Thursday, October 25, 2007

Mortgage Fraud

Florida ranks number one in the country for mortgage fraud according to the Mortgage Asset Research Institute. FBI statistics show that Florida had 28,376 fraud reports in 2006. What is mortgage fraud? It ranges from falsified appraisals, faked mortgage applications, kickbacks, flipping schemes and more. For example, a devious "buyer" may write an offer of $600,000 for a house listed for and worth only $500,000. The offer would state that the seller gets his asking price of $500,000, but the extra $100,000 goes to a third-party company at closing- in this case back to the mortgage broker who is the owner of the "company". The buyer intends to get a loan for as much of the inflated purchase price as possible, by leading the lender to believe the home really is valued at $600,000. To facilitate the fraud, an appraiser would have to falsify the higher value for the property, so the unknowing lender approves the sale. After closing, the buyer fails to make any mortgage payments. The lender is then stuck foreclosing on the home and has unwittingly paid the criminal ring $100,000. How real is this scenario on the Emerald Coast? I know, because it was attempted on one of my listings this year, which I promptly reported to the Florida Division of Financial Services. To combat mortgage fraud, on October 1, Florida enacted laws SB 1824 and HRB 111 that will allow authorities greater powers to combat and penalize fraud when perpetrated by "any material misstatement, misrepresentation or omission” knowingly made in the mortgage lending process, with the intent to defraud. Additionally, all fees paid to any party in relation to the loan, such as the mortgage broker, must be disclosed on the Good Faith Estimate. Any change to loan terms must now be disclosed at least three days before closing, and acknowledged by the borrower in writing. As a consumer, you should be wary of any kick-backs, side-deals or flipping schemes presented to you in the purchase or sale of real estate.