Hey there Chicago homeowners and future homebuyers!
It’s the Ben Lalez team again, and this week we wanted to talk about something that’s been making headlines lately right here in Chicago.
Mortgage fraud.
While it might not be as exciting as discussing your dream kitchen renovation, it’s a topic that could save you or your loved ones from becoming victims of increasingly sophisticated scams. We think it’s crucial to shed light on this growing concern affecting our communities.
Just this last week, we saw a sobering reminder of how real these ploys are in our own backyard.
If you’ve been following the news, you may have seen the story of a man who was sentenced to over three years in prison for orchestrating a $1.5 million mortgage fraud scheme in Chicago, targeting properties on the West and South sides. He exploited FHA loans’ low downpayment requirements, promising buyers rental income that never materialized. Seven families lost their homes to foreclosure while he pocketed the profits.
Even more heartbreaking was another recent case where a scammer received a 17-year sentence for targeting elderly homeowners in Chicago with a reverse mortgage scheme. He preyed on over 120 seniors, causing nearly $10 million in losses. One victim had dementia and was tricked into signing away $180,000 in home equity. Another family discovered their 89 year-old mother had unknowingly signed over $110,000 through a fraudulent home repair.
These aren’t just headlines. They’re our neighbors, perhaps even your family members, who trusted the wrong people and had their lives destroyed.
Mortgage Fraud Is A Growing Threat
CoreLogic is a company that provides data, analytics, and software services for the property industry. It recently released a report showing that mortgage fraud is actually increasing.
According to the report, 1 in every 123 mortgage applications shows signs of potential fraud. This is an 8.3% increase from last year alone. However, application fraud isn’t the only type of fraud that exists.
Let’s walk through the different types of fraud we’re seeing in Chicago’s real estate market:
Identity Fraud
This type of fraud has increased by 5.5% in the past year, especially with new loan programs for people without Social Security Numbers. Scammers will steal personal information and apply for mortgages in other people’s names. Sadly, many victims only find out about it when it’s too late – when they’re facing foreclosure on a loan they never took out.
Income And Employment Fraud
This common scheme involves misrepresenting financial information on mortgage applications. This could include fake pay stubs, inflated income declarations, or even fictitious employers to verify employment. Some people will borrow money to show larger bank accounts.
Occupancy Fraud
Some buyers will lie about their intentions for a property to secure better loan terms. They might claim they’ll live in a home as their principal residence when they actually plan to rent it out or use it as an investment property. This type of fraud also includes hiding home ownership of other properties to qualify for programs meant for primary residences. While it might seem harmless, it’s still illegal and carries serious consequences.
Appraisal Fraud
Property values can be manipulated in several ways to trick lenders. Some fraudsters will ask dishonest appraisers to inflate values using fake comparables or nonexistent improvements. Others might understate values to reduce taxes or purchase prices. This type of fraud often involves multiple parties working together, making it both complex and damaging to the market.
Equity Skimming Fraud
This sophisticated scheme usually involves straw buyers with good credit who purchase properties on behalf of others. The fraudsters then collect rent from tenants without making mortgage payments, draining the property’s equity before letting it fall into foreclosure. It can be especially damaging when multiple properties in the same neighborhood fall prey to the same scheme.
Silent Second Mortgage Fraud
Imagine buying a home but hiding a second mortgage from your primary lender. That’s exactly how this scheme works. Borrowers will take out undisclosed loans, usually for down payments, without telling their main lender. This hidden debt can quickly become overwhelming, causing a collapse on all loans involved.
Flipping Fraud
House flipping is a popular strategy for real estate investors, but this fraud involves quick resales at artificially inflated prices. Scammers will often use fraudulent appraisals and fake renovation receipts to justify massive price increases. Many times, these properties only undergo minor cosmetic repairs while claiming to have major improvements. An unsuspecting buyer will end up purchasing an overpriced property that still needs significant work.
Foreclosure Rescue Fraud
This is probably one of the cruelest types of fraud, and it’s when homeowners in financial distress are targeted. Scammers promise to help save homes from foreclosure in exchange for upfront fees or property titles. They will usually make false promises about loan modifications while actually stealing whatever equity remains in the home. When victims realize what’s happening, they’ve lost both money and precious time to save their homes.
Builder Bailout Fraud
This is a complex scheme that involves developers or builders offering hidden incentives or kickbacks that aren’t disclosed to lenders. They might inflate home prices to cover undisclosed payments or rebates, essentially deceiving lenders about the true value of transactions. This can create a ripple effect of inflated values throughout a neighborhood.
Air Loan Fraud
This fraud is the most bold and involves completely fictitious properties and borrowers made out of thin air. Fraudsters create fake documentation, including nonexistent properties and borrowers, to obtain loans. The money disappears along with the fictional borrowers, leaving lenders with worthless paper and no actual collateral.
Reverse Mortgage Fraud
This fraud often targets our senior community with increasing frequency. Scammers often disguise their true intentions behind offers of home repairs or financial assistance. They pressure elderly homeowners to sign complicated reverse mortgage documents, sometimes taking advantage of those with cognitive decline. The results can be disastrous, with seniors losing their home equity and facing possible eviction.
How Do You Protect Yourself?
First, trust your instincts.
If someone pressures you to act quickly or make decisions without proper review, that’s a major red flag. Legitimate real estate transactions may move quickly, but there’s always time for proper due diligence.
Always work with licensed, reputable professionals. This means verifying licenses yourself (don’t take someone’s word for it without checking for yourself). The Illinois Department Of Financial and Professional Regulation maintains a database of licensed professionals. Take the extra few minutes to check. We’ve seen cases where scammers used the names of legitimate professionals to lend credibility to their schemes.
Never sign blank or incomplete documents, and read everything before signing (even if someone tells you it’s just a formality). Get all promises in writing, and be especially careful of verbal agreements that sound too good to be true. Keep copies of everything you sign, and don’t be afraid to ask questions if something doesn’t make sense.
If you have elderly relatives involved in real estate transactions, stay involved. Attend meetings with them, review all documents, and be particularly suspicious of any unsolicited offers or high-pressure sales tactics. Too many families discover fraud too late because they assumed everything was fine.
The Devastating Consequences Of Mortgage Fraud
Remember that man who orchestrated the $1.5 million fraud scheme on Chicago’s West and South sides? His 3-year sentence might seem significant, but let’s not forget the seven families who lost their homes to foreclosure. Their lives were upended, their credit destroyed, and their dreams of homeownership were shattered.
Or think about those 120 seniors who lost $10 million in home equity through that reverse mortgage scheme. The scammer received a 17-year jail sentence and was ordered to pay $2.7 million in restitution, but that won’t immediately help those families trying to recover from substantial financial loss. Many victims spent their entire lives building equity in their homes, only to see it vanish through fraud.
The legal consequences of participating in mortgage fraud are severe. Being charged and convicted means prison time, massive fines, asset seizure, and restitution payments that can follow you for life. Your ability to obtain future loans, find employment, or even rent an apartment can be permanently affected. Professional licenses can be revoked, and the stigma of a fraud conviction can impact career opportunities for years to come.
What if you’re a victim of fraud? The road to recovery can be long and challenging. Resolving fraudulent loans often involves lengthy legal battles, significant expenses, and countless hours dealing with lenders, law enforcement, credit bureaus, and the IRS. Some victims spend years trying to clear their names and rebuild their credit.
If you suspect you’ve encountered mortgage fraud, act quickly. Document everything, including emails, text messages, and any paperwork you’ve received. Contact the FBI’s Chicago Field Office immediately. They have specialists dedicated to investigating mortgage fraud. You should also report it to the Illinois Department Of Financial And Professional Regulation and consult with a qualified real estate attorney who specializes in fraud cases.
For those of you in the process of buying or refinancing, remember that legitimate real estate transactions should never make you feel rushed or pressured. Take time to research current market values in your target neighborhoods. Verify the licenses of everyone involved in your transaction, from real estate agents to loan officers to appraisers. Read every document carefully, and don’t hesitate to ask questions if something seems unclear.
Our team has helped thousands of Chicago families with successful, legitimate real estate transactions, and we’re here to help you too! Give us a shout today and let’s make sure your homeownership journey is positive and safe!
