What is Title Fraud and Mortgage Fraud?
You may have already heard of “Title Fraud” and “Mortgage Fraud” but don’t really know exactly what it is or how it can happen. You need to be aware of crimes like these that are on the rise and protect yourself accordingly where possible.
The most common type of mortgage fraud involves a criminal obtaining a property, then increasing its value through a series of sales and re-sales involving the fraudster and someone working in cooperation with them. A mortgage is then secured for the property based on the inflated price.
“Straw buyer” Scheme
Another term for mortgage fraud is the “straw” or “dummy” homebuyer scheme. For instance, a renter does not have a good credit rating or is self-employed and cannot get a mortgage, or doesn’t have a sufficient down payment, so he or she cannot purchase a home. He/she or an associate approaches someone else with solid credit. This person is offered a sum of money (can be as much as $10,000) to go through the motions of buying a property on the other person’s behalf – acting as a straw buyer. The person with good credit lends their name and credit rating to the person who cannot be approved for a mortgage for his or her purchase of a home.
The following are some red flags if you are getting involved with mortgage fraud:
- Someone offers you money to use your name and credit information to obtain a mortgage
- You are encouraged to include false information on a mortgage application
- You are asked to leave signature lines or other important areas of your mortgage application blank
- The seller or investment advisor discourages you from seeing or inspecting the property you will be purchasing
- The seller or developer rebates you money on closing, and you don’t disclose this to your lending institution
Here’s what happens with title fraud: A criminal – using false identification to pose as you – registers forged documents transferring your property to his/her name, then registers a forced discharge of your existing mortgage and gets a new mortgage against your property. Then the fraudster makes off with the new home loan money without making mortgage payments. The bank thinks you are the one defaulting – and your economic downfall begins.
Sadly, the only red flag for title fraud occurs when your mortgage mysteriously goes into default and the lender begins foreclosure proceedings. Even worse, as the homeowner, you are the one hurt by title fraud, rather than the lender, as is often the case with mortgage fraud. Also, unlike with mortgage fraud, during title fraud, you haven’t been approached or offered anything – this is a form of identity theft.
Here are some ways in which to protect yourself from real estate fraud:
- Always view the property you are purchasing in person
- Check listings in the community where the property is located – compare features, size and location to establish if the asking price seems reasonable
- Make sure your representative is a licensed real estate agent
- Beware of a real estate agent or mortgage broker who has a financial interest in the transaction
- Ask for or request your lawyer to get a copy of the land title or go to a registry office and request a historical title search
- In the offer to purchase, include the option to have the property appraised by a designated or accredited appraiser
- Insist on a home inspection to guard against buying a home that has been cosmetically renovated or formerly used as a grow house or meth lab
- Ask to see receipts for recent renovations
- When you make a deposit, ensure your money is protected by being held “in trust”
- Request “Title Insurance” from your Lawyer at the time of closing