Austin Texas Real Estate Blog

Several years back real estate fraud was a major issue. This is often resulting in some form of mortgage fraud equaling potentially hundreds of thousands of dollars. This can be anything from falsified paystubs to elaborate schemes that include titles being altered to reflect a person other than the mortgage holder as the owner. This means the loan company does not have a record to track for the property. In the end this causes thousands of dollars in restitution and real estate costs.

There are many ways the local and federal government has established to prevent real estate fraud. None matter if you don’t know what the indicators are, or report it when and if you cross it. Here are the four most common forms of mortgage fraud to watch for:

• Appraisal Fraud: when a property value is misrepresented to achieve an inappropriate result.

• Flipping or double flip: This is when a home is purchased at value or under and rapidly resold to a new buyer, generally within 30 days or less, for a significant price hike. This can be as low as 30 percent and up to 50 more than they originally paid. When this is done, the first loan is generally concealed from the final buyer. That first loan generally defaults.

• Identity Theft: This can be as obvious as taking someone’s identification and applying for and getting a loan as that alias to something simple as an appraiser using the name of another person to add or alter value to a home. Typically this kind of fraud is not discovered until long after the loan paper has been finalized.

• Straw Buyers or Faux Buyers: This one is perplexing. A person or company offers an incentive to another person to purchase a home using their information to obtain the mortgage, however they title the mortgage and home title to a third party or themselves. In the end, the loan is written for one person, but held by another.

In 2006, there were 818 cases of mortgage fraud, with 213 indictments, 204 convictions, $388.9 million in restitution and $1.4 million recovered. In 2007, as the real estate industry fell into an ever-growing slump and mortgages became increasingly more difficult to obtain and maintain, the situation worsened.

On May 22 2008, the Federal Bureau of Investigations (FBI) reported it had investigated 1,204 mortgage fraud cases in the last fiscal year, which ended September 30, 2007. Through these pursuits, the Bureau was able to incur 321 indictments and $595.5 million in restitution, and recover $22 million. Those numbers will likely go up, as many investigations are still under way.

It is nice to imagine that when a country, an economy and a market experience a down time, so does everyone else. But that’s not the case for scam artists. They take advantage of the hard times, playing on prospective patsies’ desperation and need. They find victims easily as everyone, including you, likes to believe no deal is too good to be true and is quickly taken.

You must be on the lookout for fraud in your real estate dealings. Watch for misrepresentation of income/assets, forged documents, inflated appraisals and misrepresentation of a borrower’s assets. Don’t allow the frequency of fraud to rise yet again in 2009. Go to the respectable lenders and real estate professionals. They are just as if not more plentiful than the con artists waiting to disappear with your savings. They will help you complete your transaction, whether its securing a mortgage on your new home in Lost Creek or listing your property in Westfield so as to move downtown, legally, safely and smartly. You can find the best real estate agents right here, to help you wade through the muck left by the scammers.

Back in April of 2007, Inman News reported a 42% increase in suspected mortgage fraud rates nationwide over 2006. Well, the trend seems to be escalating, as the FBI warns in a report out recently. The Bureau warns that the pace seems to be quickening, given figures for the first half of fiscal year 2008. The figures include losses from the sub-prime mortgage fiasco.

Mortgage fraud includes inflating income or assets, forged documents, misrepresenting intention to occupy the property and exaggerated appraisals. The FBI report warns of increases in fraud, probably due in part to the depressed real estate market, opening the door for perpetrators of fraud. The FBI also warned of an increase in identity theft mainly targeting people with good credit ratings.

In March, ABC News reported on mortgage rescue scams, where con artists purport to help cash strapped home owners pay off their mortgages, only to abscond with the fee they charge, leaving the home owner more strapped than ever and facing foreclosure. The technology of today unfortunately adds to this because it allows easier access to personal information for identity thieves. When home owners submit information to get a home equity loan or line of credit, thieves steal the information and send the financial institution a fax, requesting them to transfer the funds elsewhere.

The FBI bases its gloomy predictions on an increase in fraud complaints, saying they “could be headed for 70,000″ suspicious activity reports. The higher rate of complaints enforces FBI director Robert Mueller’s warning that “as housing prices continue to fall, more financial misdeeds will no doubt come to light.”

The FBI is currently investigating over 1,300 cases of mortgage fraud and 19 investigations into subprime lending cases.