Mortgage fraud is a growing threat to homeowners and businesses, according to the Federal Bureau of Investigation.

With the changing housing landscape come new schemes. Foreclosures and delinquencies have soared over the last few years, and the FBI says that has resulted in an increase in mortgage fraud schemes against distressed homeowners. New original loan fraud investigations, on the other hand, have dropped since there was a decrease in new mortgages in 2011.

Mortgage fraud schemes have “some type of material misstatement, misrepresentation, or omission relating to a real estate transaction which is relied on by one or more parties in the transaction,” according to the FBI website. It can include foreclosure rescue and loan modification frauds and illegal property flipping. Those accused of committing the crimes can be bank officers, appraisers, mortgage brokers, attorneys, loan originators or borrowers.

Cindi Dixon, CEO of Mela Capital Group,a mortgage quality control risk management firm, says the most common frauds continue to be income and employment misrepresentation and occupancy fraud — where there is deception about whether a home is owner-occupied or an investment property.

However, over the last 12 to 18 months, she’s also seen trends in mortgage fraud emerge. They include land-title lien fraud, which involves liens that are recorded fraudulently on properties and illegal transfers of ownership, and organized crime fraud, which involves organized fraud rings purchasing properties under straw-buyers names and using the homes for crimes like drug and human trafficking and credit card manufacturing. False identity use to purchase a home is also growing, she said.

Dixon thinks many of the frauds are driven by the market conditions.

"With economic downturns people struggle to maintain current income levels. This leads to new and creative ways of supplementing income and exploiting the system for profit," she said.

Dixon noted that 15 percent of the overall frauds are committed by an individual homeowner or home-buyer, and 85 percent tend to involve some type of insider collaboration that can include the real estate agent, mortgage broker, banker or other person involved in the mortgage process.

For a look at the top states in the U.S. for mortgage fraud, CNBC analyzed the most recent data from the FBI and the Treasury Department’s Financial Crimes Enforcement Network (FinCEN).*

So what are the top states for mortgage fraud? Click ahead to find out.

By Michelle Fox
Posted 2 April 2012

Note: The FBI’s mortgage fraud index looks at the areas most affected in 2010. It incorporates a number of indicators, including statistics from the FBI, the Department of Housing and Urban Development-Office of Inspector General, FinCEN, LexisNexis-Mortgage Asset Research Institute, Interthinx, Fannie Mae, Radian Guaranty, CoreLogic, the U.S. Census and Department of Labor. The index ranges from 1 (best) to 100 (worst).

*FinCEN’s most recent statistics focus on suspicious activity reports (SARs) filed in the third quarter of 2011. SARs are filed by financial institutions against a person thought to be conducting suspicious activity. The reports were filed between July and September 2011, and the suspicious activity occurred on or after January 1, 2009.

Mortgage Fraud Index: 20 out of 100

Located outside the nation’s capital, Maryland has an estimated 5.8 million people living within its borders. Sixty percent were homeowners between 2006 and 2010, according to the Census Bureau.

In the third quarter of 2011, 153 people were the subject of suspicious activity reports.

Mortgage Fraud Index: 25 out of 100

Sandwiched between New York and Pennsylvania, New Jersey is only 7,300 square miles but is home to more than eight million people. Sixty-nine percent owned a home between 2006 and 2010.

Between July and September 2011, 247 people were suspected of mortgage fraud in New Jersey.

Mortgage Fraud Index: 27 out of 100

In Georgia, 177 people had a suspicious activity report filed against them in the third quarter of 2011.

One trend that’s emerged in Georgia is the builder bailout scheme, Dixon said. It is a complex fraud that involves builders in need of paying off lenders on unsold homes. They “attempt to creatively disguise a fraudulent home sale as a legitimate transaction, colluding with real estate appraisers, mortgage loan brokers, and settlement agents,” according to Freddie Mac’s website.

Mortgage Fraud Index: 42 out of 100

More than 19 million people live in the state of New York, which has a mortgage fraud index of 42. Some 510 people in the state were the subject of suspicious activity reports filed in the second quarter of 2011.

Dixon sees various types of mortgage frauds occurring in the state but said there tends to be a lot more property-related appraisal frauds in New York City. For example, two-unit homes that are appraised as one, or homes that have had illegal additions.

Mortgage Fraud Index: 42 out of 100

Michigan is not only in the top 10 states for mortgage fraud, it also ranks high when it comes to foreclosures. According to RealtyTrac,the state has a foreclosure rate of 2.21 percent.

Between July and September 2011, 212 people were suspected of mortgage fraud activity.

Dixon says land-title lien fraud has been on the rise in Michigan over the last two years. That includes fraudulent liens filed on properties and illegal transfers of ownership involving identity theft.

Mortgage Fraud Index: 53 out of 100

Illinois is another state that has been hit hard with foreclosures. It has a rate of 1.95 percent, according to RealtyTrac. In the second quarter of 2011, 383 people in the state had suspicious activity reports filed against them.

One of the trends Dixon sees emerging in Illinois is organized crime fraud, where properties are bought under straw-buyer names and are then used for illegal activities such as drug trafficking.

Mortgage Fraud Index: 57 out of 100

Arizona had the second-highest foreclosure rate for 2011, according to RealtyTrac. One in 24 homes had at least one foreclosure filing for the year. The state also has the third-highest mortgage fraud index on the FBI’s mortgage fraud report. Between July and September 2011, 207 individuals had suspicious activity reports filed against them.

Like Georgia and Nevada, Arizona has also seen an increasing number of builder-bailout scams, Dixon said.

Mortgage Fraud Index: 61 out of 100

Best known for the casinos of Las Vegas, Nevada has seen its share of housing troubles. In fact, it is the hardest-hit state when it comes to foreclosures, according to RealtyTrac. One in 16 homes had at least one foreclosure filing in 2011.

In the third quarter of 2011, 117 people in Nevada were the subject of mortgage fraud reports.

Builder-bailout scams is an emerging trend in Nevada, Dixon said, as well as appraisal valuation fraud, which entails a misrepresentation of the appraised value of a property.

Mortgage Fraud Index: 94 out of 100

More than 37 million people live in California, and about 57 percent owned a home between 2006 and 2010. Between July and September 2011, 1,871 people had suspicious activity reports filed against them.

Dixon says the state “has a lot of everything” when it comes to mortgage fraud.

“It depends on the region,” she said. “Property values took such a hit over the last couple of years.”

Identity theft is one common fraud in the state, she said, with people using false names to close on homes.

Mortgage Fraud Index: 100 out of 100

Florida, like many other states, was hit hard with foreclosures and short sales, which is when a house is sold for less than the mortgage balance. In 2011, it had a foreclosure rate of 2.06 percent, according to RealtyTrac. Some 702 people were the subject of suspicious activity reports in the third quarter of 2011.

Dixon says that thanks to all the short sales on the market, there has been a sort of “mini-real estate boom” going on. Because of that, there has been a rise in short sale valuation fraud — where real estate brokers don’t disclose higher offers on the house to the bank because they are working with someone else to get it at a lower price. After the house is sold, the property is put back on the market at a higher price. Florida also has seen land-title lien frauds and organized crime frauds emerging as trends, Dixon said.

“American Greed” has a whole new season of scams and schemes. Some people really will do anything for money.

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