Flipping Frenzy.com is your source for news, information, and commentary on Real Estate and Mortgage Fraud. 
If you believe you have been a victim of real estate or mortgage fraud, start here! Select your state from the pulldown menu below:
The Elephant in the Room: Looming Foreclosure Epidemic
At industry events lately, real estate professionals gather to talk shop and discuss market trends for 2007, but I notice that nobody’s talking about the elephant in the conference hall. We’re predicting the health of the market. We’re exploring new technologies. We’re trading secrets. We’re swapping ideas and business cards. But the silence over what I believe is a looming foreclosure epidemic, is deafening. Nobody utters the words “flipping,” “fraud,” or “foreclosure.” It’s almost as if these three words have been banned from the industry.
I’ve attended dozens of conferences, and very few of them schedule sessions devoted to real estate and mortgage fraud. The topic tends to have more of a following at conferences for mortgage bankers. Perhaps real estate professionals are simply too busy helping their clients buy and sell houses, or they find the topic less stimulating than others.
By not paying sufficient attention to real estate and mortgage fraud, however, we’ve become blind to the fact that illegal flipping, cash back at closing, and other forms of real estate and mortgage fraud are chipping away at the very foundation of the real estate industry, leading to shameful foreclosure rates that only promise to become tragically worse. While we’re discussing lead generation, marketing techniques, and the power of blogging, absent from our discussion is any mention of what to do to protect the homeowners, our clients-the people who butter our bread.
What is currently happening in the real estate and mortgage industry can only be described as the perfect storm. Fraudsters are ripping off lenders and homeowners with impunity. Artificially inflated housing values are soaring, and with them, so are property taxes and insurance premiums. Lenders are losing billions to fraud and then turning around and ripping off homeowners by selling them adjustable-rate mortgages and other high-interest loans they can’t possibly afford. And personal income just isn’t rising fast enough to keep up with the market. Strapped-for-cash homeowners are beginning to use their homes as ATMs, mortgaging themselves into foreclosure and bankruptcy.
Yet, few real estate professionals express any concern. They continue to carry on business as usual, and often “business as usual” includes actively participating in the fraudulent activities that threaten the American Dream of homeownership. In fact, the FBI estimates that 80% of all real estate and mortgage fraud involves industry insiders!
We need to turn these numbers around in a hurry before our entire industry collapses. We need to wake up and realize that our clients-average homeowners-are hurting. We need to recognize that fraud is destroying the very industry that feeds our families and that it directly contributes to the rising foreclosure rates around the country. We need to educate ourselves and our clients, and then take action to spot, stop, and report and post fraudulent transactions that we witness, regardless of whether the person committing fraud happens to be a client, colleague, friend, or family member.
If we fail to take action now, none of us will have the right to complain when our children and grandchildren cannot afford to purchase a house, when our friends and relatives have their homes stolen right out from under them, and when our businesses crumble because the average citizen cannot afford a home.
I would like to see future conferences focus a little more on that elephant we all seem to be ignoring.
Filed under: Conference,FBI,Foreclosure,Mortgage Fraud,Real Estate Fraud
A Ralph Roberts Site, Copyright 2005-2008 |
Mr. Roberts,
I agree with your article concerning the amount of fraud in real estate transactions. I try to practice real estate brokerage in Miami-Dade County, Florida. Last year I sold over 10 times a home I had repaired and remodeled for resale. The reason I sold the same home over and over was because I had a clause in the purchase agreements permitting me to continue the active sale of the property with any better offer that came in afterwards. To me a better offer comprised of (1) an employed buyer with (2) viable credit scores and (3) a minimum of 10% of the purchase price available in their bank account.
I would ask the mortgage/real estate broker for proof of my three conditions by the end of the 7 day inspection period and they would inevitably provide their poorly worded ‘conditional mortgage commitments’ that meant nothing. These mortgage/Realtors clearly were fabricating (a term I use conservatively) mortgage files from fraudulent documentation.
The biggest ‘elephant in the room’ is NAR fights against banks getting into real estate, but we ethically have manipulated the laws and ethics of our industry to permit single stop shopping for a home, mortgage and insurance. The public will have lost the checks and balances of the old way of doing business for the sake of expediency and our quest to have it now… We will pay the price for this unless we get laws passed providing for mandatory use of non associated and independent real estate brokers, mortgage brokers and insurance brokers in all new and existing real estate sales.
Happy New Year,
Ed Heydrich, Broker, CCIM, ABR
Portfolio Real Estate Services, Inc
Comment by Ed Heydrich — January 11, 2007 @ 3:18 pm
I agree. Realtors have HUGE clout and power; but they seem to as usual, focus on their own individual and financial concerns. Despite the huge lobby and PAC, the real estate community is fragmented, each trying to “get over” in their own way, and wrest a listing from another, or find enough “creative” financing and/or fabrication to stick deals together with chewing gum and paper clips, to make them close. This is not professional, it is greedy.
South Florida seems such a transient place, and that’s sad for those of us who’ve been here since the RTC stepped in to save our “assets”. That seems forgotten. I agree that we are in the first stages of a foreclosure epidemic. Squabbling over banks being able to sell their own huge crop of expected REOs is what it looks like this is about. In many instances I’ve seen as an appraiser in SE Florida, Realtors get the listing for batches of foreclosure properties and skim the cream, by ignoring their fiduciary duties in favor of cronyism or personal profit. I’ve long wanted to start a foundation or non-profit, to take foreclosures out of the hands of the sharks, and put them into a “habitat” type group, where the community could benefit for once. Flipsters, Fraudsters and sharks have too long held the upper hand, and as Ralph says, ignore the real issues, acting as if it’s “business as usual” or merely an innovative new “market strategy” instead of a wave of homeowner heartache and harm.
When reading the history of FHA, I noticed it rings familiar. “When the FHA was created, (1934) the housing industry was flat on its back:
Two million construction workers had lost their jobs.
Terms were difficult to meet for homebuyers seeking mortgages.
Mortgage loan terms were limited to 50 percent of the property’s market value, with a repayment schedule ending with a balloon payment. (Substitute negative amortization, teaser rates and payments, pre-payment penalties and payment shock)
Funny that oil seems to have been involved in a lot of FHA’s history, as they “moved in to steady falling home prices and made it possible for potential homebuyers to get the financing they needed when recession prompted private mortgage insurers to pull out of oil producing states in the 1980′s…”
and today:
The REALTORS® Political Action Committee was the largest PAC contributor to U.S. House and Senate candidates in the 2006 election cycle, according to Federal Election Commission data reported by Political Money Line. As of the end of November, RPAC had contributed $3.7 million to congressional candidates, some $800,000 more than the next largest contributor, the National Beer Wholesalers Association PAC, which contributed $2.9 million. The third largest contributor was the Build PAC of the National Association of Home Builders, which contributed $2.8 million. RPAC’s contributions were the most bipartisan of the top 20 PACs, an analysis by the Center for Responsive Politics shows. Forty-eight percent of RPAC’s contributions were directed to Democrats and 51 percent to Republicans. “REALTORS® are second to none when it comes to participating in the democratic political process,” says John Harrison, RPAC Trustees Committee immediate past chair. “The 2006 election cycle was of enormous importance to REALTORS®, and now thanks to the unprecedented participation of REALTORS®, we’re well positioned going into the new political environment in Washington.” Carol Frick, 2007 RPAC Trustees Committee chair, says RPAC’s strong performance sets an important baseline for the future. “Our goal is to build on our huge success this year so REALTORS® can continue to make their voice heard.” To see who NAR contributed funds to, click here.
With that much money and clout, one would think instead of self-interest, NAR could marshal forces for positive change, instead of industry polarization, in-fighting and greed.
Why don’t we see if we can talk about the elephant first, and then see how to keep it from growing, instead of merely finding new ways to pump the sale prices higher and give back cash at closing, feeding fraud instead of starving it? When we inflate home prices, it simply provides for greater payment shock and crash & burn, staving off the inevitable (foreclosure) as our taxes and insurance in Florida are already high enough, without basing them on inflated prices due to huge concessions/air value.
Doreen Campbell – Investigative Appraiser
and Instructor – Campbell Appraisal, SE FL
Comment by Doreen Campbell — January 12, 2007 @ 1:47 am
I agree that many average homeowners are in, or seriously consider, loans that are not good for them, particularly in the long run. Many folks THINK and HOPE they will clean up their credit, gain equity, increase income, improve credit scores, and improve their homes. It’s a big gamble, because many of the high-ltv/no down payment loans do not offer any reasonable chance to gain equity in the short-term (2-4 years). Then, their best-case scenarios do not play out. When that happens, they end up with a 3% jump in their interest rate when these 2/28 and 3/27 (and now 7/33!) loans make their first adjustment. The payment goes way up and these homeowners may not have the concomitant increase in income to make the payments (hence, modified payment agreements & foreclosures) or to refinance to better terms (hence, more foreclosures).
I make it very clear to my borrowers that they should seriously consider all these options and think seriously about fixed rates to provide a certain level of stability in the longer-term, even if that means higher payments now – or, even better, smaller loan amounts and lower purchase prices. HOWEVER, ultimately, the decision belongs to the consumer (the borrower). I provide options, they make the decisions. I do not push one product or loan type over another. That is part of the credit and mortgage consulting that I do in addition to the mortgage origination.
Happy New Year to all.
Lee McD
Carberry Group
Comment by Lee McD — January 13, 2007 @ 2:35 pm
Running through the daily routine, I came across an email with an article entitled: “The Elephant in the Room: Looming Foreclosure Epidemic”.
Intrigued I began to read and within a few minutes suddenly realized that this was not an article but more of a declaration. A declaration to those licensed within the real estate and financial industry to become proactive in finding solutions to today’s burgeoning problems of real estate fraud, mortgage fraud, predatory lending and foreclosure or face the inevitable certainty of closing shop.
The article’s theme centered around the real estate and financial industry’s undying thirst for trade shows that tempt us with the latest gadgets and software for business success or the infamous schmooze parties for industry elite that incorrectly paint the U.S. Housing Market as thriving with little to no problems.
However it is this strange and confusing portrait of today’s housing market that has so many vexed as to where change for value and change for fraud occurs.
But consider for a moment that competition for lenders were no longer other financial lending institutions but unregulated investor pools that send usury rates to the stratosphere of lending. For REALTORS the competition is no longer other REALTORS but unlicensed and unregulated individuals seeking to become the next “Don Dupree” of the real estate world.
Our lack or unwillingness to define, implement and prosecute criminal activity resulting from predatory lending, mortgage fraud, real estate fraud, uncapped usury rates is a travesty to the American Dream of Home Ownership.
For the U.S. Housing Market the Elephant that my colleague and friend Ralph Roberts alluded to in his article has been with us for quite some time and continues to grow as conventions, trade shows, info-mercials and industry professionals turn a blind eye to a problem that affects each and every one of us.
Whether we believe we are the astute investor of CDOs, Hedge Funds or Municipal Bonds which incidentally are tied to mortgage asset backed securities or we are simply a Mother, Daughter, Father, Son, Brother, Aunt, Uncle or Grandparent one paycheck away from foreclosure, the acts of fraud and predatory lending can no longer be ignored.
History has repeatedly taught us that the actions of a few have ill-affect on the many.
Here now is the wake up call to every member of the professional real estate and financial industry.
America and her consumers are counting on your actions to join in the fight to stop: mortgage fraud, real estate fraud, and predatory lending practices that are currently on-going in today’s housing market.
Please…do your part.
Michael Blackburn
Comment by Michael Blackburn — January 18, 2007 @ 1:46 pm
Sadly, the enemy is in the mirror. So long as the deal closes many agents, mortgage brokers and sellers simply “don’t see” what is going on.
Fiduciary duty seems to track back to the REALTOR’s finances. Clients don’t seem able to stop themselves. And the real estate industry as a whole has looked the other way for too long. While NAR predicts a rebound 2007 I predict more of the same as record high foreclosures here in KC will drag down any minimal increases the neighborhoods and cities may experience.
Happily, the issue seems to be getting more and more attention and maybe loan standards are beginning to tighten.
Comment by Chris Lengquist — February 11, 2007 @ 1:39 am
Thanks for the article on Elephant in the room
I’ve been eagerly looking for someone to tell it like it is. My recent experience buying a home led me to conclude that the entire real-estate industry is really corrupt. When loan officers are on the phone trying to convince me to falsify income on Fanney Mae, somethings wrong.
It’s hard to find anyone who is saying it is in real trouble.
It seems to me that NO ONE except the buyer has a an interest in saying we are headed for trouble. If you know of any place I could get real info on the real estate market, I’ld appreciate it. I’ve been warning several friends they shouldn’t buy for a couple of years ’cause it doesn’t look too good.
Thanks again for the article.
I appreciate that someone is speaking up.
John R.
West Allis, WI
Comment by John R. — April 29, 2007 @ 4:31 pm
All flipping needs to stop. Flippers have opened the door to price manipulation in the market. If you want to invest in real estate, then buy property to rent out.
Comment by Bob — April 30, 2007 @ 9:19 am
There is a massive mortgage fraud on-going in Southern California. Will cause over $1 Billion in damages. I personally lost over $500,000. The perpetrators are James B. Duncan, Hendrix Montecastro, Anthony Contreras, Maurice McLeod, Steve Kayden, Helen Montecastro, Charlie Choi, Paul Sluss, Rodd Leonard, Jogn Ranic, Bridgett Holbrook, and Chris Oetting. They operate under many shell companies, Stonewood Consulting, Pacific Wealth Management a NV LLC, Inland Coast Capital, The Henson Group, Success Strategies, Coast Wealth Management, Total Return Fund, Jovane Investments, Cathedral Capital Partners, Palm Valley Advisors, and many many others.
Beware of them. They have damaged well over 1000 victims and still counting.
See our victim website to understand their schemes
http://www.coreclient.110mb.com/
Comment by Foolish One — May 23, 2007 @ 12:23 pm
[...] Turn on the news or visit your favorite news Web site, and you’re likely to see a report about the foreclosure epidemic. The reports you’re not likely to see, however, are about something that is closely related and equally if not more disturbing–real estate and mortgage fraud. As foreclosure rates rise, so does fraud. And as the incidence of fraud rises, foreclosure rates follow. It is as vicious a cycle as any economist has ever witnessed. [...]
Pingback by Real Estate Fraud | Mortgage Fraud | Flipping Schemes — August 30, 2007 @ 6:00 pm