South Florida is the nation's capital of mortgage fraud, according to the third quarter 2019 mortgage fraud report by the analytic firm CoreLogic, which found that 241 applications in the metro area of Miami, Fort Lauderdale and West Palm Beach raised red flags to lenders.
The New York metro area ranked second nationally, with 208 fraud risk applications, followed by the Los Angeles metro area with 179 suspicious applications in the third quarter.
Although South Florida leads the nation with the highest number of fraudulent mortgage applications, the third quarter number marks a 22% drop from the second quarter, when 309 applications were red-flagged for fraud.
Mortgage fraud can take two primary forms: when buyers lie about their income on a loan application, or when sellers inflate the value of their property. Examples of mortgage fraud include:
- When a buyer purchases property as an investment or rental property but states on their mortgage application that it will be the primary or secondary residence
- When the buyer inflates his or her income on the mortgage application
- When the buyer intentionally omits liabilities on the mortgage application
- When the property is fraudulently appraised at a higher value than it is worth to obtain a larger mortgage
- When the buyer acquires multiple mortgages for the same property at the same time
South Floridians most commonly falsify their loan applications to boost income levels and hide other real estate debt.
Mortgage fraud was rampant in South Florida during the housing bubble of 2005 to 2007. While those levels of mortgage fraud have dropped tremendously, South Florida loan applicants remain far likelier to manipulate the numbers than borrowers anywhere else in the country.
Some attribute South Florida's drop in fraud risk to stricter regulation from lenders, who are using more tools to mitigate against fraud, such as reviewing appraisals more closely to assess home values and ensure the asking price is not inflated.
Others believe the drop in fraud risk is a result of the South Florida market's stabilization after the recession.
In another finding, CoreLogic reports that iBuyers — Zillow Offers, Opendoor, Offerpad and other companies that make instant offers for homes — have helped lower fraud risk. The new breed of buyer, which doesn't use mortgages, accounted for more than 1 percent of all home sales in 2018.