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September 2007
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The FBI Investigates Mortgage Fraud!

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September 28, 2007

Real Estate and Mortgage Fraud Rant

Because of the sub-prime lending crisis and the 2008 Presidential Election, Real Estate and Mortgage Fraud has somewhat moved to the front of the mind. Unfortunately, very little continues to be done at an industry level to ensure that insiders and those who work alongside them are educated and trained in Real Estate and Mortgage Fraud detection and prevention.

In an article that is slated to appear in tomorrow’s edition of The Washington Post, nationally-syndicated Real Estate columnist Kenneth R. Harney writes that despite all the doom and gloom coverage from the media, “mortgage money is plentiful” and “the majority of mortgage products remain relatively unaffected by troubles in the subprime segment.” He also goes on to say:

…FICO credit-score standards generally are higher than a year ago, stated-income mortgages with no verifications are hard to find and major investors are on the prowl for anything hinting at fraud.

As much as I beat the drum for more funding at the state and Federal levels for Real Estate and Mortgage Fraud enforcement and education, things are getting better on some levels, but not all. Here on the ground, far away from Wall Street and the major investors Harney alludes to… here in the real world–in the Realtors’ office and at the closing table–education and enforcement are nowhere to be found.

Classic example

Earlier this week, the U.S. Attorney for the Southern District of Florida filed conspiracy charges against a licensed mortgage broker, a title attorney, and a former Wachovia Bank loan officer for their role in a $42,000,000 mortgage fraud scam. Richard Crowder, II, Gary Mills, and Karen Sullivan each now face up to thirty years in federal prison, restitution (which, mind you, they’ll never be able to pay in full), and fines of up to $1,000,000.

Crowder is a licensed mortgage broker and the former owner of America’s Best Mortgage Services, located in Coconut Creek, Florida. Mills is a licensed title attorney and the owner of Four Star Title, located in Deerfield Beach, Florida. And Sullivan is a former loan officer for Wachovia Bank.

As a part of their scam, Crowder identified residential properties, including luxury condominiums on Miami’s South Beach, which were available for purchase. He then recruited buyers for the properties by representing to them that he could obtain 100 percent financing. After locating the buyers, Crowder applied for equity lines of credit on their behalf with Wachovia Bank. To get Wachovia to issue the equity lines of credit, Crowder and Mills prepared fraudulent HUD-1 settlement forms that falsely stated that the buyers already owned the properties. The fraudulent HUD-1s were then given to Sullivan, who used them to facilitate the issuance of equity lines of credit from Wachovia.

Simultaneously, or sometimes soon after obtaining the equity lines of credit from Wachovia, Crowder applied for first mortgages on the properties. Not surprising, his applications overstated the buyers’ assets and income, and included false verification of deposit forms prepared by Sullivan. To further induce the lenders to issue loans, Mills prepared documents falsely representing that the buyers were using their own money for the down payments and closing costs. In fact, if you have not figured it out by now, the buyers were using funds from the fraudulently obtained Wachovia equity lines credit or funds provided by Crowder.

What’s going on here?

An attorney, a bank loan officer, and the owner of a mortgage company, all conspiring to rip off nearly $42,000,000, and no one did anything about it until a U.S. Attorney (who received some help from the FBI) stepped in and put a stop to it? What a shame. For years now, Real Estate Fraud Forensics experts have called for funding to support efforts to raise awareness among consumers and industry insiders alike, but all we ever seem to receive are press releases detailing indictments, arrests and a few successful prosecutions.

As I recently shared with an industry colleague, sadly, our federal government appears to believe that only way to stop Real Estate and Mortgage Fraud is through lengthy and time consuming investigations, forced entries, indictments, and convictions. Very little if anything is being done to educate Real Estate industry insiders and to make them truly aware of the significant harm and short-sightedness associated with fraud.

Posted By: Ralph Roberts @ 10:30 pm | | Comments (3) | Trackback |
Filed under: Arrest,Attorneys,Florida,Mortgage Fraud,Real Estate Fraud

September 25, 2007

Georgia Attorney Pleads Guilty to Aiding $20 Million Real Estate Fraud Scheme

Fifty-six year-old James Stovall of Roswell, Georgia, pleaded guilty yesterday in federal district court to charges of conspiracy to commit bank, mail and wire fraud, bank loan application fraud, money laundering, and wire fraud in connection with a series of Real Estate fraud schemes valued at more than $20,000,000.00.

According to the U.S. Attorney overseeing the case (David Nahmias) and the information presented in court, Stovall is a real estate attorney who participated in a mortgage fraud scheme involving property flips orchestrated by one of his clients, Reti Relocation Services, Inc. From April 2000 to June 2001, Reti flipped some 50 properties in the metro-Atlanta area (more specifically, in the Brookstone subdivision of Acworth, the Windward and Seven Oaks subdivisions in Alpharetta, and the Towne Lake subdivisions in Woodstock).

Reti would acquire properties and on the same day resell them to straw borrowers who were paid for participating in the transactions. Reti paid recruiters for locating straw borrowers, loan officers for preparing and submitting false loan applications and false qualifying documents, and appraisers for preparing fraudulent appraisals with inflated values that were submitted to lenders.

Stovall closed nearly all of the same day fraudulent flips and, in doing so, failed to advise his clients, the lenders, of those flips, prepared false HUD-1 settlement statements that were submitted to the lenders, and moved the proceeds of the scheme through his escrow account and into off-shore bank accounts. The scheme also involved the submission of false qualifying information and documents through the mail and the wire transfer of scheme proceeds. In the overall scheme, financial institutions and lenders were fraudulently induced to make loans totaling over $20 million.

Stovall pleaded guilty to one count of conspiracy to commit bank, mail, and wire fraud, bank loan application fraud, and money laundering, and one count of wire fraud. Upon sentencing, he could receive five years in prison and a fine of up to $1,500,000.00.

Posted By: Ralph Roberts @ 7:18 pm | | Comments Off on Georgia Attorney Pleads Guilty to Aiding $20 Million Real Estate Fraud Scheme | Trackback |
Filed under: Arrest,Attorneys,Georgia,Mortgage Fraud,Real Estate Fraud,Straw Buyer

September 24, 2007

Cash Back at Closing in San Diego

The Voice of San Diego–a nonprofit, independent online newspaper focused on issues impacting the San Diego, California region–leads off today’s online edition with a piece spotlighting some of the warning signs associated with Real Estate and Mortgage Fraud–namely, cash-back-at-closing. Staff writer Kelly Bennett does a nice job of summarizing current fraud trends and statistics, and even went so far as to interview Rachel Dollar, co-author of my latest book, “Protect Yourself from Real Estate and Mortgage Fraud: Preserving the American Dream of Homeownership.”

From this morning’s edition of Voice of San Diego:

How Mortgage Fraud Functions
Monday, Sept. 24, 2007

By Kelly Bennett

To a frustrated home seller in the current real estate market, it sounds like an offer from an alternate, utopian universe: A buyer offers to pay as much as you’re asking — plus 10 to 30 percent — and you just kick the difference back to the buyer in cash after the deal closes. You’ll get out of the house without knocking tens of thousands of dollars off of your asking price to compete with the other 23,000-some homes on the market in the county.

But the offer fits the profile of the most prevalent kind of mortgage fraud against lending institutions in San Diego County, experts say. Typically called “cash back at closing,” an example of the scheme looks like this: A house has been listed on the market for several months at $500,000. Then, without fanfare, the listing agent raises the price to $625,000, and hires an appraiser to say the house is worth the new, higher amount. Based on that appraisal, a lender approves a loan for $620,000.

Soon, the buyer purchases the house for $620,000, using a mortgage for 100 percent of that amount. The sellers get their full price, the buyer gets close to $100,000 cash, and the agents for the buyer and seller garner a higher commission than they would have on the original list price. … But it’s a scam that can defraud the lender, artificially inflate values in entire neighborhoods and leave an economy reeling from the effects of foreclosure.

Click here for the rest of Bennett’s article, which also profiles the work of San Diego real estate appraiser Todd Lackner, who works tirelessly to fight Real Estate and Mortgage Fraud.

Posted By: Ralph Roberts @ 1:34 pm | | Comments (2) | Trackback |
Filed under: California,Cash Back at Closing,Mortgage Fraud,Real Estate Fraud

September 19, 2007

Foreclosure Rates Hit All-Time High

A leading online marketplace for foreclosure properties, yesterday released its August 2007 U.S. Foreclosure Market Report, which shows that a total of 243,947 foreclosure filings–default notices, auction sale notices and bank repossessions–were reported during the month, up 36 percent from the previous month and up 115 percent from August of last year. This is the highest number of foreclosure filings in a single month that RealtyTrac has reported since it began issuing the monthly report in January 2005.

The national foreclosure rate of one foreclosure filing for every 510 households for the month is also the highest figure ever issued in the report.

The jump in foreclosure filings may just be the beginning of the next wave of increased activity for house flippers, as a large number of subprime adjustable rate loans are now beginning to reset. A significant factor in the increased level of foreclosure activity is that the number of REO filings (bank repossessions) is increasing dramatically, which means that a greater percentage of homes entering foreclosure are going back to the banks.

Nevada, California, Florida post top state foreclosure rates

Nevada continued to register the nation’s highest state foreclosure rate, one foreclosure filing for every 165 households–more than three times the national average. The state reported 6,197 foreclosure filings during the month, a 21 percent increase from the previous month and more than triple the number reported in August 2006.

California’s foreclosure rate jumped to second highest among the states thanks to a 48 percent month-over-month spike in foreclosure activity. The state reported 57,875 foreclosure filings during the month, a foreclosure rate of one foreclosure filing for every 224 households–more than twice the national average.

Florida foreclosure activity jumped 77 percent from the previous month, boosting the state’s foreclosure rate from seventh highest to third highest among the states. The state reported 33,932 foreclosure filings, a foreclosure rate of one foreclosure filing for every 243 households.

Other states with foreclosure rates ranking among the nation’s 10 highest were Georgia, Ohio, Michigan, Arizona, Colorado, Texas and Indiana.

Sun Belt, Rust Belt states dominate top foreclosure totals

Seven of the top 10 states in terms of total foreclosure filings in August were located in the Sun Belt, and three of the top 10 states were in the Rust Belt. After California and Florida, Ohio registered the third highest state total, with 17,793 foreclosure filings during the month. The state documented a foreclosure rate of one foreclosure filing for every 281 households, fifth highest in the nation.

Texas, Michigan and Georgia all reported more than 10,000 foreclosure filings for the month, documenting the fourth, fifth and sixth highest state foreclosure totals respectively, followed by Arizona, Colorado, Illinois and Nevada.

Top Metro foreclosure rates in California, Michigan, Florida, Nevada and Ohio

California cities once again accounted for six of the top 10 metro foreclosure rates in August, with the top three spots all taken by California cities. Modesto documented the nation’s highest metro foreclosure rate, one foreclosure filing for every 79 households, followed by Stockton and Merced. Other California cities in the top 10 included Vallejo-Fairfield at No. 5, Riverside-San Bernardino at No. 6 and Sacramento at No. 7.

Detroit posted a foreclosure rate of one foreclosure filing for every 87 households, the nation’s fourth highest metro foreclosure rate and more than five times the national average. Fort Lauderdale, Las Vegas and Cleveland, ranked Nos. 8, 9 and 10.

Posted By: Ralph Roberts @ 12:01 am | | Comments Off on Foreclosure Rates Hit All-Time High | Trackback |
Filed under: California,Colorado,Flipping,Florida,Foreclosure,Georgia,Indiana,Michigan,Ohio,Research,Subprime Mortgages

September 18, 2007

Task Force set to Protect Washingtonians from Mortgage Instability

With one out of every 1,370 homeowners in her state facing foreclosure, Washington’s Governor, Chris Gregoire, yesterday announced the formation of a task force to evaluate instability in the national subprime mortgage market and ensure that the impact is minimized in Washington.

While the economy in Washington is relatively strong and the state is not yet seeing foreclosures and defaults at the same rate as other states, Governor Gregoire is concerned for Washingtonians who may be at risk of losing their homes due to the unstable lending market. Governor Gregoire has directed the group, called the Task Force for Homeowner Security, to provide evaluation and recommendations for action to her on:

  • The extent of the problem and impact in Washington for current and new home buyers
  • Ways to facilitate sensible refinancing options from responsible lenders for homeowners in default or at risk of default
  • Consumer education to those in foreclosure or at risk of foreclosure
  • Consumer education to potential new home buyers
  • Reforms to Washington lending practices

The task force is scheduled to deliver recommendations to Governor Gregoire no later than December 31, 2007.

Posted By: Ralph Roberts @ 10:25 am | | Comments (1) | Trackback |
Filed under: Foreclosure,Foreclosure Fraud,Washington

September 17, 2007

State of Texas Seizes $13 Million from Foreclosure Assistance Solutions, LLC

Just two weeks after Texas’ Attorney General convened the Texas Residential Mortgage Fraud Task Force–a strategic partnership intended to improve collaboration among residential mortgage regulators and law enforcement officials–some progress has been made. Last Friday, Attorney General Greg Abbott charged Foreclosure Assistance Solutions, LLC (a Clearwater, Florida-based company) with operating an unlawful foreclosure rescue scam that targeted struggling Texas homeowners, and seized of $13,000,000.00 worth of the company’s assets.

As a result, the 408th District Court in Texas issued a temporary restraining order and froze assets belonging to three businessmen who organized the scheme. According to court documents, the defendants fraudulently advertised that they could save homeowners from imminent foreclosures.

Defendants named in the petition:

  • Foreclosure Assistance Solutions, LLC of Florida
  • Herb Zerden, co-owner of Foreclosure Assistance Solutions
  • Adolfo Quintero, co-owner of Foreclosure Assistance Solutions
  • J.W.W. Services, Inc. of California
  • John Woodruff, owner of J.W.W. Services

According to the State of Texas, the defendants mailed cards and letters to homeowners whose mortgage payments were delinquent and thus facing foreclosure. Their correspondence with homeowners promised established relationships with mortgage companies and banks nationwide. As a result, they claimed, Foreclosure Assistance Solutions could stop the foreclosure process.

Homeowners who contacted Foreclosure Assistance Solutions were urged to sign a $1,200 contract immediately. Under the contract, Foreclosure Assistance Solutions strictly prohibited homeowners from contacting their lenders. After homeowners paid the fee, they rarely heard from the company’s representatives again. When homeowners repeatedly called the company for answers, they were ignored. As a result, many homeowners still lost their homes to foreclosure.

Last Friday’s action prohibits the defendants from making false representations to homeowners. Specifically, Foreclosure Assistance Solutions is prohibited from claiming that a home is at risk without providing proof of that risk. The court also ordered the defendants to stop assisting homeowners without describing the alleged assistance.

The Office of the Attorney General’s petition states that Foreclosure Assistance Solutions deposited over $13 million in Bank of America accounts between 2005 and 2006. Most of those funds came from homeowners who faced foreclosure. That account and others are subject to last Friday’s asset freeze.

The Attorney General is now seeking court-ordered restitution for homeowners who were harmed by the defendants’ acts, as well as civil penalties of up to $20,000 per violation of the Texas Deceptive Trade Practices Act. Additionally, the Attorney General is requesting up to $5,000 per violation for the defendants’ failure to register the business as one that conducts telephone solicitations.

As I mentioned at the outset of this post, the State of Texas is engaged in a variety of efforts involving residential mortgages. Last week, Attorney General Abbott launched the Texas Residential Mortgage Fraud Task Force, a partnership that involves key state regulatory agencies. The task force, established by Texas House Bill 716, is required “to take a proactive stance towards tracking and prosecuting mortgage fraud and the perpetrators of mortgage fraud statewide.”

Earlier this year, the state secured $21 million in restitution for Texas homeowners who were harmed by lending giant Ameriquest Mortgage Co. That case resolved allegations that the company and its affiliates did not clearly disclose certain terms to homeowners, including unpredictable adjustable rates.

Homeowners who believe they have been harmed by Foreclosure Assistance Solutions, LLC, or similar fraudulent businesses in Texas may call the Office of the Attorney General’s toll-free complaint line at (800) 252-8011.

Posted By: Ralph Roberts @ 11:10 am | | Comments (4) | Trackback |
Filed under: Arrest,Florida,Foreclosure Fraud,Texas

September 13, 2007

Iowa Seeks to Modify Loans for Homeowners Facing Foreclosure

Borrowing a page from the farming crisis of the 1980s–when farmers facing foreclosure and their leaders were forced to mediate their way out of trouble–Iowa unveiled a pilot project this week aimed doing something similar for homeowners facing foreclosure. Iowa’s “Mortgage Foreclosure Hotline Project” will work to help borrowers and lenders modify loan terms so homeowners can make payments–and keep their homes–and lenders can do better financially than if they foreclosed on a mortgage.

With Iowa’s subprime-related foreclosure rate hovering above 8.5 percent–fourth worst in the nation–anything is worth a shot!

As a result of the the new initiative, Iowans facing a mortgage foreclosure can now call a toll-free number (877-622-4866) staffed by the Iowa Mediation Service (IMS). IMS staff will take information from borrowers and then explore if a loan modification might work for both the borrower and lender.

The reality for homeowners facing foreclosure is that they may not even know who to talk to about their loans. Statistics show that about 50 percent of Iowa homeowners who lose their homes to foreclosure, never contacted their lender. In far too many instances, the entity that originated the loan is long gone. Most loans go to other companies and ultimately to investors who buy big batches of loans and leave the ‘servicing’ up to other companies. Iowa’s Mortgage Foreclosure Hotline Project will work through the maze and help figure out exactly who needs to be contacted.

During the farming crisis of the 1980s, thousands of farm foreclosures in Iowa were avoided thanks to mandatory mediation. IMS conducted hundreds of successful mediations during that time, which sparked the idea for the state’s new Mortgage Foreclosure Hotline Project. (While formal mediation was compulsory for farm foreclosures in the 1980s, participation in the new project is entirely voluntary.)

Posted By: Ralph Roberts @ 12:35 am | | Comments Off on Iowa Seeks to Modify Loans for Homeowners Facing Foreclosure | Trackback |
Filed under: Foreclosure,Iowa

September 12, 2007

FTC Issues Warning on Mortgage Lenders’ Ads

The Federal Trade Commission (FTC) is warning mortgage brokers and lenders, and media outlets that carry their advertisements for home mortgages, that some of the advertising claims currently appearing in Web sites, newspapers, magazines, direct mail, and unsolicited e-mail and faxes may violate federal law.

Many mortgage-related advertisers are making potentially deceptive claims about incredibly low rates and payments, without telling consumers the whole story–for example, that these low rates and payments apply for a short period only and can go up substantially after the loan’s introductory period. Home ownership is the American dream, but it should not become a nightmare for consumers who do not have the information they need to understand the terms of their mortgage!

In warning letters, the FTC is advising more than 200 advertisers and media outlets that some mortgage ads are potentially deceptive or in violation of the Truth in Lending Act. The ads, including some in Spanish, were recently identified during a nationwide review focused on claims for very low monthly payment amounts or interest rates, without adequate disclosure of other important loan terms. For example, some ads touted rates as low as “1%” but failed to disclose:

  • …that the stated rate was a “payment rate”–not the interest rate–that applied only during the loan’s initial period
  • …that low advertised payments applied for only a short period
  • …the loan’s Annual Percentage Rate (APR), the uniform measure of the cost of credit that enables consumers to shop for and compare mortgage offerings.

Some ads promoted only incredibly low monthly payments but failed to adequately disclose the terms of repayment, including payment increases and a final balloon payment.

During the past decade, the FTC has brought 21 actions against companies in the mortgage lending industry, focusing in particular on the subprime market. Several of these cases have resulted in large monetary judgments, with courts collectively ordering that more than $320 million be returned to consumers. These enforcement actions have targeted deceptive or unfair practices in all stages of mortgage lending, from advertising and marketing through loan servicing, by mortgage lenders, brokers, and loan servicers.

To help consumers recognize deceptive mortgage ads, the Federal Trade Commission has created a Consumer Alert, “Deceptive Mortgage Ads: What They Say; What They Leave Out.”

Posted By: Ralph Roberts @ 5:28 pm | | Comments (2) | Trackback |
Filed under: FTC

September 10, 2007

Get-Rich-Quick Scheme Spells Disaster for Tampa Real Estate Investor

Flipping Frenzy has always admired the breadth and accuracy of Jeff Testerman’s reporting. Testerman, who writes for Florida’s St. Petersburg Times, is on the leading edge of news reporting that focuses on Real Estate and Mortgage Fraud. His latest article, which appeared in this Sunday’s edition of the St. Petersburg Times, is quoted below.

Home Buying Spree Snaps
A year after a woman bought 10 overpriced properties, she’s not the only one hurting.

By Jeff Testerman, Times Staff Writer
Published September 9, 2007

Jill Jackson, a single mom and apartment renter with an annual take-home pay of about $24,000, managed to go on an incredible real estate buying binge last year.

In the span of 10 weeks, she bought 10 properties. She did not put a single penny down, borrowing the price for all 10 by signing for mortgage loans totaling $1.84-million.

The investment plan seemed too good to be true. And it was.

A year later, Jackson’s portfolio has collapsed like a house of cards, with every one of the 10 properties in foreclosure and Jackson’s credit wrecked. The 31-year-old says she was foolish to fall for the get-rich-quick scheme pitched to her by a church acquaintance.

“I didn’t know what I was doing,” Jackson acknowledges. “I don’t have any background in real estate.”

Jackson says she was enticed into the investment plan by Investors Outlet, a Tampa company run by William Ondra Joel II.

Joel, 27, is a former $8-an-hour worker at a Tampa mental health center who got into real estate after seven arrests on drug charges. He did four months in a Georgia boot camp in 2002 for cocaine possession.

“They arranged everything,” Jackson says of Investors Outlet. “They picked out the properties. They selected the lenders. I was just told to go the closings, and that’s what I did.”

Beginning with three closings on a single day in February 2006, Jackson says she followed the Investors Outlet instructions, buying 10 properties she never had seen. She paid about $700,000 more for the portfolio than the county property appraiser said the properties were worth, a premium of 61 percent.

That wasn’t a problem, though. At every closing, loan papers were waiting for her that provided 100 percent of the price. She just signed.

What Jackson says she did not know was that Joel and Investors Outlet were pushing up the prices of the properties by quietly changing contracts before she ever arrived at a closing.

Investors Outlet bought the 70-year-old, two-bedroom home at 3120 N Woodrow Ave. in Tampa Heights for $140,000, then conveyed it to Jackson at closing for $205,000, pocketing most of the difference, according to the seller.

The home is in a poor location, across the street from an electric substation that is surrounded by a chain-link fence topped with barbed wire. Seller Tony Muniz was surprised that the home went for $205,000 — with a loan for $205,000.

“It’s hard to see how the investor got 100 percent financing,” Muniz said. “It’s kind of scary.”

Jackson could not find tenants to pay the rent she needed to repay the mortgage. Seven months after she signed for the loan, the lender filed foreclosure papers.

Her other nine properties went the same way, with the 10th foreclosure suit filed last month.

“This is a snapshot of what’s happening in every village, town, city and county in America,” said Ralph R. Roberts, a real estate broker, bestselling author and real estate industry watchdog.

“A lot of unassuming young men and women are being induced to be straw buyers.

You can read the rest of Home Buying Spree Snaps here.

Posted By: Ralph Roberts @ 5:00 pm | | Comments (6) | Trackback |
Filed under: Florida,Foreclosure,Jeff Testerman

September 7, 2007

Connecticut’s Attorney General Shuts Down Predatory Lending Scheme

And the hits, they just keep coming–especially from our state attorneys general. Connecticut’s Attorney General, Richard Blumenthal, has announced a lawsuit against several Real Estate industry insiders, exposing along the way an extensive statewide predatory lending scheme that devastated dozens of homeowners.

Charged in the scheme are:

  • Royal Financial Services, of Trumbull, CT
  • First Source Mortgage Solutions, Inc. of Branford, CT
  • Elizabeth Athan Real Estate, of Shelton, CT
  • J.G. Property Management & Investment, of New London, CT
  • Brian Guimond, d/b/a Cutting Edge Contracting of Norwich, CT
  • Jose Guzman & Mauricio Lancia, RE Agents at Elizabeth Athan Real Estate, of Shelton, CT

The State of Connecticut alleges that through a multi-layered scheme, the defendants mislead consumers and mortgage lenders into property purchases that financially destroyed dozens of homebuyers, while benefiting only the defendants, their associates and family members.

Blumenthal’s investigation has uncovered consumers who sought the American Dream but bought a financial nightmare. His lawsuit charges that homebuyers were victimized by a vast scheme with multiple layers of lies and co-conspirators. His office alleges that a predatory lending scheme enticed consumers with false promises of profits from investment rental properties and nonexistent management services for tax and mortgage payments and other expenses.

Homebuyers were purposefully lured to buy properties whose values were inflated, using mortgages with concealed costs that they could never realistically afford, because their incomes and assets were falsified with bogus bank and employer records. They were discouraged from seeking outside assistance from outside home inspectors and lawyers. These practices, like so many we report about here on, preyed on the most vulnerable citizens–many of them, according to Blumenthal, first-time unsophisticated low-income homebuyers who spoke little or no English.

Blumenthal’s legal action seeks money back to consumers and severe penalties for practices that undermine an entire industry, endangering not only consumers directly involved, but the economic welfare of the northeast region.

Details of the scheme include:

  • J.G. Management and Guzman, who were not licensed by the State of Connecticut to engage in Real Estate transactions, and Elizabeth Athan Real Estate, solicited low-income consumers, including renters receiving federal housing assistance, to buy through them multiple or multi-unit residential properties. They promised these people, among other things, favorable mortgage terms, cash-back-at-closing, and diminished monthly housing expenses.
  • J. G. Management and Guzman also pledged to provide property management services for rental properties that the consumers purchased through them–services including maintenance, finding renters, collecting rent and making mortgage and tax payments.
  • Once someone agreed to work with J.G. Management, Guzman, and Elizabeth Athan Real Estate to purchase properties, the defendants referred consumers to Royal Financial or First Source to act as the mortgage broker.
  • J.G. Management, Guzman and the Elizabeth Athan agency would then select the property or properties for purchase from a stock of properties owned by the defendants, their family members or associates. The properties were sold to consumers at inflated prices–often tens of thousands of dollars more than what they were purchased for months earlier. J.G. Management, Guzman, and Elizabeth Athan Real Estate substantiated the inflated prices to consumers and lenders through bogus and artificially inflated appraisals.
  • When consumers inquired about hiring a home inspector, the defendants often convinced them it was unnecessary or not in their best interest to hire one.
  • In order to qualify the buyers for mortgages, Royal Financial and First Source falsified information on mortgage loan applications, including details about the buyers’ income and assets. Cutting Edge and another home improvement company involved in the scheme would falsify consumer employment and wage records, indicating the buyers’ earned money from Cutting Edge and others as employees.
  • Royal Financial and First Source also submitted bogus forms to lenders verifying bank account balances and rental income to artificially inflate consumer income and assets.
  • Once the buyers were approved for mortgages, the J.G. Management, Guzman, and Elizabeth Athan Real Estate arranged closings presided over by attorneys who the defendants knew would not alert the buyers or lenders to the significance or irregularities of the transactions.
  • Many of the buyers were non-English speaking and first-time buyers so Guzman translated and guided them through closings. In reality–go figure–he misled them about the details and nature of the documents that they signed. Royal Financial and First Source then proceeded to blindsid the buyers on closing day with previously undisclosed closing costs.
  • Because of these practices, the buyers misunderstood their financing terms and, in some cases, did not even realize they had purchased more than one property until after the closings.

September 6, 2007

Massachusetts Takes Action: State Permanently Bans For-Profit Foreclosure Rescue Transactions

Massachusetts Attorney General, Martha Coakley, has filed a regulation with her state’s Secretary of State’s Office that permanently bans for-profit foreclosure rescue transactions in the state of Massachusetts. The Massachusetts Consumer Protection Act authorizes the Attorney General to promote regulations to identify unfair or deceptive conduct that violates the act. The new regulation, which goes into effect immediately, prohibits predatory, for-profit foreclosure rescue transactions.

Foreclosure rescue transactions between family members or arranged by a non-profit community or housing organization are not banned under the new regulation.

The new regulation also makes it an unfair or deceptive act to market foreclosure-related services without a precise description of exactly how the company will assist homeowners in avoiding or delaying foreclosure. (The regulations define a “Foreclosure Rescue Transaction” as a transaction designed to avoid foreclosure and where the homeowner transferring the property maintains an option to reacquire the home by maintaining a legal interest in the home.)

On June 1 of this year, Massachusetts’ Attorney announced emergency regulations that placed a temporary ban on these types of unfair and deceptive foreclosure rescue schemes as part of her multi-faceted plan to address the foreclosure rescue crisis in Massachusetts. The regulations went into effect immediately and were valid for 90-days. After a public hearing held last Thursday in Boston, the regulations were promoted as final.

As everyone who reads Flipping Frenzy should know by now, foreclosure rescue schemes are typically initiated when businesses or professionals claim to assist homeowners who are facing foreclosure by convincing them to convey their property to straw purchasers. The straw purchasers then obtain mortgage loans, permitting the individuals facing foreclosure to continue living in their property for a limited time, and promising the individuals that they will be able to later reacquire their homes. Far too often, the promises of maintaining home ownership are illusory and homeowners lose their home to the so-called “rescuer.”

In addition to permanently banning foreclosure rescue transactions, Attorney General Coakley announced earlier this month regulations to address unfair and deceptive tactics used in the mortgage industry. Hearings will be held across the state on the proposed regulations throughout the month of September. The Attorney General’s Office anticipates that promotion of new mortgage regulations will occur by the end of September 2007.

Posted By: Ralph Roberts @ 1:19 pm | | Comments (2) | Trackback |
Filed under: Foreclosure,Foreclosure Fraud,Legislation,Massachusetts,Mortgage Fraud

September 5, 2007

Don’t Mess With Texas: Texas Residential Mortgage Fraud Task Force is now in Session!

Texas’ Attorney General and officials from state regulatory agencies today convened the Texas Residential Mortgage Fraud Task Force, a strategic partnership intended to improve collaboration among residential mortgage regulators and law enforcement officials. Task force members, including the attorney general and real estate, banking and consumer credit regulators, gathered to examine how to track and reduce mortgage fraud in Texas.

The Texas Residential Mortgage Fraud Task Force was created under House Bill 716, which was passed during the state’s most recent legislative session. The 2007 legislation is intended to reduce false or misleading information on residential home loan applications by increasing cooperation among regulators and requiring new disclosures at closing.

Effective September 1 of this year, Texas’ mortgage lenders, bankers and brokers are required to warn loan applicants about the legal consequences of knowingly supplying false information on a residential loan application. Additionally, with the consent of a local district attorney, the state’s attorney general is granted concurrent jurisdiction to prosecute criminal mortgage fraud cases, including those involving money laundering, loan document falsification, and mail or wire fraud.

In Texas, criminal mortgage fraud includes illegally inflating property appraisals; concealing a second mortgage from a primary lender; and concealing or stealing a borrower’s identity. Under the state’s Deceptive Trade Practices Act, the Office of the Attorney General has authority to prosecute misleading practices and is reported to have already recovered millions of dollars for Texans harmed by title scams, undisclosed costs, and other unlawful mortgage-related schemes.

State agencies and officials represented on the Texas Residential Mortgage Fraud Task Force include: the Attorney General; the Consumer Credit Commissioner; the Banking Commissioner; the Credit Union Commissioner; the Commissioner of Insurance; the Savings and Mortgage Lending Commissioner; the Texas Real Estate Commission; and the Texas Appraiser Licensing and Certification Board.

Earlier this year, Texas’ attorney general obtained $21 million in restitution for Texans harmed by lending giant Ameriquest Mortgage Co.s deceptive lending practices. The settlement resolved allegations that Ameriquest and its affiliates did not adequately disclose certain terms to homeowners, including whether loans carried fixed or adjustable rates. According to court documents filed by the Office of the Attorney general, Ameriquest also charged excessive origination fees and prepayment penalties, refinanced borrowers into improper loans and inflated appraisals that qualified borrowers for loans.

In 2006, Texas’ Attorney General negotiated an agreement with Green Tree Servicing L.L.C., a Minnesota-based firm that services manufactured housing debts in Texas. Under the settlement, Green Tree agreed to assist more than 1,200 Texas homeowners who may have been issued invalid titles to homes they purchased from more than 115 unlicensed retailers in 2003. In a related move, the Attorney General secured an injunction and asset freeze against the unlicensed sellers.

The Office of the Attorney General has also halted scams purporting to save homeowners’ properties from condemnation. It has also cracked down on various title-related and refinancing scams.

Posted By: Ralph Roberts @ 8:01 pm | | Comments (1) | Trackback |
Filed under: Legislation,Mortgage Fraud,Real Estate Fraud,Texas

September 4, 2007

Homeowners Need Real Solutions, Not Rhetoric, to Keep the American Dream Alive

To follow-up on last Friday’s posting here on Flipping Frenzy about President Bush’s public comments on homeownership financing…

The housing boom drew a lot of speculators and carpet baggers–freeloaders who wanted to make a quick buck during the gold rush and cared little or nothing about the long-term effects on the housing market. They took none of the risk, gathered all of the profits, and scampered out of town just before the sheriff showed up. They partied and left the American homeowner to pick up the tab.

President Bush said last Friday that a bailout is out of the question: “A federal bailout of lenders would only encourage a recurrence of the problem.” This is certainly true. Bailing out the lenders would simply lay the burden on taxpayers and provide the carpet baggers with another opportunity to pillage.

The President did reach out to some distressed homeowners–those with good credit histories who could probably pull themselves out of their current crises with a little help from the federal government. The FHA (Federal Housing Authority) will be given more flexibility to assist homeowners who have subprime mortgages. Homeowners may also be spared having to pay additional taxes in the event that the lender forgives a portion of their debt. Perhaps this will encourage lenders to work out reasonable solutions with homeowners.

But what about all the other consumers–what about hard-working American families who are too deep in debt to be saved? What about the children of these people who are going to be uprooted from their neighborhoods and the school districts where all their friends go?

Government officials, lenders, and people who have not been victimized by the shoddy lending practices of the last decade are quick to judge. After all, they are not the ones paying the price. The people who are suffering are the same people who usually suffer in these situations–consumers. These are the people who were sold ARMs (adjustable-rate mortgages) that ended up costing an arm and a leg. They were told that they could refinance before the rates went up or could build higher credit scores by making their payments on time and then refinance with a low interest rate mortgage later.

Then, the bottom dropped out of the housing market, making it nearly impossible for these hard-hit homeowners to refinance. Some of these loans even came with stiff prepayment penalties to further discourage people from refinancing. These folks were led down this path simply because they trusted an “expert” in a fancy suit with a silver tongue who failed to warn them of the looming trouble and the risk they were taking on. Where are these smooth talkers now? Probably out of work and seeking more fertile fields to ply their trade. They turned the American Dream of Homeownership into a nightmare, but they certainly aren’t the ones having to wake up to it.

Instead of letting them off the hook, they should be forced to take ownership of the problem they created. Instead of waiting around to see whether the federal government is going to bail them out, they should be actively pursuing the homeowners they led astray and offer them real solutions that can help these distressed homeowners regain their financial footing.

Posted By: Ralph Roberts @ 10:03 am | | Comments Off on Homeowners Need Real Solutions, Not Rhetoric, to Keep the American Dream Alive | Trackback |
Filed under: Foreclosure,Housing Discrimination