Common Fraud Schemes Flashcards
Strawbuyers
Are loan applicants used by fraud perpetrators to obtain mortgages, and are used to disguise the true buyer or the true nature of the transaction.
Give examples of ways you can know whether a straw buyer is in play:
Mortgage payments are made by and entity other than the borrower.
The loan is usually an early payment default.
First-time home buyer, with a substantial increase in housing expense.
Air loan
An air loan is exactly what you might think it is, a loan that has a straw or non-existent buyer, or a non-existent property.
Give examples of ways you can know whether a loan is an air loan.
Air loans typically involve straw buyers, so any signs of a straw buyer could be a sign of an air loan.
No real estate agent is employed.
Common payer among loans in the scheme.
Illegal property flipping occurs when…
Property is purchased and resold quickly at an inflated price, utilizing fraudulently inflated appraisals.
Give examples of illegal property flipping.
Flips typically involved straw buyers, so refer to straw buyer red flags.
Flips sometimes involve naive purchasers.
Seller very recently acquired title or is acquiring title concurrent with the subject transaction.
Chunking
Is the sale of properties at artificially inflated prices, pitched as investment opportunities to naive real estate investors who are promised improbably high returns and loan risks.
A few characteristics of chunking are:
Real estate agent is employed.
Property was recently in foreclosure or acquired at REO sale at a much lower sale price.
Borrower may have paid a membership fee to participate in the “club.”
What is a builder buyout?
In this situation, a builder with several unsold units is a subdivision, condominium complex, or other development utilizes various fraudulent schemes to sell the remaining properties. They may pay substantial incentives to buyers and facilitate an inflated loan amount by increasing the sale price, concealing the incentive, and utilizing a fraudulently inflated appraisal. The fraud scheme typically involves new construction or condo conversions.
A buy and bail is…
When a homeowner is current on their mortgage, but the value of their home has fallen below the amount owed (they are underwater), so they apply for a purchase money mortgage on another home.
A few characteristics of a buy and bail:
The borrower defaults on the original mortgage shortly after purchasing a second property.
The borrower will be a first-time landlord (renting out the original property).
The borrower has minimal or no equity in the original property.
Explain foreclosure rescue schemes.
Foreclosure rescue schemes take advantage of borrowers who are in the process of foreclosure or about to go into foreclosure. The fraudster promises to help the borrower avoid foreclosure, and the borrower often pays for the services that he or she never receives and ultimately loses their home.
The MARS Rule:
Made it illegal to charge upfront fees and requires specific disclosures in ads and when you forward a lender’s offer to a homeowner. This is meant to protect distressed borrowers from foreclosure rescue schemes.
What does the MARS Rule require?
The MARS Rule makes it illegal for a mortgage assistance relief provider to collect money from a consumer unless they deliver, and the customer agrees to a written offer of mortgage relief from the customer’s lender or service.
The mortgage assistance relief provider must clearly and prominently disclose certain information before they sign people up for their service, like:
The total cost.
That they can stop using their services at any time.
That they are not associated with the government or the distressed borrower’s lender or servicer; or That the distressed borrower’s lender may not agree to change the terms of their mortgage.
