Real estate fraud refers to any illegal activity with the purpose of misrepresenting information on a mortgage loan application or other real estate-related documents involving the transfer of money. It is also commonly referred to as mortgage fraud, since the mortgage application is usually where the fraud takes place. Predatory mortgage lending, while it is a dishonest real estate practice, is generally not referred to as fraud, in order to distinguish it from fraud that is committed by a buyer. In the United Sates, real estate fraud can carry heavy penalties, including large fines and imprisonment.
There are many ways to commit real estate fraud, especially during times when the price of real estate is on the increase. Some types, because of their simplicity, are seen more often. Others are more complicated and are less common, but no less serious in the eyes of the law.
According to the U.S. Internal Revenue Service (IRS), one of the most common types of fraud in real estate is the preparation of two different sets of settlement statements. In one statement — the one given to the seller — the accurate selling price of the property is reflected. The other statement, which is given to the mortgage lender, depicts a highly exaggerated selling price. When the lender provides the loan in the larger amount, the excess is distributed between the conspirators.
Another common type is the use of fraudulent qualifications when attempting to qualify for a loan. Often, a buyer will be assisted by a real estate agent in this type of fraud, which can include the fabrication of employment history or credit reports. While these two examples involve the blatant misrepresentation of facts, not all fraud is as easy to spot. Indeed, even well-intentioned buyers can commit mortgage fraud if they are not familiar with the law.
Some buyers provide a down payment using money that has been given to them as a gift, often from relatives. This is an acceptable way to make a down payment, but if the buyer repays the gift to the person who provided it, that is considered real estate fraud. In order to be legitimate, a down payment that is gifted cannot be repaid. Accidental failure to disclose financial liabilities on a mortgage application is also considered mortgage fraud if it is not remedied before the loan is given.