Fannie Mae has issued a fraud alert warning the mortgage industry about a growing pattern of fraudulent activity tied to two- to four-unit investment properties in New Jersey and surrounding states.
At the heart of the scheme, according to the GSE, is a mortgage broker working in concert with multiple limited liability companies (LLCs) and a New Jersey-based settlement company, exploiting gaps in refinance processes to extract inflated loan amounts.
The Scheme
According to Fannie Mae, the fraud involves deed transfers to LLCs, followed by limited cash-out refinance applications roughly 60 to 180 days later — but the individuals applying for the loans aren’t actually on the title.
To drive up loan amounts, the properties are appraised at inflated values much higher than what they’re worth.
Complicating matters, a settlement company has been facilitating these deals using what appear to be “hard money” loans, Fannie Mae said in its fraud alert. These loans show up on title commitments but are never officially recorded in public property records.
That omission allows the refinance to be structured as a limited cash-out rather than a full cash-out, skirting stricter underwriting guidelines.
Why It Matters
The implications are significant: artificially inflated property values, unrecorded liens, misrepresented ownership, and fraudulent lease agreements can all result in loans that have a much higher risk of early payment default or repurchase demand.
The scheme also erodes the integrity of the lending process and could affect lender rep and warrant exposure, especially if an organization has worked with the broker, settlement agents, or LLCs involved.
Red Flags
Fannie Mae outlined indicators that should raise suspicion, including:
- Deed transfers recorded 60–180 days before loan origination;
- LLCs acting as both buyer and seller;
- Questionable leases used to qualify borrowers;
- Large, unexplained jumps in property value;
- Refinance transactions paying off unrecorded “private” hard money loans;
- Title commitments reflecting liens that don’t appear in public records;
- Ownership or lender affiliations between borrower and lienholder; and
- Documentation with inconsistent or illogical execution dates.
Fallout
National Mortgage Professional has learned of several Non-QM lenders sending out ineligibility / exclusionary lists for loans involving certain appraisers or borrowers / entities.
One of those lenders put out a list of 31 appraisers and 59 borrowers / entities it has excluded, while another announced ineligibility for loans involving 49 appraisers and nearly 200 borrowers / entities.
Still another Non-QM lender announced heightened scrutiny of loans in the following areas:
- Baltimore County, Md.;
- Bergen County, N.J.;
- Essex County, N.J.;
- Brooklyn, N.Y.;
- Orange County, N.Y.; and
- Rockland County, N.Y.
Notably, all the exclusionary lists shared with NMP thus far include Eluzer Gold, owner of Levy Ventures LLC, a New York-based real estate company, which filed for Chapter 11 protection on March 5, 2025, in the U.S. Bankruptcy Court for the Southern District of New York, White Plains Division. The filing indicates an estimated 1 to 49 creditors and reports $10 million to $50 million in both assets and liabilities.
Levy Ventures LLC., owns 306 properties in Baltimore City, according to Propwire, a platform that provides property data and analytics for real estate investors, agents, and brokers. The bankruptcy filing comes amid foreclosure proceedings initiated by substitute trustees Adam Friedman, Ralph Vartolo, Catherine Aponte, and Rachel Kiefer in the Circuit Court for Baltimore City, Maryland.
The alert from Fannie Mae did not specifically list the neighboring state of Maryland. However, a wave of concern involving potential appraisal fraud has hit Baltimore City and surrounding areas. Rob Chrisman noted in his blog on July 2 that investors, particularly in the Non-QM space, have stopped purchasing investment properties in those areas. Rumors point to a bankruptcy or default event tied to a group of LLCs connected to hundreds of DSCR loans.
Allegedly, the LLCs engaged in appraisal fraud — properties were overvalued via a scheme where appraisers were tipped off by being paid $444 per job through an appraisal management company, signaling them to inflate values. An Apollo-backed entity reportedly uncovered the issue, prompting an ongoing investigation.
In response, many DSCR lenders reportedly have paused activity in Baltimore, circulated do-not-use lists of appraisers and borrowers, and are scrutinizing their portfolios for exposure.
What You Can Do
Mortgage professionals should be on the lookout for unusual refinance activity involving investment properties and LLCs.
Fannie Mae reminded lenders and brokers to:
- Vet third-party originators thoroughly;
- Establish and enforce a zero-tolerance fraud policy;
- Train staff to recognize red flags;
- Share information internally to catch patterns early; and
- If fraud is suspected, go to Fannie Mae’s Mortgage Fraud Prevention site and complete the Suspected Mortgage Fraud Report or call 1-800-2FANNIE (1-800-232-6643).
Effectively, it boils down to this: if the loan doesn’t make sense or something seems amiss, don’t do it. Fraud schemes are growing more elaborate, and front-line vigilance remains the best defense. As the GSE keeps watch for similar schemes, lenders and brokers should stay alert and share intel early.
