My oldest daughter recently turned 18, and as many parents with children in college are compelled to do, my wife and I added her to one of our credit card accounts. She attends a college that’s 2 1/2 hours away from our home, and while an 18-year-old daughter with Daddy’s credit card in tow might worry most parents, we’re confident that ours will make smart and informed choices where my credit is concerned. That’s right, I said where my credit is concerned.

By now, most people know that it’s as easy to authorize additional people to use their credit card accounts as it is to swipe the credit card itself at the checkout counter in their local grocery store. In my case, all it took was one simple phone call to my credit card company, and within three minutes our daughter’s name was added to my account, and within the next couple of days her first credit card will arrive in the mail.

While I’m happy she’ll have a credit card to handle emergencies and special situations which her Mother and I approve beforehand, I’m not particularly thrilled by the prospect of little-miss-college-girl unintentionally benefiting from my hard-earned and very respectable credit score.

If you didn’t know, in most cases, when you add someone as an authorized user to your credit card account, the new authorized user inherits your credit history. In other words, if you have an excellent credit rating and you add your daughter’s name to your account, she automatically receives a boost in her credit rating–a boost she has not earned. What’s so alarming about this is the fact that real estate industry professionals have been telling their clients with poor credit scores do the same thing–piggyback on someone else’s credit card account–so they can qualify to buy a home they really can’t afford!

In fact, an entire industry now operates underground to do just that… boost consumers’ credit scores so they’ll qualify for home loans. Take for example Credit Funding Solutions, Inc, (formerly “Credit Launchers,” and also known as “CFS”), which promises to boost consumers’ poor credit scores to unreasonably high levels in as few as 90 days for a flat fee. According to their original web site, which has now been taken down, the company can add the name of a consumer applicant to CFS’s president’s personal credit card accounts, which, as I explained before, allows someone to reap the benefits of a drastically improved credit rating that they themselves did not earn. Through aggressive Internet-based advertising on sites like CraigsList.org, CFS markets its services in nearly every state, and the demand for their service is so strong that a competitor has now emerged—a company called Seasoned Trade Lines—and both companies now appear to be paying consumers with good credit scores thousands of dollars to allow strangers to piggyback off of their credit card accounts… and what’s even more alarming is the fact that Mortgage Brokers and REALTORS are encouraging the practice by referring their customers to both companies!

Look, I have no problem with anyone adding anyone else to his or her credit card account as an authorized user. It’s perfectly legal and in most cases is done for perfectly legitimate reasons. What I’m not okay with—both as a REALTOR and private citizen—is someone with a poor credit score or non-qualifying income being able to qualify for a home loan based on an artificially inflated credit score. In case after case, the new homeowner defaults on the loan, which only adds to the problem.

The three major credit reporting bureaus—Equifax, Experian, and Trans Union—need to address this issue. There has got to be a way for someone to be able to be added as an authorized user and NOT benefit from the authorizer’s credit score. I mean, come on… if we can put a land rover on Mars, why can’t we do this? The stakes are too high—for both consumers and real estate industry professionals alike—for us not to be talking about this issue. Anything that can manipulate the system and be used to commit real estate fraud needs to be road blocked, and anyone who piggyback’s off of someone else’s credit score with the intent of securing a home loan should be stopped, as should the real estate industry professional who suggested it!

A lawyer in South Carolina lawyer says real estate fraud is so rampant among manufactured-home dealers in his state, that any real estate professional who refuses to participate in generating fraudulent deals puts themselves at a competitive disadvantage. According to a news article in yesterday’s The Sun News, South Carolina has the highest concentration of manufactured homes in the nation (about 20 percent), and real estate fraud–namely the kind that involves mortgage brokers, not consumers, falsifying income and bank account information in order to secure loans for their customers–is out of control.

From yesterday’s Sun News:

Mortgage Fraud Tension Ratchets Up

Mortgage fraud in Horry County’s manufactured home industry, once a whispered topic of conversation among some in the real estate community, has caught the attention of state agencies and real estate groups, which vow to crack down on the problem. Cleaning up the industry, however, has proved to be a difficult process for short-staffed state agencies charged with protecting the public.

Home buyers who say they’ve been taken advantage of are frustrated with the limited help that’s available and what they perceive as a lack of progress on their cases.

“I’ve talked with a lot of attorneys, and no one will touch my case,” said Robert Romaniello, a Conway man who says he was asked to take part in a fraudulent mortgage. “They say it would cost me more in attorney’s fees than what I could get. It’s not worth it to them. And I’m not sure the state agencies are even taking it seriously. I keep getting passed around from agency to agency.”

Investigators with the S.C. Department of Labor, Licensing and Regulation talked with Ed and Hanna Hudzik about their mortgage problems in December. The investigators also took the couple’s loan documents to Columbia. “We haven’t heard a thing from them since then,” Hanna Hudzik said. “They haven’t even returned the papers we let them borrow.”

David Bennett, administrator for the state’s Manufactured Housing Board, said his agency wants to crack down on fraud, but investigations are rarely quick or easy. The housing board, a division of the state’s LLR department, has two investigators who specialize in fraud cases, Bennett said. They oversee about 300 manufactured home sellers statewide.

Click here for the rest of the article, which goes on to mention that South Carolina’s Consumer Affairs Department has just five investigators to oversee nearly 750 mortgage brokers statewide, as well as thousands of other businesses across the state, including pawn shops, health clubs, continuing care retirement communities, and staff leasing companies.

The size and scope of the real estate and mortgage fraud problem is incomprehensible when you hear about figures like these… five (5) investigators for seven hundred and fifty (750) brokers, or one hundred and fifty (150) brokers per investigator, and as the article points out, SC’s Consumer Affairs investigators cover more than just mortgage brokers.

Can you imagine being a consumer affairs investigator in South Carolina… on Monday you investigate complaints about the policies associated with canceling health club memberships, and then on Tuesday you’re knee-deep into the complexities related to potentially fraudulent mortgages. Unbelievable. When will states like South Carolina wake up and smell the coffee?

At the very least, South Carolina’s Consumer Affairs Department web site should warn consumers about fraudulent mortgage brokers… as opposed to using valuable space on the front page of its site to warn mortgage brokers about originator application deadlines (and no, I’m not making this up… click here to see for yourself!).

Wow, what a week, and technically it’s not even over, yet. From talking with nearly a dozen different reporters from national and regional newspapers and magazines about the problems associated with real estate and mortgage fraud, to working on finalizing and submitting chapters to the publisher for my new book, as well as working on workshop proposals for the National Association of REALTORS Annual Conference and going to work every day to help customers and my amazing staff with the daily grind that is the real estate market (phew, that was a mouthful)… it has been one nutty week, to say the least.

Still though, the coverage of real estate fraud indictments, convictions, and related legislative efforts keep coming, and the state of Ohio seems to be leading the charge. From this morning’s online edition of The Cincinnati Post:

Mortgage Broker Pleads Guilty in Real Estate Flipping Scheme

By Jon Newberry, Post Staff Reporter

Another Cincinnati area mortgage broker has agreed to plead guilty to criminal charges arising from a real estate “flipping” scheme, this one allegedly defrauding mortgage lenders of more than $872,000, according to U.S. Attorney Gregory Lockhart’s office.

Clarence D. Harris of Cincinnati was charged with conspiracy to commit bank, mail and wire fraud and filing a false tax return earlier this month. He has agreed to cooperate with the ongoing investigation. He’s scheduled to appear before U.S. District Court Judge Herman Weber on Feb. 28, according to Internal Revenue Service spokesman Craig Casserly.

Harris’s approach was similar to other flipping schemes that have been uncovered by law enforcement officials, including the IRS, the FBI and the U.S. Postal Inspection Service. Prosecutors said the schemes involved people purchasing real estate at a low value and then recruiting a buyer for the property, usually someone who otherwise couldn’t afford it or who was interested in buying it as an investment.

False documents would be created, including pay stubs, W-2 forms, bank statements and employment verifications, and a falsely inflated property appraisal would be obtained.

My colleague Rachel Dollar at MortgageFraudBlog.com got a hold of Harris’ plea agreement and provides a deeper look into what the former mortgage broker did (click here to read Rachel’s overview).

Also this week, more great news out of Ohio… this time though it’s on the legislative side of the coin… news about a Bill in the Ohio Senate that would hold mortgage brokers more accountable for their actions. From Wednesday’s online edition of the Cincinnati Enquirer:

Bill To Aid Homeowners

Lawmakers rebuffed efforts Wednesday to protect mortgage brokers and lenders from lawsuits, instead inserting more borrower-friendly provisions in a bill aimed at lowering Ohio’s foreclosure rate. The [sic: Ohio] Senate voted 29-4 to send the bill [sic: Sub. S. B. No. 185] clamping down on predatory lending practices to the House. Sen. Tom Niehaus, R-New Richmond, was one of the four who voted no.

Ohio’s foreclosure rate is the worst in the nation. Despite federal investigations of mortgage fraud in Greater Cincinnati and Dayton, and questions about the rising foreclosure rate across the state, the General Assembly has studied the issue for a couple of years but enacted no laws.

House Speaker Jon Husted called the bill a good foundation. The suburban Dayton Republican said he hadn’t studied all the specifics but wants to ensure the bill stays focused on stopping fraudulent practices without hampering business. The bill adds mortgage brokers and lenders that aren’t otherwise covered by federal banking regulations to Ohio’s consumer protection act, requires more licensing for those in the industry and increases enforcement authority of local prosecutors and the state attorney general.

The Ohio Chamber of Commerce learned late of a provision that requires brokers and lenders to act in the best financial interests of their customers - similar to requirements for stock brokers and insurance agents. But instead of removing the requirement as the chamber suggested, a Senate committee Wednesday strengthened it, prohibiting brokers and lenders from asking customers to sign papers saying the lenders don’t have to act in the borrowers’ best interest.

From this week’s news, it looks like Ohio’s moving in the right direction. Click here for the full text version of Ohio Senate Bill 185… it’s a long read, but it’s also well worth it!

Canada’s largest title insurer has gone on record as saying that the average case of real estate fraud in that country is costing consumers nearly $300,000 in loses. As I wrote earlier this month (scroll down to my February 3rd entry), the Law Society of British Columbia, after four years of investigations, recently approved $32.5 million in payments to cover a real estate fraud case involving Vancouver lawyer Martin Wirick. The high-profile case involved transactions between 1998 and 2002, and affected hundreds of consumers. Because of that case, lawyers in British Columbia now contribute to a special compensation fund to reimburse consumers for losses associated with fraud and lawyer-related issues.

A basic title fraud scam in Canada is no different than the same scam anywhere else: a fraudster targets a house, forges a transfer deed, registers it in his own name, forges a discharge of the existing mortgage and borrows against the clear title. And unlike credit card fraud–which Canadian authorities say average out to about $1,200 in losses per case–where banks allow victims to suspend payment until an investigation takes place, there’s no protection when a mortgage is fraudulently charged against a property. Title insurance, according to Canadian authorities, is one way for consumers to buy peace of mind.

“The onus is on the homeowner to prove the crime, and it can be very costly to restore your title,” says Wayne Proctor, First Canadian Title’s Pacific Region Director. “For a one-time premium, title insurance is one effective and inexpensive way to ensure your property is protected. It covers all legal expenses related to restoring a title and is available to existing home owners long after they have purchased their properties.”

The surge in real estate title fraud and identity theft cases in recent years has prompted First Canadian Title to embark on an awareness campaign to educate consumers as well as the legal, law enforcement and lending communities about the dangers associated with real estate fraud. Hopefully, the result will be a renewed sense of industry collaboration and increased awareness among consumers. Also, the need for increased diligence and implementing strict prevention measures when it comes to reviewing real estate transactions has not been lost on First Canadian Title.

“Last year alone, our underwriting department prevented approximately $19 million in what we believe to be fraud claims,” says Susan Leslie, First Canadian Title’s VP of Claims and Underwriting. “We’re simply becoming better at recognizing the tell-tale signs when something is not right.”

According to Proctor, there are several indicators that serve as warning signs to real estate professionals for potentially fraudulent activity during a purchase or refinance transaction. These include:

- Inquiries and established credit are inconsistent with age, income or profession.
- Instructions that funds are to be paid to an unrelated third party individual.
- Counter check presented for deposit or identification instead of a personalized check.
- Employment information provided cannot be verified.
- Client(s) will only provide a cellular number for contact purposes.

Finally, the Quebec Association of Real Estate Agents and Brokers reports that mortgage fraud amounts to an estimated $1.5 billion a year in loses, and even though cities like Vancouver, Toronto and Edmonton and are hotbeds for this sort of criminal activity, all Canadian homeowners are at risk. In the year 2000, real estate title fraud claims accounted for only six percent (6%) of total dollars paid in claims at First Canadian Title. By 2005, that number reached a whopping thirty-three percent (33%).

Earlier this morning, while getting ready for work, I found myself flipping (no pun intended) through the never-ending selection of channels my cable television company so generously provides. Most mornings, after a 3-4 mile exercise-myself-and-the-dog walk, I’ll watch a few minutes of news on television to see what’s happening in the real world. Rarely do I ever watch anything else before work, especially if it’s one of those home shopping shows or even worse, an infomercial. Note, I didn’t say ‘never,’ I said rarely.

This morning, something on one of the syndicated network channels caught my eye. According to the voice booming from my television, a woman from Colorado claims to be able to teach me how to take my last $10 and turn it into $10,000 or more using her real estate investing techniques. The narrator went on to say, and I’m paraphrasing here, “anyone can become a millionaire using Dwan’s system… let Dwan show you just how easy it is.” Okaaaaaay, I’m game… tell me more!

The infomercial is filmed as an insider’s look into one of the hottest infomercial offers today (sort of ‘behind the scenes’ look at the filming of an infomercial, if you can believe that). The host of this ’show’ (which again is an infomercial) is a woman named Lisa Eisenpresser, who we learn is President of NYC-based Sunshine Direct, a producer of–you guessed it–infomercial, and according to the script her own company wrote for this infomercial, she’s sincerely interested in finding out–for her viewer’s sake, of course–if this Dwan’s woman’s offer is legit. Okay, so aside from the fact that my intelligence is already offended, I’m still intrigued enough to watch about 5 minutes more of this thing before heading out the door for work.

For the next 10 minutes or so–yeah, they sucker-punched me into watching more than I intended (it was just ’so’ compelling)–Eisenpresser and her off-camera narrator provide ‘does-it-really-work’ commentary, while Dawn and a whole slew of people provide testimonial after testimonial to the power of Dwan’s system for turning a $10 real estate-related deposit into a $10,000 real estate-related profit in 30-days or less.

Sounds too good to be true? That’s exactly what I’m thinking. And when a real estate-related ‘too good to be true’ offer comes along, there’s one person I like to turn to for more information. John T. Reed is the writer and publisher of John T. Reed’s Real Estate Investor’s Monthly. According to his web site, John has worked as a real estate agent, property manager, and is the author of 20 real estate investment books. He holds a Bachelor’s degree from the U.S. Military Academy at West Point, as well as a Master’s degree in business administration from the Harvard Business School. But more impressive than any of his professional or academic achievements is Reed’s commitment to exposing the “endless parade of B.S. artists coming into the real-estate-investment-advice field.”

While John and I have never met, I’m a big fan of his work (he maintains a web site where anyone can read up on these so-called real estate gurus), and since this Dwan character claims to be able to turn $10 into $10,000 almost overnight, I’m going pass her information onto John to see what he has to say about all of this. In the meantime, if anyone is interested in seeing Dawn’s web site, here it is… MillionaireMindsetCollection.com.

And stay tuned… if John T. Reed is game, I’ll share his opinion on Dwan and her offer soon enough. In the meantime, CLICK HERE for John Reed’s thoughts on a growing list of so-called Real Estate experts (121 of them at last count).

= = = UPDATE: JUNE 25, 2008 = = =

The “Dwan” referenced above is none other than Dwan Bent-Twyford, and the company referenced above is none other than Millionaire Mindset, LLC., a.k.a. The Investors Edge University, a.k.a. Financial Freedom Through Foreclosures.

For a follow up on this post, visit our homepage and click on the link for Dwan Bent-Twyford in the right hand column under Categories.

EDITOR’S NOTE: Because of the intense and often off-topic nature of many of the comments left for this blog entry, commenting for the particular blog entry has been turned off, and all unrelated comments have been deleted.
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According to an article in last Friday’s online edition of Mississippi’s Clarion-Ledger, Assistant U.S. Attorney Cindy Eldridge says she could spend the rest of her days as an attorney (she’s 41-years-old by the way) prosecuting just mortgage-fraud cases. Wondering why? Well, take a gander at this and see if you don’t agree…

A man recently walked up to the customer service counter at a Register of Deeds office not too far from my office here in Michigan, and did what probably happens at that office two to five dozen times per day… presented a signed deed indicating that he was selling a property. Nothing out of the ordinary, right? Well, that’s where this story takes an unlikely twist. The employee working the counter at the Register of Deeds office that day just happened to be owner of the house, and she wasn’t interested in selling.

That’s right… real estate and mortgage fraud has gotten so out of control that a crook tried to pass a phony deed right under the nose of the home’s owner, who just so happened to work at the Register of Deeds office. Think I’m making this up? Trust me, I couldn’t even if I tried. From this morning’s online edition of The Detroit News:

Rarely do victims of mortgage fraud come eye to eye with the person trying to steal the property from right beneath their feet. In one version of mortgage fraud, Casha Valentine did. A man walked up to the counter at the Wayne County Register of Deeds where Valentine works and presented a deed with Valentine’s forged signature saying she was selling her property. She was not.

“I was sitting there looking right at him. I could have grabbed him over the counter. I said to myself ‘Why is he doing this?’ I was shocked, but they do it every day,” said Valentine, 45, of Southfield. And thanks to the quick thinking of her co-workers who called police and stalled the con man, Valentine won’t be spending thousands of dollars trying to reclaim the home she rightfully owns. But hundreds of Metro Detroiters are not so lucky.

Click here for entire Detroit News article.

For years now I’ve been warning consumers–along with local, state, and Federal regulators and law enforcement officials–about the tactics bad guys use to commit real estate and mortgage fraud. Never in my wildest dreams though did I think a crook would be stupid enough to try something like this (and by “this” I don’t mean attempting to pass a phony deed… I mean attempt to pass a phony deed right in front of the rightful owner of the property). But don’t you see… this is just one more example of how easy it is for the scammers and fraudsters to get away with real estate fraud.

What does it say about the system if the only way this jerk got caught was because the person he tried to scam just so happened to work at the Register of Deeds office? I’ll tell you what it says… it says that real estate and mortgage-related fraud are as easy to commit today as taking candy away from my little brother was 40 years ago. It says that honest, hard-working homeowners don’t have a chance to protect themselves. And it cries out for a solution. When it gets this easy to steal a house, something is clearly wrong. It’s high time that homeowners, real estate professionals, law enforcement agencies, and politicians join forces to address this clear and present danger.

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EDITOR’S NOTE: Because of the intense and often off-topic nature of many of the comments left for this blog entry, commenting for the particular blog entry has been turned off, and all unrelated comments have been deleted.

On the heels of the FBI calling Colorado’s real estate and mortgage fraud problem among the worst in the country, federal and state officials are now aggressively prosecuting real estate agents, mortgage brokers and homeowners engaged in a wide range of real estate schemes. From yesterday’s online edition of the Denver Business Journal:

Investigators have uncovered hundreds of cases in which real estate agents, mortgage brokers and fake-document vendors have collaborated to sell homes to illegal immigrants using fraudulent drivers’ licenses, Social Security numbers, and fabricated income and tax documents.

Grand juries across the state have indicted nearly 90 people since early 2003 who’ve been prosecuted by the U.S. Attorney General’s Office in Colorado or are facing charges ranging from mail and wire fraud to witness tampering and money laundering.

One, nearly year-long case recently culminated in the indictments of 10 defendants by three different grand juries in Jefferson County. Investigators from the Colorado Bureau of Investigation [CBI] say they discovered hundreds of houses were sold by the defendants to undocumented immigrants. In 191 transactions, every single document a home buyer used was fraudulent, said Bob Brown, the agent in charge of CBI’s Complex Crime Unit.

The article, penned by the DBJ’s Michael Perrault, goes on to document case after case where fraudulent driver’s licenses and social security numbers, along with forged tax documents to match fake income statements, were used to obtain government-backed loans. According to the article, total loses–for the cases uncovered to date–appear to be in the neighborhood of $10,000,000.

Click here for Perrault’s article.

Yesterday I wrote about how the information provider side of the real estate industry was becoming growingly concerned about real estate and mortgage fraud. Today we see why…

Less than 24 hours after talking with REIPA’s Ira Lutz about speaking at the NPRRA-REIPA Joint Conference, Houston-based Stewart Information Systems–one of the leading real estate information and transaction management companies on the planet–revealed in it’s FORM 8-K filing with the Securities and Exchange Commission that it has set aside $10,500,000.00 to deal with a mortgage fraud claim. From the “Financial Highlights” section of Stewart’s 2/16/06 SEC filing:

Profits for the year 2005 versus 2004 were impacted by higher employee costs and other operating expenses because the Company continues to incur the costs of investment in technology advancements. The Company’s goal is to increase productivity, gain market share and provide superior service to its customers. Profits in 2005 were also impacted by an addition to title loss reserves of $10.5 million in the fourth quarter for large losses relating to a mortgage fraud and a defalcation.

Did you read that last sentence… Stewart’s 2005 profits took a $10.5 million hit because of mortgage fraud committed against the company… a company which by all accounts is one of the leaders in providing technology-driven services related to title insurance, document preparation, and background checks. If Stewart–with all its years of experience in the areas it does business in–can take a $10.5 million hit for mortgage fraud, imagine how unprepared the average consumer or REALTOR is when it comes time to cross all the “t’s” and dot all the i’s.”

Three words people…

Education, Education, Education!

Oh, and just in case you’re feeling sorry for Stewart or the company’s shareholders, not to worry! The company’s revenues for 2005 set an all-time record high at $2.4 billion. That figure represented an increase of 11.4 percent over the previous year. Pretax earnings for the company in 2005 weren’t bad either… $165 Million.

Even though I’ve been a real estate professional for some 25+ years, I’m still amazed by the size and scope of my own industry. Thanks to Bart Wilson from Voyager360.com, I recently had the chance to talk with Ira Luntz, President of Integreity Solutions, and a member of the Board of Directors of the Real Estate Information Professionals Association (REIPA).

Now, just in case you’ve never heard of REIPA, they’re a national trade association (headquartered in Durham, North Carolina) whose membership ranks includes professionals and the companies they work for, all of whom are involved in the business of providing real estate and public record information here in the United States. As most good membership-based associations do, REIPA provides an industry forum for the creative exchange of ideas and discussion of issues pertinent to its membership’s business climate. As it turns out, REIPA’s members are very concerned about real estate fraud, and to make a long story short, that’s how I found myself on the telephone with REIPA’s Ira Lutz.

As it turns out, for the last five years, REIPA has joined forces with another leading industry trade group—the National Public Records Research Association (NPRRA)—to host a joint conference on issues that are central to both organizations members. After speaking with Ira about the problems associated with real estate and mortgage fraud, we agreed that I should speak at this year’s NPRRA-REIPA Joint Conference, which is being held from April 5-8, 2006, in San Antonio, Texas (click here for the NPRRA-REIPA Joint Conference web site).

Right now, I’m scheduled to speak on “The Growing Technology Influence in Detecting Mortgage Fraud” (Friday, April 7, at 1:45 p.m.), and will also present a workshop entitled “Housing Investment Fear Factor” (Saturday, April 8, at 9:00 a.m.). In case anyone’s wondering, both talks will take place at the beautiful Hyatt Regency San Antonio, which is situated just alongside San Antonio’s famous Riverwalk.

In Friday’s session, “The Growing Technology Influence in Detecting Mortgage Fraud,” I’ll be joined by REIPA’s Collateral Assessment and Technologies Committee. Together, we’ll explore how technological advances are being incorporated into early detection of potentially fraudulent mortgage transactions.

For Saturday’s session, “Housing Investment Fear Factor,” I’ll be using housing sales and MLS inventory statistics to explores the real-world possibilities of a major economic downturn and what impact it may have on buying and selling real property. Should you be buying or selling? Come to this session to find out.

Again, for more information on the Joint NPRRA-REIPA Conference, click here. In the meantime, if anyone would like to talk with me beforehand about either of my presentations, feel free to leave a comment below.

I’m not sure if it was David Jackson’s articles on mortgage fraud in his state’s largest newspaper, or pressure from somewhere else, but U.S. Senator Barack Obama did something yesterday that I applaud because it’s bound to change the way our Federal government moves on real estate-related fraud. Obama, a Democrat from the state of Illinois, has introduced a bill in the United States Senate (S.2280) aimed at putting a stop to real estate transactions that are clearly based on fraudulent activity and information. All told, if the Obama’s measure passes, the proposed legislation will provide much-needed Federal regulations and dollars–lots of dollars–to help in the fight against real estate fraud and the scammers who commit the crimes.

Unofficially titled the “Stopping Transactions which Operate to Promote Fraud, Risk, and Underdevelopment Act” or the “STOP FRAUD Act,” S.2280 is aimed at amending the U.S. Code so that it would essentially become a Federal crime for any “mortgage professional” to knowingly execute or attempt to execute a scheme that would defraud anyone, including financial institutions, in connection with an offer or extension of consumer credit secured by an interest in real property; or obtain, by means of false or fraudulent pretenses, representations or promises, or money or property, including fees or charges, in connection with the extension of such credit.

In plain English… if you commit mortgage fraud, you’ll face 35-years in prison and/or a $5,000,000 fine!

And in case you’re wondering, the STOP FRAUD Act defines “mortgage professionals” as:

- Real estate appraisers
- Real estate accountants
- Real estate attorneys
- Real estate brokers
- Mortgage brokers
- Mortgage underwriters
- Mortgage processors
- Mortgage settlement companies
- Mortgage title companies
- Mortgage loan originators
- Any other providers of professional services engaged in the mortgage process

If enacted, the STOP FRAUD Act would require all mortgage industry professionals–and yes, I said ALL mortgage industry professionals–to report any suspicious mortgage-related activities by either an individual or company to the United States Treasury. Other provisions of the Bill include:

- Within 18 months of enactment, the U.S. Attorney General, in consultation with the Secretary of the Treasury, will be required to establish a system by which mortgage brokers and other authorized mortgage professionals may register and receive updates from Federal law enforcement on suspicious activity trends in the mortgage industry, as well as mortgage fraud-related convictions.

- Also within 18 months of enactment of the Act, the U.S. Attorney General will be required to establish a Debarred or Censured Mortgage Professional Database that can be accessed by authorized banks and mortgage professionals to determine the Federal and State bar status of mortgage professionals regulated by any Federal or State agency.

- According to my own reading of the language in the proposed legislation, the Federal government would commit to spending Ten Million dollars ($10,000,000) on ‘counseling for mortgage fraud,’ which basically amounts to the Secretary of Housing and Urban Development (HUD) being authorized to extend contracts to private or public organizations that would provide information, advice, counseling, and technical assistance to consumers with respect to issues related to mortgage fraud.

- Another provision of the Act calls for HUD to provide another Ten Million dollars ($10,000,000) to state appraisal agencies to improve monitoring and enforcement of housing appraisal regulations in the states with the highest rates of mortgage fraud.

- Another of the Act’s provisions allows the U.S. Attorney General’s office to spend Forty Million dollars ($40,000,000) on grants to assist state and local law enforcement agencies in establishing and improving mortgage fraud task forces, and improving communications regarding mortgage fraud cases between such agencies and other Federal, state and local law enforcement entities.

- And finally, the Act calls for the U.S. Department of Justice to spend upwards of Five Million dollars ($5,000,000) to increase mortgage fraud investigation efforts.

All told, the STOP FRAUD Act authorizes Sixty-five Million dollars ($65,000,000) to combat mortgage fraud, and while anyone who knows me would tell that I’d be the first to go on record as saying that $65 million isn’t nearly enough (especially when you consider that just fifteen percent [15%] of that money is going towards education0, I’ll also be one of the first to say that it’s a start.

First American Real Estate Solutions–a provider of advanced property and ownership information–released a new study earlier today that investigates the impact of mortgage payment reset. The study, entitled “Mortgage Payment Reset: The Rumor and the Reality,” provides insight into who will be most affected when adjustable-rate loans convert from low, teaser interest rates to the higher prevailing mortgage market rates we’ve all become accustomed to.

The study concludes exactly as I suspected it would… that the most vulnerable among us those who do not have substantial equity in their homes, and who hold adjustable rate mortgages (ARMs) with low initial rates, often with interest-only and negative-amortization features. Individual families and firms that are involved with the riskiest of these loans are expected to suffer the most, while on a national basis the impact of mortgage payment reset and subsequent default will result in approximately $110 billion in losses, which by the way is less than one percent (1%) of total U.S. mortgage lending annually.

The states with the lowest percentage of high-risk properties–where borrowers have more equity and are therefore less likely to experience the impact of reset–include New York, Hawaii, Massachusetts, Connecticut and New Jersey. The states with the highest percentage of risky properties–those where fewer borrowers have significant equity and where people face a greater likelihood of experiencing reset sensitivity–include Tennessee, Colorado, Minnesota, Alabama and Arkansas.

It’s interesting, isn’t it, that the anticipated losses from adjustable-rate loan conversion are somewhere in the neighborhood of $110,000,000,000.00, and yet that figure represents less that one percent (1%) of total U.S. mortgage lending annually. If you can fathom that–and trust me, I myself–even after 25-plus years of being in this industry–am still trying wrap my brain around the size and scope of the lending market, then it’s easy to see why fraud is so seamlessly committed against individuals and the lenders who serve them.

Three words… Education, Education, Education. Until all of us–REALTORS, Brokers, Regulators, Lenders, Law Enforcement, Appraisers, and Consumers–get on-board with understanding what makes a real estate-related transaction go bad, the $110 billion in losses from mortgage payment reset will soon seem like a drop in the bucket when compared to the losses we’ll be facing as a result of real estate fraud.

A Houston man who was indicted last fall for committing mortgage fraud, pled guilty last week to wire fraud and mail fraud, and now faces up to 30 years in Federal prison. At a hearing held last Tuesday before a United States District Judge, Lawrence Benham, 42, admitted to masterminding a multi-million dollar mortgage fraud scheme in which he located residential properties for sale and persuaded and used others as ‘nominee’ purchasers of the properties for his benefit.

Benham, who has been in Federal custody without bond since his arrest last September, used nominee’ borrower credit and identifying information on loan applications, exaggerated nominee’ financial resources and ability to repay loans, and arranged for nominee borrowers to purchase properties at prices far in excess of their true value. Benham then directed as much as $1.5 million from the closing on the residential properties to be paid to himself or to accounts that he controlled.

At last week’s hearing, Benham admitted that in July of 2003, he caused a Federally insured financial institution to wire transfer $325,151.00 as a result of a fraudulent loan application he submitted in the name of a nominee borrower, without the borrower’s permission. Benham also admitted to using those funds for his own benefit, knowing he was not legally entitled to do so. Benham, who is scheduled to be sentenced this spring, conceded in court that the amount of his personal gain from scheme was between $1.5 and $2.0 million, money which he used to purchase a Land Rover, furnishings, and other luxury items like plasma televisions.

Here’s a classic and timely example of a fraudster caught in a “flipping” scheme. Ohio authorities announced charges yesterday against the former Cincinnati man who they say bilked nearly $5 Million from financial institutions by buying low and then selling high using inflated appraisals. From this morning’s online edition of The Cincinnati Enquirer:

The former operator of a Cincinnati real estate company could face up to 30 years in prison and $1 million in fines after agreeing to plead guilty to three charges in the federal probe of mortgage fraud in Greater Cincinnati. David Lockwood, who operated Lockwood Real Estate Holding Co. and now lives in Florida, will plead guilty to federal charges of bank fraud, conspiracy and money laundering, according to documents filed Tuesday in U.S. District Court. He is to appear in court Feb. 22.

Lockwood, who waived a federal grand jury indictment, was among a group of investors who conspired to defraud mortgage lenders by submitting false information on loan documents, authorities said. Investigators said the scheme focused on “flipping” low-value homes.

Flipping, a real estate practice of buying low-priced properties and trying to sell them for a quick profit, is legal. Illegalities can occur though, for example, if loan documents are falsified or if appraisals are rigged or inflated.

Separately, Paula Asher, a former apprentice appraiser, is scheduled to appear in U.S. District Court this morning to enter a guilty plea to one count of conspiracy to commit bank fraud. Federal investigators said she completed at least 17 inflated appraisals from September 2001 through June 2002 to support fraudulent loan applications. Investigators said her actions resulted in actual or intended losses of more than $719,000 for lenders.

Officials said Asher is the first appraiser to admit charges in the mortgage fraud investigation. More than two dozen individuals have admitted charges or agreed to plead guilty in the investigation into fraud involving more than $50 million in real estate purchases in and around Greater Cincinnati. To date 14 have been sentenced to prison terms ranging up to four years.

Investigators told the Enquirer that Lockwood acted as a seller of numerous ‘flipped’ properties, and in one sale in particular, purchased a house and property for $37,000 and sold it three (3) months later for $80,000, knowing the entire time that the property wasn’t worth anywhere near the higher amount.

As I pointed out in a recent article for Realty Times, flipping, when done properly, is a perfectly legitimate strategy for making money in real estate. Someone buys a property below market value, fixes it up (or not), and sells it–based on legitimate appraisals, not inflated ones–for more than they invested in it. Do it well, and you can earn a handsome profit. Make a serious blunder, and you suffer a loss. The fix-it-and-flip-it approach has a positive effect on the real estate market. It increases property values, improves neighborhoods, and provides quality housing for those who need it. It’s the American way–capitalism at work.

Conduct a flip based on inflated appraisals, and you too could be facing a million dollar fine and 30 years in prison!

In September of 2004, the FBI’s Assistant Director for its Criminal Investigative Division told CNN that rampant fraud in the real estate industry had increased so sharply that it had the potential to be an “epidemic” that could have as much impact in the U.S. as the S&L crisis of the mid 1980s. A year-and-a-half later, and the FBI was right.

As most of us know, epidemics spread rapidly and extensively, and when left unchecked–or when attended to with minimal or underfunded resources–get out of control, to the point where most everyone is impacted in some way or another.

Imagine for a second the following scenario: No matter what time of day you awoke or went to sleep, and no matter hard you worked, you completed just three percent (3%) of the items on your daily to-do list. You’d be frustrated, scrambling for resources, and in need of serious help, wouldn’t you? That’s how I imagine the Financial Institution Fraud Unit of the FBI feels. In 2005 there were over 21,994 reports of suspicious activities filed within the real estate industry, yet only three percent (3%) were ever investigated.

With those staggering statistics in mind, take a look at what the Minnesota Association of REALTORS (MAR) did earlier this week. From yesterday’s online edition of the St. Paul Pioneer Press:

The Minnesota Association of Realtors on Tuesday said it mailed state regulators paperwork documenting at least four recent allegedly illegal mortgage deals as part of ongoing investigations into mortgage and real estate fraud.

The FBI and state investigations, first revealed last November, have focused on schemes in which homes being sold were appraised at artificially high values and then sold at the inflated price, with the extra money given as kickbacks to parties involved, said Glenn Dorfman, chief operating officer and lobbyist for the Minnesota Association of Realtors in Edina. That’s the basic model for the fraud, but there are a variety of hybrids, Dorfman said.

Dorfman went on to tell the Pioneer Press that the Minnesota Association of REALTORS hopes that when the FBI “comes out with this” that they’ll have solid evidence to prosecute the people involved. (Click here for the entire article.) I hope so too, and I am also looking forward to the day when each and every state REALTOR association does the exact same thing that Minnesota is doing. State and Federal regulators, along with local and national law enforcement, need our help.

Remember, committing fraud is no accident, and neither should stopping it!

When I’m not out buying or selling homes, or speaking to consumers or real estate professionals about the dangers associated with frauds and scams, I’m either hanging out with my wife and kids or surfing the Internet in search of the next big thing (okay, that’s not entirely true… I do exercise, sleep, volunteer, and do other stuff too, but you know what I mean). Recently, I ran across BrokerOutpost.com, a forum-based web site that allows loan officers and wholesale lenders to connect with one another to ask questions, as well as to do more business together. Founded and operated by a licensed Mortgage Agent, BrokerOutpost.com offers intuitive forums for real estate industry professionals to connect with one another on a variety of topics.

Say, for example, that you’re a mortgage broker. Well, after you complete Broker Outpost’s free registration, you can create a detailed profile with your bio and a link to your company’s web site, which is then instantly added to Broker Outpost’s mortgage broker directory. The directory, which is categorized by state, is targeted toward consumers who find the site, and is helping loan officers and other mortgage industry professionals highlight their products and services, and ultimately secure more business.

But Broker Outpost is much more than a consumer directory. The real value of the site is that it allows real estate professionals to network and learn from one another in a safe, cost effective, easy-to-use online forum environment. All too often, professionals–regardless of what industry they’re in–tend to work in a vacuum… you know the type, don’t you? They’re the ones who operate by the rule “I know best” and “what can anyone else possibly teach me.” Broker Outpost encourages something different. It allows loan officers, mortgage brokers, wholesale reps, processors, realtors, insurance agents, and anyone else who does business in the mortgage and real estate field to check in with one another about any issue or topic, all from the convenience of their office or home computer. The site’s founder and programmer–a software engineer turned Mortgage Agent turned software engineer again named Darin Ferraro–even offers a blog right on the front page of the site.

What’s not to like about BrokerOutpost.com? As far as I can tell, nothing at all. Check it out for yourself by clicking here. Registration is free, and since I recently joined the site, you can now easily follow along with the questions and advice I myself am contributing to the site.

I’m pleased to announce that FlippingFrenzy.com has joined a group of federal, state, and local government agencies and national consumer advocacy organizations to launch the 8th Annual National Consumer Protection Week (NCPW), February 5-11, 2006. NCPW empowers consumers by highlighting current consumer protection and education efforts in the fight against fraud in communities across the United States and elsewhere.

According to a recent survey by the Federal Trade Commission (FTC), nearly 25 million Americans–a whopping 11.2 percent of the adult population–experiences consumer fraud each and every year, and if you’re involved in a real estate transaction, the percentage might even be higher than that. If you’re interested in boosting your marketplace savvy, I encourage you to visit www.consumer.gov/ncpw, where you can take part in the Grand Scam Challenge.

Consumer protection is the name of the game. When your money’s at stake, you want a grand slam, not a grand scam. Whether you’re investing in real estate, buying or selling products on an Internet auction, or looking for a home loan, it pays to know how to spot a scam. Tips on a wide range of these and other consumer protection issues are available at www.consumer.gov/ncpw.

National organizers of this year’s NCPW are the Federal Trade Commission (FTC), the Federal Citizen’s Information Center (FCIC), the U.S. Postal Service (USPS), the U.S. Postal Inspection Service (USPIS), the Federal Communications Commission (FCC), the National Association of Consumer Agency Administrators (NACAA), the National Consumers League (NCL), AARP, the Better Business Bureau (BBB), Call for Action, the Consumer Federation of America (CFA), the National Association of Attorneys General (NAAG), and the NATIONAL ASSOCIATION OF REALTORS (NAR).

FlippingFrenzy.com is proud to share the messages of this year’s National Consumer Protection Week campaign. We plan to continue to provide consumers and professionals alike with the tools they need to recognize and avoid real estate-related fraud and deception in the marketplace.

For more information about National Consumer Protection Week, visit www.consumer.gov/ncpw.

On the heels of news that the Law Society of British Columbia has approved $32,500,000.00 in payments to cover consumer claims in a real estate fraud case involving former Vancouver lawyer Martin Wirick, the Canada Mortgage and Housing Corporation (CMHC)–which holds its 2006 Housing Outlook Conference today in Saskatoon, Saskatchewan–has announced that it is stepping up its own efforts in the fight against real estate and mortgage fraud. According to CMHC, Marie Dyck, Senior Advisor on Fraud in CMHC’s Insurance and Securitization Sector will present in depth information to the conference’s attendees later today on current trends in mortgage fraud and how lenders can protect themselves and their customers.

The story of Martin Wirick first came to light in May 2002. Wirick worked on behalf of Vancouver real estate developer Tarsem Gill on the sale of numerous properties. At the time of his resignation, Wirick admitted that he had misappropriated trust funds in real estate transactions by failing to pay out and discharge mortgages, and had instead applied the funds to other purposes, which were clearly in breach of the law. The Law Society immediately took steps to protect Wirick’s clients and other affected parties. They conducted an audit and investigation, sought the appointment of a custodian for Wirick’s legal practice, and ensured that the claims of innocent homeowners were given priority consideration. January’s announcement that the Law Society’s Special Compensation Fund Committee had completed its review of 555 innocent homeowners’ claims resulted in $32,500,000.00 in payments to cover Wirick’s fraudulent activities.

The Quebec Association of Real Estate Agents and Brokers estimates that mortgage fraud losses in Canada are nearly $1.5 billion per year, while the Real Estate Council of Alberta’s own measurement of fraud over a recent 12 month period discovered 2,700 occurrences in Alberta alone. And get this… according to Susan Leslie, Vice President of Claims and Underwriting for First Canadian Title, in 2004, mortgage fraud accounted for thirty-six percent (36) of the claims her company paid, whereas in 2000, that number was closer to fifteen percent (15%).

Clearly, real estate fraud is alive and well in Canada.

Is mortgage fraud on the rise, or is there a perceived increase as a result of media attention, lender awareness, and the ever-changing real estate market? That’s what Rachel Dollar over at Mortgage Fraud Blog was polling on earlier this week, and just before the poll expired (earlier today) sixty-six percent (66%) of her readers say mortgage fraud is “Definitely on the Rise!,” while six percent (6%) say it’s not climbing as fast as the media reports, and another seventeen percent (17%) say no, the perceived increase results from media attention, lender awareness and the changing real estate market. The other six percent (6%) responded to the poll with text responses that were not available for reporting purposes.

Count me among the 66% who say it’s definitely on the rise!

With the FBI reporting that in 2005 it had 721 pending mortgage fraud cases (up from 534 in 2004), mortgage fraud IS one of the fastest growing white-collar crimes in the United States, and as evidence of this, you need to look no further than today’s headlines (headlines are my own, by the way, but the information comes directly from the source):

Mortgage Bankers Association Announces First Annual National Fraud Issues Conference

With the heightened attention being paid to mortgage fraud, protecting both companies and consumers from being victimized means moving beyond learning about schemes and red flags and looking at issues that cut across departments and industries. MBA’s National Fraud Issues Conference will bring together a cross-section of the real estate industry, along with state and Federal regulators and law enforcement officials, to discuss new initiatives and identify emerging trends. Whether you’re in real estate sales, mortgage lending, quality assurance, fraud investigations, production, senior management, or the general counsel’s office, this conference will help equip you with the contacts and knowledge to protect your customers and company from the threats associated wit mortgage fraud. Registration fees start at $795.00 for the two-day event, which is being held in Chicago on May 16 & 17, 2006, at The Palmer House Hilton. Click here for more information and registration.

Florida Men Sentenced in Real Estate Fraud Case

South Florida’s Sun-Sentinel newspaper is reporting that a Florida man pleaded guilty yesterday in a West Palm Beach courtroom to three counts of real estate-related theft and one count of money laundering. In addition to being sentenced to six months in jail and 8 & 1/2 years probation, 39-year-old Jonathan Bornstein was ordered by the judge–along with co-defendant David Willer–to repay $107,000.00 in restitution to two lenders. Bornstein’s case drew significant attention in Broward and Palm Beach counties. According to the South Florida Sun-Sentinel, beginning in June of 2000, Bornstein, Willer, and two others bilked several lending institutions by obtaining seven home loans in seven months based on dramatically inflated appraisals, then defaulted on the loans and kept the money for themselves. Palm Beach County prosecutor Caroline Shepherd tells the Sun-Sentinel that limited resources “drove prosecutors to focus on the people who were most culpable,” meaning that a mortgage broker and appraiser associated with the schemes were not charged. Circuit Court Judge Krista Marx also ordered Willer, 44, to repay $143,000.00 and serve 10 years probation.

Federal Trade Commission Warns TV Stations About Ads for Real Estate Schemes

According to The San Diego Union-Tribune, the FTC is now warning television stations across the United States about deceptive advertising linked to real estate and mortgage fraud. At a gathering of law enforcement officials at the University of San Diego yesterday, FTC Assistant Director Tom Syta announced that his agency recently sent a letter to 40 television stations around the country that target Hispanic communities, warning that “language difficulties, newfound wealth with increasing real estate values, and desperation over legal status can make Latinos vulnerable to a variety of scams,” including those linked to real estate and mortgage fraud. Mortgage vendors talk up a loan in Spanish, but then pressure customers to sign documents in English with different terms, the San Diego Union-Tribune reports. “It’s much easier to stop the fraud… before money gets lost,” Syta told the Union-Tribune, and television stations can help by taking a closer look at the advertisements they choose to run. Click here for the complete San Diego Union-Tribune article.

So, back to Rachel Dollar’s poll, Is Mortgage Fraud REALLY Increasing?… you tell me. I definitely think it is!

I am very pleased to announce that I am now a contributing columnist to Realty Times, a leading real estate industry web site that over the last few years has become one of our most informative and timely sources of news and information.

Here’s a preview of my first article, ““Flip” — It’s Not Just Another Four-Letter Word”:

The day HUD released FR (Final Rule)-4615 Prohibition of Property Flipping, “flip” became a four-letter word. Utter the F word at a real estate conference or seminar, and you’re liable to be spending your lunch break at a cozy table for one. After all, flipping real estate is unethical, and according to the government flipping is illegal … or is it?

To you and your real estate colleagues, “flip” may very well be a four-letter word, but to the hundreds of thousands of people who tune in to reality TV shows, like Flip This House and Flip That House, flipping is a shrewd and honorable way to earn a buck in real estate.

So, who’s right? Well, to find that out you’ll need to read the article in its entirety by clicking here. And look for additional articles of mine to appear on RealtyTimes.com once every month.