scams are increasing, especially in the current financial environment due to
increases in foreclosures, declining housing prices, and decreased demand,
placing pressure on lenders, builders, and home sellers.
These and other market participants are repeating and modifying old schemes
such as property flipping, builder-bailouts, short sales, and foreclosure
Additionally, they are adding new schemes such as reverse mortgage
fraud, credit enhancements, condo conversion, loan modifications, and pump
This is in response to tighter lending practices.
The problem is getting worse in the United States, and with recent economic
stimulus legislation, further funding streams are now available to be used
in mortgage scams. The scams are relatively low risk and high yield returns.
What are the Mortgage Scams?
usually two main categories - scams for property, and scams for profit.
Scams for Property
This is where the applicant makes misrepresentations for the purpose of
purchasing a property for a primary residence, usually with a single loan.
Applicants exaggerate their income and hide their true debt.
Their intent however, is to repay the loan.
Scams for Profit
This usually involves multiple loans with an elaborate scheme to get the
proceeds from property sales. Appraisals and loan documents are commonly
grossly inaccurate with participants often being paid for their
Some of the popular products associated with scams for profit include:
Sub prime loans
Home equity conversion mortgage loans
- Home equity lines of credit
Option-adjustable rate mortgage
- Alt-A loans
The FBI's site provides further detail on
mortgage scams, and in its report identified the main emerging mortgage
Reverse mortgage scams.
A reverse mortgage is a loan available to people over 62 years of
age designed to release the home equity in their property as one lump
sum or multiple payments. The home owner is not required to repay the
loan up to their death, or when the home is sold, or until they go into
a nursing home. Usually when the home owner dies the property is sold,
and any value in excess of the mortgage will be returned to the estate.
The government has some
information available about reverse mortgages and what you should look
for. This information can be obtained by calling HUD at 1-800-569-4287.
More information is available at HUD’s website
This is when people fraudulently boost their credit histories and credit
scores, or simply boost their credit-worthiness. This can take a number
of forms, including the selling of credit histories and scores [so,
non-related people will use someone else’s good score to boost their
own]. The FBI is also noted builders who were depositing funds into a
new home buyer’s account, so that they could qualify for a loan - only
to remove the funds after closing
Builder bailout scams - condo conversions.
Builders who found themselves with an excess amount of inventory
sometimes would offer to sell the condos to investors in a 'no risk'
environment. The builders promised to find tenants for the investors, so
there would be no risk of them losing money. The builders claimed they
would manage the building and collect rents - but didn’t. The FBI also
investigated cases where builders inflated the value of the condos
Builder bailout scams - pump and pay.
The FBI stated they found builders who worked with 'co-conspirators' to
falsely inflate the value of property. The property was refinanced and
the false equity redistributed to the scammers
Foreclosure rescue scams