What Is Mortgage Fraud? And How to Avoid It

Buying a home is the largest expense most people will ever incur — safeguarding your money and property while securing a mortgage and filing documents is critical.

Sadly, there are unscrupulous people who want to take advantage of homebuyers. In 2024, there was more than an 8% increase in fraudulent mortgage applications.

What Is Mortgage Fraud?

There are different types of mortgage fraud. These include fake companies who advertise great interest rates online only to vanish later, online “consultants” who offer to negotiate better rates and scammers who post fake websites to obtain wiring instructions.

Mortgage fraud and other online scams have skyrocketed since the COVID-19 pandemic, which means consumers must be extra vigilant, said Steven Vieira, director of mortgage operations and sales for AAA Northeast.

The mortgage loan officers at AAA Northeast have tips for ensuring obtaining a mortgage and transferring funds goes as smoothly and safely as possible while avoiding all types of mortgage fraud.

One way consumers can safeguard their identities and receive alerts about suspicious activities pertaining to their accounts is by signing up for AAA’s free ProtectMyID identity theft protection service before they start their financial dealings.

“Notifications are the biggest benefit,” Vieira said. “If you can catch fraudulent activity in time, it can be stopped.”

Consumers also can sign up for OptOutPrescreen.com, a service that prevents consumer credit reporting companies from providing your credit file information to data brokers. Credit reporting companies typically sell information to data brokers. There is a risk that the information will wind up in the hands of disreputable companies, leading to a type of mortgage fraud.

You Can’t Be Too Prepared

Preparation and verification are the best ways for consumers to protect themselves from all types of mortgage fraud when buying a home. “You need more financial information than ever before, so make sure you go with professionals you trust,” according to Vieira. “Make sure the loan officer is licensed, and the person is reputable.” You may see mortgage offers on the internet that look like great deals, he added, but it’s best to avoid them.

As much as possible, take a hands-on approach to securing a loan and transferring money, Vieira advised. Verify everything with your settlement agent and avoid relying on a computer when doing it.

Stay Offline, If Possible

Online criminals try to get their hands on wiring instructions, Vieira said, because there is a lot of money coming in and out of escrow accounts. They can set up fake websites and if someone clicks on the wrong link somehow, money gets diverted from the transaction and can be gone.

“That’s the reason for everything AAA does; we go into a lot of detail when it comes to a closing,” Vieira said. “We want money transactions to go smoothly. We ensure money is wired to the correct account. That’s the kind of relationship we have with the settlement process.”

If you are still wondering what mortgage fraud is, scams related to new mortgages/refinancing include:

Foreclosure rescue: Your home is in foreclosure, and you are frantically looking for a solution. A company on the web promises to reverse the foreclosure if you pay an upfront fee. Don’t do it. This is often fraudulent, according to Vieira. After you hand over the money, the people on the other end disappear.
Loan modifications: Similarly, an online company may promise to negotiate or modify your home loan. That also is likely a fraud. “Always call the company servicing your loan directly,” Vieira said. “Every loan company in the country has loan (assistance) programs, because everyone wants to avoid a foreclosure. Stay away from private companies — go right to the lenders.”
Natural disaster schemes: Following a catastrophic event, offers may pop up on the web to assist homeowners who lost their houses to get government money to help pay off their mortgages. Again, the best thing to do is contact your lender directly.
Home title fraud: Scammers illegally transfer the deed to your home to themselves or someone else. To avoid this, check with local government officials at least once a year to ensure no documents have been filed against your deed.

AAA Northeast has plenty of mortgage specialists available to help you begin and complete your home purchase. Contact AAA Financial Services for more information.