SterlingResidential.com | Buying & Selling Residential Properties in Texas | Houses for Rent Houston Area | Humble Atascocita Kingwood & Spring Texas Realtors | Sterling Residential®, Realtors® | Real Estate Broker: When You Suspect Mortgage Fraud

Reports of mortgage fraud increased dramatically from 2003 to 2005. As the FBI pursues hundreds of fraud cases across the US, they report handling 21,994 reports of suspicious activity in 2005 alone. The investigations target suspects from the true criminal element to sloppy industry practitioners willing to look the other way.

Mortgage fraud is a serious federal offense involving jail time and large fines, typically perpetrated by more than one individual including a mortgage industry professional. Often, straw buyers, borrowers, investors or sellers are recruited to purchase or sell real estate, using falsified information to apply for mortgage financing or to sign conveyance documents. The straw buyer or borrower may not always know about the fraud, but is lured into the transaction by the offer of money and the willingness to look the other way.

Fraud schemes come in many varieties, but buyers and sellers can be on the lookout for ‘too good to be true’ deals. Buyers may be approached by a lender or real estate broker offering real estate investments for which they receive a cash payment at closing, with the promise of future profits. They are misled into making real estate investments at inflated prices and are saddled with the mortgage payments when the fraudsters skip with their money.

Sellers receiving purchase offers with inflated prices, contracts that require large payments to contractors or brokers, or false and misleading information should avoid these deals without verifying the terms. Sometimes the fraud isn’t apparent until closing when the purchase contract is suddenly changed prior to closing based on an inflated appraisal. Other things that may raise the suspicion of mortgage fraud include the following items.

Some Examples of Suspicious Mortgage Activity

• Purchase agreement contains unusual payments.
• Appraisal values are inflated beyond market value.
• Financial documents or Mortgage Applications are falsified.
• Property was recently sold or ‘flipped’ repeatedly.
• Settlement funds are distributed directly to buyer.
• Contract price is adjusted or changed in excess of list price.
• Bogus agreements are written into purchase contracts for phantom upgrades or renovations.
• Contractor repairs or renovations are overstated or inflated beyond normal amounts.
• Mortgage or Real Estate Brokers are paid unusually high fees or bonuses.
• Mortgage or Real Estate Brokers submit last minute changes to the purchase contract before closing.

The Houston Association of Realtors MLS Advisory Group recently amended local MLS rules to prohibit listing price changes once buyer and seller have executed a purchase contract and the listed property is placed in pending status. With the institution of the new MLS rule, property prices cannot be changed unless the contract is terminated and the listing is placed back on the market in active status. It’s just another way that the Houston Association of Realtors is working to protect real estate consumers and real estate transaction integrity.

Whether you’re a buyer or seller, you can protect yourself by asking questions, verifying information, talking to trusted industry professionals, and consulting an attorney when you have questions about your real estate deal. If you suspect that you’ve been recruited into a fraud scheme, you can file complaints with the following Texas state agencies:

Where to Report Suspected Mortgage Fraud

• The Texas Department of Savings and Mortgage Lending
  — for complaints against mortgage brokers.


• The Texas Real Estate Commission
  — for complaints against real estate brokers or salepersons.


• The Texas Appraiser Licensing and Certification Board
  — for complaints against appraisers.


• The Texas Department of Insurance
  — for complaints against title companies.