One of the black spots in the decade long housing boom has been the rise in mortgage fraud.

There are all kinds of mortgage fraud out there:

  • Bad apple lenders who draw up fake documents or encourage applicants to falsify applications;

  • Lenders who promise to help homeowners with their financial properties, get the homeowner to sign over the deed to the house AND pay a fee, but never refinance their mortgage or do anything to help;

  • Bad lenders work in cahoots with bad appraisers who fake data and falsify appraisal reports, making a property seems much more or less valuable than it is. Sometimes these folks work in cahoots with real estate agents as well. The quick and dirty name is “Appraisal Fraud;”

  • Predatory lenders who tell homeowners they have lousy credit (even if they have perfect credit scores), steering them into refinancing perfectly good loans with equity-eating loans with credit card interest rates.

And then there is a new kind of mortgage fraud called “bailout” or “rescue” fraud. In these schemes, mortgage lenders offer to help financially troubled homeowners and then take ownership of the property while the original owner is left on the mortgage.

NTIC, a Chicago-based nonprofit community organization has identified “bailout” or “rescue” fraud as the newest form of mortgage fraud. There are plenty of books that describe how to do bailout or rescue mortgages — and it’s perfectly legal, if you actually go about helping someone.

But who really gets helped?

Yesterday, Illinois Attorney General Lisa Madigan announced that the state would go after two firms that she says duped homeowners out of property worth nearly half a million dollars. She also talked about other legislation aimed at containing and ultimately preventing “bailout” and “rescue” fraud.

To read more about mortgage fraud and some of the eye-popping things that are going on, check out David Jackson’s thorough reporting at While you’re there, check out the two stories I did for WGN-TV in November 2005.

I really believe that the more people know about mortgage fraud, and the many different forms it takes, the less likely they’ll be caught in its growing web.

Published: Jan 31, 2006