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Understanding and Avoiding Mortgage Fraud

At O1ne Mortgage, we are committed to helping you navigate the complexities of mortgage loans. If you have any mortgage-related needs, please call us at 213-732-3074. In this article, we will explore what mortgage fraud is, the different types, the penalties involved, and how you can avoid it.

What Is Mortgage Fraud?

Mortgage fraud is a deliberate act to deceive a mortgage underwriter, lender, or borrower during the process of buying, funding, or insuring a mortgage loan. Both borrowers and lenders can commit mortgage fraud, either to gain ownership of a property or to steal from lenders or homeowners. This serious crime can have severe consequences, so it’s crucial to understand how it works and how to avoid it.

Types of Mortgage Fraud

There are several ways that mortgage fraud can occur. Here are some of the most common types:

Occupancy Fraud

Occupancy fraud happens when loan applicants misrepresent their intended use of the property, claiming they will reside in the home when they actually plan to rent it out. This misrepresentation is often done to secure lower interest rates and down payment requirements.

Straw Buyer Fraud

In this type of fraud, an individual known as a “straw buyer” applies for a mortgage to buy a property on behalf of someone else. The straw buyer agrees to occupy the home and make the payments, but the real homebuyer is the one who intends to live in the home and pay the mortgage. Sometimes, the straw buyer is an unsuspecting victim of identity theft.

Home Appraisal Fraud

Home appraisal fraud occurs when a home is fraudulently inflated beyond its actual value. This is common in property flipping, where a home is purchased below market value and immediately resold at a profit with an inflated appraised value.

Income Fraud

This type of fraud involves reporting inaccurate income information to get a better deal or a bigger loan. It can also include falsifying income documents to qualify for a mortgage loan that the borrower otherwise may not get.

Asset Rental Fraud

With asset rental fraud, a borrower rents or borrows assets from others to appear more qualified for a mortgage loan. Once the mortgage closes, they return the assets to the original owner.

Foreclosure Scams

In foreclosure scams, scammers contact homeowners who are behind on payments and offer help to avoid foreclosure. They may ask the homeowner to put the property in their name and offer to make the payments in exchange for rent payments. However, they don’t actually make the mortgage payments, leading to foreclosure.

Penalties for Committing Mortgage Fraud

Mortgage fraud is a serious offense that can lead to prosecution and even jail time. Under U.S. federal and state laws, mortgage fraud can result in up to 30 years in federal prison and up to $1 million in fines, depending on the specifics of the crime. Therefore, it’s crucial to take steps to avoid mortgage fraud in all its forms.

How to Avoid Mortgage Fraud

Here are several steps you can take to avoid committing or becoming a victim of mortgage fraud:

• Be honest: Provide accurate information about your financial situation, including income and assets. If you borrow money or receive a gift for a down payment, disclose the details to your lender.
• Work with reputable professionals: Get referrals for realtors, brokers, and other professionals from people you trust. Research the professionals you’re working with to ensure you’re comfortable with them.
• Review all loan documents thoroughly: Take your time to read all disclosures and ensure the information is accurate.
• Avoid aggressive mortgage professionals: Steer clear of loan officers, brokers, or agents who push you to sign documents or make decisions hastily.
• Consider hiring a real estate attorney: Even if not required, a real estate attorney can review paperwork and look out for red flags. They typically charge $150 to $350 per hour.

Get Your Credit Ready for a Mortgage Loan

Before starting the mortgage process, prepare your credit. Check your credit score, review your credit report, and focus on paying bills on time. Limit large purchases, especially on credit cards, and avoid taking out new credit. Your credit history significantly impacts your ability to get approved and the terms you qualify for.

For any mortgage-related needs, call O1ne Mortgage at 213-732-3074. We’re here to help you every step of the way.

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