What Is an Air Loan?
An air loan is a form of mortgage fraud where a broker fabricates both a property and a borrower to make illicit profits from lenders. They deceive lenders by creating false transactions, leading them to believe they are financing a legitimate property purchase. However, since no real property or borrower exists, the loan will eventually default, causing the lender to lose everything. This fraud is termed “air loan“ because it is essentially a fictitious transaction with no real collateral.
How Air Loans Work
In an air loan scheme, a fraudster creates a fake borrower, known as a “straw borrower,” to deceive lenders. The fraudster sets up fake phone numbers and addresses to make it seem like the borrower is legitimate. They fabricate employment records, home addresses, credit histories, and Social Security numbers to create a false identity.
To make the fake property appear real, the fraudster creates fake land title records, ownership documents, and other records. They may also set up fake accounts for loan payments and escrow.
To further deceive lenders, the fraudster may set up an office with multiple phone lines, each pretending to be a different entity involved in the loan process, such as an employer, appraiser, or credit agency. This elaborate deception is designed to make the loan application seem legitimate when lenders try to verify the information.
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Important: An air loan is a type of scam in which a mortgage broker invents both a property and a borrower in order to make fraudulent profits.
Air Loans Versus Other Fraud Schemes
Air loans are now less common than before because lenders must conduct due diligence on borrowers. However, they are just one type of mortgage fraud. Other schemes include property flipping with inflated appraisals, silent second mortgages, straw buyers, foreclosure schemes and equity skimming.
