The Transaction Is a Document Too
Mortgage fraud conversations usually start with the borrower: inflated income, hidden debt, an occupancy claim that is not true. But a purchase loan is underwritten against a transaction as well as a person, and the transaction has its own facts. A sales price. Who pays what at closing. Where the money comes from and where it goes. Who owns the property being sold. When those facts are misrepresented, the loan amount, the loan-to-value ratio and the borrower's real equity are all wrong, even if every fact about the borrower is true.
Transaction fraud is also unusually checkable, because the same facts are stated in several documents produced by different parties: the purchase contract and its addenda, the appraisal, the Closing Disclosure, the title commitment, the recorded deed and the borrower's bank statements. These documents are supposed to agree. Most transaction fraud works by making one of them say something the others do not, and counting on nobody reading them side by side.
Dual Contracts: One Price for the Lender, Another for the Parties
The classic scheme is two versions of the purchase contract: one at an inflated price, shown to the lender to support a larger loan, and the real one the buyer and seller actually agreed to. The difference flows back to the buyer or to someone else after closing. A variant edits the price on a contract that has already been signed, which modern document tools make trivial.
The checks that catch it:
- Price across documents. The contract price should match the price on the appraisal, the Closing Disclosure, the title commitment and, after recording, the deed's stated consideration where the state requires it. Any mismatch is a hard stop until explained.
- Figures against words. Many contracts state the price in both numerals and words. An edit that changes the numerals and leaves "three hundred fourteen thousand nine hundred dollars" in the text is an edit someone made after the form was filled in.
- Revision history. A contract PDF that came out of an e-signature platform and was later saved again in a desktop editor carries both events in its file history. The earlier revision often still contains the original price.
- Multiple versions with different dates. Loan files frequently contain the same contract several times. Comparing every copy, rather than reading the first one, is how a later version with a different price is found.
Interested Party Contributions: The Limits the Scheme Is Built to Evade
Sellers, builders and agents are allowed to contribute to a buyer's closing costs, within limits. Those limits exist because money from an interested party effectively reduces the real price of the home, and a loan sized on the contract price overstates the collateral.
Fannie Mae's Selling Guide caps interested party contributions on a principal residence or second home at 3% of the lesser of price or appraised value when the loan-to-value ratio is above 90%, 6% between 75% and 90%, and 9% at 75% or below, and at 2% for investment properties. FHA allows seller concessions up to 6% of the sales price, and VA limits seller concessions to 4% of the reasonable value, with some costs excluded from the cap. Contributions above the limit have to be treated as sales concessions, which reduces the price used to calculate the loan-to-value ratio.
A buyer and seller who want more help than the program allows have an incentive to move the extra money outside closing, where the lender cannot see it. That is the seller rebate written into an addendum, paid directly to the buyer, often days before or after closing. It is also exactly what a careful file review can find, because the money has to land somewhere:
- Deposits from an interested party on the borrower's bank statements. A transfer from the seller, the listing brokerage or the builder that the Closing Disclosure does not show as a credit is the signature. The agent sources large deposits for asset verification anyway, and resolving the depositor against the parties to the transaction turns that work into a fraud check.
- An addendum term that the Closing Disclosure does not reflect. A term that says the seller will pay the buyer an amount "outside of closing" is the disclosure the scheme depends on hiding. Sometimes it is literally hidden: covered with a white box on the page image, still present in the PDF's text layer underneath.
- Credits that exceed what the program allows. A straightforward arithmetic check, run against the contribution limit for the loan's program, occupancy and loan-to-value ratio.
Cash Back, Silent Seconds and Payees Who Should Not Be There
Cash back at closing on a purchase is a related scheme: the loan is sized to more than the transaction needs, and the excess leaves closing as a payment that looks like something else. A "repair credit" or "decorating allowance" paid to the borrower, a payoff to a company nobody can explain, or a consulting fee to an entity with no role in the transaction. On the Closing Disclosure, each of these is a line item with a payee, and each payee can be resolved against the parties to the loan. A payee that shares an address, phone number or officer with the buyer, the seller or an agent is a finding.
A silent second is undisclosed subordinate financing: the seller or a third party lends the buyer the down payment on a second lien that is never shown to the first-lien lender, so the borrower's real equity and debt are both misstated. The Closing Disclosure and the title commitment should account for every lien. Verified assets that comfortably exceed what the Closing Disclosure says the borrower needed to bring, with no explanation of where the shortfall money went, can mean the borrower brought less than the file suggests.
The Seller Who Does Not Own the Property
Seller impersonation fraud has become one of the most discussed closing risks in recent years. A fraudster poses as the owner of a property they do not own, usually vacant land or a home without a mortgage, where there is no lender or occupant to notice. They list it, accept an offer quickly, often below market, and try to close remotely with forged identification and a forged or fraudulently notarised deed. The proceeds are wired out and the real owner finds out later.
On a purchase, the lender's file contains several chances to notice. The seller on the contract should match the vested owner on the title commitment, and the vesting should be consistent with the recorded chain of title. A recently recorded quitclaim deed into the seller's name, a seller who insists on remote signing and refuses video verification, a notary whose commission does not check out, and a sale price well below comparable sales on a free-and-clear property are the pattern. Most of this is the title and settlement agent's responsibility, but the lender's file holds the contract, the title commitment and the appraisal, and reading them together surfaces the mismatch whether or not anyone else did.
Wire Instructions: The Last Place Money Gets Redirected
Closing is also where business email compromise strikes. A message that appears to come from the title company, sent days before closing, tells the buyer or the lender that wire instructions have changed. The new account belongs to the fraudster. We covered the legal side of this in our post on wire fraud and commercially reasonable verification.
The defence is procedural. Wire instructions should be verified through a channel that does not depend on the message carrying them, such as a phone number for the settlement agent already on file rather than the one in the email. A change of instructions close to closing, a sender domain that differs by a character from the settlement agent's real domain, and an account at a bank in a different state from the agent's are each reasons to stop. An agent can check every set of instructions in the file against the parties and contacts already established, and flag the change before funds move. The same check applies at the other end of the loan, when a payoff request asks for funds to go somewhere new.
Tying It Out on Every File
What these schemes share is that each one makes a single document disagree with the rest. The reliable defence is a tie-out that reads every document stating a transaction fact and checks that they agree: price, credits, loan amount, cash to close, payees, liens, vesting and wire instructions, across the contract and every addendum, the appraisal, the Closing Disclosure, the title commitment and the bank statements.
That tie-out is tedious for a person and natural for an agent. The Fraud Agent runs it before funding, raises any disagreement as a condition with the pages on both sides cited, and passes the files where everything agrees. It sits alongside TRID and cure management, which is already reading the Closing Disclosure for timing and tolerance, so the same document is checked for compliance and for integrity in one pass.
The Honest Read
Transaction fraud is the category where the borrower's own information can be entirely accurate and the loan can still be wrong, because the price, the credits or the seller were not what the lender was shown. It is also the most checkable category, because the transaction is described in documents written by different parties, and the scheme only works if nobody reads them together.
An agent will not see money that never touches the file. A rebate paid in cash, to an account the lender never sees, leaves no trace in the documents. What it does is make sure every disagreement that is in the file gets found, on every loan, before the money moves. The full list of contract, closing and wire schemes we look for is in our mortgage fraud guide.
Ramkumar Venkataraman
CTO & Co-Founder