In a world as regulated and monitored as today’s is, it’s hard to believe that certain types of fraud are still possible. But it’s hard to monitor every single industry at all times; that many sets of eyes simply aren’t available.
In the mortgage closing process, fraud exists partly due to a lack of transparency. Ryan Barry, Chief Strategy Officer and Co-Founder of ATS Secured, puts it this way: “If you’re in a well-lit building that has locks on the door, a guard dog and a security camera, a thief isn’t likely to bother going there. They’ll go down the street where the door is wide open, the lights are off, there’s no security camera and they can slide in and slide out.
A common type of mortgage fraud is the straw buyer scheme, where a fraudster uses someone’s identity to buy a house (usually without them knowing) because they can’t qualify for a loan on their own or don’t intend to live in the house themselves. To obtain their straw buyer they either steal someone’s identity, prey on an innocent person who has good credit, or lets the person in on the scam. While there are measures against these rings from forming, there are always some that slip through regulatory cracks.
Example: Steve is a mortgage broker at a bank, Joan is the appraiser and Noah is a title agent. They are a fraud ring and work collectively on the scheme.
Steve talks to an innocent person named Amanda, flattering her with praise of her well-paying job and impeccable credit history. He tells her he is creating something an investment pool and gives her a sales pitch that sounds something like this: “If you let us use your credit to buy a house, we’ll pay you $3,000 dollars. We will rent it out and you’re going to have a percentage of the rent proceeds. Then, we’re going to sell the house in three years and you’re going to get a percentage of that profit as well.”
Using Amanda’s credit, Steve gets her qualified to buy the house. Then he tells Joan the appraiser, “We got a house that’s worth $40,000, tops. You need to appraise it for a $100,000.” Joan agrees.
Then they bring in Noah to do the closing, where they pay off the loan for $40,000 and make out with the remaining $60,000. They pay $3,000 to Amanda for using her credit and they’ve got $57,000 left to divide among themselves. They rent it out and Amanda is now stuck with a $100,000 mortgage on a house that’s worth $40,000.
Red flags that may indicate you’re being drawn into a straw buyer scheme:
- An unsigned or undated application
- The borrower’s income is inconsistent with job or position
- Someone signed the loan documents on the borrower’s behalf
So, how can you discourage thieves? Simply turn on the lights.
Making the loan process transparent is the equivalent of turning on the lights. A secure, protected platform for all parties to communicate and transfer documents would protect everyone in the mortgage closing process from fraud and provide peace of mind. Chase the thieves out and let’s collectively turn the lights and never let them in again.
Stay tuned for the next blog in the series: “The Best Way to Rob a Bank: Double Selling”