The borrower had a troubled financial history, says his loan officer. He had a longstanding gambling problem and even missed mortgage payments one year because of a bad bet on the Super Bowl.

So when he showed up at American City Mortgage Corp.'s Carson, Calif., headquarters to notify servicing manager Stephanie Kohatsu that he was paying off his $140,000 mortgage, she was surprised. When she saw the check he was going to use, she was suspicious.

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