How Some Homebuilders and Developers Comitted Mortgage Fraud Schemes

Posted in Construction Claims, Construction Industry News, Public Policy

Some homebuilders and developers regrettably were involved in the massive mortgage fraud that helped trigger the present recession.

Federal Financial Institutions Examination Council (FFIEC) White Paper (PDF) labels one common scheme the “Builder Bailout.” and describes it as follows:

A builder bailout occurs when a builder, who has unsold units in a tract, subdivision, or condominium complex, employs various fraudulent schemes to sell the remaining properties. In stressed economic or financial conditions, a builder may be pressured to liquidate remaining inventory to cover financial obligations. To sell the remaining properties, the builder may use a variety of tools including, but not limited to, hidden down payment assistance or excessive seller concessions to elevate the sales price. As a result of the scheme, the unsuspecting financial institution is often left with a loan secured by inflated collateral value and the “real” loan-to-value is greater than 100 percent.

Here are some of the more prominent cases as reported by the Mortgage Fraud Blog:

Home Developer Charged With Unlawfully Selling Houses

Conviction in 18 Million Mortgage Fraud Scheme

Home Builder Ordered to Pay Restitution Penalties

Home Builder Sentenced for Defrauding Mortgage Lenders

2 Mortgage Brokers Plead Guilty to Fraud

 Defendant Pleads Guilty in Mortgage Fraud Case

Real Estate Developer Pleads Guilty in 50 Million Bank Fraud Scheme