I have performed forensic loan audits on numerous construction loans and helped many of homeowners and financial institutions identify and recover from fraudulent construction loan schemes. Out of all the loan types that I perform forensic loan audits on, construction loans repeatedly amaze me by how commonly I find fraud, and by how large the variety of fraudulent schemes there are. In this article, I will go over why construction loans are riddled with fraud, and help homeowners who have been damaged by construction loans.
In 2006, construction loans were represented by government studies as being virtually free of any suspicious activity. So how is it that loans that appear so angelic and pure end up being described by Deutche Bank as “without doubt, the riskiest commercial real estate loan product”? In August of 2010, USA Today reported, “the Congressional Oversight Panel, a financial watchdog, has warned that construction loans have deteriorated faster and inflicted bigger losses on banks than any other real estate loans.”
The answer to why these seemingly good loans are revealed to be riddled with fraud once analyzed by a forensic loan audit starts with the origination process. When builders approach financial institutions, they aren’t looking for a single loan with a single set of fees that an average homeowner looks for. They are looking for dozens of loans spread out over years and tens of millions of dollars of total loans with millions of dollars of fees and interest.
Shortcuts, fraud, and poor underwriting decisions stem from greed and competition for tens of millions of dollars in loans and millions of dollars in perceived profit. Many financial institutions willingly performed fraud and looked the other way for profit.
So why didn’t the government agencies detect the overwhelming fraud and put a stop to this? Part of this is a lack of regulator training and oversight. A larger part was allowing financial institutions to audit their own loans and report suspicious activities only when they desire, called
Suspicious Activity Reports (or SARs). Because of a lack of federal oversight, Suspicious Activity Reports (SARs) by financial institutions “are one of the government’s main weapons in the battle against money laundering and other financial crimes.” Apparently letting the fox guard the henhouse isn’t the best of choices…
So construction loans became the most toxic and fraudulent loans in the industry, while appearing in government studies as the best loans in America. I’ve seen fraud in appraisals, escrow accounting, lot switching, builder contracts, funds disbursement, budgeting, flipping, sales disclosures, and unique multiparty construction loan conspiracies.
So how does this help homeowners facing foreclosure or damaged by fraudulent construction loans? The forensic loan audits I perform on construction loans commonly identifies fraud, the resulting damages, and the documentation needed to prove it clearly for a lawsuit. My audits include a review of your appraisal by a licensed appraiser, as well as a review of all the related contract and loan documents. With ten years of experience in the mortgage origination and auditing field, I simply know what to look for.
If you are in need of mortgage litigation support or mortgage forensic audits to help keep your home, contact me here. If you are a lawyer looking to provide your clients with better service and an improved chance of keeping their home, contact me here.