Mortgage fraud has been on the rise in recent years. Scammers often target vulnerable borrowers and exploit gaps in oversight where they can. Understanding what red flags to watch for can help you protect yourself from financial harm and legal trouble.

What is Mortgage Fraud?

Mortgage fraud involves a material misstatement, misrepresentation or mission related to a mortgage loan. The offending party uses deception during the mortgage process for financial gain. It could be committed by buyers or sellers, mortgage and real estate professionals, fraud rings or multiple people working together.

Common Red Flags of Mortgage Fraud

According to the Consumer Financial Protection Bureau (CFPB) and Financial Crimes Enforcement Network (FinCEN), here are some of the most common warning signs:

1. Unusual or Excessive Fees

   Charging unauthorized or excessive fees, such as for home inspections or broker price opinions that may not be outlined in a loan agreement, might be a sign of a scammer.

2. Misrepresentation of Loan Terms

   Some scammers misstate payment histories or loan terms in accounts, potentially misleading borrowers about their obligations or status.

3. Failure to Process Loan Modifications

   Not reviewing complete loss mitigation applications within the required 30-day window is a violation of federal regulations and may leave borrowers in limbo.

4. Phantom Payments or Unauthorized Withdrawals

   If funds continue to be withdrawn from closed accounts or charged for services not rendered, this is a red flags of negligent or fraudulent behavior.

5. Foreclosure Rescue Scams

   Scammers often promise to “rescue” homeowners from foreclosure by transferring the deed or offering a new loan, only to steal equity or ownership without resolving the actual debt on the home.

6. Pressure to Falsify Information

   Borrowers should be very suspicious of any party encouraging them to inflate their income, misstate employment facts or timelines or otherwise falsify or exaggerate information on a mortgage application. Fill out applications only with true and verifiable information.

7. Unlicensed or Unregistered Lenders

   Always verify that your lender or mortgage broker is licensed in your state. Working with unregistered entities may potentially increase your exposure to fraud risk.

Ways to Protect Yourself

All these red flags may seem daunting, but there are steps you can take to help protect yourself:

• Verify all parties involved in the transaction through state licensing boards or the Nationwide Multistate Licensing System (NMLS).
• Read all documents carefully and never sign blank or incomplete forms.
• Report suspicious activity to the CFPB, Federal Trade Commission or your state attorney general’s office.

Mortgage fraud can leave devastating consequences, from serious financial loss to foreclosure. By staying informed and being vigilant, borrowers can better protect themselves from deceptive or predatory practices. If something feels off, such as an unfamiliar fee, a verbal promise not written into agreements, or a pressure tactic, it’s worth investigating further. Never sign agreements without being confident you understand the terms.

Want to learn more about fraud, scams and ways to protect yourself? Visit Cadence Bank’s Fraud and Security Center for more helpful tips and articles.

Sources:
https://consumer.ftc.gov/articles/mortgage-relief-scams
https://finance.yahoo.com/news/mortgage-fraud-rises-know-stay-192707995.html
https://www.consumerfinance.gov/ask-cfpb/what-are-mortgage-loan-modification-scams-en-272

This article is provided as a free service to you and is for general informational purposes only. Cadence Bank makes no representations or warranties as to the accuracy, completeness or timeliness of the content in the article. The article is not intended to provide legal, accounting or tax advice and should not be relied upon for such purposes.