Where brokers, lenders, and underwriters should be looking to spot CRE mortgage fraud
Fraud has been a growing problem across the mortgage industry. However, it is especially problematic in the multifamily lending space.
On the agency side, Fannie Mae issued an advisory back in July regarding fraud cases in New Jersey. In the private lending space, the National Private Lenders Association (NPLA) is working to create a list of fraudsters to get them out of the industry.
Max Chera (pictured top), managing partner at Express Capital Financing, said that while business has been moving along steadily, fraud is one of the primary factors contributing to slowdowns in the private lending space.
“I would say the biggest thing in the market that's holding people back in some territories might be fraud,” Chera told Mortgage Professional America. “It is probably the biggest thing on most lenders’ radars right now.”
Inspecting appraisals
Chera said that one area where brokers and lenders need to be most diligent about potential fraud is in the appraisal process.
“Make sure that you know you're using a company that you prefer, that you've worked with, that you have a relationship with, and know that you're getting true values,” he said. “Making sure that it is truly an arm's length transaction. If there are prior relationships, make sure that they're disclosed up front.
“Really go through the details and make sure that everything makes sense and seems like a typical transaction. There’s a quote we like to say, which is, ‘If it’s too good to be true, it probably is.’ Whenever you see something that looks too good to be true, act on it and make sure that it lines up. And usually, you'll find out that they don't.”
Mortgage broker Carlos Scarpero of Edge Home Finance says loan officers or underwriters should’ve caught Gov. Cook’s two “primary” residences—1,000 miles apart—and warns of a rising DSCR‐based occupancy fraud trend pushed by social media influencers.https://t.co/mpkic3e0OE
— Mortgage Professional America Magazine (@MPAMagazineUS) September 10, 2025
Another area where this can show up is in the debt service coverage ratio calculation. If you see a value that is significantly outside what you would typically see, that might also be a red flag.
“If you're in an area where properties are typically debt servicing at a 1.3 or 1.4, and someone pulls out a 3.5, there are usually questions that you should be asking to help you understand how they got there, or how that deal makes sense, or how they were able to collect so much on that property,” Chera said.
The story of the deal
He said that he’s seen mortgage fraud start to increase in the multifamily space, which is forcing them to step up their investigation efforts upfront.
“I can say that we're starting to see it trickle into the one-to-four-unit space and even the five-to-nine-unit space, where we're extremely active in the DSCR space,” Chera said. “Coming from RTL (residential transition loans), which is very story-based lending, very common-sense underwriting. I think that's really where we're finding the fraud and how we're able to pick it apart.”
He said one of the keys to detecting fraud is for brokers and lenders to really understand the story behind the deal. He said it’s critical to ensure that what the investor is trying to convey through the application process makes sense. If it doesn’t, it likely merits further investigation.
“We look into the story of the deal,” he said. “Where did it start from, where did it end, and how did it come about. A lot of the time, it's really about having the right underwriters on your team who help you sift through the deal and understand it. We have a nice-sized team that goes through that and is always cognizant of it.”
He said that’s why the efforts of the NPLA to shine a spotlight on those who are trying to defraud the private lending space are so important. Only through communication between private lenders and brokers can those fraudsters be identified and dealt with.
“There are always the ones that slip through the cracks and make their way through,” Chera said. “I would say that you're probably going to see a lot more activity in the fraud prevention space of private lending. As a community of our industry, we all have to get together and work through that part of it and really help each other make sure that we're not getting into bad loans.”
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