Lending

Five More Mortgage Fraud Schemes

Mortgage fraudsters are dedicated to their craft.

August 24, 2010
KEYWORDS fraud , mortgage
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5. Short sale fraud

Fraud occurs in a short sale when a borrower purposely withholds mortgage payments, forcing the loan into default, so an accomplice can submit a “straw” short-sale offer at a purchase price less than the borrower’s loan balance.

Sometimes the borrower is truly having financial difficulty and is approached by a fraudster to commit the scheme. In all cases, fraud is committed if the financial institution is misled into approving the short-sale offer when the price isn’t reasonable and/or when conflicts of interest are not properly disclosed.

Best practices for prevention:

  • Establish a short-sale policy and review/approval process;
  • Obtain an appraisal or evaluation to determine the property’s market value;
  • Determine if the sales transaction is arms length, and identify common surnames, telephone numbers, addresses, etc.;
  • Obtain sworn statements from all parties, including the real estate agent, that the transaction is a true sale and the parties don’t know each other;
  • Require the seller to vacate the property and certify that the seller will not occupy the home again for five years;
  • Inform the seller that occupancy checks will be performed periodically;
  • Verify the borrower’s reason for financial hardship (unemployment insurance, medical payments, divorce, etc.); and
  • Include the FBI Mortgage Fraud Notice in loan documents.

Property Flipping

Mortgage Loan Broker
August 27, 2011 11:50 pm
Unfortunately, this happens all too often. Borrowers, buyers and sellers must always be aware of with whom they do business.


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