How Mortgage Scams Snare Unsuspecting Sellers

How Mortgage Scams Snare Unsuspecting Sellers

Tom Cruse asked:

How mortgage scams snare unsuspecting sellers

Don’t jump at a contract offer that involves a kickback of the overage to the buyer at closing. Chances are the buyer wants an inflated price on the property so he can take the additional money and run without every making the first payment.

Why should it matter? If a buyer buys your house for the full appraised value and he gets a mortgage for that amount, what difference does it make to me as the seller if I only sold it to him for less than the amount he mortgaged?

The sales price and the mortgage amount are two different things. ( Source : Mortgage 1

You won’t be on the hook if your “buyer” obtains a mortgage at an inflated appraisal. That’s between him and the lender.

But you could be charged with conspiracy or perhaps as an accessory to a crime if you knowingly sell a property at far more than it is worth and then hand the overage over to the “buyer” at closing or shortly thereafter. The authorities say any seller who does that has to be considered an accomplice because he had to know something is not right. Either that or the seller is a complete and utter nincompoop.

The buyer in this case may or may not obtain a mortgage on the property in question. Sometimes the bad guys are satisfied with the overage, but most often they must obtain a mortgage or they won’t have the money to buy the house. So they get a loan at the inflated price — using a faulty appraisal — pay you what you want and take the rest. Then, they either skedaddle without ever making a payment or they turn around and resell the place to an unsuspecting buyer and take off with even more cash in their pockets.

These guys are sneaky. The latest scheme is called “shotgunning” in which a property owner applies for several home equity loans with multiple lenders at the same time.

In one recent documented case, a would-be borrower applied with three different lenders over a 48-hour period. Because the lenders did not all report to the same credit bureau, none were aware the same owner had simultaneously applied elsewhere as well. Fortunately, the folks at the First American Title Insurance Co. noticed the attempted sham when they received multiple title orders on the same property and notified the lenders of the suspicious activity before they funded the loans.

This owner was not deterred, however. A few days later, the title company noticed two more orders on the same property with two new lenders and was able to alert them in time to avert a loss.

Lenders weren’t so lucky in dealing with a ring of con artists who managed to obtain 10 mortgages totaling more than $1 million on a Chicago area condominium with a market value of roughly $125,000, according to First American’s valuation model. The loan applications were made over a three-week period via lender Web sites and call centers, not in person. And because of the delay between the dates the loans were closed and the dates the liens were filed in the county courthouse, none of the lenders knew of the other liens when they were making their underwriting decisions.

Lenders take it on the chin in cases like these, but legitimate borrowers also pay a price because lenders recoup these costs in the form of higher loan rates and fees, just like retailers add the cost of shoplifting to the prices they charge everyone.

Borrowers have a lot more at stake in another form of shotgunning, this one involving multiple sales of the same house. In this case, the same “owner” — who may not be the rightful owner at all — “sells” the same property simultaneously to several unsuspecting buyers.

When each buyer uses a different lender and title company, this highly orchestrated scheme is “virtually impossible to detect,” says Jeffrey Taylor, managing director of Digital Risk in Dallas. Ultimately, of course, it’s the title companies that take it on the chin, but buyers also pay dearly in the form of massive litigation and lost opportunities.

Authorities believe the Chicago scheme is being repeated over and over again by an organized group of foreign criminals. They use the sham as an exit strategy when they decide to leave the United States and return to their homeland. After living here long enough to develop solid credentials and credit records, they buy the houses or condos using all cash obtained by illegal means. Then, after living in them free-and-clear for a couple of years, they apply for a bunch of loans based on the equity they have in their houses.

“It’s the ‘fraud of the year.’” says Paul Doman of First American’s Lenders Advantage Equity division. “They can pull in excess of a million dollars out of the home, enough so that they can live a good life back wherever they came from.”

The First American executive reports that the title business is trying to put a stop to this and other schemes by forming a consortium in which applications for title searches are run through each other’s systems. That way, multiple applications on the same property can be spotted in advance rather than after the fact.