According to a report by the Financial Crimes Enforcement Network (FinCEN), a division of the U.S. Treasury Department, allegations of mortgage fraud reported by banks has grown exponentially over the past ten years. Unsurprisingly, the increase in reports year by year closely reflects the mortgage and foreclosure crisis and the downturn in the economy. It is unclear whether the rising number of reports, called “suspicious activity reports” (SARs), reflects an actual increase in mortgage fraud or an intensification in suspicion by financially struggling banks.

According to the report, which includes both mortgage and foreclosure fraud, there were 4,298 SARs involving possible mortgage fraud in Georgia last year, and Georgia ranked fifth highest both in the overall number of reports and the reports per capita. Georgia also ranked fifth last year in the total number of mortgage fraud SARs, but it ranked seventh in reports per capita.

Florida is also ranked high for this type of white collar crime — it was ranked second in the nation under both measures for both 2009 and 2010. Nevada topped the list for the number of reports per capita.

Real estate flopping, bankruptcy fraud, debt-relief scams and HAMP fraud increasing sharply

In addition to highlighting the geographic areas where mortgage loan fraud is most frequently reported, FinCEN also called attention to the types of mortgage fraud that appear to be on the rise.

Reports of short sale “flopping,” soared from two reports in the first quarter to 112 SARs in the fourth quarter of last year. “Flopping” is a relatively new scam where a distressed property is sold at an artificially low price to a straw buyer, often with the help of a conspiring real estate agent, and resold behind the bank’s and seller’s backs for a profit.

Suspected fraud against government-sponsored foreclosure relief programs also increased last year, with a nationwide average of 179 SARs per month last year.

Other commonly reported types of suspected mortgage fraud included debt elimination scams, foreclosure rescue scams, misrepresentation of income or employment on mortgage applications, and the use of false Social Security numbers on loan applications.

Sources:

• South Florida Business Journal, “South Florida: No. 1 for mortgage fraud,” Brian Bandell, March 29, 2011
• Financial Crimes Enforcement Network (FinCEN), “Mortgage Loan Fraud Update,” March 28, 2011