7 Schemes that Scam the Mortgage Distressed

terryduschinski
September 18, 2013

On its road to recovery from the tailspin of the Great Recession, the United States housing market has become a playground for schemers and scammers. It is fertile soil for fraud. Mortgage shenanigans proliferate due to whealings and dealings of “industry insiders” — loan officers, mortgage brokers and appraisers — according to the FBI in its Financial Crimes Report for 2010-2011.¹

7 Schemes

Schemers prey on homeowners who are mortgage distressed and swindle money from mortgage lenders, point out attorneys at Dorris & Giodano PLC, via the “news and publication” section at www.dgtucson.com. The following are the most common scams perpetrated on homeowners and lenders:

1. Equity skimming. An investor offers to purchase a house in foreclosure and offers the homeowner a loan in exchange for the house and the title. The investor tells homeowners that they can buy their homes back at a later date. The homeowner transfers the title to the investor and pays “rent” to the investor. The homeowner believes that the investor is applying his rent payment toward the monthly mortgage. In reality, the investor is pocketing the rent proceeds and ignoring the mortgage. The mortgage holder forecloses on the property and evicts the homeowner.

2. Loan modification scams. Operators of a mortgage relief program tell homeowners that they can modify their mortgage loans for a fee that has to be paid upfront. The homeowner pays the fee. The operators never modify the loan and homeowners cannot get their money back.

3. Illegal property flipping. Buyers who flip houses appraise the houses at artificially high prices and provide false information to support the appraisal.

4. Builder bailout. When builders see a decline in newly constructed home sales, they find “straw buyers” to obtain a loan to purchase the property. After receiving the money, the buyer allows the home to go into foreclosure.

5. Silent second. The buyer obtains a mortgage loan but does not have the money required for the down payment. The seller agrees for the buyer to take out a second mortgage loan to make the down payment, which they negotiate down to a lesser amount. The buyer gives the seller the second mortgage loan. The loan is “silent” because the buyer does not notify the primary mortgage lender about the transaction.

6. Commercial real estate loans. Owners of commercial property who want a loan or a loan extension falsify the number of leases they actually have to show that their property is profitable. This raises the appraisal value of the property.

7. Air loans. This is called “air” because the property and the borrower do not exist. A mortgage broker creates a fictional person with a job, address, and credit history. The non-existent borrower, which is really the mortgage broker, obtains a mortgage loan. The mortgage lender loses money because no one makes mortgage payments.

Freddie Mac advises homeowners to be suspicious of anyone who guarantees a foreclosure prevention or who can work with their primary mortgage lender to modify their loan for a fee. Individuals should also be watchful of anyone who tries to recruit them to become a “straw buyer” in a fraudulent mortgage scheme.

Homeowners who have problems with making mortgage payments or who are facing foreclosure should work closely with their primary mortgage lender to resolve their issues. This can help protect them from becoming victims of mortgage fraud and losing their homes.

As a journalist, Terry Duschinki appreciates the ready sources of information such as www.dgtucson.com that expose fraudulent financial schemes.

Photo: http://www.flickr.com/photos/respres/2539334956/

¹http://www.fbi.gov/stats-services/publications/financial-crimes-report-2010-2011/financial-crimes-report-2010-2011#Mortgage