The FBI just released a comprehensive new report on real estate and mortgage fraud, and, as you might expect given everything we talk about here on Flipping Frenzy, it isn’t a pretty picture. The information contained in the report can get quite technical, with plenty of charts, graphs, and hard numbers. Regardless, it’s worth the read–see “The 2007 Mortgage Fraud Report.” Among the Report’s key findings:

1. Real Estate and Mortgage Fraud is clearly on the rise. Although there is no central way to track the total extent of the problem, the FBI received 46,717 Suspicious Activity Reports related to real estate and mortgage fraud last year—compared to 35,617 in 2006 and just 6,936 in 2003. Only 7% of these reports documented an exact dollar amount in terms of losses, but even so, the total loss from this 7% was $813 million. The FBI’s caseload has also escalated. By the end of fiscal year 2007, the Bureau was handling just over 1,200 real estate and mortgage fraud investigations—a 47% increase from 2006 and a whopping 176% increase from 2003.
2. The downward trend in the housing market will continue (see forecasts provided by the Mortgage Bankers Association in the report), providing further incentive for shady real estate industry insiders to look for dishonest ways to turn a profit and growing opportunities for scam artists to prey on vulnerable homeowners.
3. The subprime lending crisis is a contributing factor to real estate mortgage fraud, both directly and indirectly. Subprime loans, designed for people with poor or limited credit histories, now represent more than 13% of all outstanding loans–double the percentage of five years ago. These high-interest, high-risk loans contributed to the 2.2 million foreclosures filed during 2007, up 75% from 2006. The trouble actually began when home prices were rising a few years ago, leading to relaxed lending practices throughout the industry and the exaggeration of assets by industry insiders and borrowers under their charge anxious to qualify for loans, both of which contributed to fraud.
4. The top 10 hotspots nationwide for mortgage fraud in 2007, carefully mapped from multiple public and private sources, were:
   
   1. Florida
   2. Georgia
   3. Michigan
   4. California
   5. Illinois
   6. Ohio
   7. Texas
   8. New York
   9. Colorado
   10. Minnesota

   Other states significantly affected include: Arizona, Maryland, Utah, Nevada, Missouri, Indiana, Tennessee, Virginia, New Jersey, and Connecticut. The north-central region of the United States had the largest share of fraud, followed by the west and southeast regions.



5. The latest mortgage scams run the gamut: from builder-bailout schemes where developers unload excess inventory through financial trickery, to foreclosure rescue schemes that trick homeowners into signing over the deed to their house; from seller-assistance scams that use false appraisals to sell homes, to identity theft that leads to home equity credit lines being opened and drained.

The FBI’s report also briefly recounts the agency’s own response to the problem, including the Bureau’s participation in the Department of Justice’s Mortgage Fraud Working Group, through which the agency says it is helping to identify large-scale real estate industry insiders and criminal enterprises conducting systemic real estate fraud

The purpose of the The 2007 Mortgage Fraud Report is to provide insight into the breadth and depth of real estate and mortgage fraud crimes in the United States. The report updates the 2006 Mortgage Fraud Report and addresses current fraud projections, issues, and hot spots (as noted above). The objective of the report, according to the FBI, is to provide FBI program managers with relative data to justify real estate and mortgage fraud investigative and preventive resources and for investigators to identify real estate and mortgage fraud activity.

A lot of Flipping Frenzy readers take the time to contact my office with their own suspicions surrounding real estate and mortgage fraud. One such reader, Lisa D. from Michigan, recently gave us permission to share her experience with the rest of our readers.

See if you can spot the fraud:

My husband Peter and I got married in 2002 when we were both 23-years old. Peter had a Bachelor’s degree in Fine Arts and was student teaching. We lived with my parents for a while and then moved into an apartment of our own. I previously worked waitressing a couple nights a week to help make ends meet. Peter eventually secured a job as a teacher at the local county jail. His pay was solid and steady, and he also went back to school to get his teaching license.

With our little family growing, we started looking around for a house we could afford (apartment living was fine but we needed more room). We finally came across the perfect house: A quaint little home in the town where Peter grew up. Since the home was in a state of foreclosure, we thought we might have a good chance to get the house at a discount. We tried to get approved through a traditional loan but were unable to. So we went through a private company and secured a land contract instead, and by Christmas of 2003 we were settling into our first new home.

We lived in the house for a year when Peter started hearing commercials on the radio for Rock Financial–a Quicken Loans Company. The company’s spokesperson promised to qualify people for a mortgage they could afford. We called Rock Financial, made an appointment, and got a really good feeling from our sales representative. He was a very nice man who seemed eager to help us get into a loan with a lowered interest rate. He was charismatic and told us not to worry about a thing.

At the time, after paying on our mortgage for a year and Peter having been at his job longer, Peter’s credit score was improving (it was in the 680’s). That was an important thing for us because my credit was blemished from uninformed college spending. We knew it would be important to keep Peter’s credit healthy so we could at least rely on it while we worked to correct mine.

The sales representative at Rock Financial was able to get us approved for a loan rather quickly. He arranged for an appraiser to come out and do an appraisal on our house and property, which they appraised at $135,000. Our sales representative wasn’t sure that he could get us straight into a 30-year fixed loan, so we started out with an adjustable and had to take out a second mortgage for $12,000 to help pay off some bills.

When we arrived at the closing, we learned that our Rock Financial sales representative was not able to be there. Two ladies that worked for Rock Financial were there instead to go over the closing materials. To say they rushed us through the closing process would be an understatement. We pretty much just signed paper after paper were they told us to do so. When we left, I told Peter I didn’t feel good about what had just happened; I felt rushed and uniformed, and Peter agreed. Together, we called our sales rep at Rock Financial and told him what had happened and how we felt. He apologized profusely and offered to come to our house and go over anything and explain everything we did not understand. We said that we didn’t want him to have to do that; talking to him put us at ease. A few days later we received a package from the sales rep that included a nice popcorn bowl from Crate & Barrel and a $5 Blockbuster Video gift card. That confirmed in our minds what a great guy the Rock Financial sales representative really was.

Our mortgage payment at this time was $720.94 (4.124%) with an adjustable rate mortgage and our payment on our second mortgage was $254 (5.75%), interest only. We felt that this was a good deal. Originally, we had paid $904.00 on our land contract. Even though our payment was a little higher we were able to pay some bills off and also build a garage. Peter and some of his friends built the garage, and we felt blessed to still be in this perfect little home of ours but at a manageable cost.

A year later we started hearing the commercials on the radio again from Rock Financial saying that interest rates were on a rise and homeowners with adjustable rate mortgages should consider a fixed loan. Peter called the sales rep to see what he could do about getting us a fixed loan. We had bought a used truck in 2004 and our payments were $359 a month, and since we were falling behind in the payments, our Rock Financial sales rep said we could take our more money on our second mortgage and that he could get us a fixed rate on both. All he needed, he said, was to get an appraisal on our home for $158,000. Accordingly, the Rock Financial sales rep sent out an appraiser who saw the new garage and the few minor updates that we had done in the past year, and lo and behold, the home appraised for $158,000. This was especially great news seeing that we bought the house for $114,000. We took out more money on our second mortgage to bring the loan to $34,000, and used the money to pay off bills and pay down other debts. Our Rock Financial sales rep got us into a fixed rate of 6.25% on our first mortgage and 5.25% on our second mortgage. Our payments went up to $771.19 on our first mortgage and $148.75 interest only on our second mortgage.

Shortly afterwards, we started having a difficult time coming up with our payments. Not having enough money and having to use credit cards that we had paid off with our second mortgage money back was getting us nowhere.

We called our Rock Financial sales rep who indicated that he wasn’t sure what he could do but that he would look into it and get back with us.

When the sales representative called back, he said that he could help us but only if the house appraised in the $170’s. Knowing our neighborhood as we do, we were apprehensive. A comparable house next door to our own–a two-bedroom with an asking price of $150,000–was on the market for nearly two years. When it finally sold, it fetched only $120,000 or thereabouts. But to our excitement, our appraisal came back at $178,000. The Rock Financial sales rep said we could get some money back on our second mortgage raising the loan amount to $45,000 and our interest rate to 12.8%.

While we were nervous about the interest rate and our payment, our Rock Financial sales representative assured us that using the money we’d get back to pay down our credit cards and giving it three to six months, he would be ale to lower the interest rate on the second mortgage considerably. So we went on to do that and felt an immediate sense of relief.

Several months had past and the new payment of $501.00 on our second mortgage and $1,049.90 on our first mortgage, got us into the same predicament of using credit cards for daily expenses. Peter called Rock Financial to see if enough time had passed to get our interest rate lowered on the second mortgage. Unfortunately the sales rep we’d been dealing with since day one no longer worked there and the person Peter spoke with said there was nothing he could do for us because our credit was so damaged and our debt too high. We were devastated. I had always worked through all these years at night so I could stay home with the kids during the day. I had to start picking up more shifts. I began working five to six nights a week, leaving little time for Peter and I to even see one another. Peter would come home from work and I would leave to go to work as soon as he did.

Long story short, we stopped paying on our credit cards with the thinking being that the most important bill was our house. All of our credit cads are now in collections with one of the credit card companies placing a lien on our house. We have creditors calling daily, but there is nothing to give them. We are not sure how much longer we will be able to keep our heads above water let alone save for our children’s future.

Our worst fear is having to walk away from a house we love so much and put so much time and energy into, but we also feel there may be no other answer. Our dream home has now become a nightmare that we may just have to walk away from, but with such bad credit I’m not sure we’d even be approved for a local apartment.

~ Lisa D.

From what you read, were you able to spot the fraud? If not, read on.

The first thing that should raise the hair in the back of your neck is that the loan officer at Rock Financial placed Peter and Lisa into multiple loans with the promise he would refinance and consolidate them into one fixed rate loan. The problem here of course is that situations change and no one can ever guarantee that you can refinance at a later date in time. This tactic is known as “churning,” like stock and brokerage accounts. Sadly, some mortgage loan officers insure repeat business by placing people into loans that require refinancing or have larger or rising interest rates. When the time comes and the borrower doesn’t qualify, it’s not the loan officer left holding a note they cannot afford to make payments on. In Lisa and Peter’s case, the loan officer did refinance the loans. He did so three to four times in 24 months and made about $17,000 in refi commissions.

Next, in order to get loans approved, some loan officers jack up the borrowers assets to give the false impression that the borrower is more solvent than actually is the case. Other times, a good loan officer gone bad may increase the homeowner’s income to get them qualified. Most often though—and this was the case with Peter and Lisa—the loan officer uses a known appraiser and simply tells said appraiser what s/he needs the value to come in at in order to get the borrower qualified.

Notice too that Peter and Lisa were not required to present any cash at closing. While this is not a problem, per se, when homeowners don’t have to pay the refi costs out of pocket, it is much easier to churn the loans. Instead of coming out of pocket with the dollars, the loan officer uses the house’s equity to pay himself, and the homeowner simply sees it as another number on a settlement statement.

You may think trusting your loan officer is a good idea—as did Peter and Lisa—but at a core level, your loan officer is not your friend. Sure, legally, a loan officer has an obligation to uphold the law and operate within certain guidelines and commonly accepted practices, but not all loan officers—or anyone else who is party to a real estate transaction—operates with integrity. When a loan officer works in coordination with an appraiser—as was the case at Quicken’s Rock Financial—any benefit to you is temporary at best.

New York’s Attorney General, Andrew Cuomo, today announced that the nation’s two largest purchasers of home loans, Fannie Mae and Freddie Mac, have entered into cooperation agreements requiring them to only buy loans from banks that meet new standards designed to ensure independent and reliable appraisals. The new rules prohibit mortgage brokers from selecting appraisers and lenders from using their own staff to conduct valuations for any home loans Fannie Mae and Freddie Mac purchase. The agreements–which were signed by the New York Attorney General, Fannie Mae, Freddie Mac and their federal regulator, the Office of Federal Housing Enterprise Oversight (OFHEO)–also create an independent organization to implement and monitor new home appraisal standards.

With the agreement now in place, Fannie Mae and Freddie Mac have positioned themselves to become leaders in transforming the mortgage industry. Now, national banks have a clear choice: immediately adopt the new code and clean up appraisal fraud in the real estate industry or stop doing business with Fannie Mae and Freddie Mac.

Fannie Mae and Freddie Mac, which purchase roughly 60% of all home loans originated in the United States, have agreed to the following:

1. Establishment of the “New Home Valuation Protection Code,” which creates requirements governing appraisal selection, solicitation, compensation, conflicts of interest and corporate independence, among other reforms. Under the new Code:

• Mortgage Brokers will be prohibited from selecting appraisers
• Lenders will be prohibited from using “in-house” staff appraisers to conduct initial appraisals
• Lenders will be prohibited from using appraisal management companies that they own or control.

2. Banks will be required to adhere to New Home Valuation Protection Code. Beginning January 1, 2009, Fannie Mae and Freddie Mac will require that lenders represent and warrant that appraisals related to mortgage loans originated on or after January 1, 2009 conform to the code or they will not be purchased.
3. Formation of the “Independent Valuation Protection Institute,” a new organization which will implement and monitor the New Home Valuation Protection Code. The Institute, which will be funded with $24 million from Fannie Mae and Freddie Mac, will also:

• Establish a complaint hotline for consumers nationwide to call if they believe the appraisal process has been tainted or if they have been harmed by appraisal fraud.
• Serve as a contact for appraisers themselves if they believe their independence has been compromised. These complaints will be handled confidentially to protect appraisers from retaliation. The Institute will mediate complaints, or can forward them to the appropriate federal or state law enforcement agency or regulator.
• Report publicly on its activities to the New York Attorney General and OFHEA on a bi-annual basis.
• Appoint a Board of Directors which must be approved by both the New York Attorney General and OFHEO.

As everyone hopefully knows by now, the integrity of the mortgage system largely depends on independent appraisals. Again and again, investigations find that real estate industry insiders put pressure on appraisers to drive up the value of loans just to make a quick buck. The new standards, and the new independent monitor, can begin to erase the problem from the industry.

The mortgage meltdown and resulting foreclosure epidemics are an American crisis that will require the united efforts of all citizens of the United States to come together and resolve. Professionals in the real estate and mortgage lending industries need to stop paying homage to the almighty dollar and limitless profits of those good years and hunker down with homeowners to get through these hard times. As I see it, this is the only hope we have to keep the American Dream of homeownership alive.

Fortunately, a large majority of professionals in the real estate and mortgage industries are trustworthy and dedicated to the long-term health of their businesses and careers. Unfortunately, too many professionals are focused entirely on their own short-term interests.

Recently, one of the true blue professionals in my industry called my attention to a situation in Arizona in which she suspects rampant fraud is taking place. She is an honest, well-informed real estate agent who is dedicated to doing her part to clamp down on fraud in the real estate industry, which she loves. She has witnessed other professionals, driven by greed, become involved in cash back at closing schemes that are designed to stimulate the sales of condos by providing buyers with $18,000 to $40,000 in cash (undisclosed to the lender) following closing.

To further hide what was really going on, the people involved in this alleged scheme adjusted it so the cash back would not be paid as a lump sum but paid out in installments in the form of guaranteed rental payments. This tactic did not fool our whistleblower. She tells her story here.

I am writing this because of my concern regarding all of the mortgage loan fraud that has been in the media specifically in the past year.

You are about to read my experience over the past year and what I believe to be a sophisticated case of loan fraud.

My background

I first started in the industry as a RE/MAX receptionist in 1990, since which time I have acquired over seven years experience in the new home arena, over seven years in the resale arena, and three years in the corporate office of a mortgage company.

January 2007

I interviewed for a position the first business day of the New Year and started the following week. I was excited as this gave me an opportunity to explore a whole new area within the new homes arena.

The community, Sunscape Villas, Scottsdale, AZ consisted of 442 units. Sales of the units began in early 2006, and over 210 units were closed on from May to Dec 2006.

Developer/Seller – Partners:

• Crown - California company
• MCZ Centrum - Chicago company

Sales and Marketing by:

• Urbis Properties, Cheryl King, Owner (Licensed)

We were told to get ready as they were in the process of finalizing a special program for one of their power brokers who worked with a lot of investors. We weren’t given much detail only that it was a program similar to what they were doing Landmark on Central (4750 N Central, Phoenix, AZ) that helped sell and close over 70 units. Landmark was Cheryl’s prior community, in the final stages of close out. The Developer/Seller was Crown (out of California) one of the partners at Sunscape Villas.

March 2007

The details had been ironed out and they were ready to launch the new program. A sales meeting was scheduled to go over this program along with two other similar programs that were going to be offered to different groups.

It was stressed to all of us the importance of these programs not getting out to the general public as they were only being offered to the select groups. Making matters worse, the three groups each had different deals set up and no one could know about the other.

Power Broker No. 1 - Moser & Perry

• Greg Moser, Realty Expert (Licensed)
• Jay Perry, Estate Planner (unlicensed)
• Moser & Perry’s Preferred (only) Lender: House 2 Home (Mike Low, Owner)

The program was set up to allow the investors to cash flow for the first couple of years. Two days after close of escrow an Option to Purchase agreement would be drawn up by Urbis and sent to the office of Moser and Perry for Buyer’s (now owner’s) signature and bank wiring instructions. The office of Moser and Perry returned signed Option and wiring instructions to Urbis who would forward on to Seller (Crown/MCZ Centrum) for a pre-determined amount (8-21% of purchase price) to be wired into the Buyer’s (now owner’s) bank account. All parties knew there was never the intent for the property to be (re)purchased per the agreement.

Editor’s Note: This was just a way to kick back money to the buyer under the guise of paying for an option to purchase the property from the buyer, when nobody had any intent of ever purchasing that property from the buyer.)

Greg Moser was set up on a graduated co-broke: 6% for the first 25 sold, 7% for the second 25 and 8% for everything thereafter. He felt confident that he could sell between 70 and 100 units.

The sales staff was instructed that there would be nothing in the purchase contract nor would there be anything in writing regarding the Option given to the buyer. They were told just to refer any/all questions from the Moser clients back to Greg Moser or Jay Perry, all sales needed to do was show the property and print out the contracts.

We were given strict instructions that this agreement COULD NOT be signed until two days after close of escrow. In addition we were told that since this happened outside of closing, neither the real estate broker nor the title company needed to know, as well as this ‘incentive’ was not to be disclosed to the appraisers coming to the sales office for comps of recent closings.

I recalled reading an article on AZ Central.com about Cash Back at Closing, I began questioning if this could be done. I forwarded a copy of the article to the Urbis team. (I had forwarded a few helpful articles before that). After several discussions around the office, a point was made to let everyone know that this was not the same thing as what was written about on AZ Central. We were assured that the attorney’s had looked at the agreement and said that it was legal. A gal in our office was mid-way through her real estate licensing classes and Cheryl King suggested she asked the instructor, which she did and was told that they couldn’t do that. When told what she had learned, Cheryl King brushed it off as not being explained the right way.

Having been in the industry for a number of years, I understood the mechanics of the Option to Purchase. This was not the way I recalled seeing this used in the past. I started to question my knowledge base, but, I didn’t push the issue. After all, who was I to question the corporate attorney or Cheryl with her MBA and paralegal background?

I wasn’t the point person for Urbis and the Option Agreements, as Cheryl had taken on three new listings, two of which I was in charge of the entire contracts & closings process, so I was very busy with those duties. It was out if sight, but never far from my mind.

Being a reader of all things real estate related, I’ve gained valuable insight through out the years. I always make sure I can back up what I’m saying in writing via various publications, statutes, and disciplinary orders. People in my office have referred to me as “a walking real estate encyclopedia,” and Cheryl gave me the nickname “Sherlock” and would come to me frequently to find out this and confirm that, as she was beginning to trust that I knew what I was talking about.

Summer 2007

MCZ Centrum had bought out Crown, making MCZ/Centrum the sole seller / developer for Sunscape. Roles and responsibilities that had been handled through Crown in California had been moved to various people / departments at MCZ/Centrum in Chicago. Shortly thereafter, Moser was informed that certain heads at Centrum were not comfortable with the Option program currently being offered, and it was just a matter of time before they pulled the plug on it.

Moser threw a fit, he was not happy. The Option program was what he was selling (40+ had already closed). Several contracts had been printed and were out to the buyers, and he believed many more were on the horizon. He didn’t understand why they would go back on their word and not let him continue selling under the program exactly the way it was. He had held many seminars, generated from his (and House 2 Home Lending’s) regular talk radio spot on real estate investing, which aired on Wednesdays at 4:00 p.m. on 1100 KFNX-Phoenix).

Then came all the talk of loan fraud becoming a felony starting in September. The change in events piqued my interest into revisiting my original feeling of this not being legal. Why would they stop something that was obviously selling condos? Why was this program never rolled out at the other Urbis listing? Was it possible it was not as legal as everyone was lead to believe? EQR, new Urbis listing, a publicly traded company would have nothing to do with it.

Would this have anything to do with loan fraud becoming a felony in Arizona?

In mid-August, we were informed that the Option program had ended and we were rolling out a new program — Master Lease, Lease Subsidy, Rent Guarantee — it changed names several times as it was being drawn up. I felt a little bit better about this program at first, because at least the title company knew about it as they’re who connected Cheryl with Noteworld.

When the Rent Guarantee program was rolled out, the only difference was instead of the buyer getting a lump sum payment back from the seller after close of escrow, the lump sum payment was going to Noteworld and they would in turn distribute monthly installments to the buyer for 12 or 18 months depending on the terms.

Sunscape had over 30 resale properties listed for sale on the MLS, some of which had been on the market as long as I had been with Urbis. It was apparent that the developer’s pricing was factored in when setting the resale pricing. The majority priced lower than the sales office advertised price – not a single unit had sold.

The Sales office closed 84 units in 2007 (36 under the Option program, 25 under the Rent Guarantee program, and 23 advertised public program); thelast public deal closed on August 10. Not a single Sunscape re-sale sold despite being priced lower during the same time frame.

Leading me to explore further, I looked at other condo’s in our same zip code. According to MLS data there were 43 comparable condos (non Sunscape) that closed from Oct 1, 2007 – Jan 21, 2008 in zip code 85251. The average price per sq. ft. for a one-bedroom/one-bath/was $168 (ours $244 & $276); the average price per sq. ft. for a two-bedroom/one-bath was $171 (ours $276-$325); and, the average price per sq. ft. for a two-bedroom/two-bath was $163 (ours $289).

Needless to say, Sunscape is showing all of the classic signs outlined in the many articles that I had been reading for the past year. We are the only community in zip code 85251 (probably the entire valley) that didn’t see property values decline over the past year.

The appraisers were not informed that 73% of the 2007 Sunscape closings included a non-disclosed cash back after closing ($18,000 to $40,000) given to the buyer.

I originally thought NONE of the appraisers were aware of the of the program, until I discovered one of the two appraisers sent to Sunscape to do all of the appraisals for House 2 Home Lending purchased a property at Landmark on Central under the program. The Owner of House 2 Home, Mike Low, his son Justin Low, his brother Andy Low purchased several units at Landmark under the program.

The final piece of this horrible puzzle has begun with the foreclosures (three are currently scheduled for trustee sale, which were bought under the original Option program with cash back given back to the buyer after close of escrow).

I understand from everything that I have read that it can sometimes take years for these cases to unfold and difficult to prove. I hope that all of the information that I have compiled over the past year will help in expediting the process and stop this before it goes any further.

Ruth Lamb

When you see rampant mortgage fraud like this being committed by the very professionals that we trust to do the right thing, it becomes very difficult to place faith or trust in our fellow Americans or to trust the systems we have in place to protect us. In this case, the perpetrators are being rewarded, not only with increased commissions from selling properties with inflated values, but we also see the companies they work for rewarding them for their supposed achievements.

Until this stops and we get serious about policing our industry and shutting down the fraud, it will continue to chip away at the very foundation of our industry. It will generate distrust among our clients and potential clients and eventually lead to the demise of the industry on which all of us earn a living and feed our families.

We need to begin to follow this whistleblower’s lead and, like her, have the tenacity to follow through and put the fraudsters out of business for good!

A U.S. District Judge in Florida has sentenced a former mortgage broker to seven years in prison and ordered him to pay more than $2.3 million in restitution for his role in a mortgage fraud scheme that racked up more than $17 million in fraudulently secured loans. Justin D. Barker, 31, of Jacksonville, Florida, who was sentenced earlier this week in the Middle District of Florida, was also ordered to forfeit $4,419,024.15, jointly and independently with other conspirators.

According to court documents, Barker’s scheme operated in 2005 and 2006 when he negotiated the purchase of residential real estate properties, either on behalf of himself personally, on behalf of a company he controlled, or on behalf of a third-party buyer. Barker, his company, or the buyer would then enter into a purchase and sale agreement with the seller of the property in question. Barker then retained a licensed real estate appraiser to appraise the property at a significantly inflated price. The appraiser would appraise the property at the price Barker requested, using inappropriate comparable properties and other fraudulent methods to obtain the price requested.

At the closing on the properties in question (more than 40 in total), Barker or his company would receive the difference between the loan amount, which was based on the inflated appraisal, and the actual purchase price, usually described with terms such as “assignment fee” or “payoff of second mortgage” that did not exist. This difference was the proceeds of the fraud.

During the course of the scheme, fraudulent loans totaling about $17.7 million were obtained on more than 40 properties. These loans would not have been approved but for the fraud. To recover some of these illicit proceeds, the government seized from Barker the following items:

• 2004 Bentley Continental
• 2007 Cadillac Escalade
• 2002 BMW 745Li
• 2005 Chaparral 330 Signature 36′ boat
• 1997 19′ Wellcraft boat
• 2006 and 2001 Yamaha motorcycles
• 2-carat loose diamond
• 1-carat diamond necklace
• .5-carat diamond necklace
• Diamond stud earrings
• Two Movado watches

Barker’s co-conspirator in the case, a title agency manager named Robert W. Hulbert Jr., pleaded guilty to the same charges and was sentenced this past December to three years in prison.

A Dearborn Heights, Michigan, tax accountant has been sentenced serve five years in prison and ordered to pay more than $11 million for his role in a mortgage fraud scam that defrauded lenders nearly $22 million in loses. Kalil Khalil, 36, according to court documents and information released by the United States Attorney for the Eastern District of Michigan, admitted that during a 2½-year period beginning in January 2001, he participated in the preparation of fraudulent loan applications and related documents that were submitted to mortgage lenders. Each of Khalil’s loan packages was fraudulent in one or more of the following ways:

• The purpose of the loan was not to buy or refinance a residence
• The borrower described on the application was not the true borrower
• The description of the borrower’s employment was false
• Documents purporting to substantiate the borrower’s employment (W-2 Forms, check stubs) were bogus
• The appraisal was inflated and forged
• Title to the property was not free and clear
• The title company purporting to guarantee clear title was merely a name used by Khalil and his codefendant, Tariq Hamad, to carry out the scheme
• Photographs were included that depicted a property other than the property identified in the loan application

Many of Khalil’s fraudulently prepared loan packages were approved and the loan proceeds were wired from the mortgage lenders, which were located outside of the State of Michigan, to bank accounts controlled by Khalil and Hamad that were located in metropolitan Detroit in the names of straw title companies. Khalil used most of the fraud proceeds to buy and sell stocks.

In addition to his prison sentence and order to pay approximately $11.1 million restitution to mortgage lenders and a legitimate appraisal company whose name he used on bogus appraisals, Khalil received a three-year term of supervised release following his exit from prison. He also agreed to forfeit his interest in bank and securities accounts containing about $300,000 that were seized by the government as part of its investigation.

Khalil’s codefendant, Tariq Hamad, 37, of Dearborn, pleaded guilty to one count of wire fraud in December 2006 and was sentenced in September 2007 to 9 years’ imprisonment and ordered to pay restitution in the amount of $11.4 million. The judge in the case, U.S. District Judge David M. Lawson, noted that he would have imposed a similar term of imprisonment on Khalil had it not been for Khalil’s substantial cooperation with the government in unrelated investigations being supervised by the U.S. Attorney’s Office.

Some mortgage fraud cases will not be criminally prosecuted!: Amid all the anguish arising from the swelling volume of home foreclosures in and around Stockton, California, there has been much talk about real estate fraud. But most of the complaints cannot be criminally prosecuted, representatives of the San Joaquin County Office of the District Attorney said yesterday.

Foreclosure vultures prey on Portland, Oregon, homeowners: As national foreclosure rates hit their highest levels ever, people calling themselves “foreclosure consultants,” are filling Craigslist, billboards and mailers with offers to “save your home.” Detective Liz Cruthers, who investigates white-collar crimes for the Portland, Oregon, Police Bureau, says she’s spending much of her time learning the intricacies of “mortgage rescue fraud” and chasing down the bad guys.

Utah seeks stiffer penalties for real estate fraud: A Utah legislative committee is recommending the passage of a bill aimed at increasing criminal and civil penalties against people involved in mortgage fraud. The Senate Business and Labor Standing Committee on Tuesday unanimously approved SB134 for further consideration by the state Legislature.

FBI targets mortgage fraud in Hawaii: The FBI has opened multiple mortgage fraud investigations in Hawai’i as a result of the fallout from the nation’s subprime mortgage crisis, the bureau’s director said yesterday. FBI Director Robert S. Mueller III, speaking to reporters on a stopover following a trip to Asia, confirmed the subprime mortgage mess has reached Hawai’i.

Countrywide accused of mortgage fraud: Already burned in the subprime mortgage meltdown, lending giant Countrywide Financial Corp. is now under investigation in Florida for possible unfair and deceptive trade practices, state officials said Thursday. Officials say they have received more than 150 formal complaints about Countrywide since setting up a mortgage fraud hotline last year.

Arrest made in Erie, Pennsylvania, real estate fraud case: A key figure in an ongoing federal investigation into suspected mortgage fraud in the city of Erie, Pennsylvania, will plead guilty to fraud and money-laundering charges. The U.S. Attorney’s Office in Erie on Thursday filed criminal charges against Frank Kartesz II. Kartesz, 39, is accused of one count each of mail fraud and criminal conspiracy to commit mail fraud, wire fraud and bank fraud. The government alleges he was part of a scheme in which he and others bought run-down houses and sold them at artificially inflated prices. Most of the buyers were low-income people who knew little about the home-buying process.

Illinois mortgage broker in jail for selling credit histories: Homeowners already worried about with a slumping real estate market and tighter restrictions on home loans should look to the case of an Illinois mortgage broker as another cautionary tale.

Georgia real estate appraiser sentenced to prison for mortgage fraud: After submitting fraudulent appraisals on incomplete houses as part of a mortgage fraud scheme, a Georgia real estate appraiser has been sentenced to prison.

A U.S. District Judge in Georgia has sentenced a Decatur, Georgia real estate appraiser for his role in a multi-million dollar scheme to defraud mortgage lenders through fraudulent appraisals that reflected completed construction. Darryl Cooper, 27, received a one year, six month sentence in federal prison to be followed by three years of supervised release, and was ordered to pay restitution in an amount equal to that which he stole–$4.7 million.

According to the U.S. Attorney for the Northern District of Georgia, Cooper’s sentence was reduced substantially due to his cooperation in the investigation. Cooper pleaded guilty in November of last year on a charge of mortgage fraud conspiracy. Cooper’s appraisals supported fraudulent loans for purchases in the names of so-called out-of state investors of incomplete homes from builder and coconspirator Jeffery Teague, who in October of last year was sentenced to serve nearly 16 years in jail and was ordered to pay more than $7.5 million in restitution.

Cooper was recruited by Teague, who ran a company called Value Homes Ltd., to prepare fraudulent appraisals reflecting photographs and $5 million in appraisal valuations for 15 completed houses in the Greenleaf subdivision of Forsyth County, Georgia, when Teague had clearly not completed the construction of those homes. A California lender relied on Cooper’s fraudulent appraisals, which reflected completed construction, to make the $4.7 million in loans. Many of the borrower/purchasers from California, New York and Florida also relied on the Cooper’s appraisals, rather than inspecting the properties before closing on their loans.

While Georgia’s reported fraud cases dropped significantly through the first quarter of 2006 (compared to the same quarter in 2005), the state’s real estate and mortgage fraud woes are well documented. Georgia was the undisputed leader in fraud rates from 2002 through 2005, and continues to rank in the top five of virtually every major fraud index, and has an increasingly high number of foreclosures–which as everyone should know by now is caused in-part by real estate and mortgage fraud.

A Denver, Colorado Grand Jury returned a 62-count indictment late last week against a man accused of scamming scores of investors who bought troubled properties and were later forced into foreclosure. Kenneth Germain, born December 12, 1943, is charged with one count of violating the Colorado Organized Crime Control Act, one count of theft, and 60 counts of securities fraud.

From Shawn Patrick at 9News.com:

Prosecutors say Germain scammed dozens of people into buying foreclosed properties from the U.S. Department of Housing and Urban Development and then kept the money for his own benefit. An arrest warrant has been issued for Germain and the Denver District Attorney’s Office says he has made arrangements to turn himself in to authorities in the next few days.

The indictment lists 60 victims with 167 properties involved in the alleged scam. Among the victims is Lisa Downing, owner of Vision Quest Entertainment, a local talent agency. Downing says her life savings and her son’s college savings are now gone, while her credit is ruined.

“I can’t get a loan. I may never be able to get a loan as long as I live,” said Downing. Downing figures she owes more than $2.5 million in loans for nine properties she bought across the metro area. Downing is not only experiencing financial heartache, but emotional stress since the investigation began 15 months ago.

“I was suicidal. My life was over,” said Downing.

Investigators say Germain acted as a property manager for a company he ran known as EQ Invest. The indictment alleges Germain promised investors he would fix up the foreclosed homes, and eventually rent them to suitable tenants, after investors put down 5 percent. Prosecutors say Germain also pledged to make the mortgage payments until selling the properties. Instead, investigators say Germain left his co-investors with the bills.

Downing claims the homes were overvalued in appraisals by anywhere between $40,000 and $90,000.

According to the indictment, Germain pocketed the money to pay for taxes, his personal mortgage payments and to spend at liquor stores.

Downing shakes her head in disgust when talking about Germain profiting from her life’s savings. “I worked so hard, raised my son as a single mom, built a savings to put him through college, and it was over. I don’t have the energy to rebuild it again,” said Downing. Still, Downing says she is lucky to be able to pay part of what she owes to try and save her credit, knowing other victims have lost their retirement savings and more. Many have defaulted with foreclosures on their records, and their credit, like Downing is now ruined.

“People have been divorced, they’ve become sick during this, it’s just unbelievable ruin,” said Downing.

Germain’s business affairs were run through other companies as well, including:

While promoting the real estate sales to the investors, he made the following material misrepresentations:

1. That he had never been sued: He had!
2. That he had never declared bankruptcy: He did!
3. That he had never taken money from the company: He did!
4. That he would repair the properties: He didn’t!
5. That he would make the mortgage payments, regardless of whether the properties were generating rent: He stopped making payments in August of 2006!
6. That he would enroll rental tenants in a program that would make them credit worthy so that they could buy the properties they were renting: This never happened!

Click here to read the entire indictment against Germain.

• Nightmare on Highbury Court: A dispute over bricks led to bankruptcy, eviction, jail and fractured lives; first of two parts. Life was good for Roland and Marie Dreilich in the summer of 1999. In their mid-30s at the time, they’d already purchased two homes, taking advantage of the booming real estate market of the 1990s to acquire equity and move up the housing ladder.
• Real estate lawyers asleep at the fee switch: Most puzzlingly of all, is the fact that real estate fraud is actually less prevalent today, than it was when Bill 152 was a glint in the McGinty government’s eyes. Over the past two years, lawyers and title insurers have put into place far more stringent controls and fraud has declined accordingly.
• Mortgage meltdown linked to fraud: The desire to make a “quick buck,” along with extremely lax lending practices, are considered to be among the chief reasons for the recent decline in the nationwide mortgage and housing markets, according to a Utah title company executive.
• Grandview man gets one year for mortgage fraud: The second of three defendants in the mortgage fraud scheme involving former Kansas City Councilwoman Saundra McFadden-Weaver was sentenced Thursday to one year in federal prison. Ricky Hamilton, 53, of Grandview, also was ordered by U.S. Chief District Judge Fernando Gaitan of the Western District of Missouri to pay $144,234 in restitution.
• Stock Market & Stocks: Fraud a Major Concern as Economy Worsens: The people who pay the price for Wall Street abuse need to know what to do if they have been victims of Wall Street or mortgage fraud and abuse, what to do to protect themselves so they can live now, sustain and grow for a secure future, and other steps they can take to best prepare for what we believe is the inevitable recession.
• FBI Launc