Mortgage fraud is defined as a misrepresentation, omission or misstatement relating to a potential mortgage or property that is used by a lender or underwriter to purchase, fund or insure a loan.
The motivations behind mortgage fraud cases can vary, but in some cases it is to misrepresent oneself in order to obtain and own a property. In other cases, it may be because it's possible to make a larger profit if the buyer receives a loan that is larger than what he or she could get with his or her true employment or income history.
Mortgage fraud can happen if someone flips houses, so it's important to be careful of how you do so. While it's absolutely legal to flip a house by purchasing it, fixing it up and then selling it at a higher rate, it is not legal to buy it at a low price and then have a false appraisal showing that it's worth double the price you bought it for. If you fix nothing and sell it at the higher price, that's illegal because you're misrepresenting the value of the property.
Identity theft may also be a part of a mortgage fraud scheme. In that case, someone uses a victim's identity and credit history to take out a mortgage. The individual may sell the property and make money on it that way, or she may simply take the loan without applying it toward the value of a property.
Accusations of mortgage fraud can put your freedom at risk. If you're accused of any kind of mortgage fraud, a strong defense is advisable to protect your rights.
Source: Investopedia, "Mortgage Fraud: Understanding and Avoiding It," Denise Finney, accessed Sep. 13, 2017