Fraud Red Flags

REAL ESTATE FRAUD SCHEMES
Builder Bailout: These schemes are perpetrated by Buy and Bail: This scam has become increasingly
builders that are unable to sell newly constructed popular during the recent recession and involves homes
properties. The builder inflates the purchase price by purchased prior to the bursting of the real estate bubble
offering fake down payment assistance, or by using shell that are now worth less than the outstanding debt. In oth-
affiliates or straw buyers. As a result of the inflated er words, the homes are now “underwater”. While still
purchase price the loan-to-value ratio of the new mortgage current in their mortgage payments the homeowner
will exceed 100%. This scheme creates a false impression identifies a similar home with a much lower purchase
that the builder is able to successfully sell units in the price. The homeowner obtains financing to purchase the
project, while also leaving the lender with loan exposure new home while falsely saying that the existing home will
that is greater than the actual value of the property. be rented out. Shortly after purchasing the new home no
more payments are made on the prior home, which
Chunking: As the name implies, this scheme involves ultimately enters foreclosure.
multiple properties or mortgage loans that are “chunked”
together. While acting as a realtor, Double Selling: Double selling involves a conspiring
or in some other capacity as an mortgage broker or loan officer. The loan officer obtains
agent, the scammer convinces an in- a potential borrower’s personal information to obtain a
nocent buyer to purchase a property. The scammer ob- mortgage loan. The loan officer then copies the loan
tains the buyer’s personal information in order to obtain application and sends it to several different warehouse
the loan. Without the buyer’s knowledge the scammer lenders asking that they fund the loan. All of the closings
submits their personal information to several different are scheduled within a few days of each other so that each
lenders and for several different properties, not just the lender is unaware of the transactions. Each of the
property that the buyer knows about. Another key ele- different funding lenders ultimately have competing loans
ment of a chunking scheme is that the scammer, against only one property.
or an affiliate of the scammer, is the seller of all
of these properties. The closings ultimately oc- Fictitious Loan: A bank insider or mortgage
cur on all of the properties and the scammer pockets all of broker creates a fake loan application using a real per-
the proceeds. The innocent buyer is left with several son’s identity. The loan is funded and the
“seller” receives proceeds for a property that does not
Equity Skimming (or equity stripping): A false
appraisal, inflated purchase price, an unrecorded lien, or Modification and Refinance Fraud: A borrower
any combination of the three, are used to get quick cash. that is attempting to refinance or modify their existing
After creating fake equity, or eliminating any real equity loan intentionally understates income information, or
that the property may have, the fraudsters take off with misleads the lender to believe that the property is the
the money and let the property go into foreclosure. primary residence, in order to persuade the lender to
accept the modification or refinance on terms that benefit
Mortgage Servicing Fraud: When a mortgage the borrower.
servicing company diverts principal, interest or escrow
funds from the underlying lender and retains those funds Phantom Sale: A fraudster identifies a property, which
for its own use. is typically abandoned, and then files a false deed that
transfers the property to the fraudster or a co-conspirator.
Property Flip: Related parties buy and sell the same The scammer then applies for a mortgage loan, or conveys
property to one another, and then obtain fraudulent the property to a co-conspirator, and then pockets the loan
appraisals as a way to artificially inflate the property val- proceeds or sale proceeds.
ue.
Short Sale Fraud: A property owner engages a
Reverse Mortgage Fraud: A fraudster obtains title co-conspirator to make an artificially deflated offer to
to property and then deeds the property to a fake purchase. The short sale lender, believing that the
individual that qualifies for the age requirements of a co-conspirator’s offer is bona fide, accepts the lower
reverse mortgage. The fraudster then obtains the “lump purchase price, resulting in a greater loss than would have
sum cash out” reverse mortgage option, or receives been experienced had the conveyance involved a true bo-
monthly payments from the lender until the scam is na fide purchaser.
identified.
Click HERE to REPORT FRAUD

or visit www.invtitle.com/suspected-fraud-notification
REAL Estate FRAUD Red Flags
DESKTOP REFERENCE
1. Documentation includes deletions, correction fluid, or other alteration
2. Different handwriting or type styles within a document
3. Buyer currently resides in subject property
4. Seller is not currently reflected on title
5. Buyer is not the applicant
6. Buyer(s) deleted from/added to sales contract
7. Power of Attorney is used
8. Owner is someone other than seller shown on sales contract
9. Purchase price is substantially higher than predominant market value
10. Purchase price is substantially lower than predominant market value
11. Title Work Prepared for and/or mailed to a party other than the lender or attorney
12. Evidence of financial strain may indicate a compromised sale transaction (flip, foreclosure
rescue, straw buyer refinance, etc.), or might suggest undisclosed credit problems in the case
of a refinance
a.Income tax, judgments or similar liens recorded
b.Delinquent property taxes
c.Notice of default or modification agreement recorded
13. Seller owned property for short time
14. Buyer has pre-existing financial interest in the property
15. Date and amount of existing encumbrances appear suspicious
16. Chain of title includes an interested party such as realtor or appraiser
17. Buyer and seller have similar names (property flips often utilize family members as straw
buyers)
18. Borrower or seller name is different than on sales contract and title
19. Payouts to unknown parties or parties not providing real estate related services
20. Refinance pay offs for previously undisclosed liens
21. Short sale offer is from a related party
22. Numbers on the documentation appear to be “squeezed” due to alteration
23. Loan purpose is cash-out refinance on a recently acquired property
24. Earnest money deposit equals the entire down payment, or is an odd amount
25. Real estate commission is excessive
26. Down payment source is other than deposits (gift, sale of personal property)
27. Significant or unrealistic commute distance
28. Excessive sales commissions
29. Excessive fees and/or points
30. Cash proceeds to borrower are inconsistent with final application and loan approval
31. Cash-back at closing to the delinquent borrower, or disbursements that have not been
expressly approved by the servicer
32. Buyer is reluctant to bring good funds to closing
33. Lender or broker request changes, not in writing, which are contrary to written closing
instructions
Click HERE to REPORT FRAUD

or visit www.invtitle.com/suspected-fraud-notification

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REAL ESTATE FRAUD SCHEMES

Click HERE to REPORT FRAUD

Click HERE to REPORT FRAUD

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