(and How to Stay Out of Trouble)

Buying a home is one of the biggest financial moves most people will ever make. It’s exciting, stressful, and full of paperwork. But one thing you never want to mess around with is mortgage fraud. Sometimes it happens intentionally, sometimes people just don’t realize what they’re signing — either way, the consequences can be serious.

Here are the top 5 types of mortgage fraud making headlines, plus some real-life examples and tips to keep yourself safe.

1. Occupancy Fraud

This is the most common form of mortgage fraud. It happens when someone claims a property will be their primary residence — but it’s actually intended as a rental or a vacation home. Lenders offer better rates and lower down payments on primary residences, which makes the temptation real.

Real-Life Example: Two “Primary Residences”

In 2025, Federal Reserve Governor Lisa Cook made national news after being accused of claiming two different homes (one in Michigan and another in Georgia) as her “primary residence” within weeks of each other. At the same time, she labeled a Cambridge condo a “second home” despite it generating rental income. While she hasn’t been charged, the allegations show just how closely lenders and regulators watch for this type of misrepresentation.

It’s not just high-profile figures, though. Lenders regularly catch borrowers doing the same thing:

  • One loan officer shared about a buyer who purchased a home as their primary, then bought another “primary” a few weeks later. A post-close audit flagged the contradiction and kicked off an investigation.
  • Another shared a case where a buyer purchased a home two blocks from their actual residence, claiming it would be their new primary — only to immediately rent out the old one.

How to stay safe: Be truthful about how you’ll use the property. If your situation changes later, that’s okay. But if you knowingly misrepresent your intent, that’s fraud.

2. Income Fraud

This happens when borrowers overstate their income to qualify for a bigger loan. Sometimes they “round up” earnings, and in more extreme cases, they submit fake paystubs or tax documents.

How to stay safe: Report your true income — lenders will verify it anyway.

3. Employment Fraud

Closely related to income fraud, this involves exaggerating your job title, length of employment, or even creating a fake employer.

How to stay safe: Provide accurate job history and let the lender verify it directly with your employer.

4. Identity Fraud

This one’s more sinister — using another person’s identity or stolen information to apply for a mortgage. It usually happens to unsuspecting victims but remains one of the fastest-growing types of mortgage fraud.

How to stay safe: Protect your personal information, use secure financial sites, and monitor your credit regularly.

5. Appraisal Fraud

This occurs when someone intentionally inflates (or deflates) a home’s value to sway the deal. Sometimes it’s done by shady investors working with dishonest appraisers, other times by sellers trying to justify a higher price.

How to stay safe: Work with reputable lenders and appraisers. If a number feels “too good to be true,” ask questions.

The Texas Twist: Accountability in Writing

Here in Texas, there’s an extra layer of protection against fraud. At closing, buyers are usually asked to sign a document affirming that everything stated on the loan application is true and factual.

That means:

  • If you claimed the home will be your primary residence, you’re certifying under penalty that it’s really where you plan to live.
  • If you exaggerated income, employment, or anything else, you can be held personally liable.

It’s more than just a signature — it’s a legal statement. If false, lenders can demand repayment, foreclose, and even pursue legal action.  Side note: when I am at closing with my clients, I will routinely ask the closer  if they have ever had anyone not sign and walk away.  Only once has the closer said "yes".  In fact, in that case the buyer walked away from the closing table rather than sign this document.  The buyer's closed on that home and the seller sold to someone else. 

✅The Bottom Line:
Mortgage fraud isn’t always about elaborate scams — sometimes it’s just a “white lie” on an application. But lenders, auditors, and regulators take it seriously, and the fallout can be severe.

The safest path is always honesty. If you’re unsure about how to answer something, ask your lender or your real estate agent. That’s what we’re here for — to guide you through the process the right way.

👉Thinking about buying or selling? Let’s talk. I’ll help you navigate every step of the process — safely, legally, and with confidence.