Since the housing crisis, it's become harder to secure a home loan. So it isn't surprising homebuyers are sometimes tempted to provide misleading information on their mortgage applications in the hopes of being approved. However, each time they do, they're committing mortgage fraud. Housing counselor Matt Gregory, who works for national nonprofit Consumer Credit Counseling Service of Maryland and Delaware, says, "Mortgage fraud is a crime, one that can hurt you even if you don't get caught." 

 What exactly is mortgage fraud? Gregory says, "Mortgage fraud occurs anytime you make a false statement or omit information about your income, assets, or debt or misrepresent who you are." According to the FBI, it also may involve willfully overvaluing land or property on a loan application in the hopes of influencing how much financial institutions are willing to lend. Mortgage fraud comes with stiff penalties: If you're caught and convicted you could face up to 30 years in federal prison, a $1,000,000 fine, or both. 

Gregory says homebuyers are more likely to become victims or participants in mortgage fraud when they lack knowledge or are desperate to own a home. "Borrowers who don't know how the process works or who hope to buy more house than they can realistically afford fall prey more easily."

 There are lots of mortgage fraud schemes out there. Here are some of the most common:

Employment and Income Fraud - How long you've been at your job and how much you earn help determine if you're eligible for a loan and how much money you will receive. If you've been unemployed recently or don't make quite enough to qualify for the mortgage you're considering, you may be tempted to overstate or omit relevant employment or income information. 

Gregory cautions against this practice. "In today's housing market, lenders almost always ask for full documentation. They want to see tax records for the past two years and a series of paychecks. They may even interview your employer. If you sneak by and they approve the loan, things could go from bad to worse. You may struggle each month or go into debt just to pay the mortgage. If you fall behind, you could even lose your home."

Occupancy Fraud - On mortgage applications, homebuyers are generally asked to disclose how they plan to use the property they're buying. Occupancy fraud occurs when they say they plan to live in a home themselves, but actually hope to rent it out or leave it vacant for a quick resell.

Why do buyers commit occupancy fraud? Gregory says, "They lie to save money. Lenders generally offer better financing terms to owners who plan to occupy the residence. This may lead to an interest savings of $100 to $200 a month, ultimately earning them more profits." Is this savings worth the deception? Probably not. If a loan audit shows you've lied, the lender may ask you to immediately repay your total loan balance, increase your interest, or foreclose on the property.

 Unlawful Flipping - Flipping is when real estate professionals buy property for a low price and sell it for a higher price a short time later. On its face, this practice isn't illegal. However, when investors use a fraudulent appraisal to inflate the value of a home, flipping becomes mortgage fraud. 

Gregory says unsuspecting buyers can easily fall victim to this type of scheme. How? "The seller may claim substantial renovations have been made to the home, when in truth there were none -- or only minor cosmetic repairs were made. The appraisal backs up this false story. Unless a detailed home inspection reveals how much work has really been completed, the buyer may end up paying more for the home than it's actually worth."

How can homebuyers avoid mortgage fraud? Gregory says, "To start, learn as much as you can about buying a home. Education can reduce your risk and save on stress." CCCS offers an online Pre-Purchase Homebuyers' Education course and in-person workshops to help clients make better informed homeownership choices, including how to identify and prevent mortgage fraud. At the completion of these, clients receive a printable certificate that can be used to satisfy grant program requirements. Advice from a trained and certified CCCS housing counselor is also available to them.

Gregory also recommends homebuyers only work with qualified realtors and lenders. "Before you decide who to hire, do your homework. Call your State Housing Authority or the Better Business Bureau to acquire independent information on each. Before signing documents, fully read them, and if you don't understand something, ask for clarification. If a realty agent or loan provider suggests you lie or omit information or leave empty blanks on a form or application, think twice. The same thing holds true if you're told you can only use a specific appraiser or home inspector. These are all red flags. Walk away or have your own independent appraisal or home inspection made."

Any final advice? Gregory says one of the best ways to avoid mortgage fraud is to know how much you can afford to pay for a home. "Take a close look at your budget and figure out where you stand. If someone offers to help you obtain a much bigger mortgage than you can manage, don't be taken in. Smart purchase choices are the cornerstone to successful homeownership."

CCCS's online Pre-Purchase Homebuyers' course and workshops provide crucial information on budgeting and other finance issues that affect homeownership. To learn more, visit the agency website or call 1-866-731-8486. The more you learn now, the better prepared you'll be to buy and own a home!