What is a second mortgage fraud?


Second mortgage fraud occurs when the home buyer borrows money from the seller for the down payment and the first mortgage lender knows nothing about it. This is also called a silent second mortgage.

A silent second is also a term used to signify a second mortgage in a government, state or county sponsored program - in this case the loan does not have to be repaid, or is interest-free but often the term applies for second mortgage fraudulent use.

Popular Mortgage Fraud Examples

2nd mortgage fraud is just one of the many schemes plaguing the home loan market for years. Other popular mortgage scams are:

  • Downpayment gifts that have to be repaid;
  • Stated income loans used to represent wrong information about the borrower;
  • Inflated appraisal or sale price;
  • Investors claiming owner-occupancy to get better rates.

Unfortunately, taking unrecorded second mortgage from the seller is practiced very often when borrowers are short of cash. Perhaps borrowers don't know they could use seller financing instead of concealing the facts from the first lender. If you simply borrow house purchase money from the seller using a real estate attorney to record the transaction, you are avoiding mortgage fraud.

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