Fraud For Profit
A complex scheme involving multiple parties, including mortgage lending professionals, in a financially motivated attempt to defraud the lender of large sums of money. Fraud for profit schemes frequently include the use of a straw-man, a dishonest appraiser who intentionally and significantly overstates the value of the subject property, a dishonest settlement agent who prepares two sets of HUD settlement statements or makes disbursements from loan proceeds which are not disclosed on the settlement statement, and a property owner, all in a coordinated attempt to obtain an inappropriately large loan.
The parties involved share the ill-gotten gains and the mortgage eventually goes into default. In other cases, naive “investors” are lured into the scheme with the organizer’s promise that the home will be repaired, repairs and/or renovations will be made, tenants will located, rents will be collected, mortgage payments made and profits will be split upon sale of the property, all without the active participation of the straw buyer.
Once the loan is closed, the organizer disappears, no repairs are made nor renters found, and the “investor” is liable for paying the mortgage on a property that is not worth what is owed, leaving the “investor” financially ruined. If undetected, a bank may lend hundreds of thousands of dollars against a property that is actually worth far less and in large schemes with multiple transactions, banks may lend millions more than the properties are worth.