New scam alert — the Air Loan mortgage fraud
Oct 11th, 2013 | By John Tracy
Yesterday I had the pleasure of participating on a panel at the CAAMP mortgage fraud summit to discuss “Air Loan” scams. Air loans scams refer to a mortgage fraud where a lender has its security registered “on air.” In this scam lenders are duped into taking security on a vacant parcel of land when all the documentation shows that there is a dwelling located on the land. The fraud is usually discovered when the mortgage goes into default and the lender discovers that, instead a lot containing a dwelling, the lender has security on a parcel of vacant land. These frauds can be quite sophisticated and often involve many parties working in concert to defraud the lender of the mortgage proceeds
Each participant on the panel covered a unique aspect of the “air loan” scam. The panel included Amanda Jackson, Partner, Gowlings, Mathieu Langelier, Property Risk Consultant, and Doug Robinson, Senior Mortgage Security Specialist, Scotiabank to discuss the Mortgage Air loan scam. The panel was moderated by Randal Slavens Director of Adjudication Strategy, of Canada Guaranty and organized by Nancy Patterson Risk Management Officer and Senior Fraud Specialist also of Canada Guaranty.
My presentation involved some real life case studies of title insurance claims I have been involved with using air loan scams. In these cases there is often a promise of a new home being built but nothing materializes. The panel participants focused on what lenders can do to avoid being victimized including diligent underwriting and dealing only with known and trusted professionals. A key to risk mitigation is physical inspection of the property prior to advance of funds – something that is frequently performed by appraisers. However, current lending practices have evolved away from high-cost appraisals to determine the value of the security, in favor of less expensive solutions like automated valuation models or insurance. These approaches are faster and cheaper and perhaps even better from an overall portfolio cost – but they can’t help with the exposure to air-loan scams. Fortunately the lender’s title insurance policy provides coverage for the lenders losses which arise from the failure of the land to contain a single family residence.