The Illinois State Assembly is considering legislation that its sponsors say will target real estate-related fraud. SB2349, otherwise known as the Mortgage Rescue Fraud Prevention Act, was introduced by Illinois State Senator Jacqueline Collins (D-Chicago) and State Representative Marlow Colvin (D-Chicago), back on the 18th of January, and is aimed at helping consumers from falling prey to mortgage rescue scams and mortgage bailout consultants. If passed, the Mortgage Rescue Fraud Prevention Act would force bailout consultants to detail all of their services in a clearly written contract, and allow homeowners to cancel any time before all services have been performed.

According to Illinois Attorney General Lisa Madigan, the Mortgage Rescue Fraud Prevention Act is narrowly tailored to target the two most common types of mortgage fraud rescue schemes. First, it targets “distressed property consultants” who offer phantom help to homeowners, usually promising to “buy them time” or “save the home” by negotiating with the homeowners’ creditors. In exchange for upfront fees, the consultants do nothing and abandon the homeowner to a fate that might have been prevented with legitimate professional intervention.

Madigan targeted these “distressed property consultants” through a lawsuit filed yesterday in Sangamon County Circuit Court against HomeSavers USA, Inc., and its CEO, David Moakler. HomeSavers USA, Inc., is a North Carolina-based company that advertises mortgage foreclosure assistance to Illinois consumers via the Internet. In her lawsuit, Madigan alleges that HomeSaversUSA promised to negotiate with consumers’ mortgage companies and guaranteed they would not lose their homes. According to Madigan, HomeSaversUSA demanded that consumers pay a non-refundable service fee before the company would begin any work. Illinois consumers paid fees ranging from $350 to $900, according to the lawsuit, to HomeSaversUSA. Madigan’s lawsuit alleges that HomeSaversUSA failed to engage in the promised negotiations and did nothing more than consumers could easily have done themselves.

Secondly, the bill targets “distressed property purchasers,” con artists who lead homeowners to sign over the deed to their property by telling them they can stay in their home and pay rent until they are back on their feet financially and can repurchase their home. Many homeowners who enter into these deals believe that they are getting help to catch up on their payments and do not realize they are selling their home to a third party. Most receive little financial benefit from the transaction. Commonly, the homeowners’ rental payments end up higher than the mortgage payments. Using a variety of devices, the “rescuer” ultimately strips the home of its equity and leaves the homeowner facing increasing financial distress, and eventually, eviction.

If passed, Illinois’ Mortgage Rescue Fraud Prevention Act would require that:

1. Distressed property purchasers must provide homeowners a written contract that lays out all the terms of the sale and makes it clear that the home is actually being sold.

2. The homeowner has the right to cancel the contract for five business days after all parties execute it.
3. Prior to sale of the property, the purchaser must make a determination that the homeowner has the ability to make rental payments and buy the house back.
4. The purchaser must pay the homeowner at least Eighty-two percent (82%) of the fair market value of the home at the time of the sale and may not include fees as part of the payment.
5. A homeowner who remains in the home under a rental agreement has the right to cancel the rental agreement at any time.
6. The purchaser must record the purchase contract with the county recorder of deeds so that any subsequent purchaser is put on notice.

While I applaud the State of Illinois’ attempts to regulate mortgage bailouts, the fact remains that until someone comes to table with a public awareness campaign aimed at educating consumers about real estate fraud, no additional amount of regulations will make any sort of measurable difference. Why? Because the scammers and bad guys will always find ways to navigate around the system to prey on unsuspecting homeowners. That’s it. It’s that simple. Regulations will only get us so far in the fight against fraud. We need education, and we need it now!

2006-01-29 07:25
Chicago Tribune columnist Dawn Turner Trice said it best back on November 14th of last year: “If you didn’t read last week’s Tribune investigation on mortgage fraud, titled “The New Street Hustle,” you missed a gem. David Jackson, the Tribune’s investigative reporter who led that project, is back with another enlightening article. From yesterday’s online edition of the Tribune:

Her arms were withered, her memory a fog. Bedridden and suffering from profound dementia, 91-year-old Lillie Densler was in a nursing home last year when she signed away her only remaining asset: a sturdy brick house on Chicago’s West Side.

Now, a well-known attorney, author and radio personality is at the center of fraud allegations stemming from the deal, which was part of a booming business in bailouts for struggling homeowners.

In Radio Host Tied to Home Scam, Jackson provides an overview of how ‘bailout deals’ have become a new breading ground for real estate-related fraud. Click here for the entire article… it’s well worth the 3-pages Jackson devotes to the case of Lillie Densler and her newphew, and Norton Helton, the man who now stands accused of swindling Densler out of her home.

And once you’re through with yesterday’s article, be sure to check out the Tribune’s online mortgage fraud education center and article archive. It’s of tremendous value to anyone who’s at all concerned about real estate fraud.

The fight against real estate-related fraud just got a much-needed shot in the arm, but is it enough? Earlier this week, Washington, D.C.-based Mortgage Bankers Association (MBA) announced that it plans to help in the fight on fraud by seeking support for $7,000,000.00 in federal funding for the following initiatives:

1. The hiring of 30 new FBI field investigators to work on real estate fraud cases.

2. The hiring of two (2) new dedicated prosecutors at the Department of Justice to coordinate prosecution efforts with the U.S. Attorney’s offices.
3. An increase in dedicated resources for FBI Interagency Task Forces in the geographical areas with the highest concentrations of real estate fraud.

Once these priorities are funded, MBA says the FBI can more effectively pursue and prosecute real estate fraud.

“Fraud is an issue that impacts every lender and takes a huge toll on the resources of lenders,” says MBA Chairman Regina Lowrie. “Actions on Capitol Hill or by regulators have an impact on how companies operate their businesses.

While I applaud the Mortgage Bankers Association for supporting efforts to add enforcement personnel to the equation, policing alone is not going to solve the problem. In 2005, losses from real estate fraud soared to more than $1 billion, up from $429 million in 2004, according to the FBI. Honestly, does anyone really think 30 more agents on the ground and two more prosecutors at DOJ are going to solve the problem or make the bad guys think twice about committing fraud? Of course not.

The bottom line is this… In addition to dollars for enforcement, we need significant funding for education, along with more appropriate state and federal regulations. Education and regulation will make more of a measurable difference in the fight against real estate fraud than any number of FBI agents ever can or will.

Far West Credit, Inc., a Salt Lake City, UT-based company that creates consumer credit reports for use by mortgage industry professionals, has agreed to pay a $120,000.00 civil fine to settle Federal Trade Commission (FTC) charges that it recently violated the Fair Credit Reporting Act and the FTC Act. Far West Credit, which now operates as LandAmerica Lender Services, was purchased in February of 2004 by Info1 Holding Company, Inc., a subsidiary of LandAmerica Financial Group, Inc. (NYSE: LFG).

Background: Far West Credit/LandAmerica Lender Services buys individual consumer credit reports from all of the major credit reporting agencies, and then merges the reporting agencies information about a particular consumer into one all-encompassing report that it provides to mortgage lenders. According to the FTC, if there is insufficient information about a particular consumer’s credit worthiness from the major credit reporting agencies, Far West/LandAmerica Lender Services attempts to collect ‘additional information’ to demonstrate the consumer’s credit worthiness. That ‘additional information,’ which comes from cable companies, utilities, rent-to-own businesses, and insurance companies–all of whom do not report on a normal basis to the credit bureaus–is added by Far West/LandAmerica Lender Services to reports they prepare for their mortgage industry-related clients.

At issue with the FTC was this: Far West/LandAmerica Lender Services provided erroneous consumer reports to Keystone Mortgage and Investment Company, Inc., a Phoenix, AZ-based home lender, which in turn approved consumer mortgage loans insured by the Fair Housing Administration (FHA) of the U. S. Department of Housing and Urban Development, and that otherwise would not have been approved.

Terms of the Settlement: In addition to paying the $120,000.00 civil fine, Far West now has to have in place reasonable procedures to assure the maximum possible accuracy of information in the consumer reports it prepares, and must adhere to strict record keeping and reporting requirements that allow the FTC to monitor compliance.

Commentary: Here’s what’s really interesting about this case. Keystone had an interest in making the loans. So much so that Keystone’s own employees provided documentation of borrowers’ credit accounts to Far West/LandAmerica Lender Services to be used in creating consumer reports for those borrowers (Note that Far West/LandAmerica Lender Services didn’t even bother to gather the information itself… rather, it relied on its own customer–Keystone–to gather the information for them… boy, does anyone else see a massive conflict of interest here). Anyway, the FTC charges that the information provided by Keystone’s employees was not verified by Far West/LandAmerica Lender Services, and that Keystone of course provided false information for many of its customers. For example, according to the FTC, in many cases, Keystone provided documentation about accounts with utility and cable companies that didn’t even service the areas where the loan applicant lived.

And what about Keystone Mortgage and Investment Company? Well, according to an article that ran in the January 18th edition of the Salt Lake Tribune, Keystone Mortgage and Investment was audited last year by HUD, who found a pattern of fraudulent loans at the Phoenix-based company. A HUD spokesman told the Tribune that HUD is “unable to disclose anything about any actions HUD has taken against Keystone,” a company which is now apparently no longer in business.

It’s clear from the Far West/LandAmerica Lender Services FTC settlement that real estate-related fraud comes in many shapes and sizes. Long gone are the days when it was just the consumer who tried to get something past their mortgage lender. More and more we’re seeing mortgage industry professionals, i.e., the Keystone’s of the world, and their vendors, i.e., the Far West/LandAmerica Lender Services types, conspiring to beef up consumer credit scores. The problem of course is that for every one FTC settlement like Far West/LandAmerica Lender Services’, there are thousands of other instances where something similar is happening but no one seems to care enough to stop it.

Always remember and don’t ever forget, committing real estate fraud is no accident, and neither should stopping it!

My apologies for the length of today’s post, but it’s a good one. A few weeks ago I sent the following letter to each and every states’ Attorney General:

———————————————————–
Dear Attorney General,

Ralph R. Roberts
———————————————————–

As of this morning, I’ve only heard back from five (5) of the Attorney Generals we wrote to. Here’s a summary of what each has had to say:

From the office of the Attorney General for the District of Columbia (Washington, DC):

Dear Mr. Roberts,

Your email dated January 11, 2006 to the Mayor and Attorney General was forwarded to the Department of Insurance, Securities and Banking for a response. My name is Stephen M. Perry and I am the Associate Commissioner of the Enforcement and Investigation Bureau, Department of Insurance, Securities and Banking (DISB).

My Bureau has responsibility, along with the DISB Banking Bureau, to be vigilant for real estate and mortgage frauds in the District of Columbia. We actively investigate any reports of these types of fraud. I am familiar with the Ralph Roberts web site “Flipping Frenzy.com” and your “On Demand Video web cast”. We will continue to check your web site for the very informative ” Mortgage Fraud Alerts” and act on any that refer to the District of Columbia.

We sincerely appreciate your interest in fighting fraud and the service you provide state regulators by educating the public on real estate and mortgage fraud.

Sincerely,

Stephen M. Perry, Director-Enforcement & Investigation Bureau
DC Department of Insurance, Securities and Banking (DISB)

From Arizona Attorney General Terry Goodard’s office:

The Consumer Protection and Advocacy Section of our office would like to thank you for the information you sent. Viligant citizens like you are the main source of information for our consumer fraud work. The time and effort it takes for consumers to pass on information to us does not go unnoticed.

To keep track of this practice, we will keep your correspondence in our records. The information you provided will help us monitor questionable business practices and determine priorities in our law enforcement efforts and legislative recommendations.

If we can assist you in the future, please do not hesitate to contact our office. Again, thank you for your good citizenship.

Sincerely,

Pamela Crabtree
Legal Assistant

From Georgia Attorney General Thurbert Baker’s office:

The Attorney General has asked me to respond to your recent letter. Please be aware that our office serves as legal counsel for state government. Therefore, we will be forwarding your information to the Federal trade Commission (“FTC”). The FTC is vested with the authority to investigate matters like the one that concerns you. You can address any future complaints to the FTC by filing an online complaint to www.ftc.gov/ftc/complaint.htm . I have included their address for your convenience.

Federal trade Commission
Consumer Response Center
600 Pennsylvania Avenue, N.W.
Washington, DC 20580

Think you again for bringing this matter to our attention. I regret we were unable to assist you, but trust you will find this responsive to your request.

Sincerely,

Jeffrey W. Stump
Assistant Attorney General

From Ohio Attorney General Jim Petro’s office:

Thank you for your recent letter regarding [sic: Credit Launchers]. Attorney General Petro always appreciates receiving information of this type from concerned citizens like you.

Letters such as yours are the source of much of our information and often the first indication of a problem that may warrant investigation. The information you have provided will be recorded in our complaint retention system that enables us to identify patterns of questionable business practices that may violate Ohio’s consumer laws.

With the assistance of citizens such as you, we can continue working to eliminate deceptive and unconscionable practices in the Ohio marketplace.

Again, thank you for taking the time to bring this issue to our attention. Please feel free to contact our office in the future with any of your consumer-related concerns.

Very truly yours,

Jonathan L. Ward
Consumer Protection Specialist

Jonathan from the Ohio AG’s office has since followed up via e-mail with the following:

We have received your complaint regarding [sic: Credit Launchers]. Unfortunately, you failed to provide me with Credit Launchers address. Before your complaint can be assigned to a Complaint Specialist for mediation, this information must be provided. Please send this information to me as soon as possible so I may process your complaint in an expedient manner.

Attorney General Petro appreciates the opportunity to serve you.

Very truly yours,

Jonathan L. Ward
Consumer Protection Specialist

Ohio’s attention and responsiveness is in stark contrast to North Dakota’s. See for yourself:

I am responding on behalf of the Attorney General to your email. The Attorney General and his staff are prohibited by law from providing legal advice or legal assistance to members of the public or private businesses – we may only serve as legal advisors to state agencies and officials, state’s attorneys, and certain city officials.

This office does not have authority to enact new laws or change existing laws; the next legislative session begins January 1, 2007. Thank you for contacting us with your concerns; we will keep this information on file for future reference.

Liz Brocker
Executive Assistant/PIO
ND Office of Attorney General

Here’s my reply to Liz in the North Dakota AG’s office:

Dear Ms. Brocker,

Thank you for your e-mail correspondence dated January 11, 2006 (referenced below). Given the tenor of your reply, I have no option but to believe one of two things:

1. You did not read my original message in its entirety; or
2. You misunderstood the message in its entirely.

To recap, I wrote to your office on January 10, 2006 (see attached), to share information–not to, as your response alluded to, request “legal advice” or “legal assistance.” In short, I wrote to “inform” the North Dakota Attorney General of fraudulent real estate-related activities taking place in North Dakota.

In closing, I would sincerely appreciate a more appropriate response to my correspondence than the one you sent (which, quite frankly, felt like an automated response rather than one which took into account the facts and data I so freely and sincerely shared).

Respectfully,

Ralph R. Roberts

My reply brought the following one back from Liz in the ND AG’s office:

The “legal advice” language is disclaimer language that is included in all our email responses. I assure you I read your entire email, as did my supervisor when she approved my response.

Our consumer protection division has not received any consumer complaints relating to the companies referenced in your email, nor are we aware of any such operations in North Dakota at this time. You may be interested in reviewing North Dakota’s consumer fraud statutes, online at: http://www.legis.nd.gov/cencode/t51c15.pdf, and information on our website at: http://www.ag.state.nd.us/CPAT/ConsumerInfo.htm, and http://www.ag.state.nd.us/CPAT/ScamsShamsFlimFlams.pdf.

If the alleged activity is currently occurring outside North Dakota’s borders, you may find it more helpful to contact the US Attorney’s office or Attorney General’s office having jurisdiction. As previously indicated, we will keep your original email on file for future reference.

Liz Brocker
Executive Assistant/PIO
Office of Attorney General

We’ve since been able to uncover Credit Launcher attempting to operate in North Dakota, so we’ll be contacting the ND AG again!

If anyone would like to join us in our letter writing campaign, simply leave a comment in the ‘Comment’ section below. Together we CAN put an end to Real Estate-related fraud!

They’ve been lending mortgages to hundreds of thousands of American homebuyers with bad credit for years—that is, until the lawsuits claiming predatory lending practices started to pile up. Yesterday, Ameriquest Mortgage, one of the largest lenders in the country, settled multi-million dollar lawsuits alleging mortgage fraud spanning 49 U.S. states.

From today’s online edition of the The San Francisco Chronicle:

Ameriquest Mortgage, the nation’s largest subprime mortgage company, settled predatory lending allegations by 49 states on Monday, agreeing to pay $295 million in restitution and clean up its lending practices. The agreement, which included an additional $30 million to reimburse states for their legal fees, was the second-largest predatory lending settlement, after a $484 million agreement reached in 2002 with Household Finance Corp.

In a conference call, several state attorneys general said Monday they found evidence that Ameriquest had engaged in a wide variety of unethical and possibly illegal sales tactics. Before 2003, they found many instances where Ameriquest customers ended up with more expensive loans than sales reps had promised. Those abuses abated after Ameriquest changed some sales practices in 2003, but others persisted, and in some cases, worsened, regulators said. Some Ameriquest sales reps allegedly inflated borrowers’ incomes so they could take out a bigger loan, often one they couldn’t afford to repay.

At issue was whether Ameriquest turned the American dream of homeownership into a full-on nightmare by using deceitful and deceptive practices to bilk borrowers desperate for better deals on debt. Yesterday’s settlement is a strong indication that Ameriquest–the nation’s leading sub-prime lender–indeed misled consumers as to key terms like interest rates and prepayment penalties, and inflated their incomes levels and home appraisals, all of which lead to higher loans than they could afford and often caused foreclosures and an onslaught of related financial disasters.

At the end of the day, the settlement is as strong an indication as any that Ameriquest pressured appraisers to inflate property values so borrowers could get bigger loans, imposed upfront fees without reducing interest rates as promised, and told borrowers to ignore written information about interest rates because they would give them lower rates later. The company is also alleged to have given them higher interest rates instead. Ameriquest also assured some borrowers that their loans would have no prepayment penalties, then inserted such payments into the final loan documents; delayed the time period between the loan closing and the funding; and misrepresented fees and costs.

Under the terms of the agreement, Ameriquest will pay $295 million in restitution to consumers nationwide and another $30 million to the 49 states and the District of Columbia for attorneys’ fees, costs, consumer education and enforcement programs.

The settlement includes Ameriquest’s holding company, ACC Capital Holding Corporation, and its subsidiaries, Ameriquest Mortgage Company, Town & Country Credit Corporation and AMC Mortgage Services, Inc., formally known as Bedford Home Loan. Ameriquest itself is based in Orange, Cal., near Los Angeles.

2006-01-23 19:45
As a direct result of a letter I recently sent to Oregon’s Attorney General, Oregon’s Division of Finance and Corporate Securities has issued a consumer warning about businesses that offer novelty paycheck stubs. Oregon is doing what every state in the country should be doing right now… cautioning everyone who goes online about releasing personal information, especially social security numbers, to any person or business that claims to be able generate authentic looking pay stubs.

From Oregon’s recently posted consumer alert:

The Oregon Division of Finance and Corporate Securities warns consumers and businesses about entities that purport to offer novelty paycheck stubs. One website, which may no longer be active, called Novelypaycheckstubs.com, claimed to offer authentic looking payroll check stubs as a “novelty” or entertainment item. The Division is concerned that these products can easily be used to falsify employment or payroll information for qualifying for a home mortgage loan or extension of credit for other purposes.

Oregon’s swift action to my letter is appreciated, and should serve as an example to every other state’s Attorney General.

The Associated Press (AP) is reporting this morning that New Jersey-based Automatic Data Processing Inc. (ADP) has filed a trademark infringement lawsuit in federal court in San Jose, Calif., against Novelty Paycheck Stubs dot com and the operators of the site that produces the phony pay stubs.

While today’s article is simply a repeat of yesterday’s St. Petersburg Times story (which I blogged about yesterday), the fact that it’s now an AP Wire story, coupled along with the headline (“ADP sues Web site over fake pay stubs“) should bring nationwide exposure to story.

So far, the AP story is running in the following papers:

– Pennsylvania: The Philadelphia Inquirer
- New York: New York Newsday
- Texas: Fort Worth Star Telegram
- New Jersey: The Record and Herald News
- Florida: Orlando Sentinel
- Massachusetts: Worcester Telegram & Gazette
- More from Florida: The Gainesville Sun

Feel free to leave me a comment below if you too see this story elsewhere, or if you yourself have spotted another company claiming to print phony pay stubs.

In an excellently written article in today’s St. Petersburg Times, staff writer Jeff Testerman calls our attention to a Tampa, Florida-based Internet company that promises to provide “phony but authentic-looking pay stubs” to anyone who’s willing to pay. From today’s St. Petersburg Times:

On its Web site, the company says you might need its product if you’re depressed about your lousy income and want to “look like you make big bucks.” It also suggests buying a fake pay stub if “your spouse thinks you’ve been at work and you need proof.” But a real estate industry watchdog and a federal lawsuit against the company call it an invitation to lending fraud.

The outfit Testerman refers to in the article is but one of many shocking examples of companies that are making considerable sums of money by aiding in practices that are criminally deceptive. Oftentimes, their offices bounce from state to state in an effort to find a state with a degree of ignorance or tolerance for their shady activities.

Click here for the entire article, which includes a few quotes from your’s truly. And remember, since committing fraud is no accident, preventing it shouldn’t be one either!

2006-01-19 20:46

It is sometimes alarming to discover who may be in on fraudulent activity. Just take this story for instance.

Feds unveil probe into local law firm: Charge filed against former town attorney; partners plead guilty

By Michael Valkys-The Poughkeepsie Journal

WHITE PLAINS (NY) — Former Town of Poughkeepsie Town Attorney Frank Redl, already suspended from practicing law for his role in a 1990s town corruption scandal, was arrested early this morning by federal authorities and accused of stealing more than $150,000 from his former private firm’s attorney trust account.

Three other former members of the now defunct firm, its accountant and a local banker have already pleaded guilty to various charges following a two-year probe by federal authorities that uncovered illegal acts dating back eight years.

Click here to read the entire article.

2006-01-18 20:52

A recently-published White Paper by a Massachusetts Institute of Technology professor is calling for quick action by government, and industry and professional associations to provide a “sound strategy” for e-notarization to help stem the rising tide in forgeries and frauds in identity, mortgage and even immigration transactions.

In “Electronic Notarization: Why It’s Needed, How It Works, And How It Can Be Implemented To Enable Greater Transactional Security,” published by the National Notary Association, Daniel J. Greenberg, Director of MIT’s E-Commerce Architecture Program, outlines the legal and technological issues that need to be addressed to ensure convenient and secure e-commerce in an era of rising document forgery and identity fraud.

Such crimes interfere with the orderly conduct of business and threaten individual property rights. It is in the interest of business and government to implement systems that protect these rights. The Notary Public, charged with positively identifying individuals during such sensitive transactions as purchasing a home, serve to shield the public from insidious identity and document schemes.

“As a society, we may never be able to stop criminals from obtaining fraudulent identification documents, but Notaries can pose a formidable obstacle and deterrent to these criminals and provide an independent record that may be the only evidence prosecutors have to convict a forger,” Greenwood writes. “Indeed, in protecting our identities from misappropriation, Notaries are one of the most powerful weapons we have against the ever-increasing onslaught of identity crimes.“

Many paper-based transactions, from real estate conveyances to international adoptions to last wills and testaments, are notarized in order to prevent, detect and prosecute fraud. As government agencies and industry move toward a complete paperless workflow, electronic documents will need to receive the same level of security as their paper counterparts. However, Greenwood warns that laws and regulations to guide Notaries in the performance of electronic notarizations are lacking and must be immediately addressed to ensure the protection of property rights in the 21st century.

“Those who regulate Notaries Public would be derelict in their duty if they failed to effect the rule-making necessary to transition to a reliable system of e-notarization,” Greenwood writes. “Failing to exercise oversight and control in this area would be akin to failing to provide and enforce safety rules for hydrogen or hybrid cars because the new technology is different from the old.“

In short, Greenwood emphasizes the need for more uniform laws to “ensure that consistent and harmonious national infrastructures develop” and interstate commerce is not adversely affected.

In response to this legislative need, as described in the research, the National Notary Association has published the Model Notary Act (2002), a model statute that “integrates paper-based and electronic procedures and contains the first comprehensive set of rules for registering electronically-capable notaries and regulating their electronic acts.”

“It is essential to inform government, law enforcement and industry leaders of the need for regulated electronic notarization to best protect consumers against forgery in e-commerce,” says Timothy S. Reiniger, Vice President and Executive Director of the NNA. “Mr. Greenwood and the Massachusetts Institute of Technology have done an invaluable service in drafting this important document.”

This White Paper is available online at the NNA’s Web site: www.Nationalnotary.org