8 examples of mortgage fraud and how to detect and prevent them

"I remember the exact moment I got the first call from my office saying, 'We wired a mortgage payoff yesterday, and the lender just called us and said they didn't receive the wire.' I was sick," recalls Sarah, a title agent with over 20 years of experience.

Her company fell victim to a sophisticated fraud scheme targeting three separate mortgage payoff transactions in one summer. 

Despite verification protocols, fraudsters successfully intercepted communications and redirected funds. The impact was devastating—missing funds, insurance claims, legal battles, and Sarah's business hanging in the balance.

Stories like Sarah's are increasingly common. This specific type of fraud—called mortgage payoff fraud—impacts businesses every single day.

With the average mortgage balance in the United States reached $252,505 in 2025, mortgage payoffs have become a top target for wire transfer fraud.

And while digital tools have streamlined real estate transactions, they have also created new vulnerabilities that criminals exploit with sophisticated methods. 

If you run a title company or law practice, it is important to spot mortgage fraud red flags to protect your business. In this article, we’ll break down a few key types and the spectrum of mortgage-related fraud—which includes mortgage payoff fraud—to help you better protect your business.

What is mortgage fraud?

Mortgage fraud encompasses a broader range of deceptive practices than most realize. While commonly associated with falsified loan applications, it extends far beyond simple application misrepresentation.

At its core, the term “mortgage fraud” involves intentional deception during any stage of the mortgage process, from initial application through final payoff.

This includes:

• Application fraud: When borrowers misrepresent income, assets, or occupancy intentions to qualify for loans they otherwise couldn't get.
• Transaction fraud: When industry professionals manipulate property values, steal identities, or divert mortgage funds during real estate transactions.
• Post-closing fraud: When criminals intercept mortgage payments or manipulate payoff instructions after loans have been established.
  
  • Payment diversion: Intercepting ongoing mortgage payments
  • Mortgage payoff fraud: Manipulating payoff instructions specifically during refinancing or property sales

Quick Note: As we describe here, the term mortgage fraud covers a wide range of activities, with mortgage payoff fraud being a specific type that happens at the very end of the process—when the loan is being paid off. 

It often involves cybercriminals manipulating wire instructions to steal funds. 

CertifID specializes in protecting against mortgage payoff fraud.

What makes mortgage payoff fraud different than “mortgage fraud?”

While mortgage fraud, as it's most commonly known, can occur throughout the lending process, mortgage payoff fraud targets exclusively the final transaction—when a loan is being paid off.

In cases of mortgage payoff fraud, scammers target wire transfers by impersonating parties within the transaction. 

Typically, this happens through acts of business email compromise, where the scammer infiltrates someone’s email account, learns the details of the deal, and changes the mortgage payoff instructions. Then the wire is mistakenly transferred to the fraudulent account.

This makes it particularly dangerous for title companies and law firms handling closings, as you're directly in the line of fire when fraudsters manipulate payoff instructions.

Let’s discuss: Mortgage fraud taxonomy

Mortgage fraud creates devastating ripple effects throughout the real estate ecosystem.

When a borrower commits application fraud, they risk foreclosure and criminal charges. 

And when transaction fraud, like in instances of mortgage payoff fraud, occurs?

Your title company, your lenders, and your homebuyers can lose hundreds of thousands of dollars in misdirected funds. 

For the sake of this article and explanation, while talking about these different fraud types, it’s helpful to think of them in two primary categories:

• Fraud for housing: Criminals commit material misrepresentation by pretending to be legitimate borrowers and presenting false information, such as misrepresented income or assets on a loan application. In other cases, criminals try to secure better terms by manipulating an appraiser in the hopes of receiving a lower, or higher-than-accurate, appraised value for a property.
• Fraud for profit: Criminals manipulate specific aspects of the mortgage lending or closing process to steal cash or equity from lenders or homeowners.

While some fraud attempts seem easy to spot, criminals have become more sophisticated in how they operate.

How does mortgage fraud for profit scams—like mortgage payoff fraud—happen in the first place? 4 tactics fraudsters use

1. Business email compromise (BEC)

One of the most devastating scenarios occurs when a title company's or law firm's email is compromised.

Our expert, Nate Stephens, Manager of Fraud Recovery Services, shares:

"A particularly dangerous mortgage fraud scheme involves email compromise at title companies. 

First, the fraudsters gain access to a closer's email through phishing attacks. Then, they create hidden forwarding rules that redirect specific emails (like those containing "payoff" in the subject). 

When legitimate lenders send payoff instructions, these emails are silently deleted from the closer's inbox, forwarded to the fraudster, modified with fraudulent banking details, and then reinserted into the closer's inbox.”

What makes this approach particularly dangerous is that the fraudulent document appears completely legitimate: 

• It comes from the actual lender domain.
• Maintains all the correct formatting.
• Contains the expected language.

Traditional red flags like spoofed email domains or unusual formatting are absent, making detection difficult without specialized verification tools.

This type of fraud can impact multiple mortgage payoffs at a single compromised company. 

What’s worse is that the fraud often goes undetected for months until the homeowner notices their mortgage hasn't been properly paid off.

2. Fake website creation

Criminals create replicas of legitimate lending or mortgage company websites to harvest sensitive data.

These sites often feature stolen logos, copycat layouts, and similar domain names that differ by just one letter from the authentic site.

Unlike obvious scams of the past, today's fake mortgage websites employ several convincing tactics:

• Using HTTPS protocols and security certificates to appear legitimate.
• Incorporating authentic company information scraped from public sources.
• Implementing professional designs that mimic trusted brands.

These sites typically employ urgency as a manipulation tactic, creating false deadlines for loan modifications, threatening imminent foreclosure, or offering time-limited refinancing options.

These tactics share a single goal: capturing your sensitive financial data or diverting wire transfers to fraudulent accounts.

3. Identity theft (impersonation fraud)

Fraud can also occur when criminals steal identities of buyers and sellers.

Identity thieves target real estate transactions because of the significant sums involved and the time-sensitive nature of closings.

They gather personal information through:

• Obituaries (to identify recently deceased homeowners).
• Mail theft (particularly mortgage statements).
• Employment or credit applications.
• Data breaches and computer hacking.
• Public records searches.

With this information, they pretend to be buyers or sellers. They use real identities and sometimes fake documents. Their goal is to get mortgage loans or redirect closing funds.

According to the CertifID October 2023 survey, 54% of real estate professionals reported having experienced at least one seller impersonation fraud attempt within the past six months. 

Even more concerning, 77% of real estate professionals reported increasing seller impersonation fraud attempts during this same period.

4. Digital fax manipulation

Traditional fax machines are phasing out, but many businesses still maintain electronic fax accounts. When breached, these systems serve as another vector for fraud.

Criminals target e-fax systems because:

• Many title companies and law firms still consider faxed documents inherently trusted.
• Digital faxes often bypass email security protocols.
• Verification procedures for faxed documents may be less stringent.
• Faxed payoff instructions can be manipulated before reaching the closing agent.

By intercepting and altering these communications, fraudsters can insert fraudulent mortgage payoff instructions that direct funds to their accounts instead of legitimate lenders.

8 common mortgage fraud for profit and mortgage fraud for housing schemes (with examples)

Below, you'll learn more about mortgage fraud cases as well as their impact. This information will help you protect your business and detect potential fraud early on.

But first, a quick general overview about the differences in these mortgage fraud schemes and the type of fraud categories they typically align with:

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Let's start with fraud for profit examples, and mortgage payoff fraud as an example.

1. Mortgage payoff fraud

Definition

A criminal impersonates a mortgage servicer and sends wiring instructions to a title company or law practice. 

Fraudsters typically create a false sense of urgency that can make those involved in the transaction overlook otherwise suspicious details.

As a result, title companies or law practices transfer money to the criminal's bank account rather than the bank that is actually owed the funds.

Example

Consider this scenario: During a residential real estate closing in a southeastern state, a fraudster might target a transaction's attorney-led closing process.

In this state, two attorneys are involved—one orders the payoff, one funds it—creating an additional communication chain fraudsters could exploit.

The first attorney might properly validate the payoff instructions from the lender using a verification system. 

However, if those instructions were sent to the second attorney responsible for funding, a fraudster could intercept the email and modify the banking details before forwarding it on.

Even though the document would appear completely legitimate with only the routing and account numbers altered, such a transaction could result in a $275,000 payment to the fraudster's account instead of the actual mortgage lender.

The legal precedent in these cases holds that the party sending funds bears responsibility for verification. This scenario illustrates why both ordering and funding attorneys need verification systems to document due diligence and protect against liability.

Severity

According to Hugh Sprowson, Senior Underwriter at Argenta, “Mortgage payoff fraud is the biggest payment risk facing title agents and a growing source of wire fraud-related insurance claims.”

• Financial impact: Mortgage fraud statistics from 2022 show that consumers reported an average loss of $106,557 per wire fraud incident, with mortgage payoffs accounting for 24% of these cases.
• Detection difficulty: High. The modified documents appear legitimate and traditional red flags are absent.
• Compounding risk: As Nate Stephens explains, "When an email is compromised, fraudsters typically hit about three mortgage payoffs at the victim title company," multiplying potential losses.

To minimize the risk of mortgage payoff fraud, validate payoff information through PayoffProtect.

Simply input the payoff instructions you've received, and the system checks them against the industry's largest dataset of verified lender information.

The platform instantly validates over 97% of payoff instructions, covering thousands of regional, national, and specialty lenders. For the remaining 3%, we’ll manually do a callback so you don’t have to spend your time on the task.

Our Fraud Recovery Services Manager adds: "If every title company used PayoffProtect, there would be no payoff fraud.”

2. Property flipping fraud

Definition

This scheme involves purchasing property below market value and immediately reselling it at an inflated price without making legitimate improvements. Fraudsters typically collaborate with corrupt appraisers who provide falsified valuations to justify the markup.

Example

To illustrate how this might work: Imagine a real estate investor purchasing foreclosed properties at auction for an average of $180,000 each.

Within days, the investor could list these properties for sale at prices averaging $300,000. To justify such a dramatic price increase, the investor might collaborate with an appraiser willing to falsify reports claiming extensive renovations had been completed.

In reality, only cosmetic changes would be made—primarily painting and minor repairs totaling less than $5,000 per property.

Multiple buyers might secure loans based on these inflated appraisals, leaving them with homes worth less than their mortgages when such a scheme would be discovered.

Severity

• Financial impact: Moderate to high. Buyers are left with underwater mortgages, while lenders face defaults and foreclosures.
• Detection difficulty: Moderate. Red flags include rapid appreciation without corresponding improvements and repeat transactions between related parties.
• Frequency: Common in hot real estate markets and areas with high foreclosure rates.

3. Equity skimming fraud

Definition

In this scheme, fraudsters use "straw buyers" with good credit to purchase properties. The straw buyer transfers the deed to the fraudster who collects rent without making mortgage payments until foreclosure.

Example

Consider a hypothetical fraud ring recruiting individuals with good credit scores to act as straw buyers for multiple properties.

In this example scenario, each straw buyer might be paid $5,000-$10,000 to use their credit to secure mortgages, with promises that the properties would be investment opportunities handled by "experts."

After closing, the straw buyers would transfer property control to the fraudsters, who could then rent the homes to unsuspecting tenants. For nearly a year, they might collect monthly rental income while making no mortgage payments.

By the time lenders foreclosed in this scenario, such a fraud ring could collect hundreds of thousands of dollars, leaving the straw buyers with ruined credit and potential legal liability.

Severity

• Financial impact: High. Lenders face significant losses on defaulted loans, while straw buyers suffer credit damage.
• Detection difficulty: Moderate. Multiple properties transferred to the same entity shortly after purchase is a key warning sign.
• Frequency: Cyclical, increasing during economic downturns when rental demand is high.

4. Foreclosure scams 

Definition

Predatory lenders target distressed homeowners, convincing them to transfer their property deed with false promises of helping them avoid foreclosure. The homeowners believe they can rent and eventually repurchase their home, but instead lose their equity.

Example

In this illustrative example, a fictitious company called "HomeStay Solutions" could target homeowners in pre-foreclosure across multiple states. 

Such a company might approach homeowners with an offer to "pause" their foreclosure process by temporarily transferring their deed to an "investor."

Homeowners would be told they could remain in their homes as renters, rebuild their credit, and buy back their homes within two years. 

After obtaining the deeds, this type of operation would extract remaining equity through new loans, collect rent from the former homeowners, and ultimately allow most properties to go into foreclosure anyway.

In such a scenario, the average homeowner might lose $85,000 in equity, with some losing considerably more.

Severity

• Financial impact: High for individual homeowners who lose both their homes and accumulated equity.
• Detection difficulty: Low to moderate. Legal documentation clearly shows property transfer, but victims often don't understand the implications.
• Frequency: Very common, particularly targeting elderly and financially distressed homeowners.

Now, let's examine real estate fraud types that fall under the fraud for housing category. 

5. False identity usage

Definition

Criminals steal personal and financial information to secure mortgages in someone else's name. They use stolen Social Security numbers, forged pay stubs, and other documentation to qualify for loans with no intention of repaying.

Example

Think about this case: a person might discover their identity had been used to purchase a $425,000 home in another state when they begin receiving unexpected mortgage statements in the mail.

In this hypothetical case, a fraudster could have obtained the person's information from a data breach, created counterfeit identification documents, and secured a mortgage using the victim's excellent credit history.

The victim might spend nearly a year clearing their name, during which time their credit score could drop significantly, preventing them from qualifying for their own legitimate home purchase. 

Meanwhile, the fraudster could collect rental income on the property for months before disappearing when the lender began foreclosure proceedings.

Severity

• Financial impact: High. Lenders face complete losses, while victims suffer credit damage and lengthy recovery processes.
• Detection difficulty: High. Modern identity thieves create sophisticated documentation that can pass standard verification procedures.
• Frequency: Increasing with the rise in data breaches and availability of personal information on the dark web.

6. Inflated appraisals

Definition

Corrupt appraisers deliberately misrepresent property values to benefit various parties in a transaction. They may undervalue properties for investors seeking bargains or overvalue them to help sellers secure higher prices and lenders earn larger commissions.

Example

To illustrate how this might work: Imagine a regional bank discovering an appraisal scheme during an internal audit. A loan officer might be found to have been working exclusively with one appraisal company that consistently valued properties 15-20% above market value.

Further investigation could reveal the appraiser was receiving "consulting fees" for each inflated appraisal, while the loan officer received larger commissions based on the higher loan amounts.

Such a scheme could result in millions in overvalued loans across dozens of properties, with a default rate significantly higher than the bank's overall portfolio.

Severity

• Financial impact: Moderate to high. Leads to underwater mortgages and increased default risks.
• Detection difficulty: Moderate. Comparison with similar properties in the area can reveal discrepancies.
• Frequency: Common, particularly in rapidly appreciating markets where comparative sales data may be limited.

7. Asset Rental

Definition

Borrowers temporarily "rent" assets or money to falsely enhance their financial qualifications for mortgage approval. After securing the loan, they return the assets to their actual owner.

Example

Think about the following scenario: A mortgage broker could orchestrate an asset rental scheme for clients who couldn't qualify for conventional mortgages. 

For a fee, the broker might temporarily "park" funds in a client's bank account months before their mortgage application.

The client would provide bank statements showing consistent assets, secure loan approval, and then return the money after closing. Such a scheme might be discovered when a loan officer notices identical deposit amounts across multiple unrelated applicants.

By that point, dozens of unqualified borrowers could have secured millions in mortgages, potentially leading to a high default rate.

Severity

• Financial impact: Moderate. Results in higher default rates as unqualified borrowers can't sustain payments.
• Detection difficulty: Moderate to high. Sophisticated schemes use seasoned funds that appear legitimate.
• Frequency: Common, especially when lending standards tighten.

8. Occupancy fraud

Definition

Borrowers misrepresent their intention to occupy a property as their primary residence to secure more favorable loan terms and lower down payment requirements than would be available for investment properties.

Example

Here’s a hypothetical example to consider: A real estate investor purchasing multiple properties within a single year, claiming each would be their primary residence.

By doing so, the investor could secure interest rates approximately 0.75% lower than investment property rates and significantly reduce required down payments from 25% to just 3%.

Such fraud might be discovered when the mortgage servicer conducts a routine address verification and finds that the borrower was receiving mail at a different address than any of their mortgaged properties.

The lender's investigation would reveal the properties were all rented to tenants, violating the terms of the owner-occupancy certifications and potentially resulting in demand for immediate full repayment of all loans.

Severity

• Financial impact: Low to moderate. Creates incrementally higher risk for lenders through preferential terms for investment properties.
• Detection difficulty: High. Intent to occupy is difficult to verify at closing.
• Frequency: Very common, representing one of the most prevalent types of mortgage fraud.

Fraud is serious and, if fraudsters are caught, the mortgage fraud penalties can be steep. They can include a prison sentence of up to 30 years, a fine of up to $1,000,000, and/or restitution to the harmed party. 

How to detect mortgage payoff fraud signs and avoid becoming a victim

Picture this: You're at your desk, reviewing the day's closings. Something catches your eye about a mortgage payoff—nothing obvious, just a feeling that something's off.

Your instinct to double-check saved your company from financial loss when you discovered the altered account number.

This kind of sixth sense doesn't develop overnight. It comes from knowing what to look for and having systems in place that protect you even when the warning signs are nearly invisible.

Recognizing business email compromise

Business email compromise has become the entry point for the most costly fraud schemes in real estate transactions. 

When fraudsters gain access to email accounts within your organization—and they're trying constantly—they don't strike immediately. 

They'll quietly monitor your communications for months, learning your patterns and waiting for the perfect six-figure wire to intercept.

Early detection of compromised email accounts can save your company hundreds of thousands of dollars. 

Pay attention to these warning signs:

• Unexplained email forwarding rules in your system (particularly those directing messages containing terms like "wire," "payment," or "closing" to unknown folders.)
• Missing emails that colleagues reference but you can't find in your inbox or sent items.
• Unusual patterns in email delivery or unexpected formatting changes in regular communications.
• Periods of unusual quiet from regular contacts or vendors.

"Fraudsters typically 'disappear' for a month after compromising an account," explains Nate Stephens from our fraud recovery team. "During this quiet period, they're studying communication patterns and planning their attack, often creating dozens of hidden rules to filter specific messages."

Regular email security audits are essential, not optional. Many companies discover compromises only after a successful fraud has occurred, when a simple audit could have revealed the warning signs weeks earlier.

Document authentication practices

Modern document verification goes beyond the "eyeball test." With sophisticated forgery tools, fraudsters create perfect replicas of legitimate documents, altering only the banking details.

Securing your transactions requires implementing verifiable authentication methods:

• Establish one secure channel for all the payment instructions.
• Use secure software that has embedded a database of verified lender contact information.
• Implement a verification checklist that focuses on account details rather than document appearance.
• Train staff to identify subtle inconsistencies in formatting, especially in the payment instruction sections.

"The most dangerous documents are those that appear completely legitimate," warns our fraud prevention team. "What makes them detectable isn't their appearance but the information they contain."

Verification failures often occur not because a document looked suspicious, but because the verification process itself was insufficient. Standard callbacks to numbers provided on the same document offer little protection in sophisticated fraud schemes.

Use mortgage payoff fraud prevention technology 

As fraud methods evolve, human review alone cannot keep pace with increasingly sophisticated attacks. 

Technology solutions provide consistent, scalable protection against the most convincing fraud attempts.

Essential technology safeguards include:

• Email security systems that detect and alert you to unusual login patterns and forwarding rules.
• Automated verification platforms that validate financial instructions against known-good databases.
• Secure communication channels that operate outside vulnerable email systems.
• Audit tools that log and track all verification activities for compliance and liability protection.

When properly implemented, technology solutions detect fraud and prevent it by closing the security gaps that fraudsters exploit. 

Protect your customers

Your clients typically lack experience recognizing fraud attempts. 

Research shows 71% of consumers look for outside help with wire fraud education. While 27% expect realtors to educate them, 16% look to title companies, and 15% to attorneys, with significant variations across age groups.

Protect your clients by:

• Educating them about risks early in your relationship.
• Establishing clear communication protocols.
• Providing secure delivery systems for sensitive information.
• Using identity verification tools like CertifID Match.

Meeting these education expectations protects your clients and strengthens their trust in your services.

How do I report suspected mortgage payoff fraud?

Reporting mortgage fraud as soon as possible gives you higher chances to recover funds. If you suspect fraud:

• Contact local law enforcement immediately.
• Submit a complaint to the FBI's Internet Crime Complaint Center.
• Notify all financial institutions involved.
• Report to mortgage industry organizations.
• Contact CertifID's fraud recovery services.

How to protect your business from mortgage payoff fraud

Real estate fraudsters seek easy targets. 

The best way to fight back is to implement a comprehensive approach that combines staff training, verification protocols, technology solutions, clear communication, and documented security processes.

Ready to protect your business from these increasingly sophisticated attacks? Download our latest whitepaper about mortgage payoff fraud.

And if you're looking for immediate protection against mortgage payoff fraud, let's talk about how PayoffProtect can validate your payoff instructions in seconds.

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