Mortgage fraud is a crime that affects homeowners on Main Street as well as executives on Wall Street. Scam artists discovered many creative ways to deceive homeowners in economic distress and financial institutions. Ultimately many homeowners who paid their mortgages on time each month suffered as foreclosures spread and their home values declined.

In the late 1990s, Dan Immergluck of the Georgia Institute of Technology conducted a study on foreclosed homes in Chicago. He concluded that each foreclosure within one-eighth of a mile from a home reduced the value of that home by 0.9 percent.

Among the more popular schemes cited by the FBI:

Builder-Bailout Schemes

Builder-bailout schemes often occur when a builder or developer experiences difficulty selling their inventory and uses fraudulent means to unload it. In a common scenario, the builder has difficulty selling property and offers an incentive of a mortgage with no down payment. For example, a builder wishes to sell a property for $200,000. He inflates the value of the property to $240,000 and finds a buyer. The lender funds a mortgage loan of $200,000 believing that $40,000 was paid to the builder, thus creating home equity. However, the lender is actually funding 100 percent of the home’s value. The builder acquires $200,000 from the sale of the home, pays off his building costs, forgives the buyer’s $40,000 down payment, and keeps any profits. If the home forecloses, the lender has no equity in the home and must pay foreclosure expenses.

Seller Assistance Scams

 In a typical seller assistance scam, a perpetrator solicits an anxious seller or his real estate agent and offers to find a property buyer. The perpetrator negotiates the amount that the property seller is willing to accept for the home. The perpetrator then hires an appraiser to inflate the property’s value. The property is sold at the inflated rate to a buyer who is recruited by the perpetrator. The buyer takes out a mortgage for the inflated amount. The seller then receives the asking price for the home, and the perpetrator pockets a “servicing fee,” the difference between the home’s market value and the fraudulently inflated value. When the mortgage defaults, the lender forecloses on the house, but is unable to sell it for the amount owed as a result of the inflated value.

Short sale scheme

A real estate short sale is a type of pre-foreclosure sale in which the lender agrees to sell a property for less than the mortgage owed. In a typical short sale scheme, the perpetrator uses a straw buyer to purchase a home for the purpose of defaulting on the mortgage. The mortgage is secured with fraudulent documentation and information regarding the straw buyer. Payments are not made on the property loan so that the mortgage defaults. Prior to the foreclosure sale, the perpetrator offers to purchase the property from the lender in a short-sale agreement. The lender agrees without knowing that the short sale was premeditated. The mortgage owed on the property often equals or exceeds 100 percent of the property’s equity.

Foreclosure Rescue Scams

Escalating foreclosures provide criminals with the opportunity to exploit and defraud vulnerable homeowners seeking financial guidance. The perpetrators convince homeowners that they can save their homes from foreclosure through deed transfers and the payment of up-front fees. This “foreclosure rescue” often involves a manipulated deed process that results in the preparation of forged deeds. In extreme instances, perpetrators may sell the home or secure a second loan without the homeowners’ knowledge, stripping the property’s equity for personal enrichment.

Identity Theft Used to Drain Home Equity Lines of Credit

Stolen customer identification information is being used to compromise Home Equity Lines of Credit (HELOC) accounts. To facilitate this scheme, perpetrators pose as customers to establish HELOC Internet account services and manipulate customer account verification processes, including rerouting telephone calls, forging signatures, using passwords, and reciting recent account history. For example, a perpetrator uses the account holder identification information to contact a financial institution and request an advance of funds on a HELOC account. Once the advance is granted, the perpetrator sends a facsimile to the financial institution requesting that the funds be wire transferred to another account. On receipt of the facsimile request, the financial institution contacts the account holder using the telephone number on record to verify the transaction. However, the call is unknowingly forwarded to the perpetrator who verifies the account holder’s information to complete the wire transfer.

If you think you have been a victim of mortgage fraud, contact the U.S. Attorney’s office at 901-544-4231.