Buyers and sellers continue to ask how to avoid this type of crime. Here are some common questions and answers:

Q: How serious is the mortgage fraud problem?

A: It is impossible to know for sure because a significant portion of the mortgage industry is exempt from fraud reporting requirements. However, it is safe to say that the problem has exploded in recent years, and threatens both the home lending industry and private home owners as neighborhoods are targeted and homes left vacant.

United States Attorney David Nahmias recently described the Atlanta area mortgage fraud problem as "one of the most severe in the country," and has committed to bring the problem under control.

Q: Why is it hard to catch the fraudsters?

A: Because they change their tactics quickly. For example, at one time, the criminals were offering large cash kickbacks to otherwise honest "investors" who allowed their credit to be used for qualifying loan applications. Now it appears that the perpetrators are often simply providing their own false information, then verifying it fraudulently themselves.

Q: How does this problem hurt neighborhoods?

A: The criminals often create fraudulent sales among themselves in order to inflate a property value. In order to support the higher valuation, it becomes necessary to do this with several houses in a small area. Once these sales are established, the criminals may commit fraud against several lenders at the same time to make maximum use of the fraudulent sales.

When the crime is done, the fraudsters walk away from all the houses they have used, never intending to repay any of the money they have borrowed. This creates a situation of several "foreclosures" and abandoned homes in a neighborhood, which often leads to depressed prices and related criminal activity. This can seriously harm a community, especially if you are trying to sell your own home.

Q: How does mortgage fraud affect the home lending industry?

A: Loan losses are simply translated into higher costs and interest rates for all of us. If the loan is guaranteed by the government, as is the case with VA loans, then the government bears that additional expense. In the long run, we all pay the cost of mortgage fraud.

Q: What happens in a typical mortgage fraud transaction?

A: A criminal buys a house for cash, then quickly sells it through various entities to others and back to himself for highly inflated prices. These intermediate sales are then used as comparable sales to justify greatly inflated home values in the neighborhood.

The criminal then may recruit "investors" who are unaware of the criminals intent to provide their good credit information for loan applications. The investor is told that he will receive a cash payment a closing, then have no further obligation to pay the loan. The criminal sells the house to the investor, collecting a large fraudulent sales price from the loan proceeds, then disappears, never making the first payment on the loan.

In a variation on the above scam, the criminal might begin making required monthly payments on the fraudulent loan while he uses this transaction as a comparable sale for additional scams in the same neighborhood. Eventually, the house of cards collapses, and the scammer moves on. The homes are then foreclosed, and the so-called "investors" find out that they are personally responsible for repayment of the loan. In addition, they may be subject to prosecution for participation in a mortgage fraud operation.

To make matters worse, the criminals are coming up with new variations of mortgage fraud all the time.

Q: What can be done to prevent mortgage fraud?

A: In my opinion, raising awareness in the real estate industry is one of the keys to solving the problem. In almost every case of known mortgage fraud, the criminal had accomplices inside the industry. These may take the form of appraisers, agents, lawyers, lenders and/or so-called "investors."

Often, someone working with the criminal provides false documentation in exchange for a cash kickback. Then that information somehow gets past another person in the review process. Certainly, if a licensed individual participates in a scam, that person should be severely punished. But beyond that, everyone in the process needs to be on the lookout for transactions which appear out of the normal range.

Another suggestion has been for Fannie Mae to require an independent review appraisal on every sale of any property which has been owned by the seller for less than five years. Such a process might very well stop the current rash of fraud almost completely, but it would add an additional layer of cost and time to an already expensive and lengthy process.

Q: What can the homeowner do?

A: Stay in touch with housing resale prices in your neighborhood. Be a nosey neighbor. If you see home sale prices that seem far beyond a home’s true fair market value, ask a local agent or broker to help you investigate. See if the buyers actually occupied the house as their residence after the sale, or if the house sits empty for months. If you suspect mortgage fraud, contact your local police or call the FBI.