Little white lies on mortgage application can get you in hot water.

Home buyers are, for the most part, honest and law abiding. We have been approached by some over the years that could not afford a home they intended to buy but were ill advised to fudge their application to get them into the house.

This is one of the root causes of the mess we are in today. Believe it or not some buyers are still doing the same thing. And some lenders are allowing them or even assisting them to do it.

We see offers on our listings that come in with questionable buyer credentials. It is only after rigorous investigation that we find flaws in the buyer’s application or qualification documents. As sales are harder to come by these days we are experiencing an increase in this practice by mortgage and real estate practitioners. I think they all believe a little white lie will do no harm. As long as they feel they can afford the house…what’s the harm.

The real estate and mortgage fraud cases that dominate the headlines usually have to do with fraud for profit. A ringleader conspires with industry insiders – usually a real estate agent, appraiser, and loan officer – to obtain mortgage loans they have no intention of ever repaying.

Another form of mortgage fraud is also common – fraud for housing. According to an FBI source, "Fraud for housing represents illegal actions perpetrated solely by the borrower. The simple motive behind this fraud is to acquire and maintain ownership of a house under false pretenses. This type of fraud is typified by a borrower who makes misrepresentations regarding his income or employment history to qualify for a loan."

Fraud for housing may include any of the following attempts to deceive the lender into approving a mortgage loan:

> Claiming on a loan application that you earn more money than you actually earn.

> Presenting counterfeit paycheck stubs to verify employment or income.

> Intentionally overestimating the value of your assets on a loan application.

> Claiming on a loan application to work for a particular employer when you do not.

> Adding someone to the loan application as a co-borrower who does not intend to live in the home with you or assist you in making payments.

> Signing a loan application that contains blanks you know the loan officer will fill in for you later with false information that will help you qualify for the loan.

> Getting a friend or relative who owns a business to say that you work there.

> Fudging the numbers on a document, such as a tax return, to make it look like you earn more than you do.

Whenever you apply for a mortgage loan, you must sign the application – technically referred to as a 1003 (ten-oh-three) or Uniform Residential Loan Application. Just above the space for your signature is a statement worded something like this:

I/We fully understand that it is a federal crime punishable by fine or imprisonment, or both, to knowingly make any false statements concerning any of the above facts as applicable under the provisions of Title 18, United States Code, Section 1001, et seq.

In other words, it is a felony to lie on a loan application, whether for profit or housing.

Some people argue that fraud for housing is a victimless crime. After all, the person applying for the mortgage loan really wants to keep the house and has every intention of making the monthly payments and paying off the debt. However, that’s beside the point. The real issue is that when people commit fraud for housing, they mislead the lender into approving a loan that is riskier than the lender would otherwise consider. It contributes to increases in foreclosures and the cost of mortgages to all consumers.

Knowing what constitutes fraud for housing can help you avoid committing it or becoming an accomplice if a loved one tries to make you complicit in their plans. Remain on the lookout for mortgage fraud of any type, and do your part to reduce fraud and make mortgage loans and housing more affordable for everyone, including your neighbors.

Ralph R. Roberts, GRI, CRS is a real estate and mortgage fraud forensics expert and author of Protect Yourself from Real Estate and Mortgage Fraud: Preserving the American Dream of Homeownership (Kaplan Publishing).

If you’re working with an agent or mortgage representative who suggests “adjusting" the figures on the mortgage application it would be best to run for cover. The reality is there are more and more mortgage instruments out there today that allow a buyer to get into a home they otherwise could not afford…legally.

Have you experienced mortgage fraud? We’d like to know.