Mortgage fraud not only continues to plague the housing market, it's on the rise.
When you sit down to sign on the dotted line for your contract to sell, mortgage to buy or home loan workout you'd better make sure you aren't a victim - that's especially true if you are a struggling homeowner.
ARAG Group , a legal solutions provider for consumers, says given your home is the greatest financial acquisition you are likely to ever undertake, the last thing you want is to embroil the transaction in legal complications.
Federal regulations and a more vigilant mortgage industry are decreasing the numbers of loan origination fraud and misrepresentation cases, but fraud that targets distressed homeowners and collusion schemes are on the rise, according to the LexisNexis 14th Annual Mortgage Fraud Report .
With a shift that more often targets vulnerable homeowners, the Federal Bureau of Investigation's (FBI) mortgage-related Suspicious Activity Reports (SARs) numbered 93,508 in 2011, up from 33 percent in 2010, according to LexisNexis.
Consumers must be particularly vigilant in Florida, Michigan, California, Illinois and New York where industry fraud and application misrepresentation is most common. Sixteen percent of all SARs reports came from the Los Angeles-Riverside-Orange County, CA metro.
Overall, the most common types of fraud in 2011 were application and appraisal fraud and misrepresentation. When it came to mortgage originations, application and verification of deposit fraud and misrepresentation were tops, LexisNexis reported.
LexisNexis says the mortgage industry's Mortgage Industry Data Exchange (MIDEX), incidents of verified fraud and material misrepresentation in loan originations, reveals 7 percent of the cases involved collusion in 2009, 9.7 percent in 2010 and 6.8 percent for 2011.
"This means that not only are more incidents involving multiple professionals being noted - but, as incidents submitted to MIDEX, they are being investigated, verified and reported. According to the FBI's Financial Crimes Report to the Public for fiscal year 2010 to 2011, 'Current investigations and widespread reporting indicate a high percentage of mortgage fraud involves collusion by industry insiders, such as bank officers, appraisers , mortgage brokers, attorneys, loan originators and other professionals engaged in the industry,' " LexisNexis reports.
To stay out of harm's way, ARAG Group offers the following tips:
Know your team - Given collusion is an up and coming fraud segment, it behooves you to know who is working for you.
Vet professionals you hire. A referral from a trusted source, who recently completed a successful transaction, is a good start, but you've still got to check references, make sure licenses are up to date and determine that trade group affiliations are sound.
Interview several real estate agents (home inspectors, title companies, mortgage brokers, etc.) and check references before you commit to one.
"Another important team member, that many overlook, is a real estate attorney," says Ann Cosimano, general counsel for ARAG, especially in states where an attorney is not required for the deal.
"A real estate attorney plays a different role than an agent . While most agents are excellent representatives, they may not be aware of all the legal issues that should be considered in a real estate transaction. An attorney hired by you is there to represent your interests and ensure your rights are protected. Consider working with an attorney who will help you understand all the legal documents and exactly what legal liabilities you have accepted," said Cosimano.
Know your lender - Don't let the lender coax you into borrowing more than you know you can afford, just because you can qualify for a higher amount. Millions of homeowners today, who bit off more than they could chew, rue the day they were talked into a larger loan than they could afford.
Know what you are signing - Don't sign documents with missing or incorrect information, including your income, debts or length of employment. Don't sign anything you don't understand. If you need help, consider reviewing the documents with your real estate agent, a real estate attorney, a U.S. Department of Housing and Urban Development- or local government social services agency-certified counselor.
Get counseled - Speaking of counselors, taking a homeowner, financial or housing class or counseling session is an investment in your investment.
Beyond a sit-down-and-listen seminar or workshop, true active-participation counseling has proven to be one of the best things you can do to guard against fraud, protect your homeownership, avoid falling into default and finding your way out should you get in trouble.