An air loan is a strategy in which a real estate or mortgage broker pretend that a particular piece of imaginary property exists, and that there is also an imaginary buyer that is interested in purchasing that property. The broker then approaches a lender and negotiates the best deal possible for this imaginary borrower, making it possible to earn profits from the ensuing loan transaction. Once the profits are secured, the non-existent borrower defaults on the loan, leaving the lender with no property to seize and recoup a portion of the loss.
Putting together a typical air loan scheme takes a great deal of effort. The broker must establish a network of references and contacts that help to verify the particulars submitted on the imaginary borrower’s loan application. This means using telecommunication options that make it possible for the lender to call the borrower’s employer, verify the current home address of the borrower, and even verify the credit history of the applicant. At the same time, telephone, Internet, and even mailbox accounts must be established that make it possible to verify that the imaginary property exists, and that the value has been verified by an appraiser. Once all is verified and everything seems to be in order, the air loan is approved.
If an air loan scheme is successful, the broker functions as the intermediary between the lender and the imaginary buyer, often receiving the funds from the loan and hiding the funds away in an untraceable bank account or converting the funds into some other type of asset. Within a matter of months, the mortgage loan on the imaginary property is in default, and the lender begins collection or foreclosure proceedings. At that point, it becomes clear that the borrower does not exist, and the property was never real. Typically, the mortgage broker also operated under an assumed name, and is now extremely difficult to locate. In the end, the lender is left with no property to foreclose, and no prospects of ever recouping the loss.
The air loan is only one of several different types of common fraud that can occur with real estate deals. One other common model is to steal the identity of a real person to conduct real estate deals, a situation that ultimately creates headaches for both the victim of the identity theft and the lenders. Another fraudulent strategy is to inflate the appraisals on property under the guise of planning on buying the real estate and making improvements before selling it at a profit. While this approach looks a great deal like a legitimate flipping strategy, in fact the property is never purchased and the recipient of the loan normally disappears with no trace.