Mortgage fraud problems can be made worse by the state

Detroit’s backlog of loan paperwork creates new opportunities for mortgage fraud

The problem of mortgage fraud is a growing one, and billions of dollars will illegally change hands this year through one of the fastest growing crimes in the country. The opportunity to walk away with hundreds of thousands of dollars in cash at a time with little chance of being caught has lured thousands of previously honest people into the business of stealing mortgage money.

The means can vary, but mortgage fraud often involves a number of people in the lending industry working together. It may involve a loan officer, a property appraiser who can generate fraudulent appraisals about a property’s value and often an unwitting victim in the form of either a buyer or someone pretending to be one. Sometimes the victim is the buyer and sometimes the victim is the lender itself. The authorities are trying to crack down on this crime as it robs hard working people of millions of dollars and, through false property values, increases taxes for people in the communities where these properties lie.

In the city of Detroit, the “authorities are actually making a bad situation worse. Wayne County, Michigan has a problem in the Register of Deeds office that is causing delays of up to six months in the recording of the sales of property within the county. This is creating a huge problem in the area and has contributed significantly to the Detroit metropolitan area becoming one of the fastest-growing areas of mortgage fraud in the United States.

What is the problem with slow recording of deed data? There are several.

When someone purchases property, a title search is conducted by the title company used by the lender. This search, which is funded by costs paid at closing by the buyer in the form of title insurance, is a check to see if the property is legally able to be sold. No one would want to buy a piece of property from someone if they couldn’t be reasonably certain that the seller has the right to sell the property. A title search will verify this. A title search will also verify that the property has no liens against it. No one would want to buy property if they knew that they might have to pay tens of thousands of dollars in unpaid debts that were owed by previous owners. 

Unfortunately, with a six month backlog of paperwork, some of these checks cannot be easily made. Title companies are increasing their fees to cover the risk, but they cannot check paperwork that is no there. This problem also makes it easier for criminals to engage in “property flipping”, where a piece of real estate is sold several times in a short span of time, with each sale higher than the previous one. The victims in these cases are often out of state investors and the inability to check for previous sales makes the likelihood of such crime greater.

All of the parties involved in real estate transactions in Wayne County are trying to find solutions, but for the moment, the problem is still in limbo. Our guess is that a bad situation will only get worse until the problem is fixed.