What is mortgage fraud and when does it occur?

Mortgage Fraud

Mortgage fraud will occur when individuals will defraud a financial institution or a private lender through the mortgage process.


What is meant by fraud?

The criminal offence of fraud is provided for in the Fraud Act 2006 which covers fraud by false representation and by failure to disclose information where they may be a legal duty to disclose the information.

What is meant by false representation?

False representation can be made explicitly by stating false facts or implicitly by not correcting false facts.

What will happen to the value of a mortgage obtained through fraud?

The value of a mortgage obtained through fraud will be treated as proceeds of crime under the Proceeds of Crime Act 2002. As a consequence of this if an individual takes possession of this money or enters into an agreement in relation to the transferring of the money will be seen to have committed a money laundering offence.

What are the different types of mortgage fraud?

Mortgage fraud can initially be split into two distinct categories:

  1. Opportunistic mortgage fraud

  2. Large scale mortgage fraud

Opportunistic Mortgage Fraud

Opportunistic mortgage fraud occurs in relation to individual purchasers of a house through a mortgage scheme who take the opportunity to get a higher mortgage than they should be entitled to get. The way they do this is by providing information which is untrue or misleading or by failing to provide certain information which by law they would be required to disclose.

Opportunistic mortgage fraud will often occur when incorrect or misleading information about the following is provided:

  • The individual’s identity

  • The individual’s income

  • The individual’s employment

  • The individuals other debt obligations

  • The other sources of funds for the purchase other than the mortgage

  • The value of the property

  • The price to be paid and whether any payments have been or will be made directly between the seller and the purchaser

Large Scale Mortgage Fraud

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.

Are there any specific markets which are particularly susceptible to large scale mortgage fraud?

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 where criminal organisations will often be involved in the purchase of such complexes.

How does large scale mortgage fraud come about?

Often large scale mortgage fraud will come about according to the following steps:

    The value of the property will be an inflated value and the mortgage will be sought for the higher inflated value The nominated purchasers who are taking out the mortgage will often have no beneficial interest in the property and will often be made up In many cases the mortgage payments are not met.

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For more information on:

  • What will happen when the bank tries to get payment for the mortgage?
  • What will happen when the bank eventually forecloses on the property?
  • Is there anything else which I need to be aware of?
  • Non-bank lenders
  • Existing corporate structures
  • Mortgage Fraud and the Economic Downturn