Frequently Asked Questions

Legal Hotline FAQ

a blog of the most frequently asked questions to the MAR legal hotline.


Cindy Sellers
Cindy Sellers
Cindy Sellers's Blog

How do I identify potential mortgage fraud and what should I do if I suspect it is occurring?

There are a variety of mortgage fraud scams and schemes, limited only by the creativity of the scam artist.The best advice is to trust your instincts.  If you suspect that something isn’t quite right in a transaction, you should speak with your team leader, office manager or broker about your concerns.  Some “red flags” to help spot fraud are: non-conforming loans, increasing the sales price above comparables, “ghost” second mortgages, addenda not referenced in the contract, and huge allowances for repair or decorating. In general, any increase in the contract price above the listing price should be supported by reliable comparable home sales data. If the proposed sales price increase is more than 10% of the original listing price, the entire contract, including addenda, should be reviewed by the Office Manager or Broker for other possible “red flags.” If your office cannot find reliable comps, or other red flags are present, the sellers should be advised that the offer should be reviewed by a competent real estate attorney. Your office should have a policy for review of these transactions and you should be open to the possibility that the best course of action may be to not participate in the transaction, if it proceeds. In addition, we do not believe that you or the seller should participate in any such arrangement unless you have written consent from the lender that will be funding the buyer's purchase.
Pease note that the Maryland Code of Ethics, COMAR 09.11.02.01(F) specifically provides that a "licensee may not be a party to the naming of a false consideration in any document." COMAR 09.11.02.01(H) provides that "For the protection of all parties with whom he deals, the licensee shall see to it that financial obligations and commitments regarding real estate transactions are in writing, expressing the exact agreement of the parties, and that copies of these agreements are placed in the hands of all parties involved within a reasonable time after the agreements are executed." Thus, any such arrangement must be fully disclosed in writing and copies thereof provided to all persons involved in the transaction, including buyer, seller, lender, settlement officer, etc. 
Mortgage loan fraud can be divided into two broad categories: fraud for property and fraud for profit. Fraud for property generally involves material misrepresentation or omission of information with the intent to deceive or mislead a lender into extending credit that would likely not be offered if the true facts were known. These fraudulent activities include: asset fraud; occupancy fraud; employment and income fraud; debt elimination fraud; and straw buyers. Fraud for property is generally committed by home buyers attempting to purchase homes for their personal use. In contrast, the motivation behind fraud for profit is money. Typical fraudulent activities associated with this category are: appraisal fraud; fraudulent flipping; straw buyers; and identity theft. 
REALTORS® should be alerted that under certain circumstances, they could be implicated in a fraud investigation and should take appropriate measures to minimize this risk. Having the office policy described above in place is good first step. Once a red flag is identified, the office should consider contacting the Maryland Office of Financial Regulation, which is the primary regulator for State-chartered financial institutions, including, banks, credit unions, and trust companies, and State-licensed financial entities such as, consumer finance companies, and mortgage lenders and brokers. The phone number is (410) 230-6100, or you may prefer to visit the website:  http://www.dllr.state.md.us/finance/consumers/compmort.shtml
Also, the Consumer Protection Division of the Maryland Attorney General’s Office is a good source of information. The number is (410) 576-6556, or you may prefer to visit the website:  http://www.dllr.state.md.us/finance/consumers/compmort.shtml
As always, if you have any questions about a particular set of circumstances, we strongly recommend obtaining advice from your legal counsel.
 


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