Easy Money & Loose Facts: Investigating Mortgage Fraud

Welcome to the August 2018 edition of our newsletter!  In this issue, we’ll examine some ways that fraudsters lie on applications for financing, and how researchers can spot the lies and learn the truth.

Too Good to be True: Signs of Loan Application Fraud

Recent headlines have placed a renewed focus on the prevalence of loan application fraud. Within the last decade, various studies have found that as many as 70 percent of loan applications contained some form of fraudulent information.  Whether your client is looking to make a loan to an individual or business, or to transact other business with one, knowing how to spot the red flags is key.

In some instances, with regard to individuals, it can be something as simple as an applicant using a different Social Security number – something a licensed investigator can check quickly – or more complicated, such as over-reporting income or under-reporting liabilities.  Although not all such information can be checked against public records, some liabilities – such as child support obligations – are often part of public records, as are tax liens an are other debts.  If these items are incorrect or omitted altogether, that is likely a sign of fraudulent intent.

Similarly, businesses are subject to tax liens and other obligations as well and – while credit reporting for businesses differs somewhat from that of individuals – analysis of a company’s payment history from a service such as Dun & Bradstreet can provide valuable insight into the creditworthiness of a business.  If trends are negative or moving in that direction, it may be reason for a would-be lender to ask for more information, such as a list of the largest vendors with which the company does business, to determine if the information provided by the business legitimately reflects its position with its vendors.

Getting to the Truth: Researching Application Fraud

Publicly available records can help identify whether an applicant is lying or being selective about the information they report, such as excluding a bankruptcy that was within the scope of what an application sought (many ask if any adverse activity has occurred within a certain time frame, such as the last 10 years.)  Additionally, certain types of cases, such as petitions to the U.S. Tax Court, are not often requested on loan applications and should be considered if fraud is suspected, as petitioners often volunteer detailed financial information when protesting a tax ruling.  Together with a list of counter-parties – in the case of an individual, former business partners or spouses might be relevant, while former employees may shed light on business practices – who could be good sources of human intelligence, a strong public records analysis can help determine if an applicant is a greater risk than they have presented themselves to be.