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What is Mortgage Fraud in Florida?

Posted by Mark James | Dec 19, 2023

What is Mortgage Fraud in Florida?

Mortgage fraud, or mortgage scams, is committed when someone who is involved in the process of obtaining a mortgage loan from a lender is deliberately deceitful and fraudulently misrepresents information that the lender relies upon when they agree to fund, insure, and/or mortgage the loan. There may be one or more parties involved in mortgage fraud. 

Potential Parties to a Mortgage Scam

  • Buyers or sellers of residential property
  • Buyers or sellers of commercial property
  • Property investors
  • Real estate agents
  • Closing attorneys
  • Property appraisers
  • Escrow agents
  • Home repair companies
  • Mortgage brokers

There are two basic reasons why any of the above potential parties to a mortgage scam do what they do: for profit or for the property itself.

Mortgage Fraud for Property

Many homeowners commit mortgage fraud simply to ensure they can purchase the property they want. Under these circumstances, the borrower misrepresents, omits, or otherwise lies about financial information to qualify for the loan. 

Mortgage Fraud for Money

Many professionals, like mortgage brokers, lenders, appraisers, and others, use their profession, knowledge, and skill to abuse the mortgage process and line their pockets with money unlawfully obtained from the lender or the homeowner. They may work independently or together in a scam to increase commissions or embezzle money.  

Examples of Mortgage Fraud in Florida

Mortgage fraud committed by individuals and professionals in the industry takes many forms. This includes measures taken by people who did not know their actions could be the basis for civil claims or criminal allegations. Below are common ways mortgage scams are implemented.

Asset Rental 

Asset rental becomes mortgage fraud when an applicant for a loan rents or borrows assets from another person or entity. Borrowing these assets is meant to inflate the borrower's worth just long enough for them to be approved for the loan. Once approved for the loan, the assets are returned to whomever or from wherever they were received.

Inflated Appraisals

Inflated appraisals occur when the appraisal is inflated to make the property value appear more than what it actually is. Appraisers are relied upon to provide accurate values because lenders depend on their determinations for loan approvals. Appraisers work with or give into the buyers' demands to inflate values to obtain larger loans.

Identity Theft

Fake or stolen identities are used in this type of mortgage fraud where the victim's personal and financial information is used to apply for a mortgage loan. Their information, like Social Security number, birth date, and credit history are used. The alleged buyer applies for the loan, receives the funds, and then runs with the money.

Property Flipping 

This is not the type of property flipping where a home is bought, fixed up, and then sold for a profit. Instead, the home is purchased, then resold at a much higher price although very little or no repairs have been made. To make this work, there is generally a corrupt property appraiser involved who inflates the value of the property.

Equity Skimming 

Equity skimming occurs when an investor uses a third party to buy a property with false documents and fake or misleading information. Once the property is deeded to the third party, they turn around and deed it back to the investor, who then rents the property and pockets the rental money. Months later, the property may go into foreclosure, but by this point, the investor has made a large profit in rental fees. 

What Are the Consequences of Committing Mortgage Fraud in Florida?

Mortgage fraud is a serious offense, and a person who commits mortgage fraud can face civil consequences and state and federal criminal charges. 

Civil Consequences

For an individual that falsifies their information to obtain a mortgage and purchase a home, if they are discovered before the loan funds, they run the risk of their loan being denied and their earnest money forfeited. If the loan has already been funded when the lender discovers the fraud, they may be able to “call the loan.” This means the mortgagor is required to pay the loan in full or face foreclosure. There is also the possibility that the lender will change the terms of the loan. 

If a professional is involved in mortgage fraud, they face extensive fines and penalties as well. Mortgage fraud is treated very seriously at both the state and federal level, and they could lose their positions and/or professional licenses.

Criminal Charges

There are state laws criminalizing mortgage fraud in all its many forms. The punishment can include things like fines, restitution, and incarceration. Under federal law, the mortgagor may be fined up to $1 million and up to 30 years imprisonment. State penalties and fines vary based on the jurisdiction. 

The False Claims Act (FCA), codified as 31 U.S.C. §§ 3729 - 3733, is another factor to consider when addressing mortgage fraud. It is often referred to as the “Whistleblower Act,” and it is designed to hold any person or entity that knowingly defrauds the government accountable for their actions (excluding tax fraud). It is very useful in prosecuting persons who commit mortgage fraud on loans that are backed by the government. 

How to Prevent Mortgage Fraud in Florida?

Whether you are trying to sell or buy residential or commercial property, there are steps you can take to avoid mortgage fraud. 

  1. Check (and recheck) references. Check the references and referrals provided by all parties, which includes those whom you assume you can trust: real estate brokers and loan officers. 
  2. Always research and confirm the property's title history. This research can uncover any debts (e.g., unpaid property taxes, unpaid homeowner's association fees, or unpaid bills for home improvements on the property) on the property or it can confirm the title is clean.
  3. Review loan documents to ensure they are accurate and complete. The scam can be identified in the details of these documents, so a thorough review is critical. 
  4. Research and review the property's tax assessments to confirm the actual assessed value of the property. The assessed value should reflect the property's inspection findings, the value of similar residential or commercial properties, and other factors. 
  5. Retain a real estate lawyer to review, draft, and negotiate all the legal paperwork. An experienced attorney will be able to identify red flags and proactively address any concerns or issues. 

About the Author

Mark James

Admitted to The Florida Bar in 2006, Attorney Mark Andrew James applies his years of experience earned from successfully handling important and sensitive legal matters, both inside and outside the courtrooms of the State of Florida, to personally assist his clients in an approachable, down to earth and efficient manner. 

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