A quarterly study recently released shows Florida toward the top of the list for risks of mortgage fraud. Florida was topped only by Nevada (at number one) and Arizona (number two). Northeast Florida, including Jacksonville, was rated a "high" risk while Southern Florida, including Miami and Orlando, was ranked a "very high" risk. North Western Florida, on the other hand, was given a "low" risk rating.
In making its conclusions, the report looks primarily at four types of mortgage scams: property valuation fraud, identity fraud, occupancy fraud, and phony income reports.
Property valuation fraud typically involves manipulating property values to create a profit margin. It's similar to "flipping", which was very popular before the market crash, in that the buyer purchases a home intending to sell it at a higher value. Unlike flipping, however, the buyer doesn't add any actual value to the home -- instead, the buyer uses shady numbers and other tactics to artificially raise the price of the home and then sells it to an unsuspecting buyer.
Identity fraud is a relatively well-known problem. In the mortgage market, identity fraud generally means a buyer pretends to be someone else. This enables him or her to obtain a better credit rating and attain a loan that he or she otherwise might not have received.
Occupancy fraud involves buyers who falsely claim they will live in the house full time. A full-time residency generally means lower down payments and lower interest rates. Similarly, phony income reports involve buyers who falsify income documents to appear to have more assets than they really do.
All of these types of fraud have a negative impact on the mortgage industry and only increase paperwork for already backed-up banks and courts. Hopefully the fraud and unscrupulous behavior surrounding Florida's foreclosures market subsides in the coming months and years.
