Ed Rybczynski on Real Estate Fraud
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):
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.