How to avoid mortgage fraud schemes

Buying a home is supposed to be a planning milestone. It is also a moment when a lot of personal data, large payments, and time pressure converge. That mix attracts opportunists. In 2024, CoreLogic reported that one in 123 mortgage applications showed signs of fraud and that overall fraud risk rose by a little over eight percent year over year. The numbers are not meant to scare you. They are a reminder that vigilance is part of modern home financing, just like rate shopping or comparing loan terms. When you treat fraud prevention as a standard step in your process, you protect your budget and your future equity.

To navigate the topic with clarity, it helps to understand the two broad motives that law enforcement uses to classify cases. Fraud for housing is usually borrower driven. It includes misstatements about income, debt, or occupancy in order to qualify for a loan or to obtain better terms. Fraud for profit is usually orchestrated or facilitated by industry insiders who manipulate information to generate fees or skim equity. The federal definitions are simple on purpose and they guide how investigators prioritize cases.

Those motives show up through repeatable patterns. Some mortgage fraud schemes target the property and the valuation process. Others target you as a consumer through identity theft or fake communications. A few examples make the landscape concrete.

Property flipping is lawful when an investor buys, improves, and resells a home at a higher price. The line is crossed when the resale depends on a manipulated valuation or a falsified chain of title. In abusive versions, a complicit appraiser validates a price that bears little relationship to the local market, and the paper trail is arranged to make a same day transfer look legitimate. Appraisal abuse also runs the other direction. An appraiser can be pressured to understate value in order to allow a preferred buyer to secure a bargain. Those behaviors are not about normal pricing disagreements. They are intentional distortions that harm counterparties and lenders by design.

Occupancy misrepresentation is another common pressure point. Owner occupied loans often carry lower rates, lower down payment requirements, and higher loan to value allowances. Investors who want those benefits sometimes claim they will live in the property when they will not. That deception is not a technicality. It is a risk signal that often sits alongside other misstatements or hidden financing arrangements. Straw buyer activity can appear close by. A straw buyer is a person who applies on behalf of someone else to conceal the real party in interest. Even when everyone intends to make payments, the concealment itself exposes all parties to legal trouble because the lender relied on false information to extend credit. Regulators and prosecutors treat that concealment as a serious matter.

Identity theft connects personal risk to the mortgage process. Criminals who obtain enough of your data can try to open a mortgage or a home equity line in your name or can try to redirect a legitimate wire transfer on your real transaction. Email is a frequent entry point. Business email compromise is the term the FBI uses for schemes that hijack a legitimate email thread and insert altered wiring instructions at the last minute. The advice here is blunt. Never rely on wiring instructions that arrive by email, even if they look familiar. Confirm account details using phone numbers you already saved for your closing professionals, and agree on a code phrase ahead of time so you can verify identities quickly. The Consumer Financial Protection Bureau offers a simple checklist and urges buyers to identify two trusted contacts who will confirm any instruction before funds move. Title insurers and industry groups echo the same steps because the losses can be life changing.

Some schemes exist entirely on paper. An air loan is the stark example. In an air loan there is no real borrower and no real property. A ring of participants forges a loan file, creates fake employment and title records, opens phone lines and mail drops, and extracts loan proceeds from a lender. This is not a consumer mistake. It is a reminder that lender controls are always evolving because professional fraud adapts. Fannie Mae’s fraud prevention materials describe air loans plainly and explain the traits that underwriters watch for.

With that landscape in mind, shift from fear to process. The best defense is a methodical approach to people, paper, and payments. Start with people. Every mortgage professional who touches your loan should be identifiable and properly licensed. The easiest way to verify is to search NMLS Consumer Access. You can look up a loan officer or mortgage company by name or NMLS ID and confirm the jurisdictions where they are authorized to operate. State regulators and the Conference of State Bank Supervisors endorse the tool for consumers for exactly this reason. If a name does not appear, or if licenses do not match your state, pause the process and ask questions before you provide documents or send money.

Next, build discipline around paper, which now includes digital documents and portals. Treat your loan application as a legal document that must reflect reality. Do not let anyone “clean up” the story to make it fit an approval box. If a suggestion would change income, debt, employment, or occupancy status, assume that it is not allowed. If you are self employed or have variable income, disclose it accurately and submit the documentation your lender requests. The point is not to make underwriting harder. The point is to avoid creating a record that could be used against you years later if the loan performs poorly or if the home is resold. Regulators define mortgage fraud as a material misstatement or omission that a lender relies on. If you keep your file accurate from the start, you reduce your personal exposure and help your lender do the same.

Then, protect payments. Agree early on the method for earnest money, appraisal fees, and the final wire. Record your closer’s verified direct phone number and add a second contact who can confirm details if your primary contact is unavailable. Before any wire leaves your account, call your known contacts, read the account name and number out loud, and ask them to read back the same details from the settlement statement. If you ever receive last minute instructions or an email that injects urgency, treat it as a red flag and stop until you can confirm with a known human. Authorities advise against sending financial details by email at all. If a change slips through and money moves to the wrong place, contact your bank immediately and file a report with the FBI’s Internet Crime Complaint Center. Time matters in recovering funds.

For many buyers and owners, the question becomes practical. What do you do if something feels off, yet you are not sure whether it is normal friction or a real problem. Start with a second opinion. HUD approved housing counselors provide independent guidance on purchases, refinances, forbearance, and foreclosure prevention. They can help you interpret documents, understand timelines, and communicate with your lender. The counseling network is national, and many services are free or low cost. You can search by location or request nationwide providers if local supply is limited. Speaking to a counselor does not trigger any change to your loan. It gives you an informed ally who has seen hundreds of files and can tell you when a request is routine or when it needs escalation.

Owners should apply the same thinking to home equity lines of credit. HELOCs are attractive targets because the credit line already exists and can be drawn down quickly. Protect your login credentials, use multifactor authentication, and set alerts for draws and balance changes. If your lender offers the ability to lock the line when not in use, consider using it. If anything looks wrong, call the number on the back of your card or on your statement rather than responding to a message. The fraud resources maintained by federal consumer agencies are updated regularly and can help you report issues and understand next steps.

It is worth acknowledging a gray zone that frustrates many honest borrowers. Loan files are complex, and life situations rarely fit a neat template. You might be moving cities, starting a business, or buying with a relative. Some borrowers interpret that complexity as a reason to bend facts in order to make the math work. Resist that temptation. Fraud for housing is still fraud, even if your intention is to pay every bill on time. If a solution requires hiding something material, it is not a solution. Ask your lender about alternative products, non conforming options, or a longer runway to approval. You want financing that you can defend later, not a loan that depends on a false story.

The same standard applies to professionals. If you work with a builder, agent, or loan officer who proposes to route paperwork in unusual ways, inflate or suppress a valuation, recycle down payment funds, or mask occupancy, step back. The FDIC warns that profit driven schemes often involve multiple insiders across the transaction chain. Those cases create risk for lenders and for consumers who get pulled in. Your best move is to protect yourself first. Verify licenses, ask for explanations in writing, and keep your own paper trail. If you terminate a relationship, document why you did so. If you believe a crime may have been committed, consult an attorney and consider reporting to your state regulator.

A final note about perspective. The statistic that opened this article is real, yet it sits inside a much larger pool of honest transactions. Most home loans close without incident because most people follow the rules and because the mortgage system has layers of controls. Appraisals are reviewed, income is verified, title is searched, and closing funds are reconciled. Your role is to make those controls easier to work by keeping your information accurate, your professional relationships verified, and your money movements confirmed through trusted channels. That is not paranoia. It is good housekeeping for one of the most important contracts in your financial life.

If you want a simple way to remember all of this, use a three part rhythm. Verify the people. Clarify the paper. Confirm the payment. When you follow that rhythm at every step, you reduce the temptation for shortcuts, you make it harder for impostors to insert themselves into your process, and you give yourself time to pause when something does not feel right. The phrase mortgage fraud schemes can sound cinematic. In practice, your strongest defense is routine. It is a checklist, not a chase.

If you are at the beginning of your journey, start by choosing your team with care. Use NMLS Consumer Access to confirm that your lender and loan officer are in good standing in your state. Save their verified phone numbers before you send a single document. Agree with your agent and your settlement company on how and when money will move. When you receive your closing disclosure, read it line by line and ask about any fee that you do not recognize. If a late email directs you to wire funds to a different account, stop and call your saved numbers. If a professional suggests a change that would make your file less accurate, say no. None of these steps will slow your closing in a meaningful way. They will protect it.

And if you are already a homeowner, keep the same habits for your equity. Treat your HELOC credentials like bank login details. Do not share photos of closing packets or stamped documents on social media where addresses and account numbers may be visible. Enroll in alerts for draws and balance changes so you can act within hours if something goes wrong. If you ever feel overwhelmed by a servicer letter or collection call, reach out to a HUD approved counselor for a neutral view. These actions are small. They compound into safety because they make you a harder target.

The headline risk today is not that everyone is out to trick you. It is that the one attempt that reaches you will arrive at the worst possible time. You can lower that risk with calm, simple habits. Verify who you work with. Keep your file honest. Confirm every transfer by voice with someone you already trust. If more households did only those three things, many losses would never occur. The smarter your routine, the quieter your closing.