Fraud 3: Inside the Mind of a Fraudster: Real-Life Schemes Targeting Private Lenders

One of the most unsettling things about mortgage fraud is how believable it can look... until it isn’t. I’ve reviewed files that, at first glance, felt routine. Good credit. Clean documentation. No obvious gaps. And then a detail would catch my eye: a phone number that went straight to voicemail, a website that didn’t load, a pay stub with deductions that didn’t make sense. One question would lead to another… and suddenly the whole file would fall apart.

Private lenders, in particular, see a wide spectrum of files from first-time buyers trying to bridge the gap, to investors with complex portfolios. That diversity also makes us a target for fraud schemes that would never fly at a chartered bank. Here are a few to consider.

1. Fake Employment, Real Trouble

It’s shockingly easy to make a fake employment package these days, forged job letters, fabricated pay stubs, even fake websites built to make a phony company look legit.

Imagine an “employee” submitting documents from a local logistics firm. The website looks real enough, and the letterhead is sharp. But the underwriter can’t verify the phone number. A bit of digging reveals the “company” was registered to a residential address, and its so-called HR contact was the borrower’s cousin.

These kinds of setups are often sold as part of a fraud ring. Borrowers may not even realize how deep they’re in. But once that loan funds, the exposure is yours.

2. Doctored Bank Statements: Clean Layout, Dirty Details

We’re well past the days of faxed statements and hand-written ledgers. Now, fraudsters use editing software to build convincing PDFs right down to custom logos and transaction fonts.

File with immaculate 90-day statements, the balance stable, the deposits matching the claimed income, and the layout looking exactly like the bank’s format might still be fake. Look for tells like the account balance not reconciling with the sum of transactions. It could turn out the “statement” had been reverse-engineered to show a down payment that didn’t actually exist.

The fix? Always ask for official PDF downloads directly from the bank or use a third-party verification platform (Plaid? Yodlee?). Screenshots and printouts just don’t cut it anymore.

3. Reverse-Engineered Down Payments

One tactic the is appearing more is borrowers temporarily borrowing funds to appear liquid for the file. They take out an undisclosed loan, sometimes from a private lender, sometimes from a friend, deposit it into their account just long enough to pass underwriter review, then repay the funds post-close.

This strategy gives the illusion of equity, but it’s pure misrepresentation. And for private lenders who depend on real skin in the game, it’s dangerous.

Red flags? Look for large, unexplained deposits. Probe the borrower’s explanation. Review 90-day histories. If the numbers don’t tell a consistent story, pause the deal.

4. Title Fraud and Identity Theft

Perhaps the most damaging trend we’re facing: impersonation. I’ve seen cases where fraudsters used fake IDs to impersonate borrowers to obtain financing all too often. Sometimes they go as far as registering a Power of Attorney to pull it off.

These aren’t just technical frauds they’re crimes with devastating consequences. Private lenders are especially at risk because we often fund fast, and sometimes without in-person meetings.

Use title searches early. Insist on independent legal advice. And if someone can’t show up in person for ID verification, that’s not just a red flag - it’s a siren.

No Room for Assumptions

These stories aren’t theoretical. They’ve happened to people in our industry, smart, seasoned professionals who simply trusted when they should have verified. And with AI-generated forgeries and deeper coordination between fraud actors, the schemes are only getting more convincing.

In the next post, we’ll walk through specific document red flags how to tell when a pay stub, appraisal, or NOA just doesn’t smell right.

Until then, remember: if a deal looks a little too tidy, dig deeper. Fraud rarely knocks on the front door, it sneaks in through the paperwork.