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What Constitutes Mortgage Loan Fraud

If you lie on your real estate loan application, it's mortgage fraud. Even tiny white lies constitute mortgage fraud.  If the lender subsequently discovers any part of your loan application is false, not only can it demand immediate full payment of your loan, but you could pay six-figure fines, find FBI ringing your doorbell and / or go to jail.

The FBI defines mortgage fraud as "any material misstatement, misrepresentation or omission relied upon by an underwriter or lender to fund, purchase or insure a loan."

Here are a few examples of common mortgage fraud:

• Undisclosed kickbacks.
  If you strike a deal with a home seller to give you a big wad of cash or to slip a check across the closing table, say, to pay for a new roof, and if the lender doesn't know about it -- because it's not disclosed in the purchase contract nor addendum nor your estimated closing statement -- it's mortgage fraud.

• Silent second mortgage.
  A borrower without a down payment can commit mortgage fraud by borrowing the down payment from the seller in exchange for giving the seller a silent second mortgage, which is unrecorded (or records after closing) and hidden from the lender.

• Falsifying employment income.
  Stated income loans were originally created for self-employed individuals whose income is difficult to verify, but some employed borrowers inflate their income above and beyond a W-2.

• Non-owner occupant claiming occupancy.
  Lenders offer higher interest rates and less favorable terms to non-owner occupants because the lender's risk is higher. If you don't intend to live in the property, don't promise that you will.

• Down payment gifts you will repay.
  Both parties, the giver and the recipient, commit loan fraud if the gift is to be repaid. Gifts cannot be repaid.

• Inflated purchase price.
  If you have two purchase contracts and send the false contract with the higher sales price to the lender in hopes of obtaining a higher appraisal, it's mortgage fraud.

• Falsifying deposits.
  Dishonest borrowers who do not have an earnest money deposit might state in the contract that the deposit was paid outside of escrow, which is fraudulent.