3. Property flip fraud
A fraudulent property flip is a scheme in which individuals, businesses, and/or straw borrowers, buy and sell properties among themselves to artificially inflate the value of the property.
Best practices for fraud prevention:
- Closely analyze the borrower’s financial information for unusual items or trends;
- Independently verify employment and income;
- Employ a post-closing review to identify any inconsistencies;
- Establish a periodic independent audit of mortgage loan operations;
- Periodically conduct physical verification of the location and condition of selected subject properties and comparables;
- Monitor real estate market values in areas that generate a high volume of mortgage fraud loans or where concentrations exist;
- Review the appraisal’s three-year sales history to help identify property flipping;
- Perform pre-funding reviews of appraisals and evaluations;
- Establish an employee-training program addressing common mortgage fraud schemes, appraisal standards, and appraisal valuation techniques; and
- Implement a “watch” list and monitoring systems for appraisers that exhibit suspect practices.
4. Reverse mortgage fraud
Reverse mortgage fraud involves a scheme using a reverse mortgage loan to defraud a financial institution by stripping legitimate or fictitious equity from the collateral property.
Guard against this type of fraud by:
- Obtaining a title search and review for the types of property titles shown, type of deed transferred, the owner of record, the dates of deed transfers, and amounts and dates of any prior mortgages; and
- Obtaining information on the borrower’s previous address and length of residence at the previous address. Determine whether the address is associated with governmental housing, homeless shelters, or group homes.
Straw borrowers are often recruited from such housing and then used by the perpetrators to meet borrower age requirements in the program.
Next: Short sale fraud