Dear Monty: I rented out my house to a couple I thought were married. A year later, they decided to buy a home. The woman contacted me by phone with the news that they were not married, and the loan she applied for stated she had to be living alone. She then said they were splitting up once they moved. The form I received from the lender only asked about paying on time, which she did. Even though the lender didn't ask, should I have included that her possible husband was on the lease? I have since found out he is living in the new house. I should report her. Was she committing mortgage fraud?
Monty's Answer: Lying on a mortgage loan application is illegal. It is likely mortgage fraud. Here is a dated Dear Monty article about mortgage fraud that offers information about what you can do. https://dearmonty.com/neighbor-committing-mortgage-fraud/. Mortgage fraud is a serious problem for the taxpayer. The dollar amounts on a single transaction loss are so large that the overall losses are significant. She lied to you. If you want to report her, the resources in the link above will investigate and determine if it is a crime. Penalties can be severe, but they vary from state to state.
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Being Aware it Happens Helps Prevent Real Estate Fraud
No. 1: Fraud to obtain ownership is one of the main circumstances in which mortgage fraud occurs. If you are renting a home to others, you are more susceptible. For example, borrowers may claim they own the house and lie about their income or other assets to gain loan approval. They work in concert with a duplicitous professional or professionals, including anyone from an appraiser, real estate agent, lender, attorney, title company or more. They create phony documents to show ownership and secure the loan. A closing occurs, and the borrower disappears with the loan proceeds.
No. 2: Mortgage fraud is rare when committed by someone you know. Suppose a relative has access or can gain access to your personal information. In that case, even someone you trust who has some real estate knowledge and desperately needs money could sell your home without your knowledge. Here is a link to a legal resource firm that describes this type of fraud in detail. https://www.hg.org/legal-articles/house-sale-through-fraud-49141
No. 3: A more common type of fraud involves a dishonest appraiser, home flipper or home inspector working with a real estate agent. The agent identifies a likely prospect and puts the seller in touch with their chosen partner-in-crime. That individual portrays your home negatively to influence your opinion. Your motivation, trust level or both allow you to buy into the evaluation. The agent lists your home for sale, and a buyer appears right away and buys the house. A short time after the closing, the buyer deeds the home to the real estate agent with a document that conceals the agent's identity. In my experience, this ploy is likely more common than mortgage fraud because it may never be detected.
According to CoreLogic, investment loan applications show a considerably higher risk because real estate investors are experienced and have a profit motive. The profit motive introduces new factors and increases the risk for fraud.
Richard Montgomery is the author of "House Money - An Insider's Secrets to Saving Thousands When You Buy or Sell a Home." He advocates industry reform and offers readers unbiased real estate advice. Follow him on Twitter at @dearmonty, or at DearMonty.com
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