A borrower closes 3 loans on the same property with 3 lenders within 10 days, before any of them records. If the borrower conceals the other loans and lets each lender believe it will have first priority, what scheme does this conduct illustrate?
Correct Answer
A) Shotgunning: concealing simultaneous loans to exploit the recording gap and misrepresent lien priority
A. The concealed overlapping loans illustrate shotgunning. The deception is withholding the competing loans while misleading each lender about its collateral position. The DOJ example describes simultaneous lending and concealed unrecorded liens; it is evidence for the scheme description, not a rule that all multiple applications are fraudulent. Scope and exceptions: Disclosed legitimate multiple loans are different. Actual lien priority depends on applicable law and facts; this question does not adjudicate it. Source: September 13, 2018 case description — https://www.justice.gov/usao-nj/pr/real-estate-broker-sentenced-prison-role-defrauding-banks-35-million-shotgun-loan-scheme
Why This Is the Correct Answer
A. The concealed overlapping loans illustrate shotgunning. The deception is withholding the competing loans while misleading each lender about its collateral position. The DOJ example describes simultaneous lending and concealed unrecorded liens; it is evidence for the scheme description, not a rule that all multiple applications are fraudulent. Scope and exceptions: Disclosed legitimate multiple loans are different. Actual lien priority depends on applicable law and facts; this question does not adjudicate it.
Why the Other Options Are Wrong
Option B: Permissible borrowing because loans recorded later always receive first priority
Later recording does not automatically establish first priority.
Option C: A legitimate refinance even though the earlier loans are not paid off
Calling it refinancing does not remove the concealed competing obligations.
Option D: Permissible borrowing because each lender completed its own underwriting
Separate underwriting does not authorize false borrower information.
Exam Tip
Look for concealed competing financing, not merely more than one application.
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