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Mortgage scams
Posted: 04 November 2006 12:45 PM
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http://money.cnn.com/popups/2006/fortune/fraud/index.html?cnn=yes

Are you at risk for mortgage fraud?
The real estate market has never offered such opportunity for graft. Here’s how it works.

By Marcia Vickers, Fortune senior writer

Since the housing market started to soar in 2001, mortgage fraud has become the fastest-growing white-collar crime, according to the FBI.  Last year, crooks skimmed at least $1 billion from the $3 trillion U.S. mortgage market.

Now that the market is slowing, fraud is only rising.  As business dries up, there’s increasing pressure on lenders, brokers, title companies and appraisers to be profitable.  That means loan and title documents aren’t scrutinized as carefully as they might be, and courts can’t keep up with the volume of paper.  Then there’s the mad rush by many to sell, particularly by people who paid high prices for homes, and suddenly can’t afford the mortgages.

It’s like a tasting menu for con artists, so tempting that in some cities drug dealers have turned to mortgage fraud.  Here are three types of mortgage fraud and how they work.

Rent-To-Steal

Say you’re advertising to rent your home or investment property.  A renter shows up who seems to have all the right documentation to qualify.  It’s a deal!  The monthly rental checks start coming in on time.  But behind your back, the renter (using an alias with fake or stolen identification) goes to the local court and files a false “satisfaction of loan” document complete with your forged signature, forged bank officers’ signatures, and bank seals.  This shows that the property is now “free and clear”—that is, there are no outstanding mortgages on it.

Now the renter/con artist is able to go to lenders and take out new loans on the property—often taking out several, practically simultaneously, in your name.  Suddenly your renter vanishes and three or four banks are claiming title to your home.

Straw-man Swindle

Con artists use a “straw man” or “straw buyer” to purchase a property.  A straw buyer is usually someone fairly unsophisticated who has passable credit.  Often straw buyers are told by the huckster—a mastermind who uses a false identity and typically poses as a sophisticated investor—that they’ll get a nice chunk of money if they go in on a plain-vanilla business transaction with him.

The straw buyer gets a mortgage on the property.  Then the straw buyer signs the property over to the huckster in a quitclaim deed, relinquishing all rights to the property as well as the underlying mortgage.  The straw buyer gives the huckster the mortgage proceeds, taking a small cut—usually 10 percent—for himself.  The huckster doesn’t make any mortgage payments and often even pockets rent from unsuspecting tenants until the property falls into foreclosure.  Usually the straw man, not the mastermind, is arrested for fraud.

The Million-dollar Dump

A con artist looks for a low-end, rundown house for sale.  He approaches the seller and says he’s willing to pay the full asking price—but only if the seller will do him a small favor.  See, the buyer needs a bigger mortgage than the house is worth.  So if the owner agrees to relist the house at, say, triple the price, then the buyer can apply for a bigger mortgage.

The swindler often tells the homeowner not to worry—he wants to use the extra mortgage proceeds to fix up the house.  The seller usually heartily agrees:  He’s getting the full price… and besides, wouldn’t it be nice to have the place fixed up?  The swindler, using a false identity, takes out the supersized mortgage, pays the seller, and pockets the remainder.  The house usually ends up in foreclosure.

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Posted: 07 November 2006 09:29 AM   [ # 1 ]
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Those mostly look like they’re screwing the bank, though.  So..unless I’m a bank, I don’t really need to worry about these…???

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