Real estate fraud involves misrepresenting information on mortgage loan applications or other real estate-related documents. It can result in hefty penalties, including fines and jail time. Common types include preparing two different transaction statements and using fraudulent qualifications to qualify for a loan. Even accidental failure to disclose financial liabilities can be considered fraud.
Real estate fraud refers to any illegal activity to misrepresent information on a mortgage loan application or other real estate-related documents involving the transfer of money. It is also commonly referred to as mortgage fraud, as the mortgage application is usually where the fraud occurs. Predatory mortgage lending, while a dishonest real estate practice, is not generally referred to as fraud, in order to distinguish it from fraud committed by a buyer. In the United States, real estate fraud can carry hefty penalties, including large fines and jail time.
There are many ways to commit real estate fraud, especially in times when the price of real estate is on the rise. Some types, due to their simplicity, are seen more often. Others are more complicated and less common, but no less serious in the eyes of the law.
According to the United States Internal Revenue Service (USR), one of the most common types of fraud in the real estate industry is the preparation of two different sets of transaction statements. A declaration – the one provided to the seller – reflects the exact sale price of the property. The other statement, which is given to the mortgage lender, depicts a greatly exaggerated sale price. When the lender provides the loan to a greater extent, the excess is distributed among the conspirators.
Another common type is the use of fraudulent qualifications when trying to qualify for a loan. Often, a buyer will be assisted by a real estate agent in this type of fraud, which may include fabricating work history or credit reports. While these two examples involve blatant misrepresentation of the facts, not all fraud is so easy to spot. In fact, even well-meaning buyers can commit mortgage fraud if they aren’t familiar with the law.
Some buyers provide a down payment using money that has been given to them as gifts, often from relatives. This is an acceptable way to make a down payment, but if the buyer pays the gift back to the person who gave it, this is considered real estate fraud. To be legitimate, a down payment that is endowed cannot be refunded. Accidental failure to disclose financial liabilities in a mortgage application is considered mortgage fraud if it is not remedied before the loan is granted.
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