My company offers its originators ongoing advice on Mortgage Fraud Prevention.
Here is detailed information on some of the various schemes prevalent in the real estate industry today that may benefit everybody. Many of the six schemes identified below have been around in some form or another and are certainly not all inclusive - but are quite likely occurring in your market area.
1. AIR LOANS: A swindler invents borrowers and properties to obtain loans. The perpetrator may set up phones and pose as borrower, employer, appraiser and credit agency when the lender calls to verify employment, income and credit.
RED FLAGS:
1. Application completed or forwarded by someone other than the borrower.
2. Employment and address discrepancies between credit report and app lication.
4. Applicant requests to use their own appraiser
2. SELLER BAILOUT: A very common scheme in weak markets (values are soft or declining) where sellers (primarily builders and developers) are finding it difficult to sell their properties at the cost of construction or to obtain their expected equity. Appraisers are recruited to over-appraise properties using older comps, etc. Buyers are recruited to purchase properties at a higher sales price with significant cash kickbacks at closing to buyers. These kickbacks may or may not be disclosed on the HUD I.
RED FLAGS
1. Buyers are not "typical" real estate investors and are not well informed on the details of the investment property they are purchasing.
2. Appraiser appears to be well connected to seller.
3. Documentation for loan may be atypical for a purchase transaction.
4. Financing denied by another lender and reason appears suspect.
5. Source of down payment may be not appropriately documented.
6. Unusual Inquiries to loan officers asking about policies on seller credits.
3. CHUNKING: A swindler holds a seminar promising to show investors how to get rich buying property with no money down. Using the investors' personal information, the swindler submits multiple mortgage applications, pocketing the loan proceeds.
RED FLAGS:
- Requests for fast closings on multiple loans.
- Income appears inflated on stated income
- Person other than borrower heavily involved in application process
- Stated Assets or VODs used from one bank on multiple loans
4. DOUBLE SALES: A swindler can record a deed, arrange a loan, and before those transactions show up in the computer, file another deed and arrange another loan. Weeks can pass between the filing of a property record and its appearance in computerized registries used by title-search companies.
RED FLAGS
1. Multiple new mortgage loans on credit report
2. Request for rush closing.
3. Unusual concern by borrower in details of mortgage process.
5. HOME IMPROVEMENT CONS: A contractor talks the homeowner into making costly or unnecessary repairs. The contractor loans the homeowner money for the job or steers him to a mortgage lender, then has the loan proceeds sent directly to the contractor. When the loan forecloses, the contractor can end up taking the house or part of the sale proceeds from it.
RED FLAGS
1. Cash out proceeds where title company is directed by another entity to pay proceeds of loan to someone other than the borrower.
2. Borrower does not appear well informed on reason for applying for loan. May be elderly person with considerable equity in property.
6. STRAW BUYER: The swindler pays a person, often a friend or relative, for the use of his name and credit history to use in applying for a loan. This is similar to an AIR LOAN but typically involves the borrower getting paid for the use of his/her name and credit history.
RED FLAGS
- Borrowers who appear to be "steered" by seller or realtor or another entity on all details of transaction.
- Borrowers who appear to not ask typical questions or refer your questions to another party in the transaction.
- Purpose for purchasing home appears to be atypical (not in borrower's area for investment purposes or in borrower's price range).
As elaborate as they may appear, most of these schemes become readily apparent when the Loan Officer asks the right questions during the interview process and follows up with the right questions when something does not appear legitimate.
The challenge is identifying a conspiracy scheme when more than one person is involved particularly when they are industry professionals. The best fraud artist is an industry player because they know how to manipulate the system.
Everybody involved in a real estate transaction, professionals and consumers alike, should be mindful of these schemes and work to prevent fraud and protect the system.
;)
Links;)
Archives
Posted by 
Brian,
Incredibly helpful! I agree, everyone involved in a real estate transaction needs to be mindful of mortgage fraud. A local agent that I know fell victim to a fraud many years ago and still has to deal with issue.