The writer and social essayist Charles Hugh Smith recently posted a great article on his blog about the domino effect leading up to the mortgage meltdown. With Charles’ permission, here is a great graphic depicting how we got to where we find ourselves today:

From Charles’ blog:

Empire of Lies, Kingdom of Magical Thinking

We in the U.S. live in an Empire of Lies. Nowhere is this more painfully visible than in the real estate industry. The real estate/building industry inflated the bubble with an interconnected chain of lies, deceptions and deliberate statistical legerdemaine.

The American public willingly accepted a free pass to the Kingdom of Magical Thinking, where they could indulge their fantasies of gaining great wealth by doing nothing more than owning a house.

Way to go, Charles; I couldn’t have said it better myself!

For more of Charles’ excellent thoughts, read Empire of Lies, Kingdom of Magical Thinking.

Strongly recommended reading from a very well respected colleague… Ann Fulmer of Interthinx (courtesy of National Mortgage News Online):

What Goes Around…

By Ann Fulmer, VP of Industry Relations, Interthinx

The mortgage lending landscape has changed dramatically in the past few months. Dozens of lenders have gone out of business, tens of thousands of workers have lost their jobs and tighter underwriting guidelines are reducing origination volume. Under these circumstances, someone might conclude that mortgage fraud would also be declining.

That would be completely wrong.

The majority of fraudsters are industry insiders who leverage their knowledge to take advantage of weaknesses in lenders’ processes and defenses. Thus mortgage fraud does not disappear during the “down” portion of the mortgage cycle, it just morphs to take advantage of current market conditions. If your company is still in business and originating mortgage loans, it is a target. The question is will your staff recognize a fraudulent application if it sees one?

I ask that question because a friend, who recently took over as the underwriting manager at a community bank, told me that she was teaching her staff to examine disbursements from the seller’s proceeds when one of the employees asked her why they should bother since the money belonged to the seller. My friend explained that mortgage fraudsters use bogus claims and liens against the seller as a way to extract loan proceeds. The employee retorted that their department had never, ever, been hit by fraud. What is much more likely is that these employees simply didn’t recognize fraud because their institution had not been a primary target during the expansion phase of the real estate/credit bubble.

This lack of fraud recognition is not limited to employees of smaller lending institutions. It also plagues some so-called financial experts. For example, last year, I was driving down the road listening to the radio show of a nationally syndicated consumer advocate. A caller told the advocate that his house was for sale, that someone had offered him $100,000 more than the asking price, and could the advocate please tell him how he should respond? The expert said, “I have no earthly idea why someone would offer you more than your asking price.” I nearly drove off the road because I was screaming at the top of my lungs, “I do! It’s mortgage fraud!”

But I digress.

With lenders returning to more old-fashioned underwriting standards and requiring full documentation, W-2s, higher FICO scores and higher downpayments, “old” frauds are on the rise. So, it’s not surprising that Interthinx investigators and clients are reporting an increase in “silent seconds” and self-employed borrowers. The Interthinx F.R.A.U.D. Report shows that income and employment misrepresentations in new applications doubled between the first and second quarters of this year, and that there are still significant rates of misrepresentation regarding collateral value even in this declining market.

Just as the use of utility and phone records for no-file or thin-file borrowers won’t ensure credit worthiness, requiring full documentation will not stop fraud. In both cases, the required documents are easily forged.

In addition to training staff in the use of automated fraud detection technology to spot “silent seconds,” false collateral values, identity theft and occupancy issues, underwriters must also be able to recognize forgeries and credit profiles that don’t match the borrower’s income, especially when the borrower represents self-employment.

Unfortunately, the old adage, “What goes around, comes around” is all too true. If the industry is content to ignore certain types of mortgage fraud or take a less than aggressive approach to training and automated detection designed to prevent mortgage fraud in the pre-funding stage, then the financial fallout that is sure to follow will bring even more job losses and company closures.

The decision rests with each of us. The time to act is NOW.

South Florida has long been a hot spot for real estate and mortgage fraud. From yesterday’s edition of the Palm Beach Post:

Slow housing market speeds up scam

Predatory buyers are borrowing more than what a house is worth, pocketing the difference, then foreclosing.

By JEFF OSTROWSKI
Palm Beach Post Staff Writer

Sunday, October 28, 2007

Even after the South Florida housing market peaked in 2005, Johnson Cuffy knew how to score big profits in real estate. First, the Broward County real estate investor found a Fort Lauderdale house for sale for $245,000. Then, inflated appraisal in hand, he convinced the lender that the home was worth $340,000.

Cuffy, a 29-year-old who works with his father and siblings at a family-run mortgage company, landed a loan for $340,000, paid the seller $245,000 and pocketed the $95,000 difference, state investigators say. Profits secured, Cuffy let the home go into foreclosure.

He was arrested in July after the seller alerted officials to the scheme.

An isolated case? Not by a long shot. Cuffy is one of the few to be caught, but the lucrative scam, known as “cash back at closing,” became rampant in South Florida as the combination of a slowing housing market and easily available mortgages created an opportunity to fleece lenders. No one knows how many times other scammers used this rip-off throughout South Florida, but investigators and real estate experts say the dubious deals have been common in the past two years.

“My phone has been ringing daily with people wanting to report suspicious real estate sales,” said Detective Ted Padich of the Florida Department of Financial Services in West Palm Beach. “This is going on in every neighborhood in Palm Beach County.”

The Mortgage Asset Research Institute of Reston, Va., backs that assertion. Florida has moved to the top of its list of fraud-riddled states, based on lenders’ complaints. Losses from mortgage fraud hit a record $1 billion last year nationwide, according to the FBI, which lists Florida among the hot spots.

The mortgage swindles add a sinister story line to the flood of foreclosure filings that have followed the real estate bust. Although politicians, consumer advocates and the media often portray foreclosure as the inevitable collision of overreaching borrowers and overeager lenders, some defaults are caused by predatory borrowers rather than predatory lenders.

Buyers who see a chance to make a quick buck fuel the fraud. They typically work with appraisers, mortgage brokers and title agents to present phony documents to lenders, investigators say. For mortgage brokers, the paydays are generous: subprime lenders pay hefty fees to brokers who bring them business.

Although nothing is illegal about cash-back-at-closing deals in which all the details are disclosed to lenders, the arrangement veers into fraud when the sale is arranged to trick mortgage companies into lending far more than the house is worth. The sellers typically are little more than innocent bystanders. Desperate to sell in a soft market, they receive strangely generous offers even as the imploding housing market has put most buyers in a bargain-hunting mode.

“Everybody walks away with their coin, and the bank is left holding the bag,” said John Swope, the Florida Department of Financial Services detective who arrested Cuffy.

Anatomy of a swindle

The state’s investigation of Cuffy offers a glimpse at how the scam works: Cuffy paid for an appraisal showing the inflated price. He recruited a “straw buyer,” Kervyn Harris, whose name appeared on the deed and the mortgage. Then he arranged for Fremont Investment & Loan of California to lend Harris $340,000, according to police reports.

When the sale closed on Dec. 30, 2005, Cuffy walked away $95,000 richer. State investigators say Cuffy divided the proceeds among his father, Sylvester, 58; his sister, Lillia, 35, (the Cuffys run BlueKap Financial of Tamarac); and another man who provided Harris as the straw buyer.

Now in foreclosure, the small house sits in a down-at-the-heels neighborhood in Fort Lauderdale. A chain-link fence guards the front yard, and the for-sale sign screams, “BANK OWNED.” The Florida Department of Financial Services’ fraud division arrested Johnson, Sylvester and Lillia Cuffy in July and accused them of theft.

Johnson Cuffy didn’t return calls seeking comment, but when he was arrested, he admitted to the scam, Swope said.

South Florida long has been a hot spot for mortgage fraud, and the chicanery comes in a variety of flavors, from borrowers fudging their income to qualify for a loan to massive scams using straw buyers to create phantom transactions. The latest brand of scam, the type that Cuffy and countless others have pulled off, combines a legitimate seller with a not-so-forthright buyer.

Stanley Foodman, a forensic accountant in Miami, calls the scheme the real estate world’s version of the penny-stock pump and dump. The new book Protect Yourself from Real Estate and Mortgage Fraud dubs it “cash back at closing.”

“As with most deals that seem too good to be true, cash-back-at-closing schemes are just another way of scamming someone - in this case the lender, who’s fooled into making an under-collateralized loan,” write authors Ralph Roberts and Rachel Dollar.

One homeowner who’s trying to sell a house in Wellington’s Black Diamond development says she has been contacted repeatedly by buyers looking to do cash-back-at-closing sales. Another seller in a development west of Lake Worth said he, too, was solicited by a buyer hoping to inflate the appraisal. Wary of being involved in a shady deal, both refused to do so.

Investigators say they typically don’t target sellers in their investigations. Padich, the state detective, said he usually treats sellers as witnesses, not suspects. Although there have been no Cuffy-like arrests in Palm Beach County in recent months, real estate agents say there is no shortage of eyebrow-raising transactions where a legitimate seller’s house fetches more than the asking price.

Sellers be wary

One such sale came in the Black Diamond development last year. Steve and Gina Peters listed their spacious home at 10553 Galleria St. for $549,000 in 2006, as the market weakened. When the house didn’t move, they dropped the price to $500,000. The couple finally accepted $490,000 for the house, according to the Multiple Listing Service.

But according to a deed filed with the county, the buyers, Natacha and Isaac Antoine, paid $585,000 in October 2006. They received loans for the full amount, according to mortgage records. In January, they resold the home in the gated community along State Road 7 for the same price to Anthony Champagne, who likewise took out first and second mortgages totaling $585,000. The property now is in foreclosure.

Reached by phone, Natacha Antoine referred questions to her husband. Isaac Antoine couldn’t be reached for comment. Neither could Champagne.

Gina Peters said last week that the family had moved to Colorado when the offer came in for their house. “We sold it from a long distance, so we didn’t really have any contact with them,” she said. Peters said she had no reason to be suspicious about the deal.

The Peterses’ real estate agent, Patrick Heagney of Realty Associates, acknowledged this month that the terms of the deal seemed odd. The seller agreed to assign the difference between the $490,000 purchase price and the $585,000 loan to the buyer, a $95,000 payday. But, Heagney said, so far as he knows, the arrangement was fully disclosed on the closing documents filed to the lender. “I said, ‘I don’t know where you’re getting the appraisals from,’” Heagney recalled. “But how can I tell my seller, ‘You can’t sell it’?”

Boomtime prices tell tale

Although mortgage scams often are associated with low-value properties in sketchy neighborhoods, Palm Beach County real estate agents say they’re seeing dubious deals in shiny new developments such as Black Diamond, Olympia, Versailles and Nautica Isles.

And in spite of a housing market that has seen a shortage of buyers since late 2005, prices are being recorded at boomtime levels. “A house is on the market for $450, and all of a sudden it sells for $525, and you’re like, ‘Huh? How did that happen?” said Eric Grainger, an agent at Keller Williams Realty.

Some examples, according to MLS documents and publicly recorded deeds:

• In Black Diamond, a home listed for $479,000 in January sold for $575,000 in March.
• Also in Black Diamond, a home listed for $489,900 sold for $580,000 in October 2006, even though the MLS reports the sale price as $479,900.
• West of Lake Worth, a home listed for $645,000 last year sold in March 2007 for $699,900. In a phone interview, the seller credited a “bidding war.”

For mortgage scammers, cash back at the closing table is just one potential payday. Mortgage experts say the big commissions that accompany risky loans can encourage questionable transactions. If a borrower with stellar credit uses a mortgage broker to take out a conventional loan, the lender pays the mortgage broker about 1 percent of the amount of the loan as an origination fee. But if a borrower with poor credit uses a mortgage broker to arrange a subprime loan, the lender pays the mortgage broker much more: 5 percent, 8 percent, sometimes more. So a $600,000 loan could generate $30,000 or more in origination fees.

“The subprime mortgage fees can be as much as a third of the value of the home,” Swope said. “It’s ridiculous.”

Now that the market for mortgage-backed securities has dried up and subprime mortgage lenders have been rocked with massive losses, the easy money that fueled the cash-back schemes has disappeared. But not before untold damage was done in the form of fraudulent loans.

The U.S. Attorney’s Office for the Southern District of Florida announced a crackdown on mortgage fraud in September. It has indicted alleged scammers in Miami-Dade and Broward counties, and U.S. Attorney R. Alexander Acosta promised more charges in the coming months.

But investigators acknowledge that Johnson Cuffy remains the rare mortgage skimmer arrested. Mortgage fraud investigations move at a glacial pace, and Padich, the state fraud detective, admits many schemers get away with it because few cops have the time and expertise to find clues in phone-book-thick stacks of closing documents.

The irony is that a criminal who robs a bank with a gun can expect to be surrounded by a SWAT team in minutes. But, Padich said, a thief who robs a bank with a bogus appraisal and doctored closing documents can expect to get away with it.

For more than 30 years, I have been in the business of selling the American Dream of homeownership. I live to find families the perfect home for their budget and lifestyle, and I take great pride in helping to set these families on the path to pursuing happiness.

Unfortunately, not everyone in the real estate industry is committed to serving homeowners. Many are more dedicated to serving their own self-interests. I recently received a letter from a couple who had become victims of a manufactured housing fiasco. I would call it a scam, but without knowing more about the alleged perpetrators’ motives, the incident doesn’t quite qualify. According to the couple, Delena and Joseph LaMacchia, of Cherryville, North Carolina, here’s how the situation unfolded:

At the time, Joe and I (Delena) were renting a home where we lived with our four children. It was a nice home, but we were looking for something that would give us a little more room. For about three months, we shopped around for quotes on manufactured homes from different contractors. Finally, I went on the Internet, searched for “champion homes,” and discovered Bessemer City Housing in Bessemer City, North Carolina.

I contacted the salesperson, who quoted me a price that was $20,000 less than the lowest quote I currently had on the same home. I asked whether certain things were included, and he said, “Yes.” All together, we were looking at a $185,000 transaction–$165,000 for the home and $20,000 for the land.

We explained our situation and mentioned our concern that we would be unable to qualify for a mortgage loan to purchase the home. The salesperson said not to worry; he dealt with a loan officer at American Home Mortgage who could help.

We met with the loan officer and fully disclosed our situation. We had four children, everything we owned was in my name, and we had a modest income with some fairly substantial debt–two vehicles on which we owed about $40,000, another home we owed $85,000 on, a parcel of land we owed $13,000 on, medical bills, and credit card balances. The loan officer explained that he would need to pull our credit and get back with us. When he finally called back, he informed us that although Joe’s credit was a bit weak, I could qualify for the loan.

The loan officer explained that he could do a 30-year fixed-rate mortgage at 7.5%, which seemed a little high at the time. He also could offer us a fixed-rate mortgage at 2.25% that would change to a variable rate after two years. He told us that would give us time to sell our other house and refinance.

The loan officer helped us fill out the application. He asked for “stated income,” and I told him that I earned $21,000 a year along with $900 in child support each month. The next thing I heard is that I was approved for the loan and the house was on order. American Home Mortgage would not do the construction loan, but Yorktown Funding would handle the loan for them.

The only sticking point was the appraisal. To close on the transaction, the appraisal of the property (land plus the house) needed to come in at $214,000. The first appraisal fell short, so Yorktown asked the appraiser to go out and find two more comparable properties to justify a higher appraisal. The appraiser followed instructions, but the appraisal was still too low. The salesperson then suggested changing the property’s address–the way the property was positioned on the lot, it could have either of two addresses. With the new address, the property appraised at $209,000 which did the trick.

Grading on the lot started at the end of March with delivery of the home scheduled for April 21, 2007. On April 21, the home finally arrived, ten hours late and with significant damage. The salesman informed us that while the home was being transported, one of the axles broke. As a result, the home was twisted. We tore the plastic off the home while everyone was still there, including the salesman and the setup crew. When we saw the damage, we asked the salesperson about sending the house back. He said he was going to call someone at Champion Homes, but we didn’t hear another word about replacing the home. Because it was so late, the setup crew had to go.

The next day, the setup crew arrived and proceeded to place the house on the lot. It took Johnny, the four-person setup crew, Joe and his best friend the entire day to set the house. The crane had damaged the house around the top and sides.

To obtain money from the construction loan, the property needed to pass a series of inspections. The salesman never showed up for the inspections. He simply called me at work or called the setup supervisor or Joe to check up on the inspections and let him know when the property passed an inspection. I was supposed to be informed of each “draw” on the construction loan, but I never heard a word and had no idea where the money was going. In addition, the loan officer told me that the salesman was taking the setup crew off of my house to do other things so he could make even more money. On April 27, we finally closed on the construction loan with Yorktown Funding.

On June 13, the salesman asked for a final inspection, so we could close on the loan from American Home Mortgage. The house did not pass, due to drainage issues in the back yard and the fact that the garage was not wired and had no hand rail, the sheet rock was a mess, and other defects. The salesman ordered another inspection and informed us that the property passed this time and we could schedule the closing. The second closing was another fiasco, but we managed to muddle through it.

Two days later, and still nobody showed up to finish the work on the house. The salesman was not returning calls, and when we started digging up information, we found out that he had never paid the contractor who had done must of the work. I called the Manufacturing Institute and found out that the salesman was not a licensed contractor. I would need to contact the county where the inspections were done and the permit issued. When I called Gaston County, I was informed that the salesperson had taken out a surety bond for $5,000, because he wasn’t a licensed contractor. I went by the next day to pick up a copy of the bond, and I contacted the representative at the insurance company that issued it.

I filed a complaint with the insurance company and never heard back from them. When I called, they said it was a “long process.”

On August 1st, I received my first mortgage bill with a letter informing me that American Home was going bankrupt and they were selling my loan to EMC. As of August 20, 2007 EMC is who I would pay. The first bill had my payment at $757 from American Home. On August 20, 2007, I received something from EMC stating they would be handling my mortgage. The first payment was due on September 1, 2007. The statement showed something called “amortization” with four different payment types.

I then called EMC and told them this was not the loan I applied for. The person I talked with explained that they had no recourse at this time and that my closing attorney would need to go in front of a judge to have the loan declared null and void. I explained everything to my attorney. He said the case was over his head–he didn’t know what to do and didn’t appear in front of judges.

I tried hiring another attorney, but nobody in Gastonia would take the case because the salesman’s wife works for an attorney in town. I looked in a neighboring town but they declined, again because of some perceived conflict of interest. I called the Better Business Bureau, and they told me to get a lawyer. I called over 60 lawyers and no one helped. I finally met a friend who knows a good bit about my situation; she has been helping me.

We’ve come to find out that the salesperson had already been sued before, filed bankruptcy, and had over four businesses shut down by the Secretary of State for not fulfilling state requirements. I also discovered that my attorney had not filed all the paperwork correctly, the mortgage company falsified my income, and I had no insurance on my property because of mistakes that the salesman made. In addition, the appraisal showed that $3,000 worth of work still needed to be done.

I have tried to refinance but no one is willing to approve a new loan, because, given my debt-to-income ratio, I should never have been approved for the current loan I have. EMC will not tell me anything, except they will probably take the deed to my house and land. They don’t want to help at all. I called American Home Mortgage and they still have all my documents but can’t tell me who my lender or investor is and that EMC is my servicer. I have had two lawyers and neither one can do anything because American Home went bankrupt, and no one knows what to do.

Most recently, an attorney told me what I had already come to expect–there’s no hope. I don’t want to lose my home, it is my family land and I have always dreamed of building on it before my grandfather passed away. If anyone can help me save my home please email me at cherryvilleaream at bellsouth dot net we live in Cherryville NC 28021.

This is just one story, but it is representative of what has been happening in every state in the Union–professionals preying on homeowners who have been duped into trusting the system and the professionals who run it. It is the equivalent of going into a doctor’s office and intentionally been diagnosed as having cancer. The “doctor” prescribes a host of expensive tests, medications, treatments, and therapies just to jack up your fees, and then flies out of the country when you’re money runs out.

When you seek the advice of any professional–a doctor, attorney, accountant, Realtor®, or whoever–you expect that the person is going to give you accurate information and reliable advice. You do not expect the person to flat out lie to you. We have to stop blaming homeowners for the current mortgage meltdown and start holding real estate professionals and lenders to the same standards we set for doctors and other professionals. We also need to start placing the blame where it belongs–not with the homeowners but with the professionals who lead them astray.

Thirty miles south of Salt Lake City, in the town Eagle Mountain, Utah, Richard Culbertson, whose real estate license was recently revoked over allegations of Real Estate Fraud, is still running for mayor. From Caleb Warnock at the Provo, Utah-based Daily Herald:

E.M. candidate charged with fraud

Casting himself as the hero in a vast conspiracy, Eagle Mountain mayoral candidate Richard Culbertson insisted during a candidate debate on Wednesday that despite state investigators charging him with real estate fraud, voters must choose him to protect them from land speculators.

Earlier in the day, the Utah Department of Commerce, Division of Real Estate issued a news release saying that Culbertson’s real estate license had been revoked by the state’s Real Estate Commission on Wednesday “over loan fraud.”

“Culbertson forged signatures, falsified loan papers and used a straw buyer in equity skimming scheme,” said state officials in a media statement. “According to the Division of Real Estate’s investigation, Culbertson admitted to using a ‘straw buyer‘ (i.e., using a false identity or the identity of another person) to purchase a home for his personal residence. He also admitted using a straw buyer to purchase other properties at artificially inflated values in order to obtain money in excess of the sales price and acquire cash at closing for his personal benefit.”

Speaking at the candidates’ debate at Eagle Mountain City Hall on Wednesday night, Culbertson put a different spin on the state’s action.

“When I determined that I would run for mayor of Eagle Mountain several months ago, it was because I felt that my hometown had fallen into the hands of land speculators who were systematically taking away the unique features that made us want to make Eagle Mountain our hometown,” Culbertson said, reading his statement to the crowd before the debate. “We would hold developers to their promises and prevent land speculators from reaping huge windfall profits by getting the City Council to remove established use restrictions. From the moment we took that position, a massive effort was undertaken to destroy our credibility with the voters by operatives of the land speculators.

“I have had my life investigated back to my birth with the intent to destroy me and those I’ve campaigned with. Anyone who thinks these recent events are not politically motivated is unaware of the history of this town. There are forces here that rival the politics of Chicago and New York City.”

Culbertson went on to say he believed his real estate transactions were “completely legal and ethical at the time. Though I fully believe the origin of this investigation was politically motivated, I have cooperated fully with the investigators and provided them with complete information.”

“In this process,” he continued, “it became evident to me that unless I alone took full responsibility for whatever had occurred, innocent people would be drawn into the investigation, being possibly charged with a crime and harmed for something that was completely innocent. I have alone accepted responsibility in order to protect the people I deeply care about and willingly accept the consequences, whatever that may be. The question now is, what will the citizens of Eagle Mountain do at the ballot box.”

Later in the debate, Culbertson said he had asked state investigators not to release their findings because news of their findings would damage his campaign. He said he believed that investigators had agreed to his request and was saddened that the state had allowed the fraud charges to come to light.

The Division of Real Estate said they had referred Culbertson’s case to federal and state authorities for review. Culbertson said he had not been contacted by the county attorney’s office or by federal authorities, but believed he was now the subject of a county attorney investigation. Daily Herald calls to the county attorney’s office were not immediately returned. Melodie Rydalch of the U.S. Attorney’s Office said she believed any investigation would be handled by the county attorneys.

According to state officials, “in at least one transaction, Culbertson diverted proceeds from the purchase of the property to a Limited Liability Company (LLC) to conceal the true terms of the transaction from the lender. As part of this fraudulent equity skimming scheme, Culbertson falsified loan documents, including forging signatures and providing false income information.”

Just hours before the debate, Culbertson was ordered to pay the Division of Real Estate a $40,000 administrative fine. The Real Estate Commission is a five-member licensing panel of real estate industry professionals.

“The Division’s investigation of Mr. Culbertson has uncovered numerous individuals involved in the same scam and the Division is moving forward to take action in those cases,” said Derek B. Miller, Director of the Division of Real Estate, in a statement to media. “According to the Division of Real Estate’s investigation, Culbertson’s actions are part of a larger loan fraud ring within Eagle Mountain and surrounding Utah County areas, involving real estate agents, mortgage lenders, appraisers and members of the general public.”

Eagle Mountain officials declined to comment on the alleged loan fraud ring. City spokeswoman Linda Peterson released a statement saying the city had only learned of the investigation from the state’s news release.

“The Utah Division of Real Estate has told us that to the best of their knowledge no Eagle Mountain city employees are subjects of this ongoing investigation,” said Peterson. “As we have no jurisdiction in this matter, we are unable to comment any further.”

In an e-mail to the Daily Herald before Wednesday night’s debate, Eagle Mountain Councilwoman Heather Jackson, who is opposing Culbertson for the mayoral seat, said “this is a very trying time for Richard and his family. I am sorry that our wonderful community of Eagle Mountain is once again drawn into the public eye for less than favorable reasons.”

But in the debate Jackson was a bit more pointed.

“I have said since the beginning of my campaign that I have nothing to hide,” she said. “I will stand as a beacon of honesty and integrity and do my best to stay out of the press in any negative way.”

When asked during the debate how he would improve the city’s image in the media, Culbertson said he would “promote the good things” of Eagle Mountain and develop a relationship with the media. “I never said I was a knight in shining armor,” he continued. “Ninety percent of people base their life on rumor and innuendo and other people’s opinions. If you are, please change.”

If the Utah Division of Real Estate’s allegations are to be believed–and I have no reason whatsoever to doubt them–and Richard Culbertson truly believed that using a straw buyer and enabling artificially inflated prices was within the lines, then there’s no better poster child for the renewed call for mandatory fraud education for Realtors than Richard Culbertson himself.

Back in December of 2005 and again in January of 2006, I mailed a letter to each state’s Attorney General requesting that they looking to the dangers associated with companies that generate fake pay stubs for ‘novelty’ purposes. Back then, now defunct sites like the one calling itself Novelty Paycheck Stubs, advertised that for just $90, anyone could order “novelty” paycheck stubs that could be used to “fool anyone” with falsified salary information. The companies that produced the stubs would even include your social security number and home address just to make them look official. Sadly, many of the fake stubs were used by Real Estate industry insiders, con artists, straw buyers, and fraudsters to induce leading financial institutions into make home loans that otherwise would not have been made.

Call them what you want, fake pay stubs, fake payroll stubs, fake check stubs, sample paycheck stubs, or even novelty paychecks… I think these things are bad, bad news, plain and simple!

What do you think? Do sites like this one I just found–FAKEPAYCHECKSTUBS.COM–really serving the greater good or are they nothing more than wolves in sheep’s clothing? You already know I feel. Click on the “Comments” link below to share your own thoughts.

Following up on a story first reported by Flipping Frenzy in December of last year, 10 people were sentenced late last week for offenses stemming from a mortgage fraud scheme involving high profile RE/MAX affiliated Realtor Theresa Ann Campbell. According to Oklahoma’s The Journal Record, in April of this year, a federal jury convicted six of the 10 for participating in a plan involving doctored loan applications and the artificial inflation of sale prices for nine Edmond, OK, homes. Five others pleaded guilty in December, including the 66-year-old Campbell, who in June was sentenced to two months in prison followed by two years of supervised release and was ordered to pay restitution of $52,490.

Those sentenced last week include:

• Brandon Baum, 32, Joplin, MO — 7 years, 3 months in federal prison
• Gayle Caldwell, 39, Edmond, OK — 1 year, 6 months in federal prison
• Charles Caldwell Jr., 41, Edmond, OK — 1 year, 6 months in federal prison + $185,740 in restitution
• Rusty Therrien, 33, Edmond, OK — 1 year, 6 months in federal prison + $82,710 in restitution.
• Anthony Jew, 38, Edmond, OK — 1 year in federal prison + 104 hours of community service and $13,700 in restitution
• Joseph Therrien, 29, Oklahoma City, OK — 1 year in federal prison + $59,771 in restitution
• Teresa Therrien, 32, Edmond, OK — 1 month in federal prison + 90 days home detention and $82,710 in restitution
• Dalton Alford, 35, Oklahoma City, OK — 8 months in federal prison + 104 hours of community service and $172,489 in restitution
• Tony Mykel, 40, Edmond, OK — 6 months in federal prison + 104 hours of community service and $263,489 restitution
• Timothy J. McDaniel, 45, Edmond, OK — 6 months in federal prison + $57,641 restitution

According to The Edmond Sun, Baum was a real estate agent who acted as the buyers’ agent in the purchases of properties in the Oak Tree subdivision of north Edmond. Baum’s buyers were told they could receive cash back at closing under the guise of “repair costs,” which they could use for their personal benefit, if they agreed to purchase the Oak Tree homes at an inflated price.

Kudos to nationally syndicated political cartoonist and Editorial Cartoonist for the The Columbus Dispatch, Jeff Stahler:

At a time when state and federal authorities absolutely refuse to fund Real Estate and Mortgage Fraud prevention education & training, it’s good we have people like Stahler, who, through their everyday work, reach more people than any federally-funded effort ever could.

Following up on a story FlippingFrenzy.com first report on September 25th, a Marietta, Georgia closing attorney who admitted that he was a member of a mortgage fraud ring that federal prosecutors say included more than a dozen people, is now cooperating with the government in a trial that began earlier week in U.S. District Court. From Law.com:

Following up on a post from September 25, on Tuesday, federal prosecutors identified real estate closing attorney James F. Stovall III — formerly a partner in the now-defunct law firm, King, Taylor & Stovall — as the lawyer who finalized as many as 50 fraudulent home sales. The sales were part of a scheme that bilked banks out of at least $20 million in 2000 and 2001, prosecutors said.

Stovall is the most recent Georgia attorney caught using his law practice to perpetuate mortgage fraud, a crime that has cost the country’s banks hundreds of millions of dollars. As a warning to other real estate lawyers, U.S. District Judge Thomas W. Thrash Jr. in 2005 sentenced disbarred DeKalb County attorney Chalana C. McFarland to 30 years in prison for her role in a mortgage fraud scheme that cost lenders more than $11.5 million — the toughest sentence to date handed down in Georgia on dozens of mortgage fraud defendants who have faced federal prosecution here since 2000.

This year, two other Georgia real estate closing attorneys pleaded guilty to charges associated with yet another, wide-ranging mortgage fraud scheme in which they played roles similar to Stovall’s — but on hundreds, rather than dozens, of properties.

In August, Thrash sentenced one of those two lawyers, J. Christopher Halcomb of Cumming, to 37 months in prison and ordered him to pay more than $15 million in restitution. He has also been disbarred. The other lawyer, Andrew E. Wolf, is still awaiting sentencing.

Click here for more information on Stovall and the mess he helped to create.

The first round of arrests warrants for people involved in mortgage fraud schemes brought in 11 people last week in Miami-Dade County, Florida, with two suspects still at large. At a press conference last Friday morning, Miami-Dade County’s Mayor, Carlos Alvarez, presented the cases where 11 individuals are suspected of committing mortgage fraud.

Those arrested thus far include:

• Realtor, Nester Camacho
• Closing Attorney, David Rodriguez
• Closing Attorney’s Secretary, Monica Zulauga
• Mortgage Broker, Jose Delgado
• Mortgage Broker, Xavier Abelardo,
• Seller and Broker’s Agent, Javier Abelardo-Navarrete
• Closing Agent, Luis Navarrete
• Investment Company Owner, Mariana Navarrete
• Straw Buyer, Fernando Prado
• Title Agent, Damaris Vallin
• Mortgage Broker, Tomas Tamayo

“Mortgage Fraud affects all of us as artificially inflated home values increase taxes making it unaffordable to live here,” said Mayor Alvarez. “On the flip side, when banks begin to foreclose on fraudulent mortgages and sell these properties far below their original value, the County’s tax base lowers. This may affect the level of services we are able to offer.”

To combat the problem, Alvarez recently created a Mortgage Fraud Task Force to pool together agencies and resources for a joint effort against mortgage fraud. Task Force members include representatives from the Miami-Dade Police Department, Miami-Dade County State Attorney’s Office, Florida Attorney General’s Office, Florida Department of Law Enforcement, State of Florida Department of Financial Services, the FBI, U.S. Attorney’s Office, and the Office of the Treasury.

Real Estate fraud is a substantial problem in Miami-Dade County with more than 200 reported incidents of mortgage fraud and an estimated $50 million in losses to lenders and other victims. A recent Florida State Statute, No. 817.545, went into effect, making it easier to crack down on mortgage fraud, making all parties involved in mortgage fraud subject to prosecution.

Mortgage Fraud Task Force Chair and Miami-Dade Police Department Chief Counsel Glenn Theobald said, “Committing mortgage fraud crimes in Miami-Dade just got a lot harder as we have law enforcement officials, prosecutors, lending experts and others bringing all resources to the table to ensure this mortgage fraud crime does not pay.”

Officials say in the coming months more fraudulent mortgage brokers, title agents, attorneys, appraisers and others will be brought to justice. Anyone who suspects deceitful mortgage practices in Miami-Dade County is encouraged to contact Miami-Dade County’s Economic Crime Bureau at (305) 994-1000.

Recently, I was discussing the mortgage meltdown with a reporter who made the mistake of asking me who or what I believed was primarily responsible for the mortgage meltdown and housing crash of 2007. My reply consisted of a single word: “fraud.” My conservative estimates target fraud as being responsible for at least 80% of the problem, and most of this fraud was perpetrated by industry insiders (both in the Real Estate and mortgage loan industries) on the consumers.