If there’s one constant with human nature, it’s that predators will rise to prey on the weakest and most vulnerable. This describes perfectly the present increase in mortgage fraud, which comes at a time when the housing market finds itself still shaken by the continuing saga of underwater mortgages, increasing foreclosures, and tougher lending regulations. Now battered buyers have to worry about mortgage fraud too?

It’s sad but true.

The interesting thing to note is that, according to FBI statistics, the most common type of fraud is shifting from loan origination and misrepresentation to collusion schemes that target distressed homeowners. In 2011, the most common type of mortgage flimflam was application and appraisal fraud. Even more disturbing is the news that, like the mafia in its heyday, these fraudulent undertakings often involve a number of real estate professionals acting in collusion to dupe and defraud homeowners embroiled in foreclosure, short sales, and the REO market.

The FBI goes on to say that a high percentage of mortgage fraud is carried out by such industry insiders as loan officers, appraisers, mortgage brokers, attorneys, loan originators, and other professionals working together. Given these facts, it behooves any agent or client involved in the buying or selling of property to make darn sure you know who is working for you.

It’s always been a good idea to thoroughly screen any professionals you hire. With mortgage fraud going great guns, you owe it to yourself to not only get referrals AND check them out, but ensure their licenses are up to date, there are no Better Business Bureau complaints, and also verify there is no dirty laundry lying around any of their trade group affiliations as well.

AIPIS founder, Jason Hartman, has always suggested to not allow yourself to simply go with the first person you hire for your house buying or selling team. Yes, it’s a hassle and takes time, but you need to interview several home inspectors, title companies, etc. before settling on one. And then check references! Did we say that twice? Yes, we did. It’s that important.

Strangely, or perhaps not so strangely, there are five states where this kind of real estate fraud seems to be the most prevalent. If you’re buying or selling property in Florida, Michigan, California, Illinois, or New York, pay particular attention to details before signing on the dotted line. A full 16 percent of all FBI reports of suspicious mortgage activity comes from the Los Angeles metro area!

Ultimately, what we’re saying is be careful out there. (Top image: Flickr | Alan Cleaver)

The AIPIS Team