Mortgage Fraud

The term “mortgage fraud” is typically used to describe fraudulent practices by borrowers in order to secure loans they cannot afford to repay or to secure loans that exceed the value of the home or homes in question. Because they do not involve defrauding the government, these cases have nothing to do with the False Claims Act. However, fraudulent lending in cases where mortgages are guaranteed or insured by the government does constitute a violation of the False Claims Act, and can be the basis for a qui tam action.

Since the financial crisis of 2008, the Federal Housing Administration (FHA) and the Department of Housing and Urban Development (HUD) have become major players in the housing market. In fact, more than 40% of new mortgages today are backed by the FHA through loan guarantees and mortgage insurance. Lenders may also obtain mortgage insurance from the FHA to hedge against mortgage defaults.

Mortgage companies and other lenders must certify that mortgage applicants meet a range of criteria, such as income and funds available to invest in a home, in order for the FHA to insure a loan. If the mortgage company or lender provides false information to the FHA in taking out FHA mortgage insurance on a loan, that company is liable under the False Claims Act. Any other type of fraud or falsification related to obtaining or making a claim against FHA mortgage insurance may also violate the False Claims Act.

The perpetrators in these mortgage fraud schemes might be:

  • mortgage brokers
  • underwriters
  • appraisers
  • real estate attorneys
  • title companies

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