Mortgage fraud warning signs

IAR recently attended a regional meeting of the Association of Real Estate License Law Officials, or ARELLO. Much of the focus was on the mortgage fraud epidemic in the states represented at this meeting. The scope of wrongdoing and the diversity of schemes are truly staggering.

One presentation was by a Special Agent in the FBI’s white-collar crime division who provided a helpful list of “red flags”. Real estate professionals should be on the lookout for these warning signs of mortgage fraud, and the FBI requests that law enforcement be contacted if one suspects criminal activity.

Mortgage Fraud: “Red Flags”

• Purchase offer significantly exceeds the listing price
• There are an unusual number of addenda to the purchase contract
• Last minute invoices are submitted to the closing agent
• Unusual expenses are paid by the seller, such as “marketing” fees, large repair charges, and/or charitable donations
• “Seller carry” second mortgages are used
• Lenders or mortgage broker not willing to commit something to writing
• Transactions are not recorded on the HUD1 settlement statement
• Mortgage broker does not want real estate professional to contact lender or investor to alleviate concerns

NOTE: These “red flags” could be present during a perfectly legitimate transaction, and this list is only meant to provide general guidance. Each transaction is different and your instincts are likely to be the best indicator of any fraudulent activity.