Mortgage Fraud

By Andrew J Thompson

Because of the nature of mortgage transactions, it can be difficult to determine a case where a homeowner has been defrauded by a lender, broker or title agent in  a mortgage transaction.  But it does happen, and it happens far more often than homeowner’s realize or know.

What is a Case for Fraud?

First, to prove fraud there must be some material misrepresentation or omission of fact.  Actual representations of fact demonstrate the potential of actual fraud, and when the representation is visible, a case becomes easy to prove.

But in most cases, there is limited or no contact between the lender and borrower, and very little contact between the borrower and title agent, in fact it is common that the borrower only meets or talks to the title agent at the closing – and for a very brief period of time.

But omissions of fact, that can be determined from examination of all the evidence surrounding the mortgage transaction itself, if the situation meets other requirements, also can constitute fraud – or perhaps something treated in the law as “constructive fraud”.

Either way, the representation or omission must have occurred either intentionally or knowingly on the part of the party to be held liable for their actions.  If the party did not know and was not accountable for knowing that the misrepresentation or omission occurred, it cannot be guilty of fraud. But if it knew or should have known that important facts relating to the transaction were not disclosed, or were misrepresented to the borrower, fraudulent behavior was in play.

Fraud, however, must also cause the borrower to suffer harm.  This can come in many forms.  For example, it the borrower was eligible for a significantly lower payment at better rates on the loan, if the borrower accepted money based on an appraisal that was inappropriate given the market conditions at the time of a loan – and borrowed more than they should have and lost equity in the house because the appraisal was wrong, even if the borrower’s finances did not justify the loan and they could never get to a position they could repay the loan, these are examples of how fraudulent conduct could case harm to a borrower.

But the homeowner must actually suffer a loss at the hands of the borrower or other party to recover for fraud.  If the above scenarios present only hypothetical losses, the homeowner is not entitled to recovery.  But if they can prove at last $1 of actual loss because of the fraudulent conduct, the defrauded party is entitled to recovery.  At that point, a major case is opened up – for the recovery of actual losses and potentially punitive damages as well.

In other articles, we will discuss how fraud is proven, other claims that may be available to a homeowner, and what to do when you suspect fraud has occurred with respect to your own mortgage.

If you would like assistance with an investigation or assessment of potential fraud relating to your own mortgage, please contact the Thompson Law Office at (317) 564-4976, or email the author at: andrew@thompsonlawindiana.com