Fraud Alert: Mortgage Scams That Could Cost You Thousands

Advertiser Disclosure

This article may contain references to products or services from one or more of our advertisers or partners. We may receive compensation when you click on links to those products or services. Nonetheless, our opinions are our own.

Summary hide

Key Highlights
Common Kinds of Mortgage Fraud You Should Know About
Red Flags to Look for When Applying for a Mortgage
Practical Steps to Protect Against Mortgage Fraud
What to Do If You Suspect You’re a Victim of Fraud
Resources and Support for Keeping Your Money Safe in the Future
Frequently Asked Questions
Recommended Reads

Key Highlights

How mortgage fraud works and how it affects homebuyers
The most common kinds of fraud to look out for
Red flags that may show dishonest activity
Easy steps to protect yourself
Resources and help to secure your future

When you try to get a mortgage, the process can feel challenging and confusing. Unfortunately, with all the paperwork and tricky language, many homebuyers might miss a significant risk: mortgage fraud. This dishonest practice can threaten your dream of owning a home and lead to serious legal problems.

Mortgage fraud is a big problem. It can harm homebuyers who don’t know it’s happening. This fraud often involves lying or hiding the truth in the mortgage process. The goal is usually to get more money, better loan terms, or approvals that would not usually happen. Some common examples include straw borrowing, lying about income, and property flipping scams.

The effect on you as a homebuyer can be profound. It can lead to financial loss or even legal trouble, especially if the fraud causes foreclosure or problems with your mortgage.

Your best way to protect yourself from mortgage fraud is to stay alert and informed. Here are some easy steps you can follow:

Check all data: Always review your loan application details and documents before submitting them.
Work with trusted people: Choose reliable real estate agents, lenders, and lawyers with a good reputation.
Learn for yourself: Know common scams to spot warning signs early.

Fraud Type	Red Flags
Straw Borrowing	Unexpected buyers listed on the mortgage; use of multiple properties
Income Falsification	Unverifiable income sources; fake or inflated salary claims
Property Flipping	Rapid buying and selling of properties at inflated prices

Staying informed and acting early can significantly reduce your chances of falling for mortgage fraud. Understanding these issues may save you money—and even your dream home.

Common Kinds of Mortgage Fraud You Should Know About

As you explore the world of mortgages, you must watch out for traps that can lead to fraud. Here are some common types to be aware of:

Occupancy Fraud occurs when borrowers lie about how they’ll use the property—for example, saying it’s their main home when it’s really a rental. This can help them get better loan terms they might not otherwise qualify for.
Income Misrepresentation: Providing false income details to secure a loan might seem tempting, but lenders verify this information. Discrepancies can lead to serious consequences, including foreclosure.
Appraisal Fraud involves raising a property’s value through fake appraisals to deceive lenders. Always ensure reputable professionals do appraisals.
Title Fraud occurs when someone steals your property title to take out a mortgage. Monitor your title regularly to catch any unauthorized actions.

Here’s a simple overview of these types of fraud:

Type of Fraud	Description
Occupancy Fraud	Misrepresenting property use
Income Misrepresentation	Falsifying earnings to qualify for loans
Appraisal Fraud	Inflating property value illegally
Title Fraud	Theft of property title to acquire loans

Learning about these issues can help you protect your financial future and make wise decisions. Trust your instincts and investigate further if something feels off during the loan process.

Red Flags to Look for When Applying for a Mortgage

When applying for a mortgage, it’s essential to look for signs that something might be wrong. These signs can point to dishonest activity. A key red flag is inconsistent information. If your lender provides documents that don’t match your financial details, or if there are differences between what you submitted and what they’re saying, you should ask questions.

Be careful of pressure tactics. A trustworthy lender will never rush you to decide or push you to sign documents without reviewing them. If this happens, take a step back and reassess the situation.

Another vital sign is unexpected fees. If you see extra charges that are unusually high or not clearly explained, that’s a warning sign.

Red Flag	What It Means
Inconsistent Information	Possible deception in your financial documents
Pressure to Act Quickly	May indicate a scam or unethical behavior
Unusual Fees	Hidden or inflated charges
Lack of Transparency	Necessary details may be deliberately hidden

Being aware of these signs can help you take control of your financial safety. Always trust your gut—if something feels wrong, get more information or ask for help.

Practical Steps to Protect Against Mortgage Fraud

To protect yourself from mortgage fraud, stay informed and alert. Here are some essential steps you can take:

Use Trusted Professionals: Work with reputable real estate agents, mortgage brokers, and lawyers. Check their background and experience. If something feels off, trust your instincts.
Conduct Thorough Research: Review the market value of homes you’re interested in. Use real estate websites that show listings and historical data to avoid overpaying.
Read All Documents Carefully: Before signing, review every paper involved in the process—from loan agreements to disclosure statements. Ask questions if anything seems confusing or incorrect.
Monitor Your Credit Report: Check your credit report regularly for unauthorized activity. You can get one free report yearly from the three major credit bureaus.
Be wary of Unusual Requests: Legitimate lenders will not ask for personal information through unsecured emails or phone calls. Be cautious if this happens.

Consider making a checklist of warning signs to help you stay prepared:

Warning Sign	Description
Too Good to Be True Deals	Very low rates or minimal closing costs may be suspicious
Pressure Tactics	Feeling rushed is a red flag
Missing Information	Critical documents may be missing or appear altered

Staying aware and observant will help you avoid becoming a victim. Equip yourself with the correct information, and make decisions based on facts—not pressure.

What to Do If You Suspect You’re a Victim of Fraud

If you think you might be a victim of mortgage fraud, take action quickly to protect your finances. Start by checking your bank statements for unfamiliar charges or transactions. Write down anything that seems odd—this will be helpful when reporting the issue.

Here are the key steps to take:

Contact your bank: Call your bank or mortgage lender right away. Explain the situation and ask for help securing your accounts.
File a report: Report the fraud to your local police or the Federal Trade Commission (FTC). Get a copy of the report for your records.
Place a fraud alert: Contact one of the three major credit bureaus—Equifax, Experian, or TransUnion—to place a fraud alert on your credit report. This will make it harder for others to open new accounts in your name.
Monitor your credit reports: Continue checking your credit reports for new or suspicious activity.

These steps may seem overwhelming, but acting quickly can help limit the damage. Your priority should be protecting your identity and financial health.

Resources and Support for Keeping Your Money Safe in the Future

To safeguard your financial future, knowing where to find trustworthy information is helpful. Here are key resources and support services:

State and Federal Agencies: Websites like the FTC provide valuable information on mortgage fraud and how to report it.
Local Housing Counselors: Certified housing counselors offer personal guidance to help you understand your mortgage options.
Legal Advisors: If you suspect fraud, a property law attorney can help you understand your rights and next steps.
Fraud Protection Services: Credit monitoring services can alert you to suspicious activity and help you avoid potential threats.

Mortgage Fraud Detection and Avoidance

Detecting and avoiding mortgage fraud is essential to protecting your finances. You can reduce your risks by being cautious and using the resources provided. Remember—quick action matters. Stay informed, take steps early, and stay alert to keep your money safe.

Establishing Controls: A Commonsense Approach

Setting up precise controls in the mortgage process is vital for preventing fraud. Use a commonsense strategy: run background checks on everyone involved, review all documents carefully, and get independent opinions on the property’s value. Paying attention to detail helps protect your interests in any real estate transaction.

Report Possible Fraud

If you see signs of fraud in a mortgage transaction, report it immediately. Contact your lender, regulatory agencies, or law enforcement. Taking action helps protect you and others, strengthening trust in the mortgage industry.

Frequently Asked Questions

What is mortgage fraud?

Mortgage fraud happens when someone lies or omits essential information while applying for a mortgage. This might include exaggerating income, using fake documents, or hiding debts to get approved for a loan they wouldn’t otherwise qualify for.

What are the common types of mortgage fraud?

Common types include income fraud (overstating earnings), occupancy fraud (falsely claiming a property will be a primary residence), and appraisal fraud (inflating a property’s value).

Who commits mortgage fraud?

Both borrowers and industry professionals can commit mortgage fraud. Borrowers may lie on applications, while real estate agents, appraisers, or loan officers may participate to close a deal or make a sale.

How can I identify potential mortgage fraud?

Look closely at all documents and details. Be alert for income or employment history inconsistencies, inflated appraisals, and any effort to rush you into signing.

What steps can I take to avoid mortgage fraud?

Work with legitimate professionals, understand all aspects of your mortgage application, keep your records accurate, avoid sharing personal information casually, and never rush your decisions.

The FangWallet Promise

FangWallet is an editorially independent resource - founded on breaking down challenging financial concepts for anyone to understand since 2014. While we adhere to editorial integrity, note that this post may contain references to products from our partners.

The FangWallet promise is always to have your best interest in mind and be transparent and honest about the financial picture.

Become an Insider

Editorial Disclaimer: The editorial content on this page is not provided by any of the companies mentioned. The opinions expressed here are the author's alone.

The content of this website is for informational purposes only and does not represent investment advice, or an offer or solicitation to buy or sell any security, investment, or product. Investors are encouraged to do their own due diligence, and, if necessary, consult professional advising before making any investment decisions. Investing involves a high degree of risk, and financial losses may occur including the potential loss of principal.

Advertiser Disclosure: This article may contain references to products or services from one or more of our advertisers or partners. We may receive compensation when you click on links to those products or services.

Write for Us