Mortgage Fraud Warning Signs Every Borrower Should Recognize

Mortgage fraud harms both borrowers and the broader housing market. Some fraud schemes target borrowers directly; others involve lenders, appraisers, or real estate agents working together to manipulate transactions. Coventry Enterprises of America documents the most common schemes and warning signs so you can protect yourself.

Falsified Loan Applications

One of the most common forms of mortgage fraud involves falsifying information on loan applications: inflated income, misrepresented employment, undisclosed liabilities. Sometimes this happens with the borrower's knowledge; sometimes a dishonest broker or loan officer alters the application without the borrower's awareness. Either way, the borrower signs the final documents under penalty of perjury. Never sign a loan application you have not fully reviewed, and never allow a broker to "round up" your income to qualify.

Inflated Appraisals

An inflated appraisal values a property above its actual market value to support a larger loan. This scheme requires a cooperating appraiser. For buyers, an inflated appraisal means you are borrowing more than the property is worth, which creates immediate negative equity. If you need to sell quickly, you may not be able to cover the loan balance. Always review the appraisal report and compare the comparable sales used to market data for the area.

Foreclosure Rescue Scams

Foreclosure rescue scams target homeowners who are behind on their mortgage. A fraudster offers to help save the home by making payments and eventually transferring the deed back to the owner. In reality, the homeowner signs over the deed and loses the property entirely. Legitimate help for homeowners in distress comes from HUD-approved housing counselors, not from companies that cold-call you and ask you to sign over your deed.

Builder Bailout Fraud

In a builder bailout scheme, a developer convinces buyers to purchase overpriced homes using inflated appraisals, often with cash-back incentives that are not disclosed to the lender. The buyer takes out a loan larger than the home's actual value, and the developer pockets the difference. When housing values decline, the buyer is left with a property worth less than they owe.

Protecting Yourself

Review every document before signing. Do not let anyone rush you through the closing process. Verify that the purchase price on the contract matches what was agreed to. If anyone suggests misrepresenting income, employment, or intended use of the property, walk away from the transaction entirely. Report suspected fraud to the FBI's mortgage fraud task force or the CFPB.