Borrower Impersonation Fraud and a Costly Refinance Scheme

First American Stepped in to Address the Claim

What happens when an impersonator poses as a property owner and a refinance transaction is later challenged?
What appeared to be a routine refinance turned out to be anything but.

A person claiming to be the property owner applied for a refinance and communicated with the lender through a social messaging app. The supposed borrower provided identification documents and represented that the loan proceeds would be used for business purposes. The loan closed, and the lender moved forward expecting its mortgage to be valid and enforceable. As part of the transaction, the lender obtained a First American Lender’s Title Policy to insure its mortgage was valid and enforceable.

But the transaction was fraudulent from the start.

The borrower was actually an impersonator posing as the true owner of the property. The fraudster submitted false identification documents and signed the loan documents through a mobile notary in an informal public setting.. The real property owner did not learn about the mortgage until attempting to sell the property and discovering that a mortgage had been placed against it.

For the lender, that created a serious problem. Because the loan was based on borrower impersonation fraud, the validity and enforceability of the mortgage were called into question. What had looked like a completed refinance became a claim involving the validity and enforceability of the insured mortgage.

Once the fraud was discovered, a claim was made under the First American Lender’s Title Policy.

First American resolved the covered claim by paying the lender the remaining balance of the insured mortgage, in accordance with the terms and conditions of the policy.

This case is a reminder that borrower impersonation fraud can create major risk for mortgage lenders, especially when unusual communication methods, inconsistent identification, and informal signing arrangements are involved. When fraud undermines a loan transaction, lenders need more than internal controls alone.

In these situations, a Lender’s Title Policy from First American can help address covered title risks and related losses, subject to the policy’s terms and conditions.

Disclaimer:

As with any insurance contract, the insuring provisions express the coverage afforded by the title insurance policy and there are exceptions, exclusions and conditions to coverage that limit or narrow the coverage afforded by the policy. Also, some coverage may not be available in a particular area or transaction due to legal, regulatory, or underwriting considerations.

Please contact a First American representative for further information. The services described above are typical basic services. The services provided to you may be different due to the specifics of your transaction or the location of the real property involved.