Mortgage application fraud examples
The FBI says there are several types of mortgage application fraud to be aware of as well:
- Income fraud occurs when a borrower overstates their income to obtain mortgage funds to purchase a home.
- Employment fraud occurs when a borrower falsely claims to be employed by a specific company or provides a fake employer name.
- Disclosure fraud occurs when a borrower fails to disclose all existing financial obligations on the application, such as car loans, credit card debt or other mortgages.
- Occupancy fraud occurs when a borrower misrepresents who will occupy a home, as many mortgages require homeowner occupancy for approval.
The Federal Deposit Insurance Corporation (FDIC) also states that lenders and other financial interests may commit “fraud for profit,” where lenders collude with other parties to defraud borrowers. This can include elaborate schemes that involve “straw” borrowers, sellers, loan originators, brokers, agents, appraisers, builders and developers.
Types of mortgage fraud
While mortgage fraud can happen in a variety of ways, there are a few common types of mortgage fraud to be aware of:
Property flip (appraisal fraud)
A common type of mortgage fraud occurs when an investor buys a property at well below market value, then quickly resells it for a much higher price. The problem is that no repairs are usually made, or issues are covered up. An appraiser who is in on the scheme then gives a falsified appraisal of the home.
As a buyer, it’s important to always look at public records before purchasing a home. If the home you wish to purchase was sold previously within a few months (or less) at a much lower price, it’s important to question the repairs made and why the price jumped. It’s also a good idea to get a trusted third-party appraisal to ensure it is valued accurately and you don’t overpay.
Occupancy fraud
Occupancy fraud occurs when a borrower falsifies a loan application, claiming they will occupy the home after purchase. Owner-occupied homes usually qualify for home loans with better rates and lower down payments. So, unscrupulous investors may claim owner-occupancy to save money up front.
Lenders working with a potential buyer should be on the lookout for appraisals that mention expected rent payments, large down payments from a company or evidence that the buyer will be renting the home out.
Straw buyer
A straw buyer mortgage fraud scheme occurs when a borrower is not the true buyer of a home but purchases it (with a mortgage) for someone else. This happens when the “true” buyer can’t qualify for a mortgage, due to bad credit or other financial reasons. After the transaction is completed, the straw buyer will transfer the home’s title to the real buyer.
Pro tip
Lenders need to look out for borrowers who are very vague about their intentions regarding the home, and for down payments coming from an institution rather than a personal account. Unfortunately, a title transfer immediately after the home is purchased often indicates a scam.
» RELATED: Definition of title insurance
Air loans
Air loans are sophisticated scams in which professional criminals create a fake purchase to obtain mortgage funds. This includes creating fake property listings, borrowers, seller identities and title or insurance documentation. The goal is to get a lender to use mortgage funds to pay the “seller” directly for a transaction that never occurs.
Identity theft and income or asset falsification
Identity theft mortgage fraud occurs when a borrower uses someone else's information to apply for and obtain a mortgage for a home. This includes stolen Social Security numbers, identification, pay stubs and bank account information.
Income fraud occurs when a borrower falsely claims a higher income than they actually have to qualify for a mortgage on a home they want to purchase. This may include falsifying pay stubs, asset values or hiding debts and other financial obligations.
Why commit mortgage fraud?
There are different motivations for committing mortgage fraud. People who can’t qualify for a mortgage but really want to buy a home commit mortgage fraud to get a home sooner. This is known as “fraud for housing” and is typically committed by borrowers with poor credit or insufficient income to qualify for the home they want.
Mortgage fraud to earn money is known as “fraud for profit,” and typically is committed by professionals who collude to profit from unsuspecting buyers or lenders. This can be as simple as a false appraisal to sell a home for more or as involved as falsifying documents to get mortgage funds directly.
How to avoid mortgage fraud
Mortgage fraud can have huge consequences, so it’s important to understand how to avoid it at all costs. As a borrower, it’s imperative to never falsify any piece of information on your mortgage application.
Committing mortgage fraud can result in fines and even prison time.
This includes misrepresenting income, employment, assets or debts. You should also avoid anyone encouraging you to “rent” your credit or sign documents with blank sections or terms you don’t understand.
Tips for buyers
As a homebuyer, you can protect yourself from false appraisals and sellers inflating home values by hiring your own independent home appraiser. This ensures you get an accurate fair market value on the home you’re looking to purchase and don’t overpay (or overborrow) for the property. It’s also smart to work only with licensed real estate and lending professionals, and to review every document carefully before signing.
Tips for lenders
Mortgage lenders should always verify income and asset information through a trusted third party, if possible or obtain income information directly from a verified employer. Lenders should verify appraisals using their own trusted professionals before approving a loan.
FAQ
What triggers mortgage fraud?
Mortgage fraud occurs when a borrower submits a mortgage application with false information or when a lender or seller misrepresents the home-selling process. For borrowers, if you falsely claim a higher income or use someone else’s information, you’re committing fraud. For sellers and lenders, using a fake appraisal to get more money (or a higher commission on a larger loan) is fraud.
How do you report mortgage fraud?
If you’re a homeowner and suspect mortgage fraud has occurred, you can report it directly to the agency that regulates your bank. You can also report any suspected fraud to the Federal Trade Commission (FTC). And since it is a criminal matter, you may also be able to open a case with local law enforcement to pursue justice and restitution.
When you’re reporting mortgage fraud, it’s important to write down any dates, conversations and the names of personnel you interacted with as part of your homebuying transaction. The faster you act, the sooner law enforcement may be able to recover your money.
You should first report mortgage fraud to your local authorities to ensure a case is opened. You can also report to the FDIC and the Internet Crime Complaint Center (IC3), which is a division of the FBI.
How does mortgage fraud affect the housing market?
Mortgage fraud can cause housing prices to spike when appraisals are falsified. And housing prices can fall if borrowers commit mortgage fraud, buy a home they cannot afford, and eventually default on their loans, losing their homes to foreclosure.
Bottom line
To best avoid mortgage fraud, it’s important to always work with a trusted lender. If you’re unsure how the homebuying or home selling process works, take an educational class (usually offered through HUD) to educate yourself before buying or selling your home. And keep an eye on your credit report to ensure there are no unauthorized transactions on your behalf.
Article sources
ConsumerAffairs writers primarily rely on government data, industry experts and original research from other reputable publications to inform their work. Specific sources for this article include:
- FBI, “Mortgage Application Fraud.” Accessed July 19, 2026.
- Federal Deposit Insurance Corporation, “Mortgage Scams.” Accessed July 19, 2026.
- Office of the Comptroller of the Currency, “Who Regulates My Bank?” Accessed July 19, 2026.
- Federal Trade Commission, “Frequently Asked Questions.” Accessed July 19, 2026.
