The FBI just released its latest figures on real estate fraud, and for some parts of the country, the news isn’t very good! According to the FBI, Southern California has the most reports of mortgage fraud in the country, topping the closest region in the number of reported cases by over 35 percent. Since January 1 of this year, the FBI has received 2,293 reports of suspected fraud in the Los Angeles area alone, and 4,228 in the Southern California region.

Real estate industry insiders in a number of ways initiate reports of Real Estate and Mortgage Fraud to the FBI. If a lender identifies a suspect, it is required to report the suspected activity to the FBI. However, according to the Los Angeles Times, only lenders that operate as banks are required to file suspicious activity reports with the FBI. That’s a growing number of lenders, say the LA Times, but banks account for less than one-half of all mortgage loans (mortgage brokers, which arrange loans but do not fund them, are not required, for some reason, to file reports with the FBI).

The FBI’s list of Real Estate and Mortgage Fraud hot spots thus far for 2006, with the number of cases reported through September 25, is as follows:

1. Los Angeles, California: 2,293
2. Atlanta, Georgia: 1,459
3. Chicago, Illinois: 1,245
4. Miami, Florida: 1,191
5. San Francisco, California: 942
6. Detroit, Michigan: 914
7. New York, New York: 907
8. Dallas, Texas: 635
9. Phoenix, Arizona: 631
10. Houston, Texas: 618

The U.S. Department of Justice announced yesterday that 42-year-old Michael Hipe of Snellville, Georgia, pleaded guilty in federal district court to conspiracy to commit mortgage fraud. In May of this year, Hipe was indicted along with three co-defendants–Eric Friedman, Brianna Friedman and Timothy Bauer–on two counts of conspiracy to commit mail fraud and money laundering, two counts of mail fraud, and eight counts of money laundering.

According to United States Attorney in charge of the case, in 2000, Michael Hipe and co-defendant Eric Friedman became partners in a metro-Atlanta used car dealership called “Hipe Motors.” Hipe invested in the business while Eric Friedman ran it. In order to raise money to operate the business, in the summer of 2000, Michael Hipe purchased four new condominiums in the metropolitan Atlanta area. For his part, Eric Friedman prepared false loan applications and supporting documentation, including tax returns that misrepresented Hipe’s income. At the real estate closings, Hipe signed the false loan applications, certifying them as accurate and true.

In order to pull money out from the closings, Friedman and Hipe misrepresented to lenders that a portion of the loan proceeds would be used for the renovation and construction of the condominiums, even though the they were new or otherwise did not need renovation or upgrade. Then, both men misrepresented to their lenders that the construction work was to be performed by “The Fabricators, Inc.,” which in fact was a shell company, not incorporated in the State of Georgia. At the end of the day, Friedman and Hipe used the money to finance Hipe Motors and for Eric Friedman’s personal expenses. The funds obtained at closings were run through Hipe’s bank accounts and then run through Eric and Brianne Friedman’s bank accounts.

When Hipe was unable to obtain further financing to purchase condominiums, he introduced his mother and a family friend, both of whom live and work in Massachusetts, to Eric, who persuaded Hipe’s mother to act as a straw buyer on the purchase of three condominiums in Atlanta to provide additional funds to operate Hipe Motors. As you might expect, Eric prepared loan applications containing false information and supporting documentation, including tax returns that misrepresented Hipe’s mother’s employment and income. At two of the three real estate closings for his mother, Hipe, along with Eric, acted as her attorneys, executing numerous documents, including the loan applications.

Eric also persuaded Hipe’s family friend to provide him with his credit information. Once Friedman obtained that information, he opened a checking account at Wachovia Bank in the name of the family friend “d/b/a The Fabricators,” Inc. In June 2002, at Eric’s behest, the family friend purchased a home in Braselton, Georgia, for the sole purpose of pulling money out of the transaction to further finance Hipe Motors. That transaction was also financed through the submission of a false loan application prepared by Eric Friedman. Then, in February of 2004, the family friend sold the Braselton property another straw purchaser/borrower (Timothy Bauer) to obtain even more money for the scam.

As a result of the scam, lenders foreclosed on all seven of Hipe’s condominiums (with losses exceeding $500,000).

For his part, Hipe pleaded guilty to one count of conspiracy to commit mail fraud. He could receive a maximum sentence of five years in prison and a fine of up to $250,000. Sentencing for Hipe has not been scheduled.

On August 23, 2006, Eric Friedman pleaded guilty to conspiracy to commit mail fraud, attempt to evade the payment of income taxes, credit card fraud, and interstate transportation of cars obtained by fraud. He could receive a maximum sentence of forty (40) years in prison and a fine of up to $1,250,000. No sentencing date has been scheduled for Friedman either.

A Buffalo, New York, landlord who pled guilty in April to charges in connection with fraudulent real estate deals, has finally been sentenced. Fifty-one year-old Robert Palano was sentenced yesterday in New York State Supreme Court to serve one year in jail and pay $1.5 million in restitution.

As FlippingFrenzy.com first reported this spring, a 15-month civil investigation by New York state’s Attorney General’s office revealed that, between 1998 and 2002, Palano fraudulently obtained more than $4 million dollars in mortgage loans on 104 rental properties he owned on the Buffalo’s east side. After pocketing the loan proceeds, Palano took off for Florida, leaving at least ten lenders with defaulted loans secured by properties worth far less than the debt. By December of 2003, Palano had defaulted on all 104 loans and as a result, lenders were left holding collateral that was inadequate to pay off the balance.

The consequent foreclosures on Palano’s properties resulted in the eviction of dozens of families, and caused further blight in and around many neighborhoods as boarded up houses were left vacant for months.

Fed up with cancer in its floorboards, Ventura County, California, decided enough was enough. By assessing a tax on real estate-related documents recorded at the county clerk’s office, the county raised enough money to fund a full-time prosecutor who focuses solely on real estate fraud prosecutions, and has enough money left over to educate the community on the warning signs associated with fraud. On October 6th, the Ventura County Real Estate Fraud Advisory Team will premiere its new video on real estate fraud, “Predatory Practices.” From the Pacific Coast Business Times:

The video will be shown at [sic: the Real Estate Fraud Advisory Team’s] REFAT’s first special forum to raise real estate fraud awareness among professionals in the real estate industry. It is one of many steps taken by Ventura County to address the growing issue of real estate fraud in the region.

“With the real estate market becoming overheated and growing perhaps too quickly, we saw a growing amount of fraud,” said Miles Weiss, the senior district attorney for the Ventura County District Attorney Real Estate Fraud Prosecution Program. REFAT was established in conjunction with the county’s District Attorney’s Office Real Estate Fraud Prosecution Program.

“A little over a year ago, the Ventura County Board of Supervisors authorized a statute to be activated here in Ventura County to fund a real estate fraud prosecution program…funded by the collection of a $2 levy on real estate-related documents recorded at the county clerk’s office,” Weiss said.

The real estate fraud prosecution unit was established to dedicate a prosecutor exclusively to real estate fraud cases.

“We launched a new program with an investigation and prosecution component,” Weiss said, “with the ability to have potential victims file complaints, screen those complaints for criminal conduct, investigate, file criminal charges, and prosecute through jury trial and sentencing, if necessary.”

REFAT was then formed to work hand-in-hand with the prosecution unit, made up of about 20 professionals pulled from various aspects of the real estate community, including legal, mortgage, title, banking, lending and realty.

Learn more about how Ventura County is combating Real Estate Fraud by clicking here.

A Salt Lake City, Utah, man has been sentenced to serve nearly three years in federal prison for his role in a scheme that defrauded GreenPoint Mortgage Funding and Wachovia Mortgage Corp. out of millions of dollars. In sentencing 42-year-old Rob Ellertson, U.S. District Judge Dee Benson also ordered the former real estate industry insider to pay $2,759,573 in restitution to the mortgage and title insurance companies he defrauded.

Ellertson, who pleaded guilty in March of this year to two counts of wire fraud, admitted that from May of 2002 to September of 2003, he aided and assisted co-defendant Corey Nance with a scheme to obtain money and property from mortgage companies and lending institutions by means of false and fraudulent pretenses, representations, and promises. Judge Benson will sentence Nance, who also pleaded guilty to two counts of wire fraud, in mid-November.

According to the plea agreement reached with Ellertson, Nance purchased empty lots in Salt Lake and Summit counties in the name of one of his businesses. He then recruited straw buyers to act as borrowers on loan applications and supporting documents submitted by Nance to Ellertson. Nance paid the straw buyers a fee for the use of their names and financial information, while Ellertson, through his company, Equity, brokered the loan packages with GreenPoint and Wachovia, knowing all along that the transactions were fraudulent.

Nance, the plea agreement states, altered and falsified the loan and supporting documents. For example, Nance prepared and completed all loan applications on behalf of the straw borrowers. He misrepresented the straw borrowers’ income and represented that the straw borrower intended to occupy the property as his or her primary residence when he knew full well there was no residence on the property to occupy. Nance, or a licensed appraiser acting in concert with him (it’s not clear who), prepared and completed appraisal reports that significantly overstated the fair market value of the property. Other misrepresentations contained in appraisal reports included overstated comparable properties, fictitious floor plans, and fictitious photographs of a residence on one of the properties.

According to Ellertson’s plea agreement, Nance provided the loan and supporting documents to Ellertson. With the full knowledge of the numerous false and misleading representations, Ellertson then submitted each loan package to either Wachovia or GreenPoint. Relying on the false and fraudulent information, the Wachovia and GreenPoint approved loans for the straw borrowers, were then forwarded from the straw borrowers to Nance for his personal use.

With fewer houses selling, increases in foreclosures and real estate prices dropping, the housing market is experiencing the “soft landing” that has been long predicted, and the mid-western United States is once again the most vulnerable part of the country when it to real estate fruad. Earlier this week, CoreLogic released the latest edition of the Core Mortgage Risk Monitor, a report that forecasts the geographic regions most likely to experience the economic consequences of increased levels of fraudulent activity over the next 12 to 18 months.

According to the latest report, the risk index rose by 5 percent between the first and second quarters of 2006, after increasing by 6.4 percent between the fourth quarter of 2005 and first quarter this year. This increase indicates that the risk of real estate and mortgage fraud causing economic impact in vulnerable markets continues to rise at an unprecedented rate.

The top five major metropolitan statistical areas most at risk are:

1. Detroit-Livonia-Dearborn, Michigan
2. Memphis, Tennessee
3. Dayton, Ohio
4. Akron, Ohio
5. Gary, Indiana

The top five markets showing the most noticeable increase quarter over quarter are:

1. Gary, Indiana
2. Detroit-Livonia-Dearborn, Michigan
3. Goldsboro, North Carolina
4. Flint, Michigan
5. Florence, South Carolina

The Core Mortgage Risk Monitor measures what we call ‘collateral risk,’ which is the risk associated with the accuracy of a residential property valuation and the sustainability of that valuation over the life of the mortgage due to the unique characteristics of the property, market, and mortgage contract participants.

Back in July of this year, Michigan State House Representative Rick Baxter introduced House Bill 6267, a measure that would allow the use of that state’s Real Estate Enforcement Fund to investigate real estate fraud. Now, two months later, Baxter has introduced another package of bills aimed at halting the high number of real estate and mortgage fraud cases in Michigan, but unfortunately, according to The Associated Press, his proposals stand a slim chance of being signed into law (more on that in a moment).

As FlippingFrenzy.com has consistently reported, Michigan is one of the top ten FBI-designated ‘hot spots’ for real estate-related fraud. Baxter’s latest legislative package will attempt to combat real estate and mortgage fraud by:

• Clarifying what constitutes fraud in the mortgage industry and making mortgage fraud a felony;
• Providing prosecutors with the flexibility necessary to try the cases more efficiently because mortgage fraud crimes can overlap many legal jurisdictions;
• Clarifying specific actions that constitute fraud within the appraisal process to eliminate the manipulation of appraisals; and
• Protecting victims of mortgage fraud by allowing the opportunity for civil retribution.

So why are Baxter’s measures doomed to fail? From David Eggert of The Associated Press:

The plans [sic: are] new, but the lawmakers sponsoring them [sic: are] incumbents facing tough challenges in November. Looking for a list of accomplishments they can use in their re-election campaigns, they introduced new measures even though it’s unlikely many will become law this year.

“The leaders of both the majority and minority in both houses care first and foremost about protecting incumbents who might be vulnerable,” says political analyst Craig Ruff of Public Sector Consultants in Lansing.

So it’s common for incumbents in battleground districts to be out front on issues, Ruff says. Lawmakers may get local media attention after pushing consumer protection or other themes popular with the voting public…

In the last two weeks alone, Republican Rep. Rick Baxter of Concord helped unveil the ID theft package and sponsored measures to better protect children against abuse and neglect and to combat the worsening problem of mortgage fraud. Baxter faces Jackson Mayor Martin Griffin in his bid for a second two-year term…

Baxter denies the main reason for the flurry of bills is political, and others point out that he has been very active since he first became a legislator in January 2005. Baxter says the prospect of being in a tight race is one reason he tackles so many legislative issues…

The chances the new bills will become law this year may be slim. Although House Republicans plan to approve their proposals, the bills still must get passed by the Senate and signed by Gov. Jennifer Granholm in the “lame duck” session between the November election and Jan. 1.

While those of us who work in fraud education and forensics should be pleased anytime a real estate fraud prevention bill is introduced, it’s a shame when such an important and pressing issue becomes fodder for a politician’s election campaign. We need real solutions for the cancer in our floorboards, and we need them in real time. Baxter should have proposed his latest round of proposals back in July when he introduced House Bill 6267!

Since the National Association of REALTORS® named the week of September 10-16, Realtor Safety Week, I thought I would take the time to encourage any Realtors who frequent this site to implement basic safety measures. From my recent article on REALTOR Safety, which is posted in its entirety on RealtyTimes.com:

Real Estate Self Defense: Protecting Yourself in the Field
by Ralph R. Roberts, CRS, GRI

Headlines across the country prove that a career in real estate can be hazardous to your health. A tragic story is the most recent wake-up call to agents to protect ourselves in the field.

Agents are even more vulnerable to random acts of violence than any resident who happens to live alone. Residents can lock their doors to potential intruders, and they usually have a phone in their house or apartment to call for help. Neighbors are often on the lookout for suspicious activity.

Agents, on the other hand, often drive strangers around for hours looking at homes. By the nature of our business, we willing enter homes to show those strangers around the premises. In an empty house with nobody else within earshot, a violent criminal has almost complete freedom to act on any disturbing impulse that his mind can imagine.

All the police can do is show up after the crime has been committed and investigate, and for the victim, it can be too late.

Click here to read the rest of my article on REALTOR safety, which includes 10 tips for staying safe.

Regular readers may recall that I recently wrote about an elderly man in Canada who fell prey to a vicious real estate fraud scam. Eighty-nine year-old Toronto resident Paul Reviczky’s identity was stolen, and by using a falsified power of attorney, thieves were able to sell his property to an unsuspecting purchaser. As a result of Reviczky’s situation, and the outrage caused by the government’s inability to do anything about it because of existing laws, legislation will be introduced this fall that the government says will ensure that property owners do not lose their homes as a result of real estate fraud or become responsible for fraudulent mortgages.

If passed, the proposed legislation would ensure that ownership of a property couldn’t be lost as a result of the registration of a falsified mortgage, fraudulent sale or a counterfeit power of attorney. Instead, an innocent homeowner’s title would be restored and the fraudulent documents nullified.

The proposed legislation will also:

• Introduce new safeguards for suspending and revoking the accounts of fraudsters so that they cannot register documents, and…
• Raise existing fines for real estate fraud-related offences from $1,000.00 to $50,000.00.

While the Ontario government’s proposed legislation on real estate and mortgage fraud is a step forward for property owners, it only provides assistance after the fact and does very little to prevent real estate and mortgage fraud from occurring in the first place.

As part of the continuing change in business to employ more and more technology, many banks, including those in Canada, have turned to automated valuation applications. The upside is faster turn around on mortgage transactions, while the downside is that the automated process takes a key step out of the transaction–the personal contact that takes place by a third-party appraiser’s onsite valuation of the property in question.

Until government officials allocate funds for consumer education and personal interaction in each and every real estate transaction, the vast majority of legislative efforts are likely to fall short in curbing the bad guys’ appetite for fraud.

Less than two weeks after a State Senator indicated that he would introduce legislation aimed at curbing real estate and mortgage fraud in Massachusetts, the state’s Division of Banks last Friday announced the implementation of a plan designed to address abuses by rogue mortgage lenders and brokers. Several recent investigations have produced evidence that some Massachusetts mortgage lenders and brokers have purposely steered customers–often those with low incomes or with limited English language ability–into loans they cannot afford by using misleading tactics and, in some cases, committing fraud.

The Division of Banks’ plan combines enforcement and regulatory initiatives along with community and industry partnerships and outreach. On the enforcement side of the equation, the Division’s examiners have launched multiple surprise examinations of mortgage lenders and brokers, focusing on stated income loans and looking for any evidence that borrowers’ incomes are being inflated. Connected to this effort, the Division of Banks issued an industry letter to all licensed mortgage lenders and brokers and financial institutions threatening immediate and severe action should any evidence of inflating borrower income be found. (Click here for a copy of the letter.)

On the regulatory side of things, last Friday the Division of Banks issued emergency amendments to regulations that govern the supervision of mortgage lenders and brokers. These changes significantly expand the number of existing prohibited acts and practices that constitute grounds for the issuance of cease and desist orders and license suspension or revocation.

Effective immediately, in the state of Massachusetts, it is against the law for a mortgage broker or mortgage lender to:

• have a consumer sign a blank or incomplete mortgage loan application or mortgage loan documents.
• sign a mortgage loan application or mortgage loan documents on behalf of a consumer.
• falsify income or asset information on a mortgage loan application or mortgage loan documents.
• make false promises to influence, persuade or induce a consumer to sign a mortgage loan application or mortgage loan documents.
• pressure or coerce a consumer to sign a mortgage loan application or mortgage loan documents by misrepresenting or omitting crucial information about the terms of the mortgage.
• discourage a consumer in a mortgage loan transaction from seeking or obtaining independent legal counsel or legal advice.
• engage in a pattern or practice of failing to make any disclosure to a consumer required by and at the time specified by any applicable state or federal law, regulation or directive.
• fail to disclose the type and number of its license in an advertisement.
• advertise mortgage services without naming the licensee and disclosing the license number of the mortgage broker or mortgage lender under whose license the individual is acting.
• require a consumer to use the real estate services of a particular entity, agent or broker

The Division is also continuing to dedicate significant resources to the development of a nationwide mortgage database of mortgage professionals. The implementation of the database is essential to fill cracks in the existing regulatory framework and reduce fraud. Specifically, the nationwide database would eliminate real estate fraudsters’ ability of to move from state to state by providing a comprehensive listing of enforcement actions taken by all state regulatory agencies.

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 just the last few days, two separate respected real estate-related news sites have written about the problems associated with Cash Back at Closing offers.

From RISMedia, a highly regarded national news and information service that provides a wide array of services to clients throughout the home services industry sector:

Roberts urges home buyers, sellers and real estate professionals to know the law, to act in accordance with it, and to abort any deals designed to dupe anyone involved. “Watch for warning signs,” he tells them, “such as a buyer offering significantly more than the asking price, an inflated appraisal, or a situation in which neither the buyer nor the buyer’s agent has seen the property, or they want to use a different title company than the one that the seller’s agent has chosen. Often 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.”

From RealtyTimes.com:

While the logistics of cash-back-at-closing scams vary, the underlying legality is the same. “Whether it’s seller kickbacks, inflated purchase prices or ‘repair’ costs, the common thread is that the lender is not informed of the true nature of the transaction,” Roberts explains. “Whenever the lender is not informed, in writing, of the true nature of a transaction, the transaction is illegal.”

Roberts notes that cash back at closing can be legal if a broker is giving back a portion of his or her commission, but this would be rare occurrence. “If agents want to rebate part of their commission back to the purchaser, I would call this ‘commission back at closing,’” Roberts says. “While this is not illegal, it should be done only with the broker’s knowledge and approval, and it should not be cash, as it could be considered income and have tax ramifications. I would check with an accountant.”

For a lively discussion on Cash Back at Closing offers, check out the comments being left here.

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.

A California man who was once a finalist for the naming rights to the San Francisco 49ers’ football stadium, and who donated large amounts of money to California State University, was indicted late last week by a Federal grand jury on 122 charges of fraud and money laundering in connection with a scheme to defraud homeowners of millions of dollars in cash.

According to an indictment sought by the United States Attorney for the Northern District of California, 32-year-old Tony Daniloo of Turlock, CA, embezzled large amounts of money from real estate clients in the East Bay and the central California valley, some of which he used to secure the naming rights on an athletic arena at California State University at Stanislaus. From 2000 to 2002, Daniloo managed the Dublin branch office of Residential Credit Corporation, a mortgage brokerage company based in Westminster, CA. In 2003, he co-founded DreamLife Financial, which maintained headquarters in Modesto and as many as seven branch offices, and served as President and CEO of DreamLife Financial until it closed in December 2004.

The indictment alleges that Daniloo’s clients at both Residential Credit Corporation and DreamLife sought to refinance their properties in order to convert the equity in their properties for their cash needs. Instead, according to the charges, Daniloo altered escrow documents to cause large amounts of cash intended for his clients to be deposited into his own personal bank accounts.

In total, according to the indictment and a search warrant affidavit for a search executed by federal agents in December 2004, Daniloo defrauded homeowners of approximately $7 million in cash that the victim homeowners had intended be used for their own cash needs.

The indictment alleges that Daniloo laundered his criminal proceeds by making numerous “lulling payments” to victim homeowners, as well as spending massive amounts of stolen money to garner publicity for DreamLife. For example, according to the indictment, Mr. Daniloo made a $1 million pledge to the athletic department at California State University at Stanislaus, in exchange for the university renaming its athletic arena “DreamLife Arena.” And in 2004, DreamLife was a finalist for naming rights of the San Francisco 49ers’ football stadium at Candlestick Point.

In addition to the federal charges filed last week, Daniloo faces local charges in Alameda County, CA. Daniloo was arrested by federal agents on June 29, 2006, pursuant to a federal complaint and arrest warrant, and made his initial appearance in federal court the same day. He remains in federal custody at North County Jail in Oakland, CA. The indictment charges Daniloo with 41 counts of wire fraud, four counts of mail fraud, and 77 counts of money laundering. The maximum statutory penalty for each of these counts is 20 years imprisonment, a fine of $250,000, and restitution.

How toxic is your mortgage? That’s what BusinessWeek magazine wants to know (see the September 11th issue, on newsstands now):

While the article and accompanying sidebars and graphics focus on the many problems associated with adjustable rate mortgages and “mortgage payment reset” (topics FlippingFrenzy.com covered in the past), real estate and mortgage fraud are not entirely absent from the conversation:

Then there’s the illegal stuff. Mortgage fraud is one of the fastest-growing white-collar crimes in the nation, costing $1 billion in 2005, double the year before. A slower housing market could foster more wrongdoing. “With a tighter market, you are going to find there is more incentive to manipulate,” says Tim Irvin of Irvin Investigations & Research Services in Spring, Texas. “Brokers are having a harder time getting business, so they’re getting creative.”

Click here for a very detailed yet dummied-down article from a pretty well qualified source.

Massachusetts Attorney General Tom Reilly has obtained emergency orders to stop unfair and deceptive practices by individuals and businesses he claims are involved with mortgage fraud and foreclosure rescue schemes. As part of Massachusetts’ continued effort to tackle predatory conduct in mortgage brokering and lending, temporary restraining orders were issued against five individuals and four businesses engaged in what Rily calls unfair and deceptive practices.

In each of the three lawsuits filed this past Wednesday, judges issued emergency orders to stop the illegal practices, and ordered the defendants not to evict any homeowners or sell any of their homes.

In a complaint filed in Suffolk Superior Court, Reilly alleges that Brockton, MA, attorney Alec G. Sohmer, and his wife Jennifer, participated in a bogus foreclosure rescue scheme targeted at desperate homeowners. The complaint also names Timeless Funding Inc., a Nevada company the Sohmers allegedly used in their fraudulent activities.

According to Reilly’s complaint, Sohmer has preyed on homeowners facing foreclosure since 2004 by promising them they could avoid foreclosure with refinancing through Timeless Funding. Instead, Sohmer deceived the homeowners into conveying their property to himself or to his wife. The complaint alleges that Sohmer concealed his fraud by deceiving the homeowners into signing documents purporting to allow them to stay in their homes by making monthly payments to Sohmer, and then to “repurchase” their homes from Sohmer by obtaining new financing. The complaint alleges that Sohmer knew that, because of the homeowners’ financial distress and the onerous “repurchase” terms, the homeowners would never be able to afford the monthly payments, or obtain the required financing to get their homes back.

After homeowners were unable to make their monthly payments, Sohmer sought to evict them from their homes, and to sell their homes to new buyers. Reilly alleges that, as a result of Sohmer’s scheme, at least three homeowners have already lost, or face losing, their homes and their life savings. The Sohmers also allegedly took for themselves the equity that the homeowners had built up in their homes, as well as additional fees, commissions and other payments directly from the homeowners.

The complaint identifies homeowners in Centerville, Wareham, and Brockton, MA, who have been victimized by Sohmer’s practices. According to AG Reilly’s complaint, Sohmer misled consumers about the nature of the transactions, misrepresented and omitted crucial terms, pressured homeowners into signing documents without reading them, and then refused to give them copies of the signed documents. Sohmer also capitalized on his position as an attorney, and in one case victimized a homeowner who he was representing in bankruptcy.

In another case involving a bogus foreclosure rescue scheme, Reilly filed a complaint Wednesday in Middlesex Superior Court against Walter Ribeck of Newburyport, MA.

According to AG Reilly’s complaint, Ribeck targeted financially distressed homeowners facing foreclosure on their homes. Ribeck, promoting himself as a “loan specialist” with Powderhouse Mortgage Company, promised to arrange replacement financing to allow homeowners to keep their homes and any home equity they may have accumulated. Then, when foreclosure was imminent, Ribeck instead arranged for the homeowners to deed their homes to him, while purportedly maintaining a right to lease the residence and buy it back at a future date. This repurchase terms, however, were at inflated prices that far exceeded the homeowners’ original mortgage obligations. The ultimate result of these transactions, AG Reilly alleges, is that Ribeck evicted the homeowner so he could sell the home on the open market, for far more than he paid to acquire it.

In 1991, Ribeck, then a real estate broker, was convicted of bank fraud and making false statements to a federally insured bank and was incarcerated for two years. Reilly has obtained an emergency court order to prevent Ribeck from evicting homeowners or selling their property, and is also seeking restitution for homeowners harmed by Ribeck’s conduct, civil penalties, and reimbursement of the costs of investigating and litigating this case.

Since he took office, Reilly has made it a priority to protect Massachusetts homeowners and homebuyers from predatory practices by mortgage brokers and lenders, and more recently, from bogus foreclosure rescue scams. From 2003 through mid-2006, the state of Massachusetts has brought lawsuits or obtained settlements against fraudsters that together will return over $25 million to over 20,000 Massachusetts homeowners.