Elaborate Mortgage Fraud Schemes

Although the numbers of SAR narratives describing elaborate mortgage fraud
schemes did not constitute a particularly significant percentage of the entire sample,
some of these narratives described apparent fraud for profit schemes that were notably
elaborate and organized. These schemes are described below.
Mortgage rescue schemes. Seven of the sampled narratives described fraudulent
mortgage rescue schemes. Fraud perpetrators preyed on individuals
threatened with foreclosure of their homes. Typically, the home owner was
told that if they signed a quit claim deed for the benefit of the rescuer, the mortgage
would be paid and the homeowner could continue living in the house
with the promise that the property would be deeded back when the homeowner
was able to obtain refinancing. The rescuer recorded the quit claim deed and
then sold the property. Whereas in these instances, the borrower was the victim
of the fraud, another type of mortgage rescue scheme defrauded the lender.
In these cases, borrowers participated as straw buyers to purchase property
and then quit claim the property back to the seller. This was considered a type
of mortgage rescue scheme since typically the sellers were in default when the
transfers occurred.
“Freeman in nature” schemes. Four reports described attempted fraudulent
payoffs with “Freeman in nature” arguments.16 These arguments claimed
that no money exchanged hands (i.e., the loan was merely a paper transaction),
therefore there was no duty to repay the mortgage. Suspected Freeman
schemes made up less than 1% of the sampled narratives, but they represent a
danger to both lenders and homeowners. The reviewed Freeman schemes frequently
resulted in the filing of fraudulent lien releases in county land records
endangering the lender’s loan security. Ultimately, homeowners who participate
in these schemes lose their homes.
“Freeman in nature” arguments refer to specious arguments that avow that the funds were never
loaned and therefore the borrower has no duty to repay the mortgage. These arguments rely on an
unreasonable interpretation of Section 1-207 of the Uniform Commercial Code that has never been
affirmed or supported by any court or governmental authority.