Mortgage & Lending Fraud – Some of the Most Popular Scams Out There

I found an interesting post on a popular blog, The Consumerist, about popular mortgage scams to watch out for.  Although I thought I had probably heard of all of the scams floating around out there, I was surprised to read about one scam that I had not yet heard of.

This particular scam is related to securing funding for condo conversions, construction, rehab, or other developmental-related uses.  In this scam, individuals seeking funds for distressed or halfway completed projects will approach investor groups for funding.

Unbeknownst to the investor, no additional work is actually performed on the property and the investors and/or lenders are left with incomplete or completely uninhabitable structures.  Yuck.

Any thoughts on how you could prevent this from happening if you were a lender?  One thought seems the most obvious which is dispersing the funds in stages or even directly to the contractors. Any other ideas?

The other two mortgage scams mentioned in this blog post on The Consumerist I have already heard of.

• Foreclosure Prevention Scheme—In this scam, desperate homeowners who are about to lose their homes put their trust into individuals who claim they can prevent the house from going into foreclosure.  In many cases, the homeowners will quit claim deed the property over to the fraudsters.  Ouch. Talk about adding insult to injury!  Does anyone have a story to share about one of these particular scams?
• Elderly and Immigrant Identity Fraud—Not a new scam, this type of mortgage fraud has to do with stealing an individual’s identity.  Elderly and non English-speaking individuals get their identities stolen by scam artists who then use them to “straw buy”’ a property.  Apparently this is being used right now with reverse mortgages.  Does anyone have a story to share about this type of scam?

Another scam I wanted to mention that is really being talked about right now is the ‘forensic’ loan analysis. Now this isn’t actually mortgage fraud and I can’t confirm that all operations are indeed scams but it’s definitely along the same lines.  As I understand it, in this scenario, individuals are being approached by entities posing as law firms.  The firms claim that they will analyze the loan documents, trying to find fault and thus grounds for a law suit against the bank.  Not wanting to get tangled in a suit, the bank pays damages to the borrower by reducing the principal of the loan.  Borrowers who think they have a case will pay the law firm an initial deposit and then a monthly retainer.  Does anyone have a good or bad experience to share with this type of an offer?

Utah actually has one of the highest rates of loan fraud in the U.S.  A popular scam in Utah that has given it this ‘award’ is related to straw buying.  A recent article in the Salt Lake Tribune shares a story about three Utah men who were recently indicted for recruiting people with high credit scores to be “straw buyers” to purchase 12 homes in Utah from 2005 through August 2007. The article said the men “siphoned off assets totaling nearly $2.9 million while leaving the straw buyers with mortgage payments they could not afford.”

Any other stories anyone would like to share that include some type of mortgage fraud?  These stories are good to share between borrowers, brokers, and lenders alike.  We all should be a little bit more aware of some of the fraudulent behavior that is happening out there.