Mortgage Fraud Advisory
FinCEN issued an advisory in August highlighting examples of common fraud schemes.
The advisory identified various types of mortgage fraud frequently reported in Suspicious Activity Reports (SAR) financial institutions file, or identified by law enforcement and regulatory agencies.
Fraud examples include occupancy fraud (people claim they will occupy the property when they won’t), overstatement of income, overstating the value of the security property (appraisal fraud), misrepresentation of employment status, failure to list significant financial liabilities, foreclosure rescue scams targeting distressed homeowners, debt elimination schemes, Social Security number fraud and identity theft, and illegal reverse mortgage schemes.
The advisory provides guidance on red flag indicators for each of these types of mortgage fraud. For example:
Borrowers/buyers submit invalid documents to cancel their mortgage obligations or to pay off their loan balances.
Borrowers/buyers apply for a loan for a “primary residence,” but doesn’t reside in the new primary residence as indicated on the loan application. Other individuals occupy the borrowers/buyers’ new primary residence indicating the property is being used as a secondary residence or income-generating property.
Borrowers/buyers request refinancing for “primary residence” when public and personal documents indicate that the borrowers/buyers reside somewhere other than the address on the loan application.
Low appraisal values, nonarm’s length relationships between short-sale buyers and sellers, or previous fraudulent sale attempts in short-sale transactions.
- Past misrepresentations made by borrowers/buyers to secure funding, property, refinance, and/or short sales.
No single red flag will be definitive proof of fraudulent activity. The presence of red flags in a given transaction, however, may indicate further due diligence and a decision whether to file a SAR.
When completing SARs on suspected mortgage fraud, indicate the type of mortgage fraud by entering the appropriate code in the FinCEN SAR and provide a detailed description in the SAR narrative. For activity that doesn’t have a corresponding code, identify “other” and describe the activity.
Refer to FinCEN Advisory FIN-2012-A009: Suspicious Activity Related to Mortgage Loan Fraud at fincen.gov, or call the FinCEN regulatory helpline at 800-949-2732.