7 Types of Mortgage Fraud

Here are 7 common types of mortgage fraud that your business needs to be aware of and how you can reinforce your closing process to stop criminals in their tracks.

7 Types of Mortgage Fraud

Here are 7 common types of mortgage fraud that your business needs to be aware of and how you can reinforce your closing process to stop criminals in their tracks.

7 Types of Mortgage Fraud
Written by:

Katie Stewart

Read time:

4 minutes


Mortgage Payoff


Aug 23, 2022

The vast majority of customers your real estate business interacts with are honest, hardworking people looking to start a new chapter of their lives or fulfill a dream of buying a home of their own.

Unfortunately, as in every industry, there are a few bad apples out there set on making a profit off of the home-buying process either on their own or with a group of conspirators who are in on it.

While the rise of digital tools and technology has made the process of buying or selling a home easier, it has also introduced new ways for criminals to commit more types of mortgage fraud than you may know of, leaving real estate professionals and honest customers left to pick up the financial pieces in their wake.

Here are some of the common types of mortgage fraud that your business needs to be aware of and how you can reinforce your closing process to stop criminals in their tracks.

What do you need to know about mortgage fraud?

While it can take many forms, mortgage fraud typically involves a person intentionally making materially false statements or positions to obtain a mortgage loan or ownership of a property.

Diving a bit deeper, industry professionals typically consider there to be two primary categories of mortgage fraud:

  • Fraud for housing: Criminals pretend to be legitimate borrowers and present false information, such as misrepresented income or assets on a loan application. In other cases, criminals can manipulate an appraiser to provide a higher-than-accurate appraised value for a property to get better terms or illegitimately build equity.
  • Fraud for profit: Criminals manipulate specific aspects of the mortgage lending process to steal cash or equity from lenders or homeowners. This can happen by presenting illegal foreclosure relief or debt management terms or by offering predatory loans with excessive rates and penalties. 

On their face, some fraud attempts seem easy to spot. However, criminals have become more sophisticated in how they pull off their fraud. In particular, they can use digital tools to:

  • Create fake websites that match legitimate or legitimate-looking lending or mortgage companies to collect sensitive data or provide inaccurate information, such as account information.
  • Collect or steal identities of buyers and sellers to process loan applications or change account information to redirect payoffs post-closing.
  • Perform business email compromise against legitimate businesses to create and redirect email messages.

Let’s take a closer look at 7 types of mortgage fraud.

While not an exhaustive list, here are some of the more common types of mortgage fraud that you and your team need to know so you can be ready to protect your interests and aren’t caught off guard:

  1. Property Flipping: A property is bought below the market’s actual value and is immediately sold for profit without any renovations using an inflated appraisal provided by an appraiser in the scam.
  2. Asset Rental: A borrower manipulates the mortgage qualification process by borrowing money or renting assets to falsely appear more qualified for a mortgage. After the mortgage is funded, the assets or money are returned.
  3. Equity Skimming: A buyer purchases a home with the sole intention of renting it out without making mortgage payments, allowing them to profit off the rental income.
  4. Mortgage Payoff: Criminals impersonate a lender or a title company representative and change the information used to disburse mortgage payoff funds after the settlement process.
  5. Foreclosure Scams: Predatory lenders mislead borrowers into believing that they can be saved from foreclosure by signing over ownership of the home in exchange for a loan or to rent their own home.
  6. False Identity Usage: A criminal takes out a loan by using stolen personal and financial information, such as Social Security numbers, pay stubs, and other legal documents to purchase a home.
  7. Inflated Appraisals: A buyer or seller, working with a corrupt appraiser, may undervalue or overvalue a property in hopes of manipulating the final purchase price in exchange for a percentage of the proceeds.

How can an industry-leading fraud prevention platform protect your business?

Like the common neighborhood criminal looking to take advantage of a victim that fails to lock their car door or leaves a home window open, real estate fraudsters are also looking for easy marks that fail to follow security best practices.

That’s why it's vital for your business to not only follow common cybersecurity best practices but also offer your customers access to a platform such as CertifID that delivers end-to-end encryption when it comes to collecting the data used to facilitate wire transfers. 

Want to learn more about real estate fraud and how you can better protect your reputation and your customers? Take a moment to download CertifID’s free whitepaper, Mortgage Payoff Fraud Is Rising; Here's How to Protect Your Business.

Katie Stewart

VP of Customer Success

Katie's background combines both IT and education. Her degree is in Management Information Systems, and she spent her first four years in the workforce as an IT business analyst. Katie took a career turn and joined Teach for America and worked in inner-city schools in Indianapolis as a math teacher and eventually an assistant principal. Today she combines her IT nerdiness and love of teaching, helping customers find success every day.

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