The Chief U.S. District Court Judge for the Eastern District of North Carolina has placed three companies on probation for five years, ordered them to pay restitution in the amount of $7,500,292.72, and ordered each to forfeit all of their property.

Donald Gupton, a prominent business man in Henderson, North Carolina, was president of Donald W. Gupton, Inc., which owned and operated the three companies–Dynasty Homes of Henderson, Superior House Center, and Creative Real Estate and Manufacturing Housing Sales Center. Personally, Gupton was charged and pled guilty to conspiracy to commit mail fraud, wire fraud and making material false statements as well as conspiracy to commit money laundering. His sentencing for his personal role in the scam was continued to the January 2007 term of court.

Richard Meador, of Kittrell, North Carolina, and Donald Carroll, of Henderson, North Carolina, both of whom worked for Gupton’s companies, were previously sentenced in late-September for their role in Gupton’s scams. Meador received a sentence of 53 months in prison, three years’ supervised release, and was ordered to pay restitution in the amount of $1,270,299.74, while Carroll was sentenced to serve 30 months in prison, three years’ supervised release, and was ordered to pay restitution in the amount of $1,476,830.59.

According to documents and information disclosed in court proceedings, all three men falsified information on loan applications, provided false trade-in information and titles, provided false gift letters, and false down payment information on loan applications for prospective applicants. This was done so the buyer/borrower would have a lower ‘debt to income ratio,’ qualifying them for a loan. Between 1999 and 2002, the three scammers sold in excess of 150 manufactured homes resulting in HUD mortgages exceeding $11,000,000. The total loss to all lenders is estimated to exceed $19,000,000.

Gupton used the proceeds from the fraudulent loan activity to purchase real and personal property for himself and to purchase properties placed in the names of CRE Properties, LLC and M & G Porperties II, Inc. The proceeds were also used to pay employee commissions, bogus gift funds and business expenses.

The joint prosecutorial effort by the U.S. Attorney’s Office, HUD’s Office of Inspector General, the Internal Revenue Service’s Criminal Investigation Division, and the North Carolina Real Estate Commission has helped send a strong message that those who seek to unlawfully profit by defrauding programs within HUD will be vigorously investigated and prosecuted.

Federal authorities unsealed a 47-count indictment last week against eleven individuals for their participation in a complex mortgage fraud scheme involving more than 30 properties bought and sold in Broward County, Florida. In all, the acts committed by six men and five women resulted in the issuance of approximately $10,000,000.00 in fraudulent mortgage loans.

Charged in the indictment were Yvette Scott Patterson, 40, formerly of Lauderhill and now in Jamaica; Delroy Patterson, 45, formerly of Lauderhill and now also in Jamaica; Christine Brown, 30, of Fort Lauderdale, FL; Megan McGuire, 40, of Miramar, FL; Roosevelt Dozier, 39, of Hollywood, FL; Ishmael Grant, 59, of Lauderhill, FL; Mavis Grant, 62, also of Lauderhill, FL; Adewui Majaro, 42, of North Miami, FL; Mark Reid, 36, of Miramar, FL; Audrey Lynch, 36, of Fort Lauderdale, FL; and Fitzgerald Puddie, 32, of Hollywood, FL and Toronto, Canada. All 11 defendants have been charged with conspiracy to commit mail fraud, wire fraud and aggravated identity fraud, as well as several substantive counts of mail fraud, wire fraud and aggravated identity fraud. Defendant Yvette Scott Patterson was individually charged with making a false statement in a passport application in July 2003.

According to court documents, the defendants engaged in a scheme to enrich themselves by obtaining mortgages from lenders using straw purchasers and through the submission of false documentation, including false loan applications, employment verification forms, salary statements, and bank account statements reflecting inaccurate high account balances. The defendants also allegedly used and caused others to use false or stolen Florida’s driver’s licenses, identification cards, and social security numbers as their personal identification at closings, in order to purchase property in the names of individuals whose identification documents had been previously stolen.

Also according to the indictment, Patterson masterminded the scheme, and used her mortgage business, Khadmilroy, Inc., located in Broward County, to execute it. The indictment lists 17 properties, all in Broward County, purchased with loans obtained through fraudulent applications and supporting documentation in the names of straw purchasers or in the names of people whose identification documents, including social security numbers and driver’s licenses, had been previously stolen. Over the period of the conspiracy, Patterson is said to have received approximately $300,000 in loan closing fees, mortgage broker fees, and yield premiums in connection with the fraudulently procured mortgages.

The eleven fraudsters were well organized and dedicated to getting rich at the expense of others. Thanks to the dedicated efforts of many law enforcement agencies, this is one real estate fraud ring that now appears to be out of business.

If convicted, the 11 defendants face a maximum term of imprisonment of up to five years on the conspiracy count, up to twenty years’ on each of the mail and wire fraud counts, from two to fifteen years’ on the aggravated identity fraud counts, and up to ten years on the false passport count. The investigation was named Operation Whose House, because, as a result of the defendants’ fraud, public property records did not accurately reflect the true ownership of the properties bought and sold by the 11 scammers.

To update a story FlippingFrenzy.com first reported on back in March 21st of this year, a U.S. District Judge dismissed bank fraud and conspiracy to commit bank fraud charges against three people in Mississippi who were earlier arrested and convicted of committing mortgage fraud. All three still stand convicted of wire fraud, while one of the three also remains convicted of money laundering.

According to the court documents, the three–real estate industry insider Richard Lucas, attorney Kimberly Castle, and appraiser Kenneth Stalnaker–were accused of buying distressed property in Hattiesburg, Petal, Laurel, and Gulfport, Mississippi at low prices, securing inflated appraisals and high mortgage loans, and selling the properties soon after buying them for unjustified profits.

Kimberly Castle’s attorney, John Colette, to the AP that the judge in the case dropped the bank fraud charges because Countrywide Financial and Alliance Funding Co., the two mortgage companies harmed by the scheme, were not insured by the Federal Deposit Insurance Corp. The FDIC insures banks and savings and loans to protect the deposits made by their customers. Any attempt to defraud or steal money from a federally insured bank is a federal crime. Since Countrywide Financial and Alliance Funding were not insured by the FDIC, the judge apparently had no choice but to drop the federal portion of the conviction.

Recently, Forbes Magazine ran an article which could only be taken as a negative indictment of the title industry. Referring at different times to research, interviews and the findings of an 18-month investigation conducted by the state of Washington’s insurance commissioner, the article’s author, Scott Woolley, contends that the title industry has enriched itself for decades and “bilked home buyers out of billions of dollars.” Additionally, Woolley asserts that automated land records will eliminate the need for title insurance and the title profession. (If you haven’t read “Inside America’s Richest Insurance Racket,” do so before reading any further. The article itself is followed by several pages of spirited, sometimes heated, comments, including a rebuttal by the American Land Title Association.)

While I do not agree with everything in the article, it is clear that the title industry needs a major overhaul. It’s no coincidence that Woolley’s article is just one of many that have surfaced as the media, legislators, investigators and consumers question the practices of a decidedly misunderstood industry. The title industry is being attacked nationally for employing illegal tactics to generate orders from realtors and lenders. Just as disturbing is a dramatic increase in the incidence of class action lawsuits alleging anti-competitive practices (pricing) and failure to disclose material facts to consumers. Only a handful of title insurers now dominate this very important and lucrative market following an aggressive stream of acquisitions. The public understands little about the scope of a title policy and the role of the title agent because the industry has chosen to conduct its day to day business “in silence.”

The concept of “bundled services” has added an entirely new dimension to the evolution of the title industry by giving many of it’s participants an “identity crises” that may be difficult to overcome. It’s now common practice for title professionals to join forces with realtors and lenders by sharing the ownership of a new company that enjoys the benefits of captive title orders. The joint venture, assuming that its RESPA compliant, must conform to federally mandated guidelines that control its initial capitalization, its “core title” practices and the way dividends are paid. In theory, the joint venture benefits from “economies of scale” and accordingly rewards the consumer with a reduced fee structure. Additionally, we’re told that the interests of the consumer are best served by the convenience of a “one stop” shop. One by-product of the joint venture when paired with technology is the ability to process regional, or national, title orders (and loan applications) from a single location.

The marriage of title company with source of business should raise a number of concerns for anyone interested in fraud prevention. The removal of processing activities to distant points is the first of these concerns. In the past realtors, title agents and mortgage brokers conducted business in the same communities in which they lived. There was a relationship between the real estate professional and the consumer. There was a real-world familiarity with the condition and value of the homes being sold. The success of the realtor, title agent and mortgage broker was in large part decided by referrals from friends and neighbors. I realize that I’m oversimplifying this scenario and that real estate fraud has always existed, but we cannot ignore the fact that the fraudster benefits by doing business with a “voice on the phone.” Technology is a potent detector, and deterrent, of fraud. Still, many of the “tell-tale” signs of real estate fraud are extremely subtle and require direct observation. There is no substitute for the human element in matters of homeownership.

A second downside of the joint venture has to do with the reduced ability of the title professional to make independent decisions. A title agent has a very serious duty to act in the best interest of the source of funds. Keep in mind, the mortgage broker (loan officer) is not the source of funds. During a criminal investigation the title agent is held accountable for all of his professional decisions and is unable to make excuses by saying that he” didn’t know”, he “didn’t understand” or that he “can’t recall.” Consider an example where the title agent in a joint venture is asked by his business partner to “discretely” use seller proceeds to pay buyer closing costs. A title agent facing a situation such as this is in a real dilemma. The request itself is a solid indicator that falsified documentation was used to approve the loan. Also, the closing instructions would specifically prohibit the seller from contributing any amount without the actual knowledge of the source of funds. Yet, how does the title agent say “no” to his business partner and only source of business?

While I cannot quite agree with Mr. Woolley’s analysis that the title industry is no longer needed, I do have some advice for the title industry: Learn from prescription drug manufacturers and sell yourself and your services to the consumer. You’re being attacked, in part, because the public doesn’t know you!

Just one day after his partner in crime was sentenced to nearly six years in federal prison, U.S. Secret Service Agents and Nashville, Tennessee police arrested Matthew B. Cox–the most notorious mortgage fraud scam artist ever to roam the planet. According to Flipping Frenzy’s good friend, St. Petersburg Times staff writer, Jeff Testerman, Cox was arrested after a 60-year-old Nashville babysitter read about him in the Times and tipped off U.S. Secret Service agents. According to the Associated Press, federal prosecutors in Atlanta, Georgia will handle Cox’s case.

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 have appeared on the U.S. Secret Service’s Most Wanted Fugitive list since around 2004. Cox and Hauck used stolen identities to obtain drivers licenses, purchase vehicles, lease mail drops, rent apartments and open bank accounts to receive reale estate-related scheme proceeds throughout the states of Georgia, Florida, Alabama, South Carolina and North Carolina.

FlippingFremzy.com will have more on this developing story next week. In the meantime, we’d like to send a note of appreciation and support to the citizen (Patsy Taylor) who lead authorities to Cox, as well as to both the federal and local authorities in Nashville, for a job well done!

Jeff Testerman of the St. Petersburg Times just posted an amazingly detailed article on the events leading up the capture of Matthew Cox:

Sitter’s fears set arrest in motion

By JEFF TESTERMAN, Times Staff Writer
Published November 17, 2006

Matthew B. Cox., a former Tampa mortgage broker who rose to the top of the most-wanted list by purportedly masterminding a multimillion-dollar mortgage fraud scheme, was captured Thursday by federal agents at a home he shared with his girlfriend in Nashville.

Eluding capture for almost three years after being pursued by state and federal probation officers, the FBI and the U.S. Secret Service, Cox was turned in by the efforts of Patsy Taylor, a 60-year-old retiree and occasional babysitter.

Now Cox faces a 42-count fraud indictment in Atlanta that could put him behind bars for 400 years, as well as felony charges stemming from fleeing Tampa while on probation and additional fraud charges likely to arise from a federal investigation into fraudulent mortgage loans in the Tampa Heights area.

Taylor, the wife of a Baptist minister, mother of five and one-time owner of a medical transcription business, said she smelled something fishy about Cox, investigated him and then turned him in.

A half-dozen Secret Service agents captured Cox without incident Thursday morning.

“There was a certain deceit I saw in his eyes,” Taylor said Thursday. “I didn’t trust the things he said.”

Taylor met Cox a few months ago as he masqueraded as Joseph Carter, co-owner of a renovation firm called the Nashville Restoration Project, who offered a sweet deal to Taylor’s daughter on a remodeled home. Later, Taylor shared babysitting duties caring for the 4-year-old son of Carter’s girlfriend.

Nothing about Carter felt right, Taylor said.

“He said he could give my daughter this remodeled place for $150,000, and I knew it was a $250,000 place,” Taylor said. “He was supposed to have made all these sales but hadn’t really sold anything.”

Taylor said she wondered why Carter didn’t go out much, and why he had outfitted his restored bungalow home with sophisticated security cameras.

She began to investigate.

After learning Carter was from Florida, she used her computer to look through the archives of the state’s newspapers.

Taylor said a story published in the St. Petersburg Times this year caught her attention. It was about a couple from Tampa named Matthew Cox, 37, and Rebecca Hauck on the run from the law.

Focusing on a reference in the story to the most-wanted list circulated by the Secret Service, Taylor went to the agency’s Web site. There, at the top of the list was a mug shot of the man her instincts had told her was trouble.

“It scared me to death,” said Taylor. “It was Joseph Carter.”

Taylor read the Secret Service warning about Cox being armed and dangerous. She worried about her safety, and of the safety of the 4-year-old boy she had cared for as a babysitter. If she was going to take a chance on turning him in, she said, she figured, she ought to ask about a reward.

Last Friday, Taylor e-mailed the Times reporter who had chronicled Cox’s history since 2003 and asked if there was a reward. “I think I have some really good information that would catch him today,” she wrote.

The Times checked with the Secret Service. No reward. The newspaper next called Paula Hutchinson, attorney for Hauck, who had been captured in March, pleaded guilty to reduced charges and agreed to testify against Cox.

The catch was that Hauck would be able to testify and earn a reduced sentence only if Cox could be found.

Hutchinson said Hauck’s family would offer a private reward. The Times relayed the information to Taylor, along with Hutchinson’s phone number.

After the two women talked, the lawyer said she was sure Taylor had found Cox. The physical description, the dog named Pinky that Cox took when he left Hauck, the home restoration business, his affinity for Starbucks coffee and Infiniti autos - all were signs that Taylor had located the man at the top of the most wanted list.

Hutchinson put Taylor in touch with Secret Service agents.

Hours after Hauck was sentenced in Atlanta Wednesday to 70 months in prison for her part in a string of mortgage frauds, the Secret Service was monitoring the home of “Joseph Carter” and his girlfriend, Amanda Gardner, at 79 Donelson St. in Nashville

Taylor said an agent called her 10 times Wednesday night, troubled that no one seemed to be home at the Donelson address. Did Taylor have other addresses or phone numbers? Taylor said she did not.

What neither agents nor Taylor knew was that a home invasion at the Donelson Street address on Monday had sent Carter, Gardner and her son into hiding at a motel.

A report from the Nashville Police Department says that two masked men broke into the home, brandished guns and made off with $6,000 in cash, two Cartier watches, a Rolex watch, a 9mm handgun and the couple’s silver Infiniti.

“I was scared to death,” Gardner said Thursday. Her boyfriend “said he was afraid someone was after him, and we checked into a motel under another name.”

But by Thursday morning, Carter was back at the Donelson Street home. After Gardner left the home to take her son to school, agents swooped in.

Gardner returned to find the agents standing over her boyfriend, who confessed that he was Matthew Cox, she said.

Taylor said she gathered the courage to contact federal agents after reading in the Times “about young mothers going to jail while Cox was still doing criminal things.”

“I didn’t want this to happen again,” she said. “I always taught my children, if you do right, you are right.”

“Her motives didn’t seem to be mercenary,” Hutchinson said of Taylor. “She had concerns about her own safety and she was determined to stop the predator of young mothers.”

With the capture of Cox, Hauck now becomes eligible for a reduction in her sentence as she fulfills a promise to assist the U.S. government make its case against the man she says was her accomplice.

No one but Hauck can offer the details of the forgery, identity theft, bank fraud and money laundering prosecutors say the couple undertook for nearly two years in Georgia, Florida, Tennessee and the Carolinas.

But with Cox still on the loose when Hauck was sentenced to prison Wednesday, she wondered if she’d have a chance to testify.

“The whole thing has been a bad dream for her,” said Hutchinson. “Now, she can wake up.”

Thank you, Jeff, for keeping all of us safe and in the loop!

Rebecca Marie Hauck–who has been called the ‘better half’ of a Bonnie & Clyde team that is credited with committing more real estate and mortgage fraud-related crimes than you can shake a stick at–was sentenced yesterday afternoon by a U.S. District Judge in Georgia to serve 5 years and 10 months in prison for her role in a string of mortgage and bank fraud-related crimes.

As most Flipping Frenzy readers already know, Hauck was involved in fraud schemes that resulted not only in millions of dollars in losses for innocent homeowners and banks, but she also snarled property titles on residences throughout the southeastern part of the United States. Hauck and co-defendant Matthew Cox (who is still on the loose, by the way) stole homeowners’ identities and placed multiple loans on houses they did not own, which created a level of havoc that is still being felt across five southeastern states.

Hauck, who is just 34-years-old, will serve her time in a federal prison, followed by five years of supervised release. She was also ordered to pay restitution of $1,197,970.00, and was ordered to forfeit any profits from book, television or any entertainment rights she secures here in the U.S.

According to the information presented in court, Hauck and co-defendant Cox fraudulently erased mortgage liens on rented properties. In the process, they stole the identities of the people from whom they rented, and frequently obtained multiple new mortgage loans on the properties. After they executed the scheme in one location, they changed locations and did the same thing over and over again. Hauck and Cox used stolen identities to obtain drivers licenses, purchase vehicles, lease mail drops, rent apartments and open bank accounts to receive scheme proceeds throughout the states of Georgia, Florida, Alabama, South Carolina and North Carolina.

Hauck was indicted in late-September of 2005 on 42 counts of bank fraud, wire fraud, interstate transportation of fraud proceeds, identity theft, money laundering and conspiracy. Her indictment, which was unsealed in March of this year when the U.S. Secret Service arrested her in Houston, Texas, came as a wake-up call to some real estate industry insiders.

For his part, 36-year-old Matthew Cox–whose known aliases include Maxwell Price, David Richard Freeman, Gerald Scott Cugno, Michael Shawn Shanahan, Gary Lee Sullivan, Michael John Eckert, Michael White, Kevin White, David White, and James Redd–is alleged to have obtained a number of the stolen identities from homeless people by posing as a Red Cross worker taking a survey. According to the U.S. Secret Service, he has used elaborate schemes to avoid capture, including obtaining state-issued and counterfeit driver’s licenses. He has not used his true name since 2003, and is believed to be armed and dangerous. Law enforcement is seeking the assistance of the real estate industry in locating Cox, who has been a fugitive since December of 2003. Anyone with information about Matthew Cox’s whereabouts can contact the Secret Service toll-free, 24 hours a day, by calling 1-877-242-3375.

Prior to his conviction, Baltimore, Maryland’s, Ed Rybczynski was a licensed title agent and the owner of a successful title company. Nowadays, during his presentations, Ed speaks candidly about his role in a well publicized flipping scheme that resulted in his imprisonment in a federal prison camp. Ed’s message is a simple one: That real estate fraud prevention can only be accomplished through personal accountability and responsible corporate citizenship.

In his own words, from a comment Ed left here on FlippingFrenzy.com just a few days ago (in case anyone missed it):

Ralph:

I would like to comment on the newly released statistics for mortgage related fraud. I’m not sure if the statistics apply only to instances where a lender is victimized during the loan application process or if they include predatory lending practices and other types of fraud where a consumer is targeted by a lender. It’s probably safe to assume that the report encompassed any and all suspicious activity reports (SARs). An often cited FBI report states that 80 percent of all mortgage fraud involves the tacit participation of a real estate professional. I personally believe that the percentage is much closer to 100 percent. A real estate professional who fails to ask questions or exercise due diligence is in fact an active participant in the fraud. I feel uniquely qualified to comment on these matters. I was a title industry insider for 20 years and also did time in a federal prison camp for my role in a fraudulent scheme involving property flipping and loan fraud.

It comes as no surprise to me that the incidence of fraud has climbed so dramatically. In fact, I believe the numbers are understated as a substantial amount of mortgage fraud remains undetected and/or unreported. Most people, industry insiders included, have no idea of how to properly report complex schemes of this type. Along the same lines, very few people are able to recognize the warning signs of fraud which are often subtle. It’s my opinion that real estate related crime will continue as an accelerating epidemic in this country. I do not believe that changes in interest rates or the economy will have any diminishing effects on the two broad categories of fraud identified by the FBI – fraud for housing and fraud for profit. The lending industry and title industry have decided to look to technology as a solution to an overwhelmingly complicated situation with human nature at its core. A data base - search engine is no match for many white collar criminals.

The problem worsens as the technology used to process a loan or title file reduces the consumer to a faceless and ambiguous name on a computer screen. It’s time for the real estate industry to address fraud in a realistic manner by taking an honest look at its hideous effects on real people. A study released on 5/31/06 by the Center for Responsible Lending entitled “Unfair Lending: The Effect of Race and Ethnicity on the Price of Subprime Mortgages” finds that predatory lending activities are most often targeted at minority groups with an ethnic bias. Real estate related crime is still perceived as being benign and victim-less. It’s not true; every aspect of our society suffers when a home is foreclosed and a family displaced. We’ve all heard the cache phrases that tell us much. No one will know! Everybody gets paid! What difference does it make! The buyer gets the house!

The statistics concerning the licensing of mortgage brokers are alarming. A similar situation exists within the title industry. Keep in mind that federal prosecutors view the role of a title agent as having the social importance of a doctor or a lawyer. Title agents not only examine title, they are also responsible for managing enormous escrow accounts and for guarantying the secured interest of the source of funds. It’s a technical and serious job that’s accompanied by a great deal of risk. In the context of fraud prevention, the title agent is the final stop in a transaction with a serious obligation to detect and report fraud. Yet, 3 states plus the District of Columbia do not require that title agents be licensed; 18 states and the District of Columbia do not require a title agent to pass a test to become licensed; only 20 states have an educational requirement as a pre-requisite to licensing. My source for the above information was a report released on 4/26/2006 by the Government Accountability Office entitled “Title Insurance: Preliminary Views and Issues for Further Study”.

I agree with you that mortgage brokers should be subject to national standards for licensing and oversight. I also feel that national standards must be established for title agents. The professional development of title agents and mortgage brokers is the critical first step to fraud prevention. Continuing education as it exists today for the title agent is simply ineffective. Professional education should be substantive and emphasize best practices. I’m particularly alarmed by the recent findings of an 18 month investigation conducted by the Insurance Commissioner of the state of Washington. A number of national title insurers and title companies were caught in the act of paying illegal inducements and incentives in return for title orders. All title agents look to their underwriters to set the highest possible standard for proper and ethical behavior. Where do we go from here?

The use of technology is just one vital aspect of mortgage fraud prevention. Uniform licensing standards for professionals and background checks are equally as important. But, when dealing with a topic matter as important as a home we cannot ignore the power of the human condition. Awareness is the key. Through training, title agents and mortgage brokers must be exposed to the possible consequences of their professional decisions. They must learn that an over inflated appraisal or falsified bank verification can cause real harm (and pain) to children, families, communities, etc. Additionally, real estate professionals must be exposed to the personal consequences of improper behavior including the payment of restitution, incarceration, the loss of a career and the loss of professional legitimacy. Then, and only then, will title agents and loan brokers fully recognize the need to develop a decision making model based on core values. Then, and only then, will mortgage fraud statistics begin to decline. Remember, mortgage fraud cannot exist without the participation of real estate professionals.

Regards,

Ed Rybczynski

The recent Democratic takeover of Congress might place mortgage fraud and predatory lending near the top of the agenda for several Congressional committees, according to the Appraisal Institute. In the House of Representatives, the Financial Services Committee is set to be chaired by Rep. Barney Frank, D-Mass., a veteran of banking and real estate-related issues, says the Appraisal Institute’s Bill Garber. Frank has expressed concerns about predatory lending and mortgage fraud, both of which were heavily discussed and debated in the 109th Congress in the Financial Services Committee, but not resolved.

The second-ranking Democrat on the committee is Rep. Paul Kanjorski, D-Penn., prime sponsor of The Responsible Lending Act, H.R. 1295, which the Appraisal Institute has supported because it advances ideas to improve the way in which real estate appraisers are regulated at the federal and state levels. Rep. Kanjorski’s district has been besieged by mortgage fraud in recent years, some of which has involved appraisals.

In the Senate, the Senate Banking Committee is slated to be chaired by Sen. Christopher Dodd, D-Conn., who co-wrote Title XI of the Financial Institutions Reform, Recovery and Enforcement Act, which set forth state licensing and certification requirements for appraisers in 1989. According to Garber, Sen. Dodd is expected to address key credit card reform issues early in the 110th Congress, but like the House, the issues of predatory lending and mortgage fraud are likely to be elevated in the committee’s priorities. In addition, Sen. Jack Reed, D-RI, who is likely to chair the Senate Subcommittee on Housing and Transportation, is expected to be a key leader on appraisal issues. An attorney by trade, Sen. Reed has a long been a champion of homeownership issues and has a great deal of familiarity with real estate appraisal legislation, having been involved in a Title XI oversight hearing in 2004.

Another legislator likely to weigh in on this issue is Senator Barack Obama, D-Ill., who this past February introduced legislation to combat mortgage fraud and provide state appraisal regulators resources to conduct oversight over appraisers.

A couple of days ago I mentioned that the U.S. Treasury Department’s Financial Crimes Enforcement Network (FinCEN) reported that mortgage loan fraud in the United States rose 35 percent in the past year. For anyone interested, here are some additional items of note from the FinCEN’s November 2006 report:

• Between 1997 and 2005, Suspicious Activity Reports (SARs) pertaining to mortgage loan fraud increased by 1,411 percent between. This report-filing trend continues apace in 2006, with 7,093 reports filed on suspected mortgage loan fraud during the first quarter, an increase of 35 percent over the SAR filings in the first quarter of 2005. One explanation for the increase in SARs reporting mortgage loan fraud is increased awareness of the potential for fraud in a dynamic real estate market. Many areas in the United States saw double-digit growth in real estate values during 2003 and 2004. At the same time, mortgage loan interest rates were at a historic low. Although growth in the housing industry appears to be slowing in the first quarter of 2006, opportunities for fraud are still present.
• Reports of mortgage loan fraud rose significantly in 2003. The Federal Financial Institutions Examination Council reported an increase in the number of mortgage loans beginning in 2003: “The 2003 data include a total of 42 million reported loans and applications, which is an increase of about 33 percent from 2002, primarily due to a significant increase in refinancing activity (approximately 41 percent).” SARs on mortgage loan fraud increased over 92 percent between 2003 and 2004. The increase in filings may be attributed to an increase in overall mortgage lending concurrent with the decline in interest rates in the 2002 – 2005 timeframe and a broader awareness of this fraudulent activity.
• Mortgage loan fraud represents a growing percentage of total depository institution SARs. In 1997, reports of mortgage loan fraud comprised 2.12 percent of total depository institution SAR filings. In 2005, reports of mortgage loan fraud had increased to 4.94 percent of total depository institution filings.
• Identity theft was frequently reported in conjunction with the commission of suspected mortgage loan fraud. Reports of identity theft increased nearly 102 percent between 2004 and 2005.
• The National Association of Mortgage Brokers reports that as many as two-thirds of mortgage loans are now originated by mortgage brokers. Currently there are no national standards for licensing and oversight of mortgage brokers. Some states license mortgage brokerage offices, but not individuals; 24 states have no specific educational or experience requirements for mortgage brokers; and only a few states require criminal background checks on mortgage brokers making it possible for unethical individuals to move from one mortgage brokerage firm to another.
• The top 10 geographical areas for fraud are California, Florida, Illinois, Texas, Georgia, Michigan, New York, Ohio, Washington, and North Carolina.
• High home prices coupled with rising mortgage rates result in a reduction in housing affordability. In response to this trend, the housing industry is expecting a slow down in mortgage loan originations, a decrease in housing sales, and a slowing in housing price gains. The slow down in the growth of housing prices could result in the housing industry becoming less attractive to investors, which in turn could result in a reduction in the reports of fraud for profit. The current housing trend could also lead to an increase in fraud for housing as the increased costs of housing decreases the number of persons who qualify for mortgage loans. The current trend of rising interest rates and slowing housing equity growth could result in an increase in debt elimination fraud schemes, especially for homeowners with adjustable rate mortgages and interest only loans.

There are only a small handful of newspaper reporters who truly understand the intricacies and problems associated with real estate and mortgage fraud. David Jackson of the Chicago Tribune is one, and Geoff Dutton of The Columbus Dispatch is another. From Sunday’s online edition of The Columbus Dispatch:

Big deals send up red flags
Sales of 14 upscale homes at well-above-market prices raise suspicions of flipping

The peculiar but tempting offers sometimes came a year or more after homeowners planted for-sale signs in their front yards.

Interested buyers suddenly appeared, proposing to pay hundreds of thousands of dollars more than the asking price for houses in some of central Ohio’s elite neighborhoods, including Muirfield Village and Tartan Fields.

The catch: the sellers must agree to immediately refund the difference between the asking price and the sale price.

At least 14 such deals worth more than $11 million have closed since spring, and the offers continue. Rather than celebrate, some suspicious real estate brokers, lawyers and title agents advised sellers to reject the offers and walk away from the deals.

Some called the FBI and the Department of Homeland Security, because most of the buyers were Middle Eastern.

“We turned down five of them,” said Bryan Wing, executive vice president of CV Perry Builders. “Believe me, in this day and age, we could have used it.” Others couldn’t resist.

The elusive buyers who could be located by The Dispatch offered little if any explanation. The real estate professionals, two of whom have troubled track records, wouldn’t discuss the sales in detail. Bankers holding the mortgages wouldn’t talk, and neither would FBI or Homeland Security officials.

Geoff Dutton is one of the most thorough and detailed reporters covering real estate fraud today. The above is but just a small part of an amazing article. Trust me, it’s well worth the read.

On the same day that the Financial Crimes Enforcement Network (FinCEN) reported that suspected mortgage loan fraud in the United States has risen 35 percent in the past year, the state of Illinois announced that six residential mortgage firms in the Chicago and East St. Louis regions used unlicensed loan originators to process more than 700 home loans. Both developments, which were announced last Friday, spotlight the need for continued education and enforcement in the fight against real estate and mortgage fraud.

FinCEN conducted its assessment, which is based on an analysis of Suspicious Activity Reports (SARs) regarding suspected mortgage loan fraud, to identify trends and patterns that may be useful to law enforcement, regulatory authorities, and financial institutions.

In Illinois, a state Mortgage Fraud Task Force (MFTF) found major problems after inspections at the following companies:

• Envision Mortgage Solutions: Twenty-eight (28) loan originators were found to have produced over 500 loans without possessing the proper registration as required in the State of Illinois.
• AM Mortgage: Eight loan originators produced around 100 loans without possessing the proper registration.
• Express Funding, Inc: Approximately 50 loans were originated by five loan originators not possessing the proper registration as required in the State of Illinois.
• Fidelity Mortgage Group: This firm originated 35 loans without employing a registered loan originator.
• Mainline Mortgage Group: A MFTF visit to this company revealed over 25 loans originated without a registered loan originator with the State of Illinois.
• Global Mortgage Company: The MFTF found that this firm had no actively registered loan originators but originated over 25 loans.

Consumers everywhere have the right to know that when they do business with companies licensed by a state, that they will receive the best possible service by ethical and appropriately trained professionals. Hats off to the state of Illinois for using all the tools available to discipline companies that violate the laws and regulations designed to protect homebuyers.

Chalk one up for Canadian homeowners. According to CBC News, a recent court ruling that freed a husband and wife from a fraudulent mortgage is an unprecedented breakthrough. A Toronto judge ruled earlier this week that Seyed Rabi and his wife, Shohreh, were the innocent victims of identity thieves who placed a $250,000 mortgage on the couple’s property. Until Tuesday’s ruling, Canadian courts seemed unwilling to release homeowners from the obligations associated with falsified mortgages, fraudulent home sales, and even counterfeit powers of attorney that resulted in the unauthorized sale of a legitimate property owner’s home.

In Tuesday’s decision, the judge said that if the Toronto-Dominion Bank had exercised due diligence, it would have detected the scam that left Rabi and his wife without their home, reported CBC News. Luckily for the couple, the judge invalidated a fraudulent mortgage and said the bank was not an innocent victim of a crime. Although the bank admitted in court filings that Rabi and his wife were victims of fraud, lawyers argued that they were still legally responsible for the mortgage.

With foreclosures on the rise, particularly in economically distressed areas, real estate investors can scoop up properties at a bargain. You can dip in at any stage of the foreclosure or bankruptcy stage:

• Pre-Foreclosure: Approach the homeowners with a proposal prior to the foreclosure sale.
• Foreclosure Sale: You can bid at the foreclosure sale against other investors.
• Post-Foreclosure: Buy the property from the lender’s REO (Real Estate Owned) department after the foreclosure sale.
• Bankruptcy: After the foreclosure sale, the owners still retain control of the property through the redemption period (typically 3 to 12 months in most states). The owners can file for bankruptcy to buy themselves additional time. As a real estate investor, you may be able to step in at this stage to acquire the property.

If you don’t know what you’re doing in the foreclosure arena, don’t step into the ring. Losing money in foreclosures is a lot easier than making money. Do your homework before you lay down your cash.

Probing for Probate Properties

Death often leaves behind property that ends up in probate. You can find out about probate properties in any of the following ways:

For more information on how to forage for foreclosures and bankruptcies, click here.