What Is Property Fraud?

Property fraud may occur when a borrower alters his pay stubs.
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  • Written By: Mary McMahon
  • Edited By: Nancy Fann-Im
  • Last Modified Date: 04 October 2015
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Property fraud is a form of real estate fraud where a borrower misrepresents information in order to access a loan he would not ordinarily qualify for. Borrowers can use a number of tactics and are sometimes guided into fraudulent activity by financial advisers who behave inappropriately. Measures for combating property fraud include maintaining investigators in high fraud areas, requiring lenders to scrutinize applications, and encouraging members of the public to report fraud to a government agency. Agencies concerned with housing and fraud can usually accept reports from members of the public.

In a simple example of property fraud, a borrower could misstate income or assets to quality for a large loan or a loan with better terms. The borrower might alter pay stubs, move money around to make it look like she has more assets, or get false letters of credit testifying to her creditworthiness. This can be facilitated through applying for a low documentation loan, where the borrower may be allowed to state income without providing proof. This makes it very easy to lie to get a better loan.


More complex forms of property fraud can include illegal property flipping and false appraisals. In this activity, the borrower buys property, sells it quickly, and buys a new piece of property. Flipping is not inherently illegal, but it becomes so when it is based on false information, like an artificially inflated appraisal made to make the transaction more profitable. Likewise, borrowers may use a false appraisal report to qualify for a loan that is worth more than the property.

Buyers committing property fraud may do so with the best of intentions; they want to buy real estate and they plan to repay their loans in full and abide by the terms. However, it poses a risk for lenders, as the borrower may be at a higher risk of default, and the lender will have to initiate collection proceedings if the borrower does not make good on the loan. Lenders may want to be able to charge higher interest in such settings in order to protect themselves. Property fraud can unjustly enrich the borrower at the expense of a lender, which can be grounds for a suit.

Lenders conduct careful investigations into buyers to reduce the risk of fraud. The investigation can include background checks, filing for credit information, and other measures to verify identity and authenticate any statements made by the borrower. Members of the public, including real estate agents, who are aware of property fraud should report it to a law enforcement or housing agency. The agency can check up on the situation to determine if fraud is occurring, and may take additional steps to address the matter.


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