An investor obtains title from four distressed owners by falsely promising to use rent to keep their mortgages current. The investor instead pockets rent for 11 months and deliberately makes no mortgage payments. What fraud pattern does this illustrate?
Correct Answer
C) Equity skimming: collecting rents while letting the loans default
C. The deceptive acquisition and diversion of rental income illustrate equity skimming. The investor obtains control through a false payment promise and diverts the income instead. Scope and exceptions: A default alone is not proof of fraud. This hypothetical supplies deliberate deception; historical case allegations are not convictions. Source: Typical fraud schemes: Equity Skimming — https://archives.fbi.gov/archives/news/stories/2005/december/operation-quick-flip-1 Alleged false mortgage-payment promises and title transfers — https://archives.fbi.gov/archives/losangeles/press-releases/2012/principals-of-mortgage-brokerage-arrested-in-equity-skimming-and-foreclosure-avoidance-scheme-targeting-distressed-homeowners
Why This Is the Correct Answer
C. The deceptive acquisition and diversion of rental income illustrate equity skimming. The investor obtains control through a false payment promise and diverts the income instead. Scope and exceptions: A default alone is not proof of fraud. This hypothetical supplies deliberate deception; historical case allegations are not convictions.
Why the Other Options Are Wrong
Option A: A lawful purchase, because the investor now holds title to them
Holding title does not cure the false promise.
Option B: A loss mitigation workout, since the owners escaped the 4 defaults
Title transfer does not establish a successful workout or release from debt.
Option D: Lawful if the investor tells the tenants that mortgage payments will not be made
Telling tenants does not cure deception of owners or lenders.
Exam Tip
Look for the deceptive promise and diverted funds.
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