With just two weeks to go before Rebecca Hauck is sentenced [for her role in a long string of real estate and mortgage fraud-related crimes], Fortune Magazine weighs in with a 5,000-word article on her accomplice, Matthew Cox. From yesterday online edition of Fortune Magazine:

The real estate market has never offered such opportunity for graft. Since the housing market started to soar in 2001, mortgage fraud has become the fastest-growing white-collar crime, according to the FBI. Last year crooks skimmed at least $1 billion from the $3 trillion U.S. mortgage market.

Now that the market is slowing, fraud is only rising. As business dries up, there’s increasing pressure on lenders, brokers, title companies and appraisers to be profitable. That means loan and title documents aren’t scrutinized as carefully as they might be, and courts – many of them so low-tech they resemble Mayberry – can’t keep up with the volume of paper. …

And with a con man like Matthew Cox still at large, any homeowner in the land is vulnerable. “Master con men like Cox are charming, manipulative, cunning. They have an amiable facade, which makes them very adept at getting others to like them,” says Louis B. Schlesinger, a professor of forensic psychology at John Jay College of Criminal Justice in New York.

For the better part of the past decade Cox has stalked his prey through MLS (multiple listing service) real estate ads. He has studied county courts, looking for ones he could easily dupe with falsified documents.

Marcia Vickers, Fortune’s senior writer, and Reporter Associate Doris Burke, provide an in depth look into Hauck’s life with Cox, and speculate that Cox may be hiding out in Cuba. For more information on the Hauck and Cox story, read The Bonnie and Clyde of mortgage fraud, courtesy of CNNMoney.com.

An Atlanta, Georgia, couple has been sent to jail on charges of bank fraud and conspiracy to commit mortgage fraud, bankruptcy fraud, identity theft, money laundering and obstruction of justice, according to the Atlanta Business Chronicle. Carl F. Hairston, 32, and Janice Reena Hairston (a.k.a. Cheryl Owens), 38, of Roswell, GA, were sentenced yesterday afternoon by a U.S. District judge to serve nine (9) years in prison plus five (5) years of supervised release, and were ordered not to be employed in any mortgage-related business ever again, reported the ABC. The Hairston’s were also ordered to pay nearly $420,000 in restitution.

According to court documents, between July 2000 and January 2006, the Hairston’s obtained mortgages and other loans from First Horizon Money Center, a subsidiary of First Tennessee Bank, where Carl Hairston was then a branch manager, and from other banks. For her part, Janice Hairston laundered the loans through a series of shell companies.

The Hairston’s also obtained a $615,000 fraudulent mortgage loan to buy their personal residence and attempted to protect these fraudulently obtained assets by filing multiple fraudulent bankruptcy petitions, reported the Atlanta Business Chronicle.

The Hairstons’ case was further aggravated because they continued their fraud both after they were indicted and while awaiting sentence by filing multiple fraudulent bankruptcy petitions to retain fraud assets and by defrauding additional victims, said U.S. Attorney David E. Nahmias.

The FBI’s latest ranking of real estate/mortgage fraud hot spots lists Atlanta, Georgia, as the second worst metro region in the country.

Yesterday, October 17, the U.S. population reached 300 million, and what would have been my daughter Kolleen’s 19th birthday causes me to reflect on what it all means.

It’s not the 300 million figure that impresses me most. It’s the fact that each of those 300 million people is an individual who, through the course of their lives, will, in some way, touch the lives of the more than 6 billion individuals on the planet.

When Kolleen passed away earlier this year, I was deeply moved at her visitation and funeral by all the friends, family, and acquaintances who showed up to grieve her loss and celebrate her life. I realized that although Kolleen was no longer with us in body, her spirit continued to thrive in those who knew her and loved her. They shared their stories of Kolleen with me and my family–my wife Kathleen, and Kolleen’s siblings Kyle and Kaleigh.

Recently, I picked up a copy of The Dash, based on the poem “The Dash,” by Linda Ellis. (You can view The Dash Movie online by clicking here.) In the poem, Ellis describes a man speaking at the funeral of a dear friend. Referring to the dates on her tombstone, he notes that what’s most important about those dates is not the birth date or the date of her death, but the dash between those years. The man goes on to say that in the end, what we own, what we achieve materially is of little consequence. What’s important is “How we spend our dash.”

The Dash constantly reminds me of the importance of connecting with others every day of my life, especially in a world in which technology is making communications increasingly less personal. When we connect with others, as Kolleen did throughout her short life, the dash becomes much less of a line between two dates. It becomes an ever expanding series of circles that ripple out, touching the lives of many others.

On this day, I realize that Kolleen’s dash didn’t end on the day she died. Because she touched so many people in so many positive ways, she made her dash eternal.

I wonder about that 300 millionth U.S. citizen born today. What will that tiny baby’s dash ultimately represent? How will he or she affect the lives of others? How will that person’s life ultimately touch me?

As many people know, I am a staunch opponent of nearly all real estate transactions that involve a ‘Cash Back at Closing’ component. When I tell customer and colleagues that cash back at closing schemes are illegal, a large number of them are incredulous (as evidenced by the large number of comments I receive here on FlippingFrenzy.com each and every time I write on this topic).

The law that governs real estate transactions is referenced on the 1003–that’s the Uniform Residential Loan Application–which every property buyer signs when applying for a real estate-related loan (see Title 18, United States Code, Section 1001 for more information). To paraphrase Title 18, section 1001, you cannot lie on a loan application or any other document related to a real estate transaction. If you–as a buyer, appraiser, agent, loan officer, or another party to a real estate transaction–provide a false statement related to a property’s value on your 1003 or any other document for that matter, you are lying and you are breaking the law. Quite frankly, it really is that simple.

With that fact in mind, it was with great interest that I read yesterday’s AP story titled, “Some Cash-Back Home Deals May Be Illegal,” by Vinnee Tong.

NEW YORK — A certain type of cash incentive some homebuyers are seeking may lead them, and their real estate brokers, into a legal grey area.

In markets where sellers are struggling to offload properties, some buyers are demanding cash back as part of the terms of closing a deal. The practice is more common now as sellers and homebuilders press harder to close sales and the incentives grow in number and variety.

“You can see that there’s really no limit on their creativity on what they’re offering,” said Chris Hunter of the law firm Morgan Miller Blair, which works with national homebuilders. “They’ll list everything from generalized price reductions to interest rates to amenities to trips and shopping.”

Because real estate transactions in many states are completed without help from an attorney, brokers often are the only layer between their clients and the lender. In many cases that leaves the broker and the buyer liable if they are not properly disclosing the true financial terms of the deal.

California is one state where transactions are normally completed without the assistance of an attorney. Tom Pool, spokesman for the California Department of Real Estate, said undisclosed cash back deals could lead a broker to have his or her license suspended. Brokers are fiduciaries, Pool said, so are obligated to report truthfully to the principals in the deal. If the buyer defaults on an artificially inflated loan, leading to a foreclosure, that buyer could be prosecuted for fraud.

The key to avoiding liability is fully disclosing any cash deals.

If the seller puts money in escrow for repair or renovation purposes, there is no additional risk for the lender. If cash is exchanged and the lender doesn’t know about it, the lender isn’t getting all the information to evaluate how risky the loan actually is.

Pool said the issues people are raising now are similar to concerns lenders and regulators faced during the real estate boom of the 1980s. The practice of giving cash back at closing or arranging hidden second mortgages led to a significant number of loan defaults and resulting fraud cases then, according to Christopher Mayer, director of the Milstein Center for Real Estate at Columbia University.

“In general, I see no reason why someone should do this _ credit is available,” Mayer said. “I can’t see any good economic reason for this but I can think of a lot of fraudulent reasons for doing it.”

I’m glad to finally see national attention being focused on Cash Back at Closing deals. Whenever a lender is not informed, in writing, of the true nature of a real estate transaction, the transaction is illegal. And if you go along with the scheme, you become an accomplice, subject to prosecution.

Late last week, the U.S. Securities and Exchange Commission (SEC) filed securities fraud charges against the operator of a massive Ponzi scheme who raised more than $30 million from 200 investors to pay off personal gambling debts and finance his lavish lifestyle. The Commission’s complaint was filed in the United States District Court for the Central District of California against Salvatore Favata, the former President of National Consumer Mortgage, a residential mortgage business in Orange County, California.

The SEC alleges that from 2001 through 2006, Favata falsely promised investors rates of return of 30-60 percent on their investments, but instead used new investor funds to pay off earlier investors in typical Ponzi-like fashion. The SEC also charges that Favata used the money to pay off more than $10 million of his own gambling debts, as well as other personal debts and living expenses, and to fund lavish house parties and community music festivals.

This case exemplifies how fraudsters can take advantage of existing market conditions, i.e., California’s booming real estate market, to entice investors with the false promise of double-digit returns.

The SEC says Favata solicited investors in face-to-face settings, including church gatherings and investment seminars, and persuaded his mortgage refinance clients to take cash out of their refinancings and use that cash to invest in his residential mortgage business’ investment notes. Favata falsely told potential investors that his company would loan investor funds to homeowners who could not qualify for traditional mortgages, and that a low default rate would be maintained by only lending on properties with a 65 percent or lower loan-to-value ratio. Favata went so far as to represent that National Consumer Mortgage maintained deeds of trust for the real estate securing the investments.

Without admitting or denying the allegations of the SEC’s complaint, Favata consented to the entry of a final judgment permanently enjoining him from violating the antifraud and registration provisions of the federal securities laws. Favata also consented to being permanently barred from associating with any broker or dealer.

On the same day the Commission filed its complaint, the U.S. Attorney’s office for the Central District of California filed an information and plea agreement in which Favata agrees to plead guilty to one count of mail fraud, to pay restitution in excess of $20 million, and to forfeit his residence in connection with the same scheme. Pursuant to the plea agreement, Favata faces a possible five-years (5) prison sentence.

Iowa’s Attorney General, Tom Miller, filed a lawsuit last Thursday alleging that two people committed consumer fraud and ongoing criminal conduct in the sale of homes in the Des Moines area. Miller’s office alleges that John J. Davis and Christine Frank repeatedly sold homes at highly-inflated prices to first-time buyers with average or below-average credit scores, and that they engaged in fraud to induce mortgage companies to make the loans.

Miller’s suit spells out nine cases of fraud victims who bought homes from Davis and Frank. All the loans cited ended in foreclosure, harming the buyers and their credit histories, and harming the mortgage companies because the value of the properties is substantially less than the respective loans.

In particular, the lawsuit alleges, Davis and Frank “repeatedly created documents to make it appear that the purchasers made sizeable down-payments, when in fact the purchasers had not done so.” The suit also alleges that the pair wired and transferred their own funds to the real estate closing agent, falsely representing that the funds were down payments from purchasers.

The suit goes on to spell out how appraisals of properties were significantly overstated. Linda Hintz, who now has surrendered her State of Iowa appraisal license, performed eight of nine appraisals cited in the lawsuit. Mark Wallace, who has been convicted of Theft in the First Degree and Forgery for activities related to other appraisals, completed the other.

The lawsuit alleged that the deception induced the mortgage company to make loans to buyers, and allowed the buyers to pay the defendants highly inflated prices for the properties.

Examples cited in the Lawsuit:

• In one case, a Des Moines property was appraised at $85,000 for a sale on March 30, 2003, even though the Polk County Assessor had placed a value of only $33,290 on the property just four months earlier, on January 1, 2003. Davis and Frank sold the property for $85,000, falsely representing that the buyers had paid a down payment of $13,000. The mortgage company made a loan of $72,250 to the buyers, and proceeds of $64,870.07 were wired to a Davis and Frank controlled account at the Earlham Savings Bank. Mortgage foreclosure proceedings have been initiated against the buyers.
• In another example, Davis and Frank sold another property for $115,000 on March 31, 2003. The property in question had been appraised at $115,000 by appraiser Linda Hintz, even though the Polk County Assessor had placed a fair market value of only $55,580 on the property just three months earlier, on January 1, 2003. The $7,000 down payment of was purportedly paid by the buyers, but was actually was paid by Davis and Frank, the suit contends. Proceeds of $69,893.89 were wired to a Davis and Frank account at the Earlham Savings Bank, and sadly, the buyers lost the property in foreclosure earlier this year.

In the nine examples cited, the suit alleges, misrepresentations by Davis and Frank induced mortgage companies to make loans totaling nearly $700,000, and all of the loans ended up in foreclosure.

According to a press release being circulated by MortgageDaily.com, the FBI will soon release a report stating that mortgage fraud losses reached $1 billion during 2005. From MortgageDaily.com’s press release:

Mortgage fraud reached $1 billion during 2005, according to government data provided to MortgageDaily.com, the dominant source of online news for the mortgage industry. A report due to be released from the Federal Bureau of Investigation in the next “couple of weeks” will show mortgage fraud losses totaled $1 billion last year, an FBI spokesman told MortgageDaily.com.”

What’s odd about this news (and MortgageDaily.com should already know this) is that it isn’t newsworthy at all. In December of 2005 (nearly 11 months ago), the FBI released a statement saying that mortgage fraud losses for ’05 exceeded One Billion dollars ($1,014,000,000.00, to be exact). Why MortgageDaily.com’s editorial staff didn’t catch this is a mystery.

MortgageDaily.com’s press release, which can be viewed in its entirety here, goes on to state that during the first half of 2006, losses from real estate fraud in the U.S. were $546 million, and that through September 26th of this year, 2,293 Suspicious Activity Reports related to real estate fraud were filed in Los Angeles, California, (a fact that was reported last week by the editorial staff over at the Los Angeles Times).

It seems to me that a lot of organizations and individuals are trying to get in on the act of profiting from the growing problems associated with real estate and mortgage fraud. Using outdated data to push readers to a subscription-based website is not the most responsible thing for any news organization to be doing, especially one that refers to itself as “the dominant source of online news for the mortgage industry.” One would think that such a dominant source of news would already know that the FBI went on record last year with that One Billion dollar figure.

The nation’s largest independent home loan lender, Countrywide Financial Corp., is suing a Fishers, Indiana, man for orchestrating a mortgage fraud scheme in which dozens of Virginia residents were tricked into buying homes in Indianapolis and Westfield, Indiana, at significantly inflated prices. Countrywide alleges that Robert Penn worked with relatives in Virginia–and associates that included appraisers and mortgage companies–to defraud hundreds of homeowners.

According to the Indianapolis Star, Countrywide’s lawsuit lists 112 properties, but on Thursday, Prudential Realtors in Indianapolis put that number closer to 400. By some accounts, the Star reports, the dollar value of the loans, many of which have defaulted or are now in foreclosure, is somewhere between $40-$80 million.

Click here for more on this developing story.