ABC’s of Mortgage Fraud

There’s an epidemic of mortgage fraud that spread during real estate boom, when the money was easy and the deals flew fast. Now many innocent people stand to lose their homes. I believe this is simply a new mask over the same greed and fraud which drove the savings and loan scandals in the 80’s. It flourishes because of cracks at every stage of the system. Let me say that I believe the programs that allowed this fraud were allowed by many of the public companies in the mortgage arena whom wanted to continue to drive corporate earnings, all the while knowing what they were creating. Here’s how it usually works. Small cartels of inside players recruit people with good credit as decoy or straw buyers. They inflate the price of a home to get a bigger loan, sometimes with the help of an appraiser. Then they pay the sellers at their original price, pocket the rest of the money as cash back at closing, and abandon the home to foreclosure.

This fraud can skew the entire real estate market. Lenders and investors lose millions of dollars in bad loans. Homeowners in targeted neighborhoods pay higher property taxes because their houses are compared to others with inflated prices. And those whose identities are used end up with their credit in ruin.

Four years ago, as the real estate market was booming, many found their way into the lucrative mortgage lending industry by becoming loan officers. It was easy enough. Loan officers don’t need licenses.

Many straw buyer who are lured by easy money for using their credit can get 6 or more mortgage approved under their name. How is that possible you may ask? Easy, accounts are not reflected on credit reports until after the first billing cycle, which can take up to 90 days. So lenders had no way of seeing the multiple debts of the straw buyers and in some cases the straw buyers themselves do not know they also are being taken advantage of, they simply agree to provide a signature and Social Security number on loan documents, in exchange for $7,000-15,000.

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The appraiser listed on the documents often value the homes at , nearly $100,000 more than similar homes in a neighborhood at the time.

Appraisals are opinions of value, so they (appraisers) can dodge that bullet.

Mortgage companies are expected to review loan applications. In midsized shops with adequate production managers in place (1 Manager per 20 Loan Officers) this is easy to not only track but to know in advance if your loan officers are committing fraud. They and many lenders such as

New Century in my opinion turned a blind eye. Mortgage fraud is common enough to affect many honest homeowners. You can’t stick your head in the sand. It affects everybody and I’ve seen to many good people now unable to refinance because of Mortgage Fraud. These are innocent home owners who took out loan programs that will be adjusting or have adjusted and they cannot now refinance because certain lenders who knew they were condoning fraud to drive profits have filed for protection.

I’ve been so dismayed by seeing first hand how good, caring people have been harmed that I myself am leaving the business within the next 90 days. While I will always be available to my past clients, this is the most corrupt industry I’ve ever seen.

Below are warning signs to safeguard you:

Red flags for a possible mortgage fraud transaction


o Be wary if a buyer offers to pay you more than the asking price for your home and wants cash back at closing for ”repairs” or “upgrades.”

o Make sure all contract stipulations not included in the official closing documents are written in by hand or added as an attachment.

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o Be on guard if your real estate agent is asked to remove or change a listing in the Multiple Listing Service.

o Be suspicious of buyers or agents who show interest only in the closing, not in the property itself.

o Question any last-minute changes to the sales contract.

o Remember: If you accept an incentive to cooperate with a fraudulent buyer, you could also be held liable. Also, you could be on the hook for taxes on profits from the documented sale, not the actual sale.


o Beware of real estate ”investment opportunities” that involve receiving money to buy property in your name.

o Many lenders require that cash back at closing be no more than 3 percent of the loan amount.

Do you suspect fraud in your neighborhood? Here are some red flags.

o The house has multiple owners over several years who never occupy the property, or sporadically rent it to tenants.

o The house is never listed for sale but is repeatedly sold for higher and higher values, only to fall into foreclosure within a year. It may fall into disrepair.

o The house is valued higher than similar homes on the block.

Do your own research:

o Find out who owns a house and its last sale prices.

o Get the name of the current owner and check county records. There you can search property records by name. In straw borrower schemes, one person often buys several homes within one to three months, usually for nearly 100 percent financing. Ask your Mortgage professional to provide you a property profile, this is a free service.

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o In the public records, look at the warranty deed used to transfer the property, mortgages taken out to buy the home, and foreclosure filings, which will appear as Lis Pendis.