Fraud Awareness Month – Identifying Fraud Involving Property

Fraud involving property remains one of the most common forms of fraud that exists today in the mortgage industry. Some have speculated that this is because some who commit this type of fraud may see what they are doing as innocent or not as a form of fraud, when in fact it is and it has an impact to everything from the interest rates customers end up paying all the way to fees associated with mortgage standard charge terms. If it costs the lender, at the end of the day it will cost you and inevitably your client.

So what is fraud involving property? Fraud involving property includes things like:

• Over-valuating property - Sometimes the client overstates the value and in other instances the agent/broker has added to the value. Doing this intentionally is fraud. In instances where the person stating the value of the property simply says that they didn’t know, so they guestimated on the high side may move you into the grey, but this still costs the entire industry in the end. The best thing to do is back up what your client says their home is worth with an AVM. An AVM is basically an automated report that will tell you what the subject property is worth. AVMs compliment appraisals because they can identify an issue with a value far sooner, rather than after you, the client and appraiser have gone through the time and expense of viewing the property.

• Misrepresentation of characteristics - A blatant example would be someone who states that their property is larger than it is or possesses some characteristic that would make the property worth more than it is. Here is a common scenario: client says that they purchased their home 2 years ago for $200,000 but now it is worth $300,000 and it is not in a hot area. You ask how the property could have appreciated so. The client says that they did an extension adding square footage to the home and 2 extra bedrooms. They also added a second bathroom. In this instance, you would need to verify with a full appraisal. Now – if the client says they renovated and later goes on to say that the renovations consisted of painting and some landscaping, this is another instance where it makes a lot of sense to check out the value independently of the client. This occurs often in refinancing scenarios and could result in a lot of time and expense on all sides.

• Intent to reside is another huge one – if a client tells you that their property is a rental property or that they don’t reside at the property, this should be disclosed to the lender.

Preventing fraud involving property means being able to be aware of it. Automated tools have made it easier and more accessible than ever for brokers and agents to have more power when underwriting to uncover and prevent mortgage fraud.

Join the crusade to end mortgage fraud - we are all part of this quest. For more on identifying fraud involving property please call Purview For Mortgage Brokers today at 1.855.787.8439.