your group. Please contact him to arrange a speech for your event. He may be reached at (954) 384-4557, fax: (954) 384-5483, or e mail: Gary@Levie-Opper.com.
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