Skip to main content Skip to navigation

The State of Financial Crime 2024: Download our latest research

What is mortgage fraud and how to detect it

Fraud Knowledge & Training

Real estate is a highly lucrative target for fraudsters, with numerous transactions occurring worldwide on a daily basis. In 2022, US victims of real estate fraud suffered losses of almost $400 million, according to data from the FBI’s Internet Crime Complaint Center. In the UK, real estate fraud caused losses of £110 million in the first six months of 2021. 

One of the many scam types that fall under the category of real estate fraud is mortgage fraud. Incidences of this increased by 32 percent in England and Wales between April 2022 and March 2023.

What is mortgage fraud?

Mortgage fraud is a type of white-collar crime that involves dishonesty or deception during the mortgage lending process. This kind of scam happens when borrowers, mortgage brokers, appraisers, or even lenders intentionally provide false or misleading information to obtain a mortgage loan or to influence the terms of a loan.

How does mortgage fraud work?

Depending on the criminal’s intent, mortgage fraud can fall into two general categories: fraud-for-profit and fraud-for-housing.


In fraud-for-profit schemes, individuals or groups intentionally manipulate the mortgage process to make a profit. They may engage in activities such as inflating property values, creating fake documentation, or conducting straw buyer schemes. One common example is property flipping fraud, where a property is purchased, artificially inflated in value, and then quickly resold to unsuspecting buyers at the inflated price. 


Fraud-for-housing schemes differ as they involve individuals who want to obtain a mortgage to purchase a home for personal use but provide false information on their application to qualify for a loan. This can include misrepresenting their income, employment status, or financial assets to secure a mortgage that they would not otherwise be eligible for.

Regardless of the scheme type, the majority of mortgage fraud cases between 2017 and 2022 were first-party, meaning that the person who applied for the mortgage was also responsible for the fraud. In fact, according to UK mortgage fraud statistics gathered by Uswitch, first-party fraud accounted for 93 percent of mortgage fraud cases in Q2 2022. The remaining 7 percent of cases were attributed to third-party fraud, where an individual creates or uses other people’s accounts without their consent. This is commonly associated with synthetic identity fraud.

What are the types of mortgage fraud?

Within the two overarching categories of fraud-for-profit and fraud-for-housing, mortgage fraud can take several forms, including:

  • Mortgage wire fraud: Also known as application hijacking, fraudsters intercept and manipulate the communication between homebuyers, sellers, and lenders during a real estate transaction. Usually, the fraudster will divert mortgage funds to their accounts, leading to financial losses for the legitimate parties involved. 
  • Occupancy fraud: This occurs when borrowers claim a property will be their primary residence to obtain better loan terms when in fact, it will be used as a vacation home or investment property. It can also happen when a borrower applies for a loan for a property that someone else, such as a family member, will actually occupy. 
  • Income fraud: Borrowers may submit fraudulent income documents, such as fake pay stubs or tax returns, to inflate their earnings. This misrepresentation can make them appear more creditworthy than they are. 
  • Home Equity Conversion Mortgage (HECM) fraud: This type of fraud targets seniors who own a home or are coerced into owning a home, with the aim of stealing or acquiring some or all of the funds received from a US government HECM program.
  • Appraisal fraud: This includes overstating the value of a home to get more money from a sale or cash-out refinancing, as well as understating the value of a home to purchase it below market value.
  • Claiming deceased estates: Commonly known as inheritance fraud, this scheme involves individuals or businesses that falsely claim to be heirs or beneficiaries of a deceased person’s estate to gain access to the deceased’s bank accounts, property, or investments.  
  • Liability fraud: This happens when borrowers fail to disclose significant financial liabilities, such as car loans, student loans, or other mortgages, on their loan applications. This makes it difficult for lenders to accurately assess a borrower’s ability to repay debts. 
  • Foreclosure rescue scams: These scams target homeowners facing financial distress, offering fraudulent services or advice to stop or delay the foreclosure process. Some of these scams require homeowners to transfer title or make mortgage payments to a fake “rescuer” instead of the real mortgage holder. Others require homeowners to pay fees upfront for “services” and are known as “advance fee” schemes. 
  • Use of non-bank lenders: Property investment clubs and land investment schemes can be exploited by criminals to sell flipped properties using inflated values, leaving investors with loans exceeding actual property value. 
  • Use of private companies: Criminals can inflate the value of a property by selling it multiple times within related private companies before approaching a lender for an inflated mortgage. This practice is increasingly common using off-shore companies.

A Guide to AML/CFT Reforms in the US Real Estate Sector

Learn how real estate businesses can respond to US authorities' new measures for improved corporate transparency and financial crime risk management.

Download Your Copy

Mortgage fraud red flags

To mitigate the risk of mortgage fraud, compliance teams should be aware of the following red flag indicators and conduct thorough due diligence when any suspicious activity is identified:

  • Inconsistent income: Discrepancies between the borrower’s reported income on the mortgage application and their documented income, such as tax returns or pay stubs, can raise suspicion.
  • Multiple mortgage applications: Numerous applications submitted by the same borrower to various lenders within a short timeframe may signal an attempt to secure multiple loans simultaneously. 
  • Straw buyers: The use of straw buyers with little or no connection to the property can be a sign of mortgage fraud. These individuals are often used to hide the true borrower’s identity.
  • Lack of payment history: If the borrower has no documented history of making rent or mortgage payments, this could indicate that they are not a credible borrower.
  • Pattern of default: Borrowers with a history of frequent mortgage defaults or foreclosures may be engaged in serial mortgage fraud.

When submitting a suspicious activity report (SAR) related to a potential mortgage fraud scheme, the Financial Crimes Enforcement Network (FinCEN) requires US firms to provide a detailed description of the red flags that have been detected. Additionally, firms should include the “NMLS Unique Identifier” assigned by the Conference of State Bank Supervisors’ (CSBS) National Mortgage Licensing System and Registry (NMLS) in the narrative section of the SAR.

The penalties for mortgage fraud

Penalties for mortgage fraud in the United States can vary based on federal and state laws, the severity of the fraud, and the specific circumstances surrounding the case. Under federal law, mortgage fraud is a Class C felony that can result in up to 20 years in prison, three years of supervised release, and $5 million in fines. Some common penalties associated with mortgage fraud include:

  • Criminal penalties: Penalties for committing mortgage fraud may include fines, imprisonment, restitution, and probation. The amount of fines imposed can be significant and may range from thousands to millions of dollars, depending on the scale of the fraud. Convicted individuals or entities may also face imprisonment for a few months or several years, depending on the nature and extent of the fraud. Courts may order convicted individuals or entities to pay restitution to victims or financial institutions (FIs) to cover the losses incurred due to the fraud. In some cases, individuals may receive probation as part of their sentence, which includes specific conditions and reporting requirements.
  • Civil penalties: Victims of mortgage fraud can take legal action against the perpetrators to recover financial damages. Civil lawsuits can be filed for this purpose, which may result in substantial monetary judgments against the bad actors. Additionally, courts may order the forfeiture of assets that were acquired through fraudulent means, such as properties purchased with fraudulently obtained mortgage loans. In certain cases, courts may also award punitive damages to punish the fraudster and deter future fraudulent activities.
  • Regulatory and professional consequences: Regulatory and professional consequences are severe for individuals and entities involved in mortgage fraud. Mortgage brokers, real estate agents, appraisers, and lenders may face revocation of their professional licenses. Perpetrators of mortgage fraud may also be barred from working in the financial or real estate industries.

Similarly, if someone is found guilty of mortgage fraud in the UK different punishments could be imposed depending on the conviction type. Under the Fraud Act 2006, a defendant may be sentenced to imprisonment for a maximum of 10 years and/or a fine. Additionally, they may be subject to a confiscation order under the Proceeds of Crime Act 2002.

How to detect and prevent mortgage fraud

FIs play a crucial role in detecting and mitigating the risk of mortgage fraud, which can result in significant financial losses and damage to their reputation. Some important measures to include in a fraud risk management framework include:

  • Enhanced due diligence (EDD): Conduct thorough background checks on mortgage applicants. Verify their identity, income, employment history, and creditworthiness to ensure they are who they claim to be and can afford the mortgage.
  • Machine learning and artificial intelligence: Implement machine learning algorithms to predict and flag suspicious transactions. These systems can learn from historical data to recognize fraudulent patterns and adapt to new tactics.
  • Fraud detection models: Utilize a powerful fraud detection model that can adapt to criminal behavior, explain why each alert was created, and link accounts that may be controlled by a single individual or institution behind an organized mortgage fraud scheme. 
  • Fraud prevention technology: Invest in fraud prevention solutions that can automate many aspects of fraud detection and improve accuracy.
  • Collaborate with law enforcement: Establish channels of communication with law enforcement agencies to report suspected cases of mortgage fraud. Collaboration can lead to quicker resolutions and prosecutions. 

Mitigate mortgage fraud risks with advanced fraud detection solutions

While steps can be taken to prevent mortgage fraud through verifying customer identities, educating employees, and updating policies, companies that take an AI-driven approach are much more likely to stay one step ahead of fraudsters. 

To effectively mitigate the risk of mortgage fraud, firms should:

  1. Ensure their anti-fraud tools can detect common fraud scenarios and predict future risks to help teams anticipate threats. Implementing an AI overlay to existing tools is a cost-effective solution that does not require a total system overhaul.
  2. Implement a solution that can be easily configured and allows firms to build custom rule sets to prevent specific types of fraud that pose a particular threat.
  3. Utilize a tool that can fine-tune alerts across various payment chains and help firms respond to changing fraud risks in near real-time.

Success story: RealPage

RealPage manages 100 million transactions every year for 19 million properties worldwide. As a payments provider, it must monitor transactions to prevent real estate scams like mortgage fraud. RealPage needed a custom solution to identify evolving fraud methods in real-time and enable analysts to manage alerts more efficiently. Learn more about RealPage’s story in the full article.

Detect Fraud Efficiently and Effectively

Request a demo to see how our fraud detection capabilities can help you see the unseen.

Get Started Now

Originally published 24 October 2023, updated 12 April 2024

Disclaimer: This is for general information only. The information presented does not constitute legal advice. ComplyAdvantage accepts no responsibility for any information contained herein and disclaims and excludes any liability in respect of the contents or for action taken based on this information.

Copyright © 2024 IVXS UK Limited (trading as ComplyAdvantage).