Gina Branch

In Part Two of the series, I presented four types of Fraud for Profit Schemes. In Part Three, I will present the final four types.

Inflated Appraisals – An appraiser purposely completes an appraisal based upon false or misleading date in order to over- or under-state the value of the property. This scheme usually involves the buyer, loan officer, or real estate agent and their knowledge of the misrepresentation.

Foreclosure Schemes – A person offers to assist an underwater or preforeclosure homeowner. The scheme almost always involves transferring the deed to the property. The homeowner is usually asked to pay substantial upfront fees for the service.  The person pockets the up-front fees and then quickly sells the property. The homeowner is left without recourse since they no longer own the home.

Equity Skimming – This scheme almost always involves an investor. The investor uses a straw buyer to purchase the property. Shortly after closing the straw buyer signs a deed transferring ownership to the investor. The investor makes no mortgage payments but rents out the property collecting the rent until the property is foreclosed upon.

Air Loans – The scheme has no real property and no real buyer. Both are imaginary and devised, almost always by a mortgage broker. The broker originated the loan on behalf of the lender with the intent to generate profit from the fraudulent mortgage. After closing, no payments are made on the loan and the lender is left with nothing to foreclose on.

While much has changed in the past few years, many of these schemes are alive and well. We recently had a client who lost their home to foreclosure. They were approached by a Loan Modification Company who offered to file a lawsuit to stop the foreclosure. As part of the deal, the homeowner was to pay them $2500 and sign over the deed to the property. Thank goodness they called me prior to going ahead with the deal!

As an NMLS licensed Mortgage Loan Originator, I did my eight hours of annual continuing education today.  While much of it was specific to the lending community, I found the section on mortgage fraud trends to be very interesting and applicable to a broader audience of real estate professionals.  This blog will be the first in a three-part series on Mortgage Fraud Trends.

There are two kinds of fraud categories:  Fraud for Housing and Fraud for Profit.

Fraud for Housing takes place when a buyer commits fraud so they can purchase a home for their personal use. The fraud is committed though forged/altered documents or otherwise leading the lender to believe they have the income or assets needed to purchase the home. Some buyers are helping out family members and purchase the home as their residence but intend for a family member to reside and make the mortgage payments.

Fraud for Profit schemes usually involve multiple individuals such as appraisers, lenders, real estate agents, and closers. The intent of these fraud rings is to make a profit through inflated appraisals or fraudulent documents/identities.

The FBI has identified eight different kinds of Fraud for Profit Schemes in today’s real estate market:

• Property Flipping
• Silent Seconds
• Nominee/Straw Buyer Loans
• Fictitious/Stolen Identities
• Inflated Appraisals
• Foreclosure Schemes
• Equity Skimming
• Air Loans

The Federal Bureau of Investigation (FBI) typically does not investigate Fraud for Housing but has stepped up enforcement of Fraud for Profit rings.

In the next part in the series, I’ll cover the first four Fraud for Profit Schemes.