MORTGAGE FRAUD UNFORTUNATE GROWTH INDUSTRY –Statistics, FERA, Adding Mortgage Fraud to Your Practice and Mortgage Fraud Types

 

 

By: Gary Opper, Levie-Opper, LLC, Weston, FL

954-384-4557 Fax 954-384-5483

 

Gary Opper addressed the Business Law Section of the Florida Bar with the following presentation: 

 

 

MORTGAGE FRAUD STATISTICS

 

Acting U. S. Attorney Jeff Sloman indicted forty-one “un-professionals” on mortgage fraud on July 28, 2009.  These un-professionals face a variety of mortgage fraud charges involving $40 million in loans. The six separate cases epitomize the insidious nature of mortgage fraud from purchasers to mortgage brokers to real estate agents to lawyers, said Sloman. 

Congress has appropriated $522 million in order to work towards higher mortgage standards. The money is to be spent in fiscal year 2010 and 2011 that is from October 1, 2009 to September 30, 2011.   The majority of the money is for investigating and prosecuting mortgage fraud.

 

There are 2,440 pending FBI mortgage fraud investigations, as of April 2009. This is more than double from the past three years.

 

In total, mortgage fraud suspicious activity reports in 2008 were at 63,173. They indicated more than $1.5 billion in losses. So far, up to May 2009, there are 40,901 suspicious activity reports.

 

Mortgage fraud cases opened in 2009 equaled 965, as compared to 136 opened in 2004.

 

During the fiscal year of 2008, the FBI had 574 indictments and 354 convictions on mortgage fraud.

 

President Obama notes that last year, the Treasury Department received 62,000 reports of mortgage fraud, which is more than 5,000 each month.

 

The FBI has created sixty-five mortgage fraud task forces/working groups.

 

There are over 500 new internet pages a month regarding mortgage fraud.

 

According to acting U.S. Attorney Nora D. Dannehy, most mortgage fraud cases involve false representations on mortgage loan applications and inflated property appraisals. In fact, appraisal and mortgage fraud cause an estimated 83% of all mortgages to be legally problematic.

 

Bank America, Wells Fargo & Co., JP Morgan Chase & Co. and Citigroup Inc – some of the biggest players in the servicing industry – are all facing litigation.

 

In mid-July, the Federal Trade Commission and the California Attorney General’s Office – in conjunction with the state Real Estate Department and other agencies – jointly announced lawsuits, injunctions and fines against 189 companies across the nation, claiming they deceived troubled homeowners through mortgage modification and foreclosure schemes.

 

While Taylor, Bean & Whitaker Mortgage Corp. (TB&W), headquartered in Ocala, Florida was attempting to give a capital infusion to Colonial Bank of $300 million, federal and state officials raided both entities. TB&W’s website states they are “… a top 10 national wholesale mortgage lender.”  The Wall Street Journal says they are the third-largest underwriter of FHA loans.  Colonial Bank is the sixth largest bank in Florida. There relationship was incestuous. TB&W was trying to give Colonial Bank a $300 million capital infusion at the same time that Colonial Bank was a major funder of TB&W.

 

Los Angeles County Department of Consumer Affairs director Pastor Herrera, Jr. noted that fraudulent foreclosure prevention services were so bad and rampant that the category could top the list of consumer complaints for 2009.

 

Governor Pat Quinn of Illinois recently signed a mortgage scam defense bill that offers better consumer protection to those who are in search of home loans.

 

According to the Mortgage Asset Research Institute, the states with the most significant mortgage fraud problems in 2008 were Rhode Island, Florida, Illinois, Georgia, Maryland, New York, Michigan, California, Missouri and Colorado (in that order).  Florida is the mortgage fraud’s epicenter and hypocenter. According to my conversations with anonymous sources at the U. S. Attorney’s office, Rhode Island’s position as first is an anomaly.  Unfortunately, Florida is dubiously first.

 

Mortgage fraud may be pandemic and not just epidemic. It is pervasive in our society. As previously stated, Congress has devoted $522 million to prosecute mortgage fraud.  The city, state and federal governments have devoted tremendous resources to fight mortgage fraud.  It has brought down top companies and banks in America.  It has changed the way that people act and think for the next generation.

 

 

FRAUD ENFORCEMENT AND RECOVERY ACT

 

Fraud is a significant cause behind the U.S. subprime mortgage collapse and the international economic downturn. It is for this reason that the Fraud Enforcement and Recovery Act of 2009 (FERA) was created. FERA was designed to improve enforcing the mortgage fraud statutes. It will also assist in the recovery of funds that were lost during these fraudulent incidents and other related reasons.

 

FERA also offers the government additional tools needed in order to crack down on the occurrences of fraud that, unfortunately, have put numerous families at risk for losing their homes. Additionally, FERA expands the abilities of the Department of Justice to prosecute individuals and/or corporations responsible for predatory lending. Furthermore, through the passing of FERA, a bipartisan Financial Crisis Inquiry Commission has been established in order to explore the financial practices that have created our current economic crisis.

 

Under the Act, the following amounts have been allocated to combat mortgage fraud:

 

Fiscal Year

2010

2011

      Total

(in millions of dollars)

 

 

 

 

FBI

$75

$65

$140

US Attorney Offices

$50

$50

$100

DOJ- Criminal Division

$20

$20

$40

DOJ- Civil Division

$15

$15

$30

DOJ - Tax Division

$5

$5

$10

Postal Inspection Service

$30

$30

$60

HUD Inspector General

$30

$30

$60

Secret Service

$20

$20

$40

SEC

$21

$21

$42

 

 

 

 

Totals

$266

$256

$522

 

 

 

 

The United States 2010 fiscal year begins October 1, 2009.

 

 

 

 

According to the U.S. Attorney’s office, they are attempting to fast track cases.  In a case where the mortgage fraud is in the high millions, they may decide just to prove one to five million dollars of fraud and get a conviction with prison time instead of spending two years investigating to the get the maximum penalty.

 

 

ADDING MORTGAGE FRAUD CASES TO YOUR PRACTICE

 

Now is the right time to add mortgage fraud to your law practice. It has become the “hot topic.”  It is usually the lead article of magazines and newspapers.  With the growing cases of fraud, the government is seriously and aggressively pursuing guilty parties. A vast amount of money is being provided to the FBI, the Attorney General, the Department of Justice and other governmental agencies are working towards tracking down fraud and punishing the guilty parties. Because of the rampant outbreaks of mortgage fraud, it is a productive, worthwhile and rewarding area of exploration.

 

According to noted criminal defense attorney Brian H. Bieber, “The mortgage fraud industry has exploded to depths no one could fathom. On the state and federal levels, prosecutors are scrambling to find sufficient resources to arrest indict and convict individuals. The targets are not just mortgagees, but are mortgage companies, low, mid and high level executives. Many cases; however, are defensible. Experienced criminal defense lawyers know which questions to ask, which documents to look at and they can assist in pinpointing where the fraud began and who is responsible under the law.”  Forensic mortgage fraud accounting can assist lawyers to determine the proper questions and documents. 

 

Fraud cases can be both criminal and civil.  Civil cases can involve lenders suing mortgage un-professionals, appraisers, title companies and private mortgage insurance companies.

 

 

DEFINITIONS AND TYPES OF MORTGAGE FRAUD

 

The word "fraud" traces its origin from Latin to a Sanskrit word that means, "He bends injures."  The Black Law dictionary defines fraud as “the intentional perversion of truth for the purpose of inducting another in reliance upon it to part with some valuable thing belonging to him or surrendering a legal right.”

 

Mortgage fraud can be committed by:

 

1.      Application Fraud is the intentional misrepresentation of an applicant's income, assets, liabilities, credit history, credit scores or job information.

 

2.      Real Estate Value Fraud is the intentional misrepresentation of the real property value by a real estate appraiser or other professional.

 

3.      Real Estate Title Fraud is the intentional misrepresentation of the liens, judgments, lis pendens, survey problems or other "clouds on the title" by a title company.

 

4.      Transaction Fraud is the participation in a real estate scheme to obtain a loan though misrepresentation of facts.

 

There are two types of fraud:

 

1.      Fraud for Housing

 

2.      Fraud for Profit

 

Freddie Mac and Fannie Mae do not distinguish between Fraud for Housing and Fraud for Profit.

 

Frauds for Housing - The borrower and/or other parties in a real estate transaction can misrepresent facts to a lender to help a borrower obtain a loan and, therefore, a home.  Other parties to the transaction include real estate brokers, mortgage brokers, appraisers, title companies, closing agents, lenders' account representatives, accountants, etc.

 

It is still fraud, no matter how admirable the idea sounds that a "professional" is helping a customer obtain a loan and hence a home. The lender should have the right to all the facts and they should make the decision whether or not to loan to the applicant.  "This is not a noble cause, this hurts our reputation," states Jack Nunnery, Chase Manhattan's National Customer Risk Manager. Obviously, un-professionals profit from this fraud.

 

Fraud for Profit - An investor deceives a lender into making a loan so that the investor makes a profit.  The investor may or may not have the help of other parties in the transaction.  Investor fraud includes the following schemes:

 

1.      A Straw Buyer

2.      Land Flips

3.      Equity Skim

 

A Straw Buyer is a person used to buy property to conceal the actual owner.  The Straw Buyer’s income and credit is used to fraudulently obtain the loan.  The Straw Buyer, the actual property owner and anyone else involved in the scheme are guilty of fraud.  Straw Buyers are sometimes used in the following occasions:

 

·        Investors who want the more favorable interest rate, loan-to-value and other terms available on owner occupied property

·        Builders who want to obtain working capital

·        Sellers who want to illegally get money from their property

·        Borrowers who could not obtain a mortgage on the subject property

 

A Land Flip is when real property is bought at or below market price and is resold at a price higher than market value.  The higher sales price is used to obtain an illegal higher mortgage loan amount.  The cooperation of at least a dishonest real estate appraiser is necessary.

 

An Equity Skim example is as follows:  The real property owner obtains a high loan-to-value mortgage on tenant occupied property.  The owner collects rent from the tenant(s), but does not pay the mortgage.  The owner skims equity from the property during the prolonged collections and foreclosure proceedings.

 

Fraud can be committed by misrepresentations on the following types of documents:

 

·        Application Documents

·        Appraisal Documents

·        Credit Reporting Documents

·        Income Documents

·        Asset Documents

 

The red flags in these documents are numerous. The most prevalent fraud is income documentation.

 

Unfortunately, the computer has been a "double-edge" sword in the mortgage industry.  On one side, it has provided technology to speed up and automate mortgage processes.  On the dark side, with scanners, laser printers and graphic programs, high quality fraudulent documents have been easier to create. 

 

Conclusion

 

This is not the conclusion but the beginning of a five to seven year window of unfortunate opportunity for the criminal defense attorney to provide capable legal services to white-collar defendants along with expert litigation support from forensic mortgage fraud accountants.  Take the time to explore the idea of adding mortgage fraud to your practice.

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Gary Opper is the managing member of Levie-Opper, LLC, a mortgage fraud litigation support firm. He has a CPA and a CFP license. Opper is past President of the FAMB - Miami Chapter and the FICPA - Gold Coast Chapter.  Opper is a member of the NAMB, FAMB, AICPA and the FICPA. Mr. Opper has been the NAMB’s Writer of the Year and Featured Writer of the Year. Mr. Opper was the FAMB’s Broker of the Year.   He has been president of mortgage lender since 1984.  Mr. Opper is available to speak to your group.  Please contact him to arrange a speech for your event.  He may be reached at (954) 384-4557, fax: (954) 384-5483, or e‑mail: Gary@Levie-Opper.com.

 

© Gary Opper.  All Rights Reserved.