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Shut the Door on Mortgage Fraud: How to Protect Yourself

Learn how to avoid mortgage fraud and protect yourself from common fraud schemes, including investment property schemes, illegal property flips, appraisal fraud, straw buyers, and affinity fraud. This comprehensive guide provides tips, best practices, and resources to help you stay vigilant and report mortgage fraud.

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Shut the Door on Mortgage Fraud: How to Protect Yourself

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  1. Shut the Door on Mortgage Fraud Information on How to avoid Mortgage Fraud Remove this text and place your logo here

  2. Topics • Mortgage Fraud Defined • Common Fraud Schemes and Fraud Elements • Tips and Best Practices • Resources • Reporting Mortgage Fraud

  3. Mortgage Fraud Defined “The intentional misstatement, misrepresentation, or omission by an applicant or other interested party, relied upon by a lender or underwriter to provide funding, or to purchase, or to insure a mortgage loan.” – FBI, 2007 Mortgage Fraud Report

  4. Common Fraud Schemes/Fraud Elements Common Fraud Schemes: • Investment Property Schemes • Illegal Property Flips Common Fraud Elements: • Appraisal Fraud • Straw Buyers • Affinity Fraud

  5. Investment Property Schemes Investment property schemes usually occur when there are one or more investment properties sold to a buyer. The buyer is usually told by the person running the scheme that they are not required to place any money down for the purchase of the property/properties, that the rents will cover the mortgage payments, and they may receive an incentive such as cash back at or after closing for purchasing the property/properties.

  6. Investment Property Fraud “No, I never went to look at this investment property that I was buying. I believed what I was told.”

  7. Illegal Property Flips Illegal property flips involve a scheme where recently purchased properties are quickly resold to obtain an illegal profit based on an inflated appraisal report. Illegal property flips typically involve a conspiracy between the fraud organizer, real estate appraiser, loan originator, and the closing agent.

  8. Illegal Property Flips 2nd Slide • Common elements of an illegal property flip are: • Use of a fraudulent, artificially inflated appraisal • Usually done with investment property originations • Organized by the property seller and/or another third party • Property flips may not be illegal – you need to know what the intent is • The buyer of the property may not be aware of the illegal property flip

  9. Appraisal Fraud Appraisal fraud is not a difference of opinion. Appraisal fraud occurs when the property appraiser deliberately overstates the value, misstates, and/or omits facts that impact the property value relied upon by the lender to originate the loan.

  10. Appraisal Fraud 2nd Slide What you see:

  11. Appraisal Fraud 3rd Slide What you get:

  12. Appraisal Fraud 4th Slide Renovations never done!

  13. Straw Buyers • A straw buyer (straw) is a person whose credit profile is used to serve as a cover in a loan transaction. They are sometimes referred to as a nominee borrower or straw borrower. • Straw buyers may be deceived, thinking that they're investing in real estate that will be rented out, with the rental payments paying the mortgage. • Straw buyers are chosen for their ability to qualify for the mortgage loan. Straws can be willing participants in the transaction, or victims whose identity is being used unbeknownst to them (identity theft). • Straw borrowers can cause loans to be approved that would ordinarily be declined.

  14. Straw Buyers 2nd Slide • Straw Buyers usually have good credit and high Fair Issac Corporation Scores (FICO) scores • Straw buyers are often enticed by “get rich quick” come-ons… “Your total contribution is your credit and qualifying for the loan.” “Make $$$ per deal…for your partnership contribution!” “At which point, we will put you on another deal to keep the money coming in for you!”

  15. Straw Buyers 3rd Slide Straw buyers: • May be helping a friend or family member purchase a home • May be paid a large fee for their involvement in purchasing investment property/properties • Usually never intend to own or occupy the property • Are used in combination with many other scams

  16. Affinity Fraud Affinity fraud exploits the trust and friendship that exist in groups of people who have something in common. The scam artists who promote affinity fraud schemes frequently are – or pretend to be – members of the group. “You can trust me, because I’m like you.” “I’ve made money on this deal and you can too.” “Believe me, I can help you.” “You remind me of how I was…” “I can help; I understand.”

  17. Affinity Fraud 2nd Slide Affinity Groups Schemers prey on their own community: • National origin • Religious affiliation • Friends • Family • Co-workers

  18. Affinity Fraud 3rd Slide Affinity Groups How it works: • Immediate level of trust • Others in the group have done it, and made money • High returns are paid to early investors and become walking and talking “commercials” • Immigrants are often targeted due to language barriers and isolation • Loyalty to the group – not reporting schemers or monetary losses to authorities • Shame – keeping quiet and maintaining honor

  19. Tips and Best Practices • Beware of unsolicited offers to buy real estate • Beware of enticing offers or sales concessions • Seek legal advice prior to buying in any investment property opportunity • Physically inspect the property you are buying with a licensed home inspector • Beware of investment property opportunities where you are offered cash back after closing – say NO to “easy money” • Seek legal advice if a “too-good-to-be-true” incentive is part of the purchase transaction

  20. Tips and Best Practices 2nd Slide • Do not lend your name and credit for investment opportunities • Get important information in writing • Provide accurate information on your loan application • Check the accuracy of the information on the loan application, purchase contract and loan documents • Beware of requests to pay funds to parties not involved in the transaction

  21. Tips and Best Practices 3rd Slide • Know your finances and how much of a mortgage payment you can afford • Consult a lender of your choice for mortgage pre-approval • Get lender references from known reputable sources and know who you are working with • Know your market or contact a real estate agent of your choice to familiarize yourself with the neighborhood and what homes are selling for

  22. Tips and Best Practices 4thSlide • Do not sign any documents you don’t understand. If you're not sure, don't sign • Do not sign any blank documents • Familiarize yourself with your HUD-1, Settlement Statement • On the HUD-1, make sure that it: • Is issued by the closing agent • Indicates your loan amount • Indicates your down payment and funds needed to close • Shows complete accounting of all loan fees and charges • Do not sign any document containing false information

  23. Tips and Best Practices Resources • www.mbafightsfraud.mortgagebankers.org Reporting Mortgage Fraud • Freddie Mac’s Fraud Hotline:(800) 4FRAUD 8 or (800) 437-2838 • Contact your state's attorney general office • Locate your state attorney general through the Consumer Fraud Reporting Web site available at www.ConsumerFraudReporting.org/StateAttorneyGeneralList.php

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