Fraud 7: Behavioral Red Flags: When Gut Instinct Saves a Deal from Disaster

I’ve always believed that underwriting isn’t just a technical skill—it’s a human one. Sure, we look at numbers, documents, and ratios. But we also listen. We observe. And sometimes, what gives a file away isn’t the paperwork—it’s the person behind it.

Over the years, some of the most questionable deals I’ve declined weren’t flagged by an appraisal or a credit report. They were flagged by tone, timing, or behavior. And if you’ve been in the business long enough, you know what I mean.

Urgency That Doesn’t Add Up

“Can we close this by Friday?”

That’s not unusual in private lending. Speed is part of our value proposition. But when urgency becomes pressure—especially paired with resistance to documentation—you need to slow down.

Classic fraud pressure tactics:

• “The funds are already committed—I just need this done.”

• “My other lender dropped out last minute.”

• “The seller is threatening to walk.”

It’s not that urgent deals are always fraudulent. But fraudsters use urgency to limit your time to verify. The faster they can get funded, the less likely you are to dig too deep.

Stories That Shift Midway

A well-structured file has internal consistency. When the income story, down payment story, and credit story all align, things make sense. But when those narratives start to conflict, it’s a signal to dig deeper.

Examples I’ve seen:

• The down payment starts as “savings,” then shifts to “a gift” during document collection.

• A co-borrower is introduced late in the process—with no real purpose other than to boost credit or income.

• Employment claims change—first full-time, then contract, then recently hired.

It’s not just about catching lies. It’s about clarifying truth. Honest borrowers can be vague. Fraudulent ones usually backtrack or deflect.

Third Parties Doing All the Talking

If the broker, “advisor,” or friend is doing all the communication—and the borrower is silent or confused—that’s a red flag.

This is common in:

• Straw buyer schemes: Where someone with good credit is “helping” someone else qualify.

• Elder abuse or coercion: Where an older applicant is being manipulated into taking a mortgage they don’t understand.

If your borrower can’t explain why they’re applying, what they’re buying, or how they’ll repay—pause. Make sure the person on the application is truly in control of the transaction.

Borrowers Who Don’t Know the Basics

This one’s subtle but telling. I’ve called borrowers who didn’t know:

• The address of the property they were “buying”

• The mortgage amount

• The name of the lender

One couldn’t recall whether it was a purchase or a refinance. These aren’t minor gaps—they’re red flags. A genuine borrower is usually engaged, informed, and at least familiar with the basics.

Don’t Be Afraid to Ask One More Question

One of the best fraud-prevention tools you have is the follow-up question. Not because you’re accusing someone—but because the answers tell you where the truth lies.

Fraudsters hate uncertainty. They count on systems that are too busy, too polite, or too afraid to push. But one more question—about a deposit, a job title, a lease agreement—can expose the whole scheme.