If you cheated lenders out of $2.3 million, you’d think, wouldn’t you, that you’d be fined at least that amount plus interest and penalties? Apparently not! From yesterday’s online edition of Cincinnati’s The Enquirer:

…defendants in the government’s crackdown on mortgage fraud through corrupt home sales were sentenced to prison Wednesday, including a Butler County man who cheated – and tried to cheat – lenders out of $2.3 million over a three-year period. On Wednesday, it was the day of reckoning for what one federal prosecutor called a “prime player” in the mortgage fraud scheme…

…In addition to fooling lenders into making steep loans on homes, most of which ended up in foreclosure, Husvar underreported his income for 2000 and 2001, resulting in the evasion of $26,589 in income taxes due for those years.

[U.S. District Judge Susan] Dlott sent [Timothy] Husvar to prison for two years, starting in September. She fined him $40,000 and ordered him to pay back taxes….

David M. Green, 49, of Franklin, received 26 months in prison, three years’ probation, 600 hours of community service, a $50,000 fine and an order to pay $82,751 in back income taxes.

Lisa Holderman-Powers, 31, of Cincinnati, received 18 months in prison, five years’ probation, 600 hours of community service, a $35,000 fine and an order to repay $1 million to Trust Corp. Mortgage.

Richard Frazier, 46, now of Cape Coral, Fla., received two years in prison, five years’ probation, 600 hours of community service, a $45,000 fine and an order to pay $45,312 in back income taxes.

Another defendant, Jeff Henry, 44, of Cincinnati, was sentenced Monday. He received 12 months in prison, five years’ probation, 600 hours of community service, a $10,000 fine and an order to pay $16,612 in back taxes.

Unless there’s a typo in that story, according to my math, including fines and taxes, the five defendants in this case have been ordered to pay $1,351,264, which is roughly $1 million shy of what they stole. And when you figure in that $171,264 of the total was for back taxes–meaning, taxes already owed–the fine really only amounts to $1.18 million, which is certainly less than the $2.3 million these crooks stole.

Where’s the justice in that? Click here for The Enquirer’s full write-up on the sentencing, which includes a piece about how Husvar has been spending his time since the summer of 2003 when he first admitted to committing bank fraud, conspiracy and income tax evasion. What a joke!

I’ve never met Melody Shimmell–she’s the vice president of risk management and fraud at Century Bank in Sarasota, Florida (and is considered one of southwestern Florida’s top mortgage fraud experts)–but according to the recent interview she gave to the Sarasota Herald-Tribune, she sounds like someone I’d get along with. From yesterday’s online edition of the paper:

Q: How difficult is mortgage fraud to detect? Why? What are the early warning signs?

A: It’s extremely difficult to detect. Gone are the days of the full document loans. So it is impossible to verify information you don’t ask for. Technology has made the preparation of falsified documents easy. First payment default is always a big clue.

Q: Can you describe a case of mortgage fraud that you were able to detect?

A: We had a borrower who applied for a loan and supplied a 1003 (standard mortgage application) that said there was over $100,000 in a nonexistent bank. There were even phony bank statements that had graphics and logos, but the routing and transit number on the phony checks didn’t exist.

Q: Do you think bank fraud has proliferated during the recent real estate boom?

A: Yes. The market is ripe for it, especially this area, with such rapidly rising values and low rates, is always a recipe for all of the scams. As long as the prices rise to cover the inflated prices or appraisals and everyone makes their payments, things roll along with no one the wiser. It’s when the market slows and rates rise and supply exceeds demand that the problems surface.

Q: Is the kind of bank fraud occurring today reminiscent of the S&L crisis in the late 1980s and early 1990s?

A: The brand of fraud with the S&L crisis was very much dependent on insiders. Under-capitalized developers went too far out on a limb. The lenders let them do it and we all know how that turned out.

Q: What measures did federal regulators put in place after the S&L crisis to help stem fraud?

A: Banks are the most regulated industry. We are expected to be the watchdogs for law enforcement. The problem is that by the time we report the fraud, someone has already gotten away with the proceeds.

The problem is a significant portion of the mortgage industry is void of any mandatory fraud reporting. The FBI has put together a database for law enforcement to track reported mortgage fraud, but again it is reactive not proactive.

Q: Do you think more oversight is needed?

A: I do think that some of the other major players in the process should have regulatory oversight similar to banks if these crimes are to be controlled.

I saw something over the weekend that I figured was worth mentioning. Interthinx, a popular provider of mortgage fraud prevention tools, has granted two University of Georgia professors a total of $10,000 to conduct research that could results in real estate professional being able to better identify which neighborhoods may be at risk from real estate scams and fraudsters.

According to the Athens Banner-Herald, Dr. Douglas Bachtel, Professor of Housing and Consumer Economics, and Dr. Andrew Carswell, Assistant Professor of Housing and Consumer Economics, say they’re interested in speaking with convicted real estate fraudsters about how they masterminded mortgage fraud scams. Bachtel and Carswell, both of whom teach in UGA’s College of Family and Consumer Science, also plan on reviewing Census Bureau demographics and plotting maps that they say will ultimately result in a computer model that might make it possible for real estate industry professionals to stop mortgage fraud before it happens, or at least have a better idea of which areas are more susceptible than others.

The $10,000 grant is one of many things Interthinx is doing to assist in the fight against real estate fraud and the scammers and fraudsters who commit these crimes. Earlier this year, the California-based company teamed up with real estate industry professionals to develop a fraud prevention training video that it says will help the industry thwart the expansion of mortgage fraud schemes on a national level. When made available for general distribution in September of this year, the training video–titled FSI: Fraud Scheme Investigation–will reflect a storyline and style similar to television’s popular CSI series, which the company says will demonstrate the characteristics and red flags of a complicated property flipping scheme.

Interthinx also sponsors our good friend Rachel Dollar’s Mortgage Fraud Blog, and has stepped up to the plate to sponsor a number of leading industry conferences, seminars, and training opportunities.

As I reported earlier this month, Illinois Governor Rod Blagojevich recently signed a series of bills into law that are aimed at protecting Illinois’ homeowners from fraudulent actions by unscrupulous mortgage ‘rescue’ firms. One of the bills Blagojevich acted upon–House Bill 4760–requires that the signatures on any deed or other documents that attempts to transfer property must be notarized. This new law, known as Public Act 94-0821, becomes effective January 1, 2007.

This morning’s online edition of the Elk Grove Times has an interesting little diddy about that new law. In an article titled Notarized Deeds Aimed at Stopping Mortgage Fraud, Staff Writer John Roszkowski writes:

Rosanne Pulia, deputy supervisor of the consumer fraud unit for the Cook County State’s Attorney’s Office, said she was not aware of the new law but questions how effective it would be in reducing most mortgage fraud.

“Most documents I’ve seen in the cases I’ve investigated have been notarized,” she said. Pulia said often times notaries will be present when a deed is signed but the thieves are providing fraudulent information and identification. Pulia said the law may be designed to better track down all of the parties who have attested to the signing of the documents in hopes of catching the thieves.

Pulia said mortgage fraud is a growing problem throughout the Chicagoland area and the state. “We get calls all the time,” she said. “People are getting foreclosure notices on homes they didn’t buy or didn’t even know about.”

Click here for the entire article.

While I find it interesting that a deputy supervisor for consumer fraud did not know about this new law, I find her commentary about the new law itself to be spot on accurate! Requiring that a notarized stamp accompany signatures won’t amount to a hill of beans so long as the bad guys continue to evolve their methods of identity theft, and government sits by while it happens right under its nose.

Here’s a better approach to stopping unscrupulous mortgage ‘rescue’ firms and others who prey off the ignorance of unsuspecting homeowners: Just like they do in the credit scoring industry, start a national campaign aimed at getting homeowners to be more in tune with what their local government says is the ownership status of their property. How many times have you seen those advertisements on television for companies selling credit score monitoring services? As a result, more American’s know their credit score now than at any other time in history.

Local governments should act now to establish notification systems to alert homeowners of any changes to the ownership rights of their property. How simple would it be for an automated system to be kicked into place once real estate-related documents are filed with the proper authorities? Pretty darned easy! If I can do it for the people who inquire about my real estate services (send them automated e-mail messages, that is), surely local government can procure a system that e-mails and snail-mails notification immediately upon any attempted change in status to real estate.

With the stakes being as high as they are, can we really afford not to have automated notification of the change of property ownership status in place?

EDITOR’S NOTE: Because of the intense and often off-topic nature of many of the comments left for this blog entry, commenting has been turned off, and all unrelated comments have been deleted.
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When I tell colleagues and customers that cash back at closing offers are illegal, an unexpected number of them are surprised. Real Estate agents frequently approach me and describe cash back deals that they were convinced were legitimate, while consumers wonder why I don’t offer them myself. If you don’t know what a ‘cash back at closing’ offer looks like, take a gander at the following advertisement, which is currently posted on the Detroit version of Craig’s List:

The above offer is illegal, and to understand why, just take a look at a 1003 (the Uniform Residential Loan Application) that every home buyer signs when they apply for a home loan. The 1003, which is authorized by Title 18 of the United States Code, Section 1001, is one of those documents that has small print that lawyers always tell you have to read before signing on the dotted line.

To paraphrase Title 18, section 1001, you cannot lie on a loan application or any other document related to a transaction. When a buyer, appraiser, real estate agent, loan officer, or another party provides a false statement of a property’s value on a 1003 or any other document, they’re lying, which means they are breaking the law.

As real estate professionals, our job is to know the law, act in accordance with it, and abort any deals designed to dupe anyone involved in a real estate transaction. That means we have to shut down cash back at closing scams before they close. The warning signs are readily evident:

• The buyer places an offer on the property that’s significantly more than the asking price on the condition that the seller kicks back all or some of the extra money.
• The appraisal is obviously inflated.
• Neither the buyer nor the buyer’s agent has ever seen the property.
• The buyer wants to use a different title company than the one that the seller’s agent has chosen.
• The buyer or buyer’s agent claims that the extra money will be used for home repairs or renovations or paid to a contracting company to handle the repairs or renovations.

The logistics of cash back at closing scams vary, so the warning signs tend to morph over time, but the underlying law that’s being broken remains the same. According to my fellow real estate fraud blogger, Rachel Dollar of the Mortgage Fraud Blog, “Whether it be through seller kickbacks, inflated purchase prices or ‘repair’ costs, the common thread in these deals is that the lender is not informed of the true nature of the transaction.” Whenever the lender is not informed, in writing, of the true nature of the transaction, the transaction is illegal. And if–as either a real estate industry professional or consumer in on the scheme–go along with the scheme, you become an accomplice, subject to prosecution.

So, what should you do when you smell something fishy? Put a stop to it! Inform all parties that cash back at closing schemes are illegal, and then call the lender immediately. The lender’s phone number is on the closing papers, and, believe me, they’ll be eager to hear of any pending deals that call for them to loan more money than a property is worth.

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

In the world of real estate and mortgage fraud forensics, no one person’s name sends a chill up the back of a spine more so than Matthew Cox, also known as Maxwell Price, David Richard Freeman, Gerald Scott Cugno, Michael Shawn Shanahan, Gary Lee Sullivan, Michael John Eckert, Michael White, Kevin White, David White, James Redd.

For anyone new to this blog or to the world of real estate fraud forensics, Cox’s name and face appear on the United States Secret Service’s Most Wanted Fugitive list (along with five other scammers and fraudsters). If you’ve never seen him, here’s his most popular pose (courtesy of the U.S. Secret Service):

In August of 2004, arrest warrants were issued in Georgia for Cox and Rebecca Hauck for conspiracy, stolen identification documents, mail and wire fraud, money laundering and social security number fraud. Hauck was apprehended in Houston, Texas, earlier this year and has since appeared in a Georgia court (click here for a list of pervious write-ups about Hauck’s arrest and plea).

Cox, on the other hand, continues to use elaborate schemes to avoid capture, including obtaining state-issued and counterfeit driver’s licenses. The Secret Service says he has not used his real name since 2003, and that he has been traced to locations in Georgia, Florida, Alabama, North Carolina and South Carolina.

If you see Matthew Cox at a closing table, or if you suspect that he has been involved in a real estate deal you’ve been involved with, you need to contact the United States Secret Service immediately. He is known to carry a firearm at all times, so whatever you do, do not attempt to apprehend him on your own. Cox is considered armed and dangerous!

Anyone with information regarding Matthew Cox’s whereabouts should contact the Secret Service toll-free by calling (877) 242-3375.

The Chicago Crime Commission–one of the oldest and most well respected citizen crime commissions in the United States–has just published The Chicago Crime Commission Gang Book, which says in part that real estate and mortgage fraud schemes are now being used more than ever to supplement gang-related activities in and around the Chicagoland area. The 272-page book also reveals some other interesting facts, such as:

• The profile of the typical Chicago gang leader as a graying, suburban, technology-friendly convict overseeing hundreds — or even tens of thousands — of members in everything from mortgage fraud to drug dealing, according to the Chicago Sun Times
• The Sun Times also reports that many gang leaders supervise lucrative real estate and mortgage fraud schemes to supplement their traditional bread-and-butter enterprise: drug trafficking, which generates hundreds of millions of dollars in profits a year in the Chicago area.
• The report also says that Chicago’s inner-city police have become skilled at disrupting gang-related activities so much so that gang members are now moving to the suburbs where authorities do not have the manpower or experience to deal with them.
• Among the report’s findings, according to the Associated Press, is that there are up to 100 street gangs with as many as 125,000 combined members in and around Chicago. Ten to 20 of the gangs, reports the AP, including the powerful Gangster Disciples, the Latin Kings and the Vice Lords, are highly sophisticated and well-organized entities.

Let’s see… the typical Chicagoland gang leader is graying, suburban, and technology-savvy. That seems to fit right in with the real estate fraud crowd!

For more details from the The Chicago Crime Commission Gang Book, or to purchase a copy of the book for yourself, please click here.

I’m in California today and tomorrow attending the 2006 edition of the Predictive Methods Conference (PMC). In addition to delivering tomorrow’s Keynote address on Recognizing, Avoiding, and Recovering from Mortgage Fraud, I’m visiting with conference attendees via my booth in the exhibit hall, as well as sitting in on number really great workshops. In the meantime, for anyone who may have missed it, earlier this month, Illinois Governor Rod Blagojevich signed legislation into law to protect his state’s homeowners from fraudulent actions by unscrupulous mortgage ‘rescue’ firms.

Senate Bill 2349 now gives Illinois’ homeowners new rights when dealing with companies that offer financial assistance to help them save their homes from foreclosure. It also guarantees that homeowners will receive a substantial portion of their equity in the home from the companies.

As we all know, mortgage rescue fraud is popular among the predatory lending crowd. As Illinois’ Attorney General Lisa Madigan says, “without the protections afforded by the Mortgage Rescue Fraud Prevention Act, homeowners are vulnerable to the greediest of predators who take their money and strip the equity in their homes.”

With the recent rise in foreclosures, Illinois has seen a huge growth in the mortgage rescue services offered to homeowners who are delinquent on their mortgages and at risk of foreclosure. Currently in Illinois, there are two known types of mortgage rescue services: the first are consultants who promise the homeowner they can save the home by negotiating with lenders. These consultants can cost $1,000 to $2,500, and often do little or no work for the homeowner.

The second type of mortgage rescue service are property purchasers who offer to help by letting the homeowner rent the property until they can get back on their feet financially. Homeowners do not always understand that they are signing over ownership of the house to these purchasers. In some cases the rent payments end up being more costly than the mortgage payments, making it financially impossible for them to repurchase the house. Once the property purchaser has taken all of the homeowner’s equity out of the house they will resell the house and evict the homeowner. This type of fraud was documented in a recent Chicago Tribune series.

In the first quarter of 2006 there were over 13,000 foreclosures filed in Illinois, a 32 percent increase from the last quarter of 2005 according to another recent story in the Chicago Tribune.

The legislation:

• Limits the amount a mortgage rescuer can make if the homeowner is successful in buying back the home to 125% of the total debt on the home paid by the rescuer.
• Requires that all mortgage rescue companies provide disclosures and give homeowners the right to cancel contracts, and increases penalties for violations.
• Requires that the mortgage rescuer provide the homeowner with at least 82% of the value of their home if the homeowner is eventually unable to buy back the home from the mortgage rescuer.

Senate Bill 2349 becomes effective January 1, 2007.

Governor Blagojevich also signed two additional bills into law that will provide homeowners with additional protections against property fraud.

Senate Bill 2569 requires that the Cook County Recorder of Deeds send a postcard to notify homeowners when a quitclaim deed has been filed. Quitclaim deeds are often used to transfer property without the legal property owner’s knowledge. The Recorder’s Office, who introduced this bill because of recent problems with mortgage fraud and fraudulent transfers of property, has reported an increase in quitclaim deed filings recently. This legislation becomes effective January 1, 2007.

House Bill 4760, now known as Public Act 94-0821, requires that the signatures on any deed or other document that transfers property must be notarized. This legislation becomes effective January 1, 2007.

According to BankNet360.com, the FBI recently reported that pending mortgage fraud cases increased by nearly 92 percent between 2003 and the end of the first quarter of 2006.

BankNet360.com also reports that FBI Special Agent Ronda Heilig told a gathering of American Bankers Association members that there are currently 835 pending mortgage fraud cases that involve her agency, and that losses from fraud among federally regulated banks topped $1 billion in 2005, up from roughly $200 million in 2003.

The Conference of State Bank Supervisors (CSBS) has entered into an agreement with the National Association of Securities Dealers (NASD) to develop a nationwide licensing system for state residential mortgage regulators. The announcement culminates an 18-month effort involving CSBS, the American Association of Residential Mortgage Regulators (AARMR) and the real estate industry to develop uniform mortgage license applications to be used by each state mortgage regulator.

The national licensing system and repository is expected to enhance state regulator’s ability to protect consumers through an increased ability to hold industry professionals accountable for their actions. Fraud and other illegal or unethical behaviors, such as predatory lending, should decline as states participate in the system.

According to those in the know, companies and professionals will only have to complete one online application when applying for licenses in one or more jurisdictions. Both groups will benefit from access to a national licensing and enforcement repository and similar state regulations that will likely result from the uniform application.

This system is expected to be available over the Internet through a secure web site by January 2008. A total of 30 state agencies have indicated that they will participate in the system. Currently 48 states license or register mortgage lenders or brokers. Some states have multiple agencies that regulate the industry.

The United States Attorney for the District of Colorado announced yesterday that Lakewood, Colorado, real estate agent William Mendez, age 41, has been sentenced to serve a little over four (4) years in federal prison for his role in a massive mortgage fraud scam involving illegal aliens. U.S. District Court Judge Wiley Daniel additionally slapped Mendez with a fine totaling more than $1.2 million.

Mendez was indicted by a federal grand jury back in September of 2005. He pled guilty in March of this year, and as part of his plea agreement, agreed not to work in any facet of real estate, whether as a broker, lender, mortgage banker or investor.

Seven other people were indicted for participating in the fraud, which involved preparing hundreds of false and fraudulent residential home loan applications for illegal aliens that were insured by HUD through the Federal Housing Administration. According to the U.S. Attorney, Mendez also made payments to loan officers to insure the approval of the applications.

According to the Mendez’s plea agreement, starting back in 1999, he began developing practices that allowed him and his other real estate agents and employees to assist clients whom they knew to be illegal aliens or otherwise unqualified, to receive home mortgages to purchase homes.

Since 2003, the U.S. Attorney’s office in Denver has brought 12 indictments, charging 84 defendants with mortgage fraud–and most of these cases involve illegal immigrants, says U.S. Attorney’s spokesman Jeff Dorschner, according to the Denver Post.

According to the Associated Press and Mobile, Alabama’s Press-Register newspaper, the FBI has arrested four people and accused them of swindling Regions Bank out of $1 million in a mortgage-related con.

FBI Special Agent Craig Dahle tells the Press-Register that federal officers and investigators from the Alabama attorney general’s office arrested Darlene Hill, Joycelyn Easter, Kathy Frye, and Antonio Harrison without incident on Tuesday at each of their respective homes. All four have already pleaded innocent before a U.S. Magistrate Judge in Mobile.

The indictment that lead to the arrests charges each of the suspects with four counts of wire fraud and four counts of loan fraud. The Press-Register also reports prosecutors are seeking to force the forfeiture of property purchased with the loans, along with money located in a number of different bank accounts.

According to the AP, all four are accused of using the names of “unwitting participants” in order to obtain mortgages from Regions Bank. The foursome submitted fraudulent information in order to secure the loans and then used part of the money to purchase at least three properties in Mobile. To obtain the mortgages, Hill, Easter, Frye, and Harrison submitted a loan packet for straw buyers that misrepresented borrower’s income and assets, according to the indictment.

The value of the loans made by Regions, according to the indictment, totals $996,000, but the FBI says the actual amount could be much higher.

I’ve been in Florida since mid-day yesterday, visiting family and preparing for a talk I’ll deliver later this morning for a mortgage company in Ft. Lauderdale. For those of you who may not know why I’ve been away from blogging since the Memorial Day weekend, I have some very sad news to share.

My oldest daughter–my angel–my 18-year-old Kolleen, A.K.A. “KoRo,” passed away quite unexpectedly on Memorial Day. Kolleen was everything to me and my wife Kathleen and our two other children, Kyle and Kaleigh. These last 10 days have been both a horror and an honor. If you’re a parent, you know the horror part. The honor part has been as a result of the outpouring of love and support from nearly every corner of the planet.

To see for yourself what an amazing friend, sister, granddaughter, niece, cousin, teammate, neighbor, and daughter Kolleen was, please click here for a tribute blog that was created by some of my assistants in the early hours of this tragedy.

I’ll be back tomorrow with more news, information, and commentary on Real Estate and Mortgage Fraud. Until then, I just wanted to say to everyone who has shared a thought, memory, or kind word with my family and me since Memorial Day, we thank you again from the bottom of our hearts. These are difficult and trying times, to say the least, and your support has been of great comfort to everyone in my family.