Mortgage fraud is an ever-increasing crime in the UK. Every year, around four mortgages in every one thousand are found to be fraudulent. This costs the housing market vast amounts of money yearly.
As a criminal act, mortgage fraud varies in scale and severity. It can also be a crime that is easily committed by otherwise honest people who make a mistake – small or large – in their mortgage application.
For those applying for mortgages or those beginning to think about applying, it’s essential to understand what exactly mortgage fraud is, and how to negotiate the process of mortgage applications best to ensure that they do not mistakenly commit fraud.
So what exactly constitutes mortgage fraud? Let’s dive into the details, as well as how you can best protect yourself from both being the victim of fraud, as well as accidentally carrying it out.
What is considered mortgage fraud?
Mortgage fraud is a crime that encompasses many different definitions and activities.
Mortgage fraud can be divided into two particular types of fraud. These are:
- Large Scale Fraud
- Opportunistic Fraud
According to the Proceeds of Crime Act 2002, any failure to report suspected money laundering or any other kind of fraud can lead to a prosecution.
Large Scale Fraud
Usually, large scale mortgage fraud takes place when several properties are involved. This type of mortgage fraud tends to be committed mostly by groups of organised criminal gangs.
The way large scale fraud works is more complicated than opportunistic fraud. Typically a property is valued at a higher amount than its market value should be. This leads to an inflated mortgage value being applied for.
Other methods involve properties being bought by fictional buyers. Often, large scale mortgage fraud takes place solely as a method of laundering illegally obtained funds. It is for this reason that money laundering policies cover much of the mortgage fraud legislation that is currently in place.
Opportunistic Fraud
Opportunistic fraud, on the other hand, is much smaller in scale. It tends to be committed by individual buyers, and the benefits are much less.
In these cases, fraud is committed when false or misleading information is given to obtain a higher valued mortgage. This can happen purposely or accidentally – no matter why it happens, it is still classed as fraud, at least initially.
The types of information that are either withheld or falsified to commit fraud can include:
- A person’s identity
- The income of the individual
- Any outstanding debt
- The value of the property in question
- The employment status of the buyer
When does mortgage fraud happen?
As well as these more usual reasons for mortgage fraud occurring, there are other ways in which fraud can take place which should be noted. These are indicators which can easily be looked out for by buyers and sellers alike. They are red flags, and if either of these occurs, it is a sign that someone may be committing mortgage fraud.
Two examples of these are when offers for a quick sale are made, and when a property’s value is misrepresented.
Offers for a Quick Sale
If a homeowner falls behind on mortgage payments, then they may be approached with an offer to buy the property, thereby clearing the mortgage with the house funds.
This is often a tempting option for those having issues with debt. However, this option should not be taken without some caution.
Certain parties offer to buy at a discounted rate, otherwise known as “below market value”. This can be as much as 20% – 35% less than the original asking price. This often goes hand-in-hand with a promise of a quick sale and can be confirmed in as little as 48 hours.
While some of these offers are genuine and can be a tempting last resort for those in debt, it is vital to remember to proceed with caution. If fraud is involved, then this can lead to the seller facing prosecution.
False Sales Price
This type of mortgage fraud can take place when the buyer and seller have agreed on a discounted price, but the seller still lists the sale as having been at full price. This means that the buyer can apply for a higher rate mortgage, thus leading to fraud.
This type of fraud usually leads to both the seller and the buyer facing some prosecution, as both parties are implicated.
Punishments for being found guilty of mortgage fraud
Several factors are taken into account when a sentence is being considered. Due to this, there is also a wide range of penalties that can be handed out to those having been found guilty fo fraud.
This can range to a suspended sentence to up to 7 years of prison time.
Multiple aspects are taken into account, such as whether or not the guilty party has any previous convictions, on similar charges or otherwise. They also consider whether or not any remorse is shown.
How to protect against mortgage fraud?
There are a variety of ways in which an individual or organisation can protect themselves from mortgage fraud.
Some useful strategies are to be fully aware of the different types of mortgage fraud. We have mentioned some of them; however, there are many different kinds, mostly variations on the ones we have outlined. Check on the government website for details on more.
Other strategies include making sure that due diligence is always carried out, either by you or on your behalf. This means checking and double-checking every detail and not being afraid to question everything. Use the Companies House Register to search for any companies that you have dealings with to make sure they are legitimate.
Need more information?
We hope this introduction to mortgage fraud has given you a good idea of what it involves. Want to know more? Our expert fraud solicitors are available now to answer any questions you may have and provide specialist advice on your situation now!
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