Commercial Mortgage Fraud: When Fraudsters Bet the House and Win

It's a volatile combination: high volume of cash-out refinancing loans, declining performance of commercial properties, and relentless production pressures on internal loan officers. The resulting concoction often is fraud. 

Economic conditions are prompting desperate fraudulent property owners to use several tricks to obtain commercial mortgage loans. Following are more schemes.

Misrepresented or Undisclosed Property Conditions  

A lending institution's most important written policy should state that a neutral representative must make a field inspection of the property designated as collateral for the loan. At one bank, a newly hired chief appraiser found in a field inspection that a subdivision in the Sacramento, Calif., area that was represented as 80 percent complete by the appraiser (hired by a loan salesperson) and two loan salesmen had only been rough-graded and appeared to be only 15 percent complete at best.

Recently, a loan broker didn't disclose that the borrower's trailer park was an unremediated U.S. Superfund site (which can be ascertained at www.epa.gov/superfund).