Common methods used by criminals when they commit mortgage fraud.
Mortgage fraud committed by individuals
People may commit mortgage fraud by giving false information to lenders to get a larger mortgage than they're entitled to. This can include misrepresenting:
- their identity
- their income
- their employment
- their debts
- sources of funds other than the mortgage
- the value of the property
- the price to be paid
- whether any payments have been or will be made directly between the seller and purchaser
Eventually a bank will foreclose on the property and find it in disrepair and worth less than the current mortgage and its arrears.
Use of non-bank lenders
Criminals may use property clubs to raise funds. These lenders, which focus on marketing investments to property investors, often have less safeguarding than institutional lenders.
Property clubs can be targeted especially in relation to overseas properties where the property is invented or an undeveloped piece of land.
Use of companies
Criminals may sell property with inflated value between related private companies.
Off-shore companies are increasingly used in this way. The property is sold several times within the group of companies before a lender is approached for an inflated mortgage.
Flipping happens when criminals try to resell a property very quickly for an inflated price. It usually involves back-to-back sales of the property to limit the time between sales.
Back-to-back sales are when someone sells or remortgages a property immediately or soon after completing the purchase.
Equity release fraud
Equity release schemes allow people to sell their home, but to rent and occupy it. They’re given the option to buy their property back when they can afford to.
Criminal involvement may result in:
- the homeowner selling to an invented person or directly to a criminal
- a mortgage being taken out by the criminal for an inflated value
- the original loan being paid out by the lender, and the equity in the property taken by the criminal, who does not pay the mortgage
- the original homeowner eventually being evicted by the bank, as a tenant, having been unaware that no mortgage payments were made
- the original homeowner being unable to buy their home back, as the value of the mortgage is higher than the original mortgage
Criminals may intervene before completion by claiming they’re a new representative for the buyer in order to obtain the mortgage advance.
The criminal will usually pretend to be a solicitor or conveyancer, using fake or copied letterheads to write to the lender and give their own bank account details to receive the mortgage advance.
Criminals may target re-mortgaging and re-financing.
They may use private funds to purchase a property, get external funding against it, then take the mortgage advance and disappear.
They may also pose as a property developer and seek bridging loans (short-term, high-interest loans) to cover buying several properties. These may be properties they previously used as part of a flipping scheme, which have been repossessed by the bank.
Claiming deceased estates
Criminals may try to pose as the heir of an estate, or as the deceased person themselves. In both cases they will seek a mortgage on equity in the property, then disappear with the funds.
Court orders for sale
Criminals may seek out the details of owners of unoccupied, boarded-up properties. They may then apply to the County Court for a judgment against the owner for a non-existent debt. They will not give the owner notice of the application. Once obtained, the judgement is converted into an order for sale.
The property is then sold either directly to the person claiming the debt or to one of their associates at an inflated price, often using criminal funds.
The criminal gets a mortgage on the property at an inflated price, then takes the advance without making any mortgage payments.