Mortgage fraud occurs when someone defrauds a financial institution or a private lender through the mortgage process.
Theof is defined in the Fraud Act 2006 and in the context of mortgage fraud includes fraud by false representation and fraud by failing to disclose information.
A person is guilty of fraud if he dishonestly makes a false representation, and intends, by making the representation to make a gain for himself or another, or to cause loss to another or to expose another to a risk of loss. The representation may be express or implied.
A person is guilty of fraud by failing to disclose information if the dishonestly fail to disclose to another person information which he is under a legal duty to disclose, and he intends, by failing to disclose the information to make a gain for himself or another, or to cause loss to another or to expose another to a risk of loss.
If found guilty of fraud, a defendant faces up to 12 months jail and a fine on summary conviction, or, on conviction on indictment, to imprisonment for a maximum jail term of 10 years and/ or a fine. They may also be subject to a confiscation order depriving them the proceeds of their crime under the Proceeds of Crime Act 2002.
Mortgage fraud can be split into two distinct categories:
Opportunistic mortgage fraud occurs, for example, where an individual provides untrue or misleading information to get a higher mortgage than they should be entitled to, or fail to provide certain information which by law they would be required to disclose.
Opportunistic mortgage fraud will often occur when incorrect or misleading information is provided about the:
Large scale mortgage fraud as the name suggests is committed on a larger scale than opportunistic mortgage fraud and often involves several different properties, often being committed by criminal groups.
Currently the buy-to-let property market is extremely susceptible to mortgage fraud. This is in relation to both new-build apartment buildings and large scale renovation projects, the purchase of which criminal organisations will often be involved in.
Often large scale mortgage fraud involves:
Often when the bank seeks payment for the mortgage the criminal group will raise another mortgage with another bank through another made up purchaser, meaning they have effectively sold the property back to themselves.
This second mortgage will generally be inflated, enabling them to pay off the first mortgage making a vast amount of profit in the process. A criminal group will often repeat this process many times.
When the bank eventually forecloses on the property due to the state of disrepair it has inevitably been left in, the property will be worth significantly less than the current mortgage.
Large scale mortgage fraudsters will often seek to exploit non-bank lenders and existing corporate structures in their illicit schemes.
Private sources of funding are also available for the purchase of property. Probably one of the best examples of a private source of funding is a property club which will lend money to purchasers of investors. Criminal organisations will often seek money from property clubs in relation to purchases of land abroad which in actual fact is simply a field with as yet no property built on it.
In some cases, fraud will be achieved by selling the property between related private companies rather than the aforementioned made up individuals. Often a property will be sold many times between off-shore companies at continual inflated prices meaning that by the time the mortgage is sought from the bank or other institution the price is vastly inflated.
Nicola is a dual qualified journalist and non-practising solicitor. She is a legal journalist, editor and author with more than 20 years' experience writing about the law.
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