Examples of Mortgage Fraud
Kickbacks that are undisclosed
One kind of mortgage fraud is if you (the buyer) and the seller agree that you will receive a check or a cash payment for a new roof, for example. If your lender does not know about it because it is not disclosed in the Purchase and Sale Agreement nor any addendum to the P & S, nor disclosed on the HUD-1, then you are guilty of mortgage fraud.
Silent second mortgage
If you do not have a down payment you can commit mortgage fraud if you borrow the down payment from the seller. If you give the seller a second mortgage that is not recorded or is unrecorded after closing, then it is mortgage fraud.
Non-owner occupant claiming occupancy
You will pay a higher interest rate if the home you purchase is not owner-occupied. To avoid paying a higher interest you might tell your lender that you intend to occupy the home. You then rent the home to some one else and do not occupy the home. That is fraud.
Down payment gift repaid
You are allowed to receive a gift to assist you with the down payment. However, you must remember that a gift is just that, a gift. It can not be repaid.
Overstating your income to the lender so that you will get approved for the loan to purchase your new home is committing mortgage fraud. You will need to supply your lender with current pay stubs and income tax statements to prove your income.
Falsifying earnest money deposits
Borrowers who state that their earnest money deposit is made outside of escrow are committing mortgage fraud. The buyers’ broker/agent should ensure that the earnest money deposit is turned over to escrow in the allotted time as agreed upon in the P & S.