Affinity Fraud
Air Loan
Asset Rental
Builder Bailout
Cash Back at Closing
Chunking
Credit Enhancement
Credit Partner
Deed of Trust
Discharge
Double Property Sale
Equity Skimming
Flipping
Foreclosure Rescue
Fraud for Housing
Fraud for Profit
Fraud for Property
Identity Misrepresentation
Identity Theft
Inflated Appraisal
Mortgage Elimination
Mortgage Fraud
Mortgage Fraud Blog
Mortgage Satisfaction
Ponzi Scheme
Predatory Lending
Professional Identity Theft
Pyramid Scheme
Reconveyance
Shell Company
Silent Second
Straw Borrower
Straw Buyer
Straw Seller
Affinity Fraud
Any of a number of scams that prey on an identifiable group of people, including minorities or church groups.
Air Loan
Financing that has been approved based entirely or almost entirely on fabrications, including borrowers’ identities, title work, pay stubs, bank statements, tax returns and appraisals. Often the property which collateralizes the loan does not exist.
Asset Rental
A service that enables a borrower to ‘lease’ assets, including savings and investment accounts, to make it appear as if the borrower has sufficient assets to make a down payment or meet reserve requirements to qualify for a loan. Often also used to fraudulently prove that a person has a sufficient net worth to meet financial capacity for other purposes, for instance bonding or licensing.
Builder Bailout
A mortgage fraud scheme utilized by a builder or contractor in order to relieve itself of the burden of high interest construction loans. Builder bailouts become prevalent during declining real estate markets as real estate prices decrease and builders are unable to sell existing inventory. Bailouts can take many forms and involve numerous different types of fraud including submitting false certifications of work completed in order to pass inspections or obtain construction draws, selling homes to the builder’s employees or to straw buyers in order to convert construction financing to permanent financing and selling unfinished homes or vacant lots as completed homes.
Cash Back at Closing
Unauthorized funds that are given to the property buyer or one of the real estate professionals at or after the closing of a purchase money mortgage transaction. A purchase money transaction that results in cash to the buyer at closing (other than by way of an escrow overage or a standard commission rebate) generally involves fraud as lenders do not allow a buyer to receive money at closing. Cash to be kicked back at closing is generally hidden from the lender and the loans are often based on inflated appraisals.
Chunking
A real estate investment scam that is typically run through ‘get rich quick’ real estate seminars. The organizers of the seminars offer the student investors offer a no-hassle real estate investment whereby the organizers will locate great real estate deals, arrange for mortgages, handle any necessary property rehabilitation, locate and place tenants, collect rents and handle the mortgage payments. The investor is promised cash flow without any real effort. In these scams, the organizers generally purchase (or arrange for control of) properties that they ‘sell’ to the investors at prices much higher than the amount paid by the organizers – and generally much higher than the actual value of the properties. The investors sometimes get cash back at closing. The organizers do not handle the details as promised and the properties generally end up in foreclosure. Instead of a no-hassle cash flow, the investors end up with ruined credit and houses that are vacant and unsaleable. There have been cases where the organizers have purchased multiple homes (upwards of 100!) in the name of an investor, without the investor’s knowledge or consent.
Credit Enhancement
Artificially increasing a credit score. This can be accomplished through piggybacking on another person’s good credit score. Several internet based companies offer credit enhancement services and market the services directly to loan officers.
Credit Partner
A person that applies for an obtains a mortgage loan but has no intention of actually being responsible for the loan. The credit partner is paid a fixed sum of money to sign the loan documents and the owning partner is expected to be responsible for the payments and the loan. It is a federal crime to act as a “˜credit partner’ on a mortgage loan.
Deed of Trust
A mortgage instrument. Some states have mortgages and others use deeds of trust. In states where deeds of trust are utilized, when a loan is taken out, a nuetral third party (usually a title company) obtains bare legal title to your property as truste by way of the deed of trust. The Trustee holds the power of sale can can sell the property at a foreclosure sale if the loan is not paid.
Discharge
A document that is recorded in the public records that indicates that a mortgage has been paid off and clears the title to the property of the lender’s lien. Also known as a Mortgage Satisfaction.
Double Property Sale
Selling the same piece of property to two different buyers without their knowledge.
Equity Skimming
A type of foreclosure scheme whereby the fraudster gains control of a home in foreclosure and steals the equity in the property from the owner under the guise of helping the homeowner avoid foreclosure.
Flipping
Purchasing property at a low price and quickly reselling it for a higher price. Legitimate house flippers generally obtain good prices on houses in need of repair, rehabilitate the homes and sell them for a profit. Flipping becomes illegal when it involves an inflated appraisal and a mortgage loan that is funded based upon an inflated valuation. Illegal flipping scams cause significant losses to the lending industry.
Foreclosure Rescue
A type of equity skimming where ‘rescuers’ approach homeowners who are facing foreclosure and promise the homeowner that the home can be saved from foreclosure. While there are a number of different ways that rescuers offer to save homes, from sale and leaseback transactions, to offers to obtain a new loan for the homeowner or where they induce the homeowner to quitclaim the property to the rescuer or a third party investor. The commonality in these schemes is that the homeowner eventually loses the home – either to foreclosure or to the rescuers.
Fraud for Housing
Lying in order to buy a house. Fraud for housing is committed anytime a person who intends to make the payments on the loan, misrepresents any information in order to obtain a mortgage loan or to obtain a better interest rate on a mortgage loan. Fraud for housing, also known as fraud for property, generally involves between one and four houses. The misrepresentation may involve the borrower’s income, employment, credit score or intent to occupy the property. The main purpose of the fraud is to obtain ownership of the home or a refinance loan.
Fraud for Profit
Any mortgage fraud scheme where the primary object of obtaining mortgage loans is to make a profit other than through the natural appreciation of the underlying property. In fraud for profit, the perpetrators don’t intend to make the mortgage payments – the intent is to flip the property, refinance the loan or eventually default. Fraud for profit schemes generally involve inflated appraisals and the borrowers are often paid money to act as the buyer in the transaction (also known as straw borrowers.
Fraud for Property
Lying in order to buy a house. Fraud for property is committed anytime a person who intends to make the payments on the loan, misrepresents any information in order to obtain a mortgage loan or to obtain a better interest rate on a mortgage loan. Fraud for property, also known as fraud for housing, generally involves between one and four houses. The misrepresentation may involve the borrower’s income, employment, credit score or intent to occupy the property. The main purpose of the fraud is to obtain ownership of the home or a refinance loan.
Identity Misrepresentation
The use of one or more elements of another person’s credit in order to obtain financing.
Identity Theft
Assuming the name and personal identifying information of another person for the purpose of obtaining credit.
Inflated Appraisal
A property appraisal that intentionally arrives at an opinion of value that is higher than the actual value of the property. Inflated appraisals are commonly used in mortgage fraud schemes. Different methods are used to support the value conclusion in an artifically inflated appraisal including use of inappropriate comparable properties and misrepresentation of data about the subject property or comparables.
Mortgage Elimination
A fraudulent scheme whereby the perpetrators offer to eliminate mortgage debt without actually paying the mortgage off. These schemes take various different forms. A common type is the presentment scheme where the organizers claim that the debt is somehow illegal and that they can legally get rid of the debt by sending paperwork to the bank that the bank is obligated to respond to. After the bank fails to properly respond, the organizers file documents releasing the mortgage or deed of trust. While the people that sign up for these programs are often convinced by the release papers they receive, they are not valid documents and don’t actually affect the bank’s right to foreclose. Another common scheme is actually just a pyramid scheme – borrowers are told to send in a couple thousand dollars which will be used to pay off the mortgage of the person who brought them to the “club.” As with all pyramid schemes, the participants are promised that their mortgage will be paid off by the lower tier members. Anyone who is ever enticed by a pyramid scheme need only “do the math” to determine that the world’s finances and population would be depleted long before their mortgage came up for payment!!
Mortgage Fraud
A material misstatement, misrepresentation or omission upon which a lender or insurer relies in extending credit and without which the lender would not have extended the credit or would not have extended credit on the same terms.
Mortgage Satisfaction
A document that is recorded in the public records that indicates that a mortgage has been paid off and clears the title to the property of the lender’s lien. Also known as a discharge.
Ponzi Scheme
A fraudulent investment scheme whereby the organizers offer unrealistic rates of return on investments. Rather than actually making investments and paying investors from the return, the organizers use money invested by later investors in order to pay ‘returns’ to the earlier investors. Ponzi schemes always collapse.
Predatory Lending
Lending practices that are unethical and harm borrowers. These include excessive loan origination fees, bait and switch schemes and undisclosed loan terms.
Professional Identity Theft
Stealing the identity of a real estate professional for use in a real estate transaction. Professional identity theft is generally used in mortgage fraud cases to create false required documents such as appraisals or title documents.
Pyramid Scheme
A nonsustainable business model that generally promises participants payments for enrolling other people in the scheme rather than offering payment as a result of the sale of goods or services.
Reconveyance
A document that is recorded in the public records when a deed of trust is paid off. The reconveyance transfers the bare legal title held by the trustee back to the homeowner.
Shell Company
A company that doesn’t actually engage in any business but rather is just created to receive or launder funds from a fraudulent transaction.
Silent Second
A second position mortgage that is not disclosed to the senior lender and which is not recorded until after the first position mortgage has been recorded. Silent seconds are often used to disguise the fact that the home buyer has borrowed the down payment.
Straw Borrower
A person that applies for an obtains a mortgage loan but has no intention of actually being responsible for the loan (in other words, another person is expected to make the payments and be the party responsible to the lender on the loan.) Straw borrowers are often paid to act as the borrower. Acting as a straw borrower or ‘credit partner’ is a federal crime.
Straw Buyer
A person that purchases a home but has no actual intention of owning the home. Straw buyers are often paid for their participation in mortgage fraud schemes. Also referred to as Accomodation Parties.
Straw Seller
A person that is hired to take title to and sell a house in name only in order to conceal the identity of the actual seller. Straw sellers are often used as intermediaries in fraudulent transactions so that the ringleaders can keep their names off of the documents. Unfortunately, straw sellers often have a difficult time convincing the federal authorities that they were not the guilty parties.