Mortgage Concepts is a recurring video series covering best practices and compliance education for California mortgage loan originators. This video explains when a mortgage lender is compelled to file a suspicious activity report (SAR). For course credit toward renewing your NMLS license, visit firsttuesday.us.
A mortgage company might know or suspect a mortgage transaction (of $5,000 or more) involves:
- funds derived from unlawful activities;
- an intent to hide or disguise funds or assets derived from unlawful activities;
- a design to evade the Bank Secrecy Act (BSA);
- by a person’s daily aggregate cash transactions exceeding $10,000, which may signify money laundering or tax evasion;
- no apparent business or lawful purpose, with reasonable explanation; or
- mortgage funding facilitating a criminal activity. [31 CFR §1029.320(a)(2)]
Here, the mortgage lender is to file a suspicious activity report (SAR) with the Financial Crimes Enforcement Network (FinCEN). Alternative reporting for cash transactions exceeding $10,000 may be filed as a currency transaction report (CTR) with FinCEN.
When more than one mortgage company observes the suspicious activity, companies may choose to jointly file one SAR. All mortgage companies party to an SAR have a duty to keep records of the filing, and any supporting documentation. [31 CFR §1029.320(a)(3)]
Editor’s note — An SAR may be filed to report any suspected violation of any law. [31 CFR §1029.320(a)]
FinCEN, the Financial Crimes Enforcement Network, is a bureau of the United States Department of the Treasury. FinCEN receives and analyzes information about financial transactions filed as a SAR or CTR to combat money laundering, fraud, and other financial crimes including mortgage scams.
One such mortgage scam recently concluded which may well have been the subject of a SAR filing — no one will ever know — involved a California mortgage broker who created forged and fraudulent records to obtain more than $8 million in mortgages for his clients in order to earn fees for himself. The Department of Justice sentenced the broker to 5 years and 4 months in prison and ordered him to pay restitution.
Examples of suspicious activities which trigger SARs reporting include:
- an agreed-to purchase price significantly above the property’s fair market value (FMV), the difference of which is delivered to the buyer in a cash-back scenario;
- the use of straw buyers to hide illegal activity, often indicated by a mismatched income reported on the borrower’s application, such as an individual employed in an hourly wage job reporting a high salary; and
- bank customers issuing or cashing sequential checks on the same date for the same round-dollar amounts, a clear red flag of illegal financial activity. [FinCen: In the matter of: Capital One, National Association 2021-01]
Related article:
DRE Hot Seat: Prison time for a broker who committed heinous mortgage fraud
SAR filing and notification activity
Within 30 days after becoming aware of a suspicious transaction, mortgage companies are to complete and file a SAR with FinCEN. The SAR form is available online with extensive instructions for filing at FinCEN’s website. [31 CFR §1029.320(b)]
For violations which involve ongoing money laundering or suspected ties to the financing of terrorism, mortgages companies must also immediately notify law enforcement officials. [31 CFR §1029.320(b)(4)]
The SAR form report consists of:
- an identification of the person or company under suspicion;
- details regarding the suspicious activity, including the type of fraud or illicit activity suspected;
- identification of the company where the suspicious activity took place;
- contact information of the SAR filer; and
- a narrative account of the activities under suspicion.
Recordkeeping requirements
SAR filings and supporting documentation are to be kept on file for five years from the date of the filing. [31 CFR §1029.320(c)]
The existence of a SAR filing and its contents are to be kept confidential. A company filing a SAR is only able to release information about the SAR to law enforcement officials. It may also release SAR information with a co-filer when filing a joint SAR. [31 CFR §1029.320(d)]
Penalties for violations
Penalties for failing to file a SAR or violate the BSA include civil and criminal penalties, depending on the nature and seriousness of the violation. [31 CFR §1029.320(f); 31 USC §§5321, 5322]
