The mortgager rents the property, migrates and expects the lessor or agent to pay monthly obligation but this is not done. The mortgagor uses fraudulent documents and though collusion with employees of the mortgage, institution obtains the loan, but the property used as security is non-existent. This is the worst type of Fraud, as zero recovery can be made. The mortgagee's interest is assigned so that the debt can be first paid from the death proceeds before payment to the estate or beneficiaries. Life insurance policies used as security are usually held by the morgagee as part of the security package.
Fraud is most likely to occur where policies held have bonus surrender and equity surrender values.
The mortgagor, without the knowledge of the mortgagee, may, with the assistance of persons working in the life insurance company, falsify the signature of the assignee company and withdraw surrender values to which the insured is not entitled. Peril Insurance Risk management is an important feature of a mortgage or lending institution as they must seek to insure the property that has been given as security against the loan. Peril insurance, as it is usually called, ensures that in the event of loss through fire, flood or other natural disasters, the balance of the debt at the time of the event, can be recovered. Most mortgage institutions seek to insure the property and note their interest, but some institutions leave the insurance up to the mortgagor and request that proper evidence be produced to show that the property is insured and the institution's interest noted. As alluded to in the beginning of this article, mortgage fraud can occur through every stage of the mortgage process, so when the mortgage is repaid and discharged, the mortgagee must be careful of the person or persons who seek to collect the title and other security documents.