Schemes and Scams

Over the years, we have observed many attempts by unscrupulous individuals attempting to scam home owners.  This is a brief summary of the most common.

Occupancy Fraud

If you’re a home owner, or simply own more than one property, it’s imperative that your bank statements are mailed to your primary residence each month.  If you claim one house to be your owner-occupied property, but your bank statements and other financial materials are currently going to another one of your properties, the underwriter will surely question the occupancy.  In the eyes of the bank and the investor, it doesn’t make sense for a borrower to send bank statements, cable bills, and other financial statements to a property they don’t occupy for the sheer reason it wouldn’t make sense if you didn’t live there.  This is actually a huge red flag investors look out for to avoid buying securities that are tangled up in occupancy fraud.

Flipping

Property falsely appraised at a higher value and then quickly sold.  What makes flipping illegal is that the information obtained for the appraisal is fraudulent.  Red flags include doctored loan documentation, appraisals that do not contain photographs of the interior, appraisals that do not match the home inspection report, the home inspector and the appraiser are the same, inflation of the buyer’s income, payments to investors, brokers, appraisers, title companies, or inspectors at close.  Homes subject to flipping are often times appraised at twice the market rates.  Another common problem is that the buyer, seller or other insider will ask the Title Company, Realtor, either Loan Officer, or Appraiser to increase the purchase price to “get the deal done.”  A red flag is a large Seller concession for improvement allowances that are not in proportion to the property value.  Another is when there has been a prior sale of the same property in the last year without a justification for a higher value.  Yet another may be the contract sales price, appraisal and title work are not the same respecting seller’s name.

Income Misrepresentations

Representations occur when a borrower falsifies their income or employment to qualify for a loan.  This type of misrepresentation is often associated with stated income loans and flipping.  Buyers for housing or for profit engage in this activity.  The prior engage in acts of misrepresentation to qualify for a larger home and the latter to qualify for a larger loan.  A red flag is where a buyer makes an unrealistic income in relation to their profession/occupation or a drastic increase of income due to raise or new job.

Asset Misrepresentations

A borrower or the loan officer acting on behalf of the borrower, for many of the same reasons as falsifying income, will falsify assets.  A common type of fraud is the omission of liabilities on a asset and liability form.  Either the  value of the asset column has been over estimated or the debts have been omitted to increase net worth.

Down Payment

A common practice is to take a gift from a third party, sometimes from a straw man, the seller, relative or an industry insider.  The down payment is deposited into a buyers account to show proof of funds.  False documents can also be created to show the acceptance of a down payment.  The basis for the idea is that the Lender believes that the Seller received a down payment directly from the buyer.  A common red flag is a down payment assistance program.  Many programs had excessive fees or placed restrictions on how their assistance/program is to appear on the HUD1.  If you recieved down payment assistance this could be an issue requiring immediate legal assistance.

Gifts

False gifts can include false gifts of equity, down payments, monies, or other assets to qualify a buyer for a loan.

Bank Records

Bank records and accounts can be filled with funds to show that the buyer/borrower has the income and the liquidity to qualify for the loan.  Sometimes the bank records are falsified and/or forged to deceive the lender in providing the loan.  Buyers were instructed how and encouraged to falsify the information.  In addition, you may have been asked to sign blank application  and these records were altered without your knowledge.

Seconds

The buyer of the property borrows the down payment monies from the seller in the form of a second mortgage.  These mortgages are not disclosed to the lender.  The lenders believe that the Buyer actually invested their own monies into the property as a down payment.  However, the Seller does not receive the down payment.  The second mortgage in turn, is not recorded to conceal the second mortgage.  In many instances, the second mortgages are forgiven without a single payment being received.

Nominee/Straw Buyer

This area of fraud can be confusing.  It is confusing largely because it can be misunderstood and confused with legitimate practices.  There is a fine line between utilizing investors and using a straw buyer.

Of all the “schemes” that relate to Mortgage Fraud, the use of Straw Buying is a difficult concept to understand.  The common term that is used: “investor.”  Generally, real estate investors (REI) and real estate companies run out of money and use up their credit.  Banks generally will not allow an individual to obtain more than a few loans during a specified period.  To the real estate investor, goes out to find others that would also like to get into real estate investing.  The recruits are often told that they are lending their good credit to the REI for acquiring additional properties.  Recruits are paid for the use of their credit.  The REI will often promise to renovate, rent and manage the property bought.  The idea is that the property would be sold later or would be bought directly from the recruit for a certain price.

Equity Skimming

This occurs when an investor buys a property with a straw buyer.  The investor may use false income data, false bank statements, false credit reports to obtain the loan in the name of the straw buyer.  After closing, the straw buyer then quit claim deeds the property to the investor and thereby relinquishes all rights title and interest in the property.  The investor then does not make mortgage payments and/or rents the property until foreclosure takes place a few months later.  Brokers make higher than normal commissions or may be paid outside of closing.

Inflated Appraisals

An appraiser acts in collusion with a party to the closing and prepares a false or misleading appraisal.  The report actually gives a false or inflated property value.  The Red Flag occurs when a party requires the use of a particular appraiser.

Stolen Identities

This is identity theft at a new level.  Fraudsters steal the identity of an individual and purchase homes with false identification.  The Victim is left with a mortgage that they did not know about and a debt they are obligated to pay.  Oftern they learn about this when they are served in foreclosure.

Last Minute Price Adjustments

Price adjustments are designed to increase the amount of the loan or to qualify the borrower for a loan product.  The red flags occur when the adjustments are not supported by the market comparables.  Often times, a party requests the Realtor to adjust the MLS price to reflect the “appraised value.”

Air Loan

Air loans occur where there is no collateral to secure the mortgage loan.  This generally occurs in the context of broker fraud where a broker invents borrowers and properties, starts accounts, escrows, etc… and creates a paper trail of properties and payments.

Foreclosure Scheme

These schemes commonly occur when a homeowner is in foreclosure.   The fraudster convinces the homeowner to deed over the property and charge upfront fees to save their home.  The fraudster then refinances the property and pocketing the fees. Red Flags include advertisements that can save your home.

Mortgage Debt Elimination

There is no magic recipe.  Common schemes include Bond for Discharge of Debt, Bill of Exchange, Redemption Certificate, or other terms of the sort purporting to eliminate your mortgage debt for a “nominal” or minimal fee.

Predatory Lending

Many lending schemes boil down to a few red flags.  Most borrowers are asked to borrow more than they can afford to repay.  Common types of “predatory loans” are those with aggressive balloons after a short period of time.  The borrower is told that they can refinance in a few years.  Additional red flags include signing blank documents, closing costs terms and the truth in lending forms changing before closing, rates significantly changing at close, no money down gimmick, etc...

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DIY Foreclosure Defense

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Sometimes knowledge is the best medicine.  Dever Law Firm now offers its' legal Treatise and internal training manuals to the Public.  These are the outlines and procedural manuals we use to train our attorneys and staff.

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