It’s interesting what some real estate industry professionals will do to advance their position in a highly competitive market. A Michigan-based home builder recently offered to pay one of my company’s real estate agents a direct commission on the sale of a condo. For those of you who don’t know, in almost every case, it is illegal for a REALTOR® to receive a commission payment from a source other than the brokerage he or she works for. In other words, in almost every single instance, a Realtor’s commission is paid first to their brokerage, who in turn pays the REALTOR®.

An honest mistake, right? Well, that’s what I thought too, until I learned from my agent that the method of payment for her commission was to be a direct deposit into a debit card account. And on top of that, the debit card in question bore the National Association of Realtor’s trademarked word “REALTOR” directly on the face of the card. (Even if I didn’t work in Real Estate Fraud Forensics, as a REALTOR®, all sorts of alarms should have been going off in my head; and luckily for me, my agent had the same reaction.) After confirming that the offending home builder knew that the agent worked for my brokerage, I sent him the following letter:

Dear Sir:

I have tried to reach you through email and phone messages and have not heard back from you. I have some concerns about your current marketing. My first concern is the REALTOR REWARDS debit card you are offering agents. First of all, the word “Realtor” is trademarked by the National Association of Realtors® (NAR), and therefore should not be used on the face of a debit card.

Second, paying commissions directly to agents is illegal; commissions are not allowed to be paid to an agent except through their broker. Any commissions that you have paid directly to agents not under your control should be audited and their brokers contacted so that these payments can be rectified.

Your enthusiasm may have over taken you and I hope that your intentions were not to infringe on any trademarks or break any laws–so I would appreciate a call back so that we can discuss these matter immediately.

Sincerely,

Ralph R. Roberts
Ralph Roberts Realty, LLC
30521 Schoenherr Road
Warren, MI 48088 USA

As an active member of the National Association of Realtors®, I have sworn to uphold the Association’s Code of Ethics, and when I see a potential violation of our professional standards, I don’t just sit by and let it happen.

Long story short, the home builder in question finally returned my call, and upon hearing that the National Association of Realtors® would be issuing a cease and desist order on his unauthorized REALTOR REWARDS debit card, he agreed to stop issuing and using the card, and also agreed to stop his practice of paying REALTOR® commissions directly to broker-affiliated agents.

So what does all of this have to do with Real Estate and Mortgage Fraud? Well, if you stop to think about it, if it was easy enough for some random home builder in the state of Michigan to convince a bank to issue ‘affinity’ debit cards with the word “REALTOR” on them, how hard would it be for a savvy real estate fraudster to do the same. Too easy, I’m guessing. The more people who know about the potential dangers associated with offending debit cards, as well as builders who pay commissions directly to Realtors who do not work for their firms, the better off we all will be.

A Massachusetts State Senator says he will reintroduce a bill next year that would require all loan officers–not just the owners of mortgage companies–to register with the state and take and pass state-enforced exams and background checks. State Senator Brian Joyce says the State of Massachusetts should license all individual brokers. Under the current state rules, while mortgage companies are required to register with the state, only the owners of the brokerages are required to undergo criminal background checks.

From the Boston Globe:

The state’s Division of Banks, which had opposed Joyce’s bill, yesterday said it would be open to changes to the law, provided that companies that hire loan officers maintain responsibility for their actions, according to an agency spokesman.

“Should we be looking at the system?,” said Joseph A. Leonard Jr., general counsel for the Division. “The division continues to consider the merits of licensing individual loan originators just as some other states do.”

Leonard described the problem of licensing for individual brokers as a “nationwide issue.”
“The current framework in Massachusetts is that the company gets licensed and anybody who works for them as an employee is exempted,” he said, adding that under the current system, “we expect a licensee to put anybody who works under their license and reputation through extensive scrutiny.”

Victim advocates say that the current system allows for loan officers who show little understanding of the state laws against predatory lending. Also, brokers sometimes present in English sensitive information, such as the Truth in Lending Statement, which tells buyers exactly how much they will pay per month for mortgages, without providing translation to clients who do not understand financial terms in English — a violation of state regulations.

A recent Boston Globe report revealed a wide variety of abuses by mortgage brokers servicing Lawrence, MA, including overstating incomes so borrowers could qualify for loans, arranging loans that cost hundreds of dollars more per month than borrowers could afford, and, in one case, identity theft, reported the Globe.

Reporters ask great questions, and Harold Levy from the Toronto Star is no exception:

1. How common in North America are fraudulent schemes where the fraudsters become tenants in order to perpetuate some form of title fraud?
2. What is your advice to landlords to avoid these situations?

Levy posed those questions to me last week because of a story he was working on for this past Saturday’s edition of the Toronto Star. Thieves, Levy told me, stole an 89-year-old Toronto man’s identity, and by using a falsified power of attorney were able to have a nonexistent grandson sell the man’s property to an unsuspecting purchaser. What happens next could be even more shocking… the man may lose his house forever because Ontario law recognizes the transaction as valid!

From the Toronto Star:

Paul Reviczky, who fled Hungary in 1957 to escape Communist persecution, is one of the latest homeowners to discover that Ontario law favours banks, mortgage companies and purchasers over victims of fraud….

Reviczky purchased the property at 220 Sheppard Ave. W. in 1980 for $67,500 to generate a rental income that would help pay for the education of relatives back in Hungary….

Since his wife’s death in February 2005, he has lived alone in his home a few kilometres from the rental property.

Reviczky could not believe his ears on June 26 when his neighbour, a real estate agent, told him she had noticed on the computer that he had sold his rental property in May.
“So I went back to my office, got the record from the computer and showed it to him,” Vivian Ho told the Toronto Star. “His face turned red and I was worried that he was going to have a heart attack.”

Police believe Reviczky’s most recent “tenants” forged his name on a power of attorney that purported to give a grandson named “Aaron Paul Reviczky” authority to sell the home on his behalf. “I don’t have a grandson named Aaron,” Reviczky says. “I don’t have any grandsons.”

Ralph Roberts, a Michigan-based expert on mortgage fraud, says inroads will not be made into burgeoning real property and mortgage fraud until more homeowners and legislators become aware it exists. “There is not enough of a public awareness,” he says. “People just keep getting dragged into it one after another.”

Click here for Levy’s entire story. What happened to Mr. Reviczky is sad but unfortunately not uncommon.

Investigators from the San Bernardino County District Attorney’s Office-Real Estate Fraud Prosecution Unit have arrested a 33-year-old woman on real estate-related fraud charges. Megan Contreras of Fontana, CA was arrested for bilking her in-laws and estranged husband.

In March of 2002, Megan’s in-laws, Joe and Gloria Contreras, co-signed for a real estate mortgage loan for their son, Joseph and Megan. A year-and-a-half later, in September of 2003, Joseph and Megan separated and Megan stayed in the home. Then, in May of 2004, Megan refinanced the loan on the home, paying off the original loan without the approval of Joseph, Joe or Gloria. Later that year, in June, Megan acquired a second mortgage (equity) loan on the home in the amount of $65,000, forging her in-law’s signatures on the Deed of Trust.

One month later, Megan forged her estranged husband–Joseph’s–signature on a Grant Deed transferring the home into her name and removing Joseph from the title. As a result, she was arrested and booked on a $510,000 felony warrant charging Forgery, Filing False/Forged Documents and Financial Elder Abuse.

Two of the four people arrested back in June in connection with a $1,000,000 mortgage fraud scam in Alabama have pleaded guilty. Antonio Harrison of Mobile, Alabama, pleaded guilty to one count of wire fraud and one count of loan fraud, while Kathy Frye of Eight Mile, AL, pleaded guilty to failure to inform the authorities of the occurrence of a serious crime.

From The Press-Register:

Both may be called to testify against co-defendants Darlene Hill, 49, and Jocelyn Lucas Easter, 48, both of Mobile. They are scheduled to go to trial next month, and both have denied the allegations.

In his written plea agreement, Harrison stated that Hill recruited him to work as a broker at Carteret Mortgage, where Harrison processed loan applications and submitted them for approval at various financial institutions despite knowing that they were “bad” deals.

Harrison admitted that he continued to process fraudulent loan packages provided by Hill after he went to work for Allfund Mortgage.

Under the scam alleged by prosecutors, Hill recruited “straw purchasers” whose good credit she used to obtain mortgages. That person would receive a fee or a bonus, and Hill would try to resell the property for a profit, according to Harrison.

Easter conducted most of the closings, according to Harrison’s plea agreement.

Hill and Frye both stated that they learned that Hill would transfer properties to other purchasers, who would not pay off the original mortgages.

In the count Harrison admitted to Tuesday, he stated in his plea agreement that he submitted to Regions Bank a fraudulent loan application provided by Hill between Sept. 17 and Nov. 17 for $202,500. The total amount of fraud Harrison admitted to is $996,000, but investigators have said the total amount for the entire conspiracy may be much higher.

Frye, who worked as a receptionist at Hill’s Harris Title Co., admitted to notarizing signatures of straw buyers even though they did not appear for closings.

Frye also admitted that she closed at least one loan, even though she was not trained for that job. She stated that she received money for this.

A jury in North Carolina has convicted a 60-year-old Raleigh man of conspiracy, making false statements on real estate closing documents, wire fraud, and mail fraud. The Greenville, NC, jury returned its verdict following a four-day trial in federal court.

James Davis was convicted of a conspiracy and fraud scheme involving newly built houses in Raleigh, Garner, and Wake Forest, NC. Davis claimed to be a real estate “consultant” and ran businesses called “Easy Financial Service” and “Eagle Investments Club.” According to court-related documents, Davis and others defrauded mortgage lenders by submitting false and misleading documents–particularly HUD-1 settlement statements–to induce the lenders to make loans to borrowers recruited by Davis. Among the false statements in the documents were inflated sales prices, backed by appraisals, down payments secretly provided by the seller, and hidden cash kickbacks to Davis himself.

Davis also defrauded individuals who were told that they could “lease-to-own” the houses until their credit was repaired. These victims lost thousands of dollars in down payments and monthly payments they believed would be applied to a house purchase.

In addition to Davis, a Raleigh-based residential house builder named David Lawton was charged in the case. In April of this year, Layton pled guilty to conspiring with Davis to make and use false documents at closings where Layton was the seller. Layton testified at trial to the fact that he and Davis had created fake sales prices based on appraisals rather than a bargain between a real buyer and seller.

Sentencing for both men takes place this fall. Layton is scheduled to be sentenced on September 5, 2006, while Davis’ sentencing is slated for the week of November 6, 2006.

The State of Michigan’s Office of Financial and Insurance Services (OFIS) recently announced its most recent list of brokers who are now prohibited from participating in Michigan’s residential mortgage loan and financial services industries. For anyone who has not been following Michigan’s fight against real estate and mortgage fraud and the scammers who commit such crimes, the state’s residential mortgage loan acts grant the OFIS the authority to ban anyone from participating in Michigan’s consumer finance industry if the Commission finds that that person has engaged in fraud.

The following individuals–most of whom have felony convictions involving fraud, dishonesty, and breach of trust–are now barred from ever working again in the mortgage or any other regulated consumer finance industries in Michigan:

• Ronnie Duke of Fenton, Michigan
• Joseph Saad of Dearborn Heights, Michigan
• Ronald Ribant of Southfield, Michigan
• Robert Troub of Portland, Michigan
• Chad Eugene Willis of Detroit, Michigan
• Marvin R. Fried of West Bloomfield, Michigan
• James Keyton of Traverse City, Michigan
• Richard Major of Grand Rapids, Michigan
• Brian Winborn of Ypsilanti, Michigan
• Kalil Khalil of Brownstone Township, Michigan
• Tariq Hamad of Taylor, Michigan

The bans were prompted by fraudulent activity that included equity stripping “foreclosure rescue” schemes; flipping of property involving inflated property values and undisclosed non-arms length transactions; providing borrower down-payment funds, without disclosing such assistance to the lender or investor; creation of fictitious loan application supporting documentation, such as W-2’s, verifications of deposits, and verifications of employment; occupancy fraud; and, converting loan proceeds or other funds for personal use.

OFIS has also revoked the mortgage licenses of William C. Phillips, doing business as Integrity Financial and Urban Mortgage Services of Redford; and Minute Man Financial Holding Co. and Metropolitan Financial & Funding Services of Detroit; and issued a Cease and Desist Order against Chad Eugene Willis’ unlicensed mortgage company, The Mortgage Highway LLC.

The following article, which was written by Los Angeles-based real estate reporter Marcie Geffner, suggests that we can combat real estate fraud–and the scammers and fraudsters who breed the cancer in our floorboards–with cultural change. Take a few minutes and read the article, and then leave a comment below. Is Geffner on the right track?

How to root out real estate fraud: Cultural change could help curtail crime

By Marcie Geffner

Inflated appraisals. Money laundering. Misuse of funds. Fake buyers. You name it, real estate has its share and more of scams and frauds. At times, fraud appears to be downright rampant, and sadly, the solutions that have been put forward so far have not made a discernable dent in the problem. What’s needed now is not more of the same, but rather, a fresh approach that attacks the causes of these types of crimes.

The traditional solutions to real estate’s fraud problem tend to involve laws and regulations, disclosures and paperwork, checks and balances, and law enforcement and punishment for wrongdoing. These solutions aren’t without merit: Laws and regulations set minimum standards of behavior. Disclosures help protect the public from misrepresentation and insider dealing. And enforcement and punishment take some bad actors out of play and force them to pay for their misdeeds. But aside from those benefits, these solutions also have proven to be largely ineffectual because they rely on strictures instead of cultural and behavioral changes in the industry itself.

What’s needed, and what’s long overdo, is a much clearer understanding of why real estate is so attractive to con men and con women along with new approaches to the problem that address those factors.

Fraud has been a fixture of real estate as long as land ownership has existed. The allure of real property, the appearance of easy money, and a history of land-related schemes and frauds act as magnets that attract people who are by nature inclined toward unethical and illegal behavior. The longtime pattern of fraud attracts more fraud, and until this pattern is disrupted, fraud will be difficult to curtail.

A tradition of heavy-handed old-time salesmanship is part of the cultural problem. Yes, professionalism has taken huge strides and gained a lot of ground over the years, but the image of real estate and mortgage brokers as back-slapping and tire-kicking used car salesmen is still alive, and such practitioners still operate in the business today, though perhaps increasing as anachronisms.

The old-time salesman is focused not on the best interest of the other people involved in his (or her) dealings, but rather entirely on his or her own pocketbook. This dollar-signs-in-the-eyes approach to business may nab the big bucks in the short term, yet it doesn’t serve the industry overall. Until the culture of hard salesmanship disappears altogether, fraud will continue to exist because fraud also places a higher value on money than fair and honest transactions.

The peculiar structure of the real estate brokerage business also contributes to a culture that enables fraud to occur without repercussions. The necessity for close cooperation among competitors makes finger-pointing, tattling and ratting out either outright fraudsters or practitioners who push the envelope of ethical and legal practices potentially risky and destructive to one’s own career. The perceived need to do business with these shady operators protects them from the consequences of their dicey behavior.

Real estate is by no means unique in this respect, as similar “codes of silence” exist to the detriment of other professions (e.g., law enforcement) as well. Yet in real estate, a reputation of being an honest broker and a stickler for ethics can alienate competitors whose cooperation is vital to success. Sadly, doing what’s right can chase away more business than it attracts.

Here are some suggestions of ways to tackle these problems:

More study. A reputable study about the culture and true cost of fraud in real estate might shine some light on why the industry attracts and protects bad actors and suggest other creative solutions to a problem that can’t be solved only through more laws or stepped-up law enforcement.

More education. Laws in most states require plenty of education to obtain and retain a real estate license. But more could be done in existing real estate courses to explain the real costs and harms of fraud and to encourage cooperation among honest brokers. Educators along with brokers and managers need to support business cultures that reward those who shun practitioners who behave as if existing laws, regulations and ethics codes don’t apply to them. Newbies face the toughest competition in the business, yet they nonetheless need to come on board with a much stronger commitment to honest dealings. Instructors need to explain how to identify fraud and what to do about it.

More mavericks. An industry that relies on cooperation and people skills doesn’t attack the types of people who tend to challenge norms even when they are illegal. More systems are needed within the industry and individual brokerage companies to nurture, approve of and reward mavericks who step up and act on their frustrations rather than fume in silence.

Copyright 2006 Marcie Geffner

So, what do you think? Is Geffner on the right track?

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An Orange County, California, man who ran a mortgage company called Mortgage Capital Resource Corporation (MCR) has pleaded guilty to federal wire fraud and money laundering charges related to a real estate scheme that cost lenders more than $9,000,000. According to the FBI, Kenneth Ketner, 57, of Newport Beach, CA, has plead guilty to the two felony counts in federal court in Santa Ana, and now faces up to 15 years in prison.

A second defendant in the case, real estate attorney Allen Johnson, 59, also of Newport Beach, pleaded guilty last year to wire fraud and money laundering for his role in Ketner’s scheme, and is awaiting sentencing.

Drawing on lines of credit from commercial lenders, Ketner and MCR professed to fund home loans for borrowers throughout the United States. Rather than using the commercial lenders’ money to fund mortgages as promised, Ketner, with Johnson’s help, diverted the funds for his own personal use (he used the money to operate his firm and to pay personal expenses, such as car, credit card and boat payments).

To conceal that he misappropriated the money, Ketner caused MCR to find new loans that lenders would agree to fund. He then used that money to pay off the original borrowers whose funds he had misappropriated, thereby keeping the scheme alive.

Ketner pleaded guilty before a United States District Judge last week, and is scheduled to be sentenced in December. The charges of wire fraud and money laundering carry a maximum possible penalty of 15 years in federal prison, but a plea agreement in the case could mean that Ketner would receive a sentence of just five years behind bars.

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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.
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According to Rebecca Hauck’s mother, this is the most recent photograph anyone has of Matthew Cox:

While the image itself is not very clear or large, it does show just how different Cox looks from his standard mug-shot. For more information on Cox and his exploits, click on any of the links below.

• Matthew Cox is Still Out There
• Update: Rebecca Hauck Pleads Guilty to Real Estate Fraud Charges
• Have I Been Affected by Real State Fraud?
• More Info on Rebecca Hauck’s Arrest
• One Down, One To Go: Rebecca Hauck Arrested in Texas; Her Partner In Crime–Matthew Cox–Remains At Large

if you see the joker pictured above, call your local law enforcement officials or the U.S. Secret Service immediately. His name is Matthew B. Cox, and his known aliases include Maxwell Price, David R. Freeman, Gerald Scott Cugno, Michael S Shanahan, Michael J. Eckert, Gary L. Sullivan and David White. I cannot stress this enough… anyone with information regarding Matthew Cox’s whereabouts should contact the Secret Service toll-free by calling (877) 242-3375.

Ready for this one? A former Los Angeles County prosecutor will soon be sentenced on a series of charges, all related to real estate fraud. Fifty-year-old Julie Marie Sergojan recently pleaded guilty to six felony charges including multiple counts of grand theft, identity theft, and forgery, and now remains free on a $500,000 bond pending sentencing, which is currently set for November 9, 2006, in Ventura County (California) Superior Court.

Here’s what landed this one-time civil servant in so much hot water:

In 2002, Sergojan engineered a series of frauds so she could purchase a $500,000 home. Her first fraud involved an identity theft and forgery scam that was carried out while working as a Los Angeles County deputy district attorney. Sergojan stole the identity of two people, stealing money from one victim’s bank account while opening an account at another bank in the name of the second victim to launder the stolen money. This scam netted Sergojan roughly $43,000. Sergojan was prosecuted for this scam in Los Angeles in 2003. In October 2003, she pleaded guilty to four felonies. In January 2004, she earned a probation sentence in that case by paying full restitution to the victims. Sergojan forfeited her state bar license in March 2004.

In 2004, the Ventura County Sheriff’s Department discovered that Julie repaid her Los Angeles victims with proceeds from a new fraud. In October 2003, Sergojan stole her estranged husband’s identity to procure a $200,000 loan. She secured the loan by pledging valuable land her husband owns in Sonoma County. Apparently, Sergojan forged all the necessary legal documents, which she was able to do because the entire transaction was conducted via the Internet, e-mail, fax and mail.

While investigating the loan fraud, detectives from the Ventura County Sheriff’s Department discovered that in 2002, Julie financed her Westlake Village home through another loan fraud. To qualify for her $450,000 mortgage, Sergojan forged pay stubs and other documents that dramatically misrepresented her income, assets, and credit worthiness. After she closed escrow on her home purchase in August 2002, Julie quickly defaulted on her loan. In June 2003, she conned her bank into clearing $10,000 in fake checks she deposited so that her lender could then negotiate her delinquent mortgage payment. Surprise, surprise… she ultimately lost the home in the spring of 2005.

As a result of her scams, Julie Sergojan now faces a maximum of eight years and four months in prison.

Two South Carolina real estate agents who were accused of mortgage fraud have agreed to permanently relinquish their sales licenses. According to The Sun Times, Jack Barnhill and Karl Moser, both of whom worked for Barnhill Realty Co., gave up their real estate licenses earlier this week just moments before the S.C. Real Estate Commission was to hold a hearing involving the two men and their role in a deal in which they falsified loan documents.

For complete coverage of the facts leading up to this week’s development, check out FlippingFrenzy.com’s previous posts on the case. For further details on this week’s development, click here for an excellent recap from The Sun Times.

Back at the beginning of May I wrote about how I was in Boulder, Colorado, working with STAR POWER® Systems on a new real estate and mortgage fraud education/awareness product for Realtors. Now, just three short months later, STAR POWER has released Detecting and Preventing Real Estate Fraud, a CD/workbook package complete with tips for helping anyone identify and recognize questionable real estate activity.

As almost everyone knows by now, real estate/mortgage fraud is one of the fastest-growing white-collar crimes in the United States, and illegal real estate deals are making life miserable for homeowners and prospective buyers nationwide.

Unfortunately, despite all the news coverage about real estate and mortgage fraud, real estate professionals are still being caught off-guard by the rules, regulations, and signs related to real estate and mortgage fraud in record numbers. If you’re a licensed REALTOR®, or if you are a serious real estate investor, you should consider purchasing Detecting and Preventing Real Estate Fraud today.

Armed with the expert know-how in this package, anyone should be able to recognize the warning signs and understand the importance of spotting, stopping, and reporting fraud as it occurs. Together with STAR POWER’s founder, Howard Brinton, I tell you about fraud’s impact on homeowners, the real estate industry, and local, state, and national economies. I also cover common and complicated schemes, including those involving asset rental, air loans, double sales, straw owners and buyers, credit scrubbing, nominees, fraudulent appraisals, and more.

Click here to order your copy of Detecting and Preventing Real Estate Fraud today.