A Phoenix mortgage broker has been convicted on 10 charges of fraud for scamming some homeowners into filing bogus foreclosure paperwork.

Maricopa County prosecutors say 52-year-old Edward L. Carpenter was found guilty by a jury Wednesday after a six-day trial. He faces an Oct. 7 sentencing.

Authorities say Carpenter contacted homeowners and claimed he ran a “mortgage elimination” business that could legally remove their names from their mortgages, giving them free and clear ownership of the properties.

They say Carpenter charged upfront fees of $1,000 or more and got the homeowners to file fraudulent foreclosure paperwork with the Maricopa County Recorder’s Office.

The filings were designed to cloud the title, confuse title companies and cause mortgage companies to fund loans. Prosecutors say Carpenter received more than $257,000 in illegal proceeds from the scheme.

One of Franklin County’s largest mortgage-fraud cases went before a judge Monday.

NBC 4 reported with the FAST FACTS from Franklin County Prosecutor Ron O’Brien.

O’Brien said John Wanek of Phoenix, Ariz., pleaded guilty to engaging in a pattern of corrupt activity that led to more than $38 million worth of mortgage fraud in Franklin County.

In Monday’s hearing, John Wanek admitted to multiple counts of theft, falsification, money laundering and telecommunications fraud.

Prosecutors say, in 2002, Wanek provided Merrill Lynch false and inflated financial information and inflated occupancy information to fraudulently obtain loans totaling $15,500,000 for two apartment complexes in Franklin County: Colonial Village and Ashberry Village.

Between 2005 and 2006, Wanek orchestrated a similar fraud on another lender, CIBC, Inc., obtaining $23,100,000 in loans to acquire four more properties in Franklin County: Hamilton Arms, Olde Cape Colony, Woodcrest, and Greene Countrie, as well as a property in Indianapolis.

In order to determine the amount of loans to be made, both lenders relied upon the false financial and rental information to determine the value of the properties.

The prosecutor’s office says the false information caused the property values to be substantially overstated. Additionally, the lenders would not have gone through with the loans if they had known the information supplied to them was fraudulent.

Wanek also is accused of secretly diverting hundreds of thousands of dollars of loan proceeds to himself between 2006 and 2008.

At the same time, the prosecutor’s office says the properties were going into decline, contractors were not being paid for their work and materials, utilities were being shut off, and payroll checks for employees were bouncing. All of the properties have since gone into foreclosure.

Wanek was charged in March of 2009 in a 33-count indictment, and was set to begin his trial Monday, Aug. 16th. Instead, he entered a guilty plea for eight counts.

He was expected to be sentenced in a couple weeks and faces a maximum sentence exceeding 50 years.

By Lauren Schmoll

Prosecutors Believe Mortgage Fraud Is Responsible For Many Foreclosures

Many Valley families are losing their homes and their good credit scores as victims of mortgage fraud.

A CBS 5 News investigation reveals banks are doing little to help the victims.

Prosecutors believe mortgage fraud is responsible for a large portion of the foreclosures seen across the Valley. “We’re indicting more people than we ever have in the past,” said U.S. Attorney Dennis Burke, who is in charge of enforcing laws against mortgage-related fraud.

“We’ve indicted 50 people since March,” added Burke.

Sean Miller lost all of his savings — trying to save his home — and with a foreclosure on his record, his credit is shot. Burke’s office indicted the man who sold Miller his home, but Miller said the banks gave him no sympathy as a crime victim.

“I tried working with hem, but they would just not hear it,” said Miller.

Marge Peck, Miller’s realtor, tried to short-sell the house but said the bank refused to cooperate - even turning down good offers. “”Sean should not have a foreclosure, a foreclosure on a fraudulent loan. How does that happen?” asked Peck.

Miller’s home was supposed to be an investment, sold to him by a so-called friend. But the sale price was inflated by about $75,000. The scheme involved the seller, loan officer, and appraiser conspiring to make money, according to Burke’s office.

“Everybody involved in this knew there had been fraud and they didn’t care,” Peck said about the banks.

The indictment against the people involved in Miller’s case shows a total of 36-properties that were sold at inflated prices, in some cases to unsuspecting buyers.

Burke said he believes the banks should give some leeway to victims of mortgage fraud - to keep them from being victimized again.

“I think there needs to be protections for those folks, and I think that’s what the banks need to be doing,” Burke said. “There are some very sympathetic victims here, but there are also folks who were part of the scams and there were people who should have known better,” he added.

Miller cooperated with investigators, helping to catch the suspects, and held onto his house for years - before finally losing it. “I tried for almost five years to hang onto it,” he said.

“Potentially, people can go to jail for this crime, serve their sentence, get out…and still the victims have no credit,” Miller said.

SCOTTSDALE, AZ - A Scottsdale Realtor has been found guilty of filling out bogus loan applications while cashing in on homes headed for foreclosure.

Kimberly Werking, 44, pleaded guilty to forgery and fraudulent schemes. A Superior Court judge sentenced her to three years probation and a $50,000 fine.

Werking was originally charged with 18 counts of forgery, fraudulent schemes, money laundering and mortgage fraud. According to court records, Werking was skimming more than $1 million in equity from homes through the refinance process, and, once no more money could be pulled out of the properties, the homes were allowed to go into foreclosure.

Prosecutors said Werking also collected $450,000 in real estate commissions through the homes purchased.

Martin McDonald lives in the Scottsdale community where Werking’s criminal activity took place.

“This neighborhood has sustained a 50 percent decrease in price value,” said Martin McDonald, who lives in the Scottsdale community where Werking’s activity took place.

“A lot of people have lost money. Their credit? Gone. Bankruptcy? Filed,” said McDonald, who said he thinks the punishment for Werking seemed light and sends the wrong message.

“For me, it doesn’t send a message at all. It seems like the punishment doesn’t fit the crime,” said McDonald. “It seemed like they went through a lot of expense and time, and the results were like a slap on the hand.”

CBS 5 News stopped by a Phoenix home where Werking is believed to be living, to get her side of the story, but was told to go away.

Prosecutors said there are a lot of other mortgage fraud cases much worse than this one.

A spokesperson for the Arizona Attorney General’s Office said the final sentencing decision was made by a Superior Court judge.

PHOENIX—April J. Lucero, 46, of Phoenix, Ariz. was sentenced on May 10, 2010 to two years in prison for her conviction in August 2009 for her involvement in a mortgage fraud scheme in Phoenix, Ariz. Lucero pleaded guilty to one count of Conspiracy to Commit Mail, Wire and Bank Fraud, a felony, related to her participation in a two year conspiracy involving the purchase of 37 properties using fraudulent loan documents. Seven other co-conspirators were also charged and have pleaded guilty for their involvement in the conspiracy.

“Lucero worked the system by conspiring with home loan straw buyers who had no intention of ever taking up residence,” said Dennis K. Burke. “This type of fraud scheme undermined the Valley housing market leading up to its collapse.”

The case against Lucero was based on an investigation by the FBI, which indicated that from 2005 through March 2007 she conspired to commit mortgage fraud in Phoenix. Lucero fraudulently submitted mortgage loan applications, on behalf of straw buyers, under false pretenses, obtaining and disbursing the proceeds of fraudulently obtained loans, including directing portions of the proceeds in the amount of $735,000 to a bank account in Lucero’s control. Lucero used her skill as a loan officer to prepare the mortgage loan applications for a borrower misrepresenting salary, assets and liabilities. Lucero used the proceeds from the fraud for personal expenses. Lucero received a lesser sentence due to her early guilty plea and cooperation. The entire conspiracy resulted in a loss to lending institutions of approximately $9.5 million.

The investigation in this case was conducted by the FBI. The prosecution is being handled by Kevin M. Rapp and Charles W. Galbraith Assistant U.S. Attorneys, District of Arizona, Phoenix.

Press Releases | Phoenix Home

2 High Ranking Officers Accused Of Scamming People Out Of Homes, Money

PHOENIX — Phoenix Lieutenants Lee Brent Shaw and Mark Tallman are facing multiple investigations in connection with their involvement in a company called , a company that customers have claimed preys on people desperate to stay in their homes before scamming them out of the little money they have left.

Sheree Stevens rents a Scottsdale home with her two daughters. She says she lost her previous home and much more due to people she calls scum — people with badges who she said should know better.

“I was drowning and I was just grabbing at anything to save my family,” said Stevens.

Stevens said she and her husband Roy started a business that drug down their finances and caused them to get behind on their mortgage. She said It wasn’t long before a company named Taken Care Of Investments called offering her help.

“They are very smooth talkers. They’re salesmen,” said Stevens.

She said the company offered her a deal known as a quit claim, where Taken Care Of Investments agreed to take care of her late payments, take over her deed, and allow her to buy back her home at any time for $15,000.

“We were trying to build a business and I was trying to save the house so we could have, basically, the American Dream,” said Stevens.

At the end of her agreement, however, Stevens said she was slapped with trumped up fees and a bill $63,000 higher than the agreed upon price. When she refused to pay, Taken Care Of Investments, now working in conjunction with Better Choice Investments and Blue Islands LLC, threatened to seize her home.

“I was stuck and they did that on purpose. They dragged it out and did that on purpose,” said Stevens.

Stevens is not alone in feeling scammed. This group of companies has been named in multiple lawsuits claiming fraud and misrepresentation, even “evil intent” to rip people from their homes and money.

According to legal documents and CBS5 sources, Two men with controlling interest in Better Choice Investments — Phoenix Police Lts.Lee Brent Shaw and Mark Tallman.

“I was ashamed. I was embarrassed. I was furious. And to find out they were policemen, these are the people that are supposed to protect us, and this is what they do?” said Stevens.

Stevens said she paid the bill to try and save her house, but the following debt proved too much for her husband Roy, who killed himself last September.

“This created a lot of stress that he just couldn’t deal with anymore, so you see how I feel guilty,” said Stevens.

When Roy died, Stevens allowed the house to foreclose — and on Christmas day — the 43-year-old woman suffered a major heart attack. She said she blames herself for her loss, but doesn’t want anyone else to fall victim to this deception.

“I literally have no empathy for those police officers. I really hope they go to jail and become somebody’s girlfriend. Sorry,” said Stevens.

Both Shaw and Tallman refused to comment to CBS 5 News. Sources close to the case who didn’t want to be identified tell CBS 5 News the two officers are being investigated internally in the department and civilly by the Attorney General’s office. As of Friday night, both officers are still on the force.

Pat McReynolds

A lot of blame for the housing crisis that helped drive our nation into a financial crisis has been heaped on “greedy” bankers and home buyers trying to live beyond their means.

But there was another element that should not be forgotten - and that was outright criminal activity.

A recent Arizona case demonstrates the lengths that were taken by some to cheat bankers and others in order to fill the pockets of criminals with money.

The case involves five Arizona men who were convicted and sentenced for mortgage fraud involving millions of dollars. One of the ringleaders was sentenced to 62 months in prison. Others received lesser sentences based on their degree of involvement and cooperation in the case.

The scheme was rather involved. First, the rights to land was obtained which was then sold to accomplices at highly inflated prices. Fraudulent bank loan applications were then prepared and then cash kickbacks would be given to the buyers after the loans were approved. At each critical stage leading up to the loan, a “player” in the fraud was involved to disguise what was happening.

Eventually, the properties went into foreclosure and the banks lost over $1 million.

This is but one incident among the many shady dealings that went on during the “go-go” years of the housing boom. Only now is some accountability starting to be seen as part of a federal initiative called “Operation Cash Back.”

So far 49 people have been convicted after guilty pleas or trials in federal courts. Unfortunately, that only represents a small part of the fraudulent dealings that went on in the mortgage industry in past years. Unfortunately, these are complicated cases which are difficult to investigate and try.

But whatever the number convicted, there is some satisfaction that justice is finally being done.

Perhaps a more appropriate name for the fraud program might be “Operation Pay Back,” reflecting the prison sentences that are being handed out in repayment for what these individuals did to contribute to the economic collapse that has hurt so many people.

U.S. Attorney General Eric Holder delivered more resources to fight mortgage fraud in Arizona and across the nation Thursday, saying $8 million will be used to beef up investigation teams this spring.

Holder made the announcement during a break in a daylong meeting of the federal Financial Fraud Enforcement Task Force, which was created to coordinate efforts to battle fraud by local, state and federal law enforcement agencies. The money included $1.7 million for efforts in Arizona, one of the states hardest hit by mortgage crimes.

Task force members were in Phoenix to hear about emerging trends in mortgage fraud from professionals who work in the real estate and mortgage industry, and community organizers and lawyers who help homeowners struggling to keep their homes. Members include senior Justice Department prosecutors, FBI officials and officials with the Department of Housing and Urban Development.

Advanced technologies, new communication tools and top federal law enforcement officials are focused on preventing, prosecuting and punishing mortgage fraud, Holder said.

“We will use information gained here in Phoenix — and in other epicenters of mortgage fraud — to focus and strengthen our law enforcement activities,” Holder said. “Mortgage fraud schemes must be stopped in their tracks, and those willing to exploit our national financial crisis for personal gain will be brought to justice.”

Real estate professionals who briefed task force members outlined new and emerging fraud trends, including the “flopping” of short-sale properties.

That’s a technique where someone gets two price opinions from brokers, giving the low one to the bank arranging a short sale of a home nearing foreclosure and the high one to a potential buyer, said Holly Eslinger, president of the Arizona Association of Realtors.

Such techniques can net an unscrupulous buyer tens of thousands of dollars while shorting the bank and homeowner and taking advantage of the subsequent buyer, she said.

A real estate professional for more than 30 years, Eslinger said what’s happening now isn’t new or unique. She said similar scams cropped up in the late 1980s, the last time the nation saw a huge price collapse and wave of foreclosures.

“When people get in trouble there is always someone to take advantage of them,” Eslinger said.

Other professionals urged increased scrutiny of valuation reports done by non-appraisers and loan modification schemes that prey on the most vulnerable homeowners.

Ben Wagner, a task force member who is the U.S. attorney for central California, said different parts of the country are seeing different kinds of fraud.

“It’s kind of a moving target depending on the market,” he said. “Obviously this crisis is not something that we are going to be able to prosecute our way out of, but it is one part of the solution.”

Between December 2005 and March 2007, Mario Bernadel and seven accomplices purchased nearly 40 properties in the Phoenix area. What appeared to be a legitimate real-estate venture was instead an illegal scheme that resulted in losses totaling $9.5 million.

Bernadel and his cohorts submitted false mortgage-loan applications, used fake “straw buyers,” and directed the proceeds of their illegal scheme into bank accounts they controlled. Bernadel used his share of the money to support a lavish lifestyle, buying luxury vehicles and nights on the town at local nightclubs. Last week, the U.S. Attorney’s Office in Phoenix obtained a 17-year prison term for Bernadel, putting him out of business.

Stories like Bernadel’s have become common in recent years. Although signs of economic recovery are starting to appear, we know many Americans are still coping with the fallout of the housing crisis. That is why President Barack Obama established the Financial Fraud Enforcement Task Force, a broad coalition of federal, state and local law-enforcement agencies focused on combating fraud and protecting American families. Officials will work together to investigate and prosecute the types of financial wrongdoing that helped create our current economic crisis and that continue to hurt working families.

A central focus of the task force is mortgage fraud. While this problem transcends city and state lines, Phoenix has been hit especially hard. According to a study conducted at Arizona State University, the Phoenix area set a new record for foreclosures in 2009. In February 2010, Phoenix suffered foreclosures on 3,300 homes, and foreclosure-related activity represented 65 percent of sales last month. That’s why those of us on the task force and its chairman, Attorney General Eric Holder, met in Phoenix recently. We listened to community members who have suffered at the hands of con artists, to leaders in real estate who are trying to rid their industry of the cancer of fraud, and to state and local law enforcement responsible for fighting schemes designed to take advantage of honest Americans. Not only did we listen, we shared strategies and considered several solutions.

Attorney General Holder also announced that new investments included in the FY 2010 budget will soon be distributed to combat mortgage fraud. This spring, nearly $8 million will be allocated for this work, including $1.7 million to Arizona.

This event was the second of several summits the task force is hosting this year. Next month, we will hold a similar event in Detroit. The task force will use the information we learn to bring justice to those who see today’s climate as something to exploit for personal gain.

The task force intends to send a message to all would-be fraudsters: If you commit mortgage fraud, you will be punished. It also has a message to Americans who face the effects of the housing crisis every day: We will stand by you to protect what you have worked so hard to build.

Tony West is the assistant attorney general for the Civil Division of the U.S. Justice Department.

A $120,000 settlement has been reached with multiple Tucson defendants for their roles in what state Attorney General Terry Goddard called a fraudulent real estate scheme.

Those agreeing to the settlement included Andrew T. Silverstein, VinLan Ventures doing business as Re/Max All Executives, and Vincent Volpe. They must pay $84,000 toward restitution and $36,000 to the attorney general’s Consumer Fraud Revolving Fund.

The agreement follows a $60,000 settlement earlier this year in the same case against four other defendants: Tucson Mortgage Co., WGA Enterprises LLC and William and Jane Doe Anastopoulos.

According to the attorney general’s report, the scheme involved putting unqualified rent-to-own buyers into investment homes. Eventually many of these homes were foreclosed, causing harm to the investors, lenders and rent-to-own home buyers, according to the attorney general.

Mona Dobben, 70-year-old Arizona resident,  stands up and takes down a 20-billion-dollar Mortgage Company by winning a $100,000.00 judgment which includes punitive damages.

American Home Mortgage (AHM) was found liable for aiding and abetting a fraud perpetrated on Dobben by an unlicensed real estate broker (In Re: American Home Mortgage Holdings, et al.; United States Bankruptcy Court District of Delaware; Case No: 07-11047 (CSS)).

Dobben is represented by Orange County attorney Douglas J. Pettibone who alleges Dobben is victim of loan fraud by an unlicensed real estate broker and convicted felon Patrick Downey. According to Pettibone, Downey stole Dobben’s identity, forged Dobben’s signature and submitted false loan documents to AHM without Dobben’s knowledge.

Trial Judge Christopher Sontchi said, “It shocks the conscious of the court what went on here”.  After Dobben received foreclosure notices from AHM she discovered the fraud and contacted AHM for help who turned a deaf ear and never responded.

AHM then filed Bankruptcy

In the bankruptcy court Dobben claimed AHM aided and abetted the fraud perpetrated upon her by Downey and that her claim against AHM should not be discharged in the AHM bankruptcy.  Pettibone said, “This is a case about standing up for what is right and holding corporate America accountable no matter how big they are or how many attorneys they have”.

Pettibone argued there were a number of red flags that should have given rise to AHM doing something other than blindly accepting forged loan documents by this broker who Pettibone said AHM should not have been dealing with in the first place.

“AHM never responded to Dobben’s pleas for help,” according to Pettibone, “Instead they foreclosed on the property and ruined Dobben’s credit”.

Judge Sontchi found AHM had given Dobben the run around when she was alerting AHM to the fraud and attempting to get AHM to stop foreclosure on the property.

AHM claimed, in part, they were not liable because prior to filing bankruptcy AHM had transferred its interests and servicing rights to Dobben’s loan to another entity.  “A shell game,” Pettibone said.

Judge Sonchi agreed, “I really find [AHM's] argument just too clever by half. They wanted to separate out these different pieces and legal entities and assume Ms. Dobben can figure it out.”  In the end Judge Sontchi awarded actual damages of $32,000.00.

However given Dobben’s deteriorating credit score and the clear emotional distress displayed in the courtroom, the court granted her treble damages. The total award was a judgment in the amount of $100,000.00.

Following the trial AHM immediately appealed the judgment. The appeal is currently pending.

Just When You Thought it was Safe to go into the Water

This is not a follow-up story about hurricane Katrina.

One out every three home owners today in America is drowning.  According to Mark Fleming, chief economist for First American CoreLogic, more than 15.2 million U.S. mortgages, or 32.2% of all mortgaged properties, were in a negative-equity position on June 30, edging down from 32.5% at the end of March, according to the real-estate information company, which tracks data on about 90% of mortgage loans nationwide.

The combined total property value for loans in 2008 in a negative-equity position was $3.4 trillion, according to the report.  Negative equity can occur because of a decline in property value, an increase in mortgage debt or a combination of both. Equity levels are important to people who can’t make their mortgage payment since it affects their ability to sell or refinance.

“The slight drop from 2008 to the figures of 2009’s first 2 quarters in the portion of under-water loans reflects the recent flattening of home price changes, which is “great news” for the housing market as negative equity has been increasing for a number of periods,” Fleming said.

Still, he stressed that this decrease is a quarterly comparison and not the yearly comparison typically used in house prices.

Negative equity is a strong driver of foreclosures, Fleming said, and the stunted growth rate in the second quarter is a positive sign that foreclosures may moderate in the future. First American CoreLogic made “very crude” estimates that the foreclosure rate will peak a bit higher than 4% in early 2010, he said.

Is there Regional competition to be in Second Place?

According to business columnists in Arizona and Florida, they both report that their state has the number two spot sewn up for the most homes under water with negative-equity mortgages.

According to Jan Bucholz of the Phoenix Business Journal, her headline read:

“Arizona second in underwater loans”

On the other coast of the United States, the South Florida Business Journal with a statistical quote from CoreLogic posts the following headline:

“Florida No. 2 in mortgages under water”

For the sake of preventing another Civil War, let’s call it a tie.  We’ll look at the raw figures in a moment.  For right now, here is a look at what everyone agrees on:

The number one state leading the country in under water (negative-equity) mortgages is Nevada where 65 percent of homeowners have negative equity in their homes. (I still am quoting data from First American CoreLogic, based in Santa Ana, Calif.)

The percentage difference between the two states “coveting” the number two position, Arizona and Florida, is a fraction between 49% and 48% respectively.

Fourth on the list of under water mortgages is Michigan with California rounding out the top five.

Can anyone say:  Tsunami?

Nationwide, we have one-third of all mortgages in an “under water” position with a total property value for loans at $3.4 trillion. California led states with $969 billion, followed by Florida with $432 billion, New Jersey and Illinois each with $146 billion and Arizona with $140 billion.

Looked at by city, Los Angeles topped the list with more than $310 billion of total property value under water, followed by New York with $183 billion, Miami with $152 billion, Washington with $149 billion and Chicago with $134 billion, according to CoreLogic.

Image by robotography via Flickr

Dustin Thompson, 30, and Sean McLaughlin, 29, were indicted on April 8, 2009, on four counts of Wire Fraud and one count of Conspiracy to Commit Wire Fraud as a result of their involvement in a cash back at closing mortgage fraud scheme in Arizona. Thompson was arrested on March 13, 2009 in Las Vegas on a criminal complaint and has been detained pending trial. McLaughlin received a summons to appear in federal court on the charges.

The case against the pair is based on an investigation which alleges that from October 19, 2005, through June 5, 2007, they conspired to commit mortgage fraud in the Phoenix area. Thompson and McLaughlin submitted mortgage loan applications on behalf of buyers, that included friends and family members, containing false information. Following the funding of the loans, Thompson and McLaughlin received cash back at closing that they used for personal expenses and to perpetuate the scheme. Most of the homes purchased during the conspiracy have since foreclosed.

A conviction for each count of Wire Fraud and Conspiracy to Commit Wire Fraud is punishable by a maximum term of 30 years in prison, a $1,000,000 fine or both. The investigation in this case was conducted by the Federal Bureau of Investigation and the Internal Revenue Service, Criminal Investigation Division. The prosecution is being handled by Kevin M. Rapp, Assistant U.S. Attorney, District of Arizona, Phoenix.

More Americans are facing foreclosure than at any other time in recent memory. According to the May 2008 U.S. Foreclosure Market Report™ from RealtyTrac, foreclosure filings (i.e., default notices, auction sale notices, and bank repossessions), were reported on 261,255 properties during the month of May, which translates into a 7% increase over April and a 48% increase from May 2007. The report also shows one (1) in every 483 U.S. households received a foreclosure filing during the month of May, the highest monthly foreclosure rate since RealtyTrac began issuing its report in 2005.

Nevada, California, and Arizona post top state foreclosure rates

With one in every 118 households receiving a foreclosure filing in May, Nevada posted the highest state foreclosure rate for the 17th consecutive month. Foreclosure filings were reported on a total of 9,009 Nevada properties, an increase of nearly 24% from the previous month and a 72% increase from May 2007.

California’s foreclosure activity in May increased 11% from the previous month and 81% from May 2007, helping the state continue to register the nation’s second highest state foreclosure rate. One (1) in every 183 California households received a foreclosure filing during the month of May, a rate that was 2.6 times the national average.

Arizona’s May foreclosure rate — 1 in every 201 households received a foreclosure filing during the month — ranked third highest in the U.S. for the second month in a row. Arizona’s foreclosure activity increased nearly 12% from the previous month and almost 119% from May 2007.

One in every 228 Florida households received a foreclosure filing in May, giving it the fourth highest foreclosure rate in the country. Michigan foreclosure activity in May increased nearly 25% from the previous month, helping the state’s foreclosure rate to jump to fifth highest in the country after ranking No. 9 the previous month. One in every 353 Michigan households received a foreclosure filing in May.

Other states with foreclosure rates ranking among the top 10 for the month of May were Georgia, Colorado, Massachusetts, Ohio and New Jersey.

Detailed state-by-state data is available here.

For the second month in a row, California and Florida cities accounted for nine out of the top 10 metropolitan foreclosure rates among the 230 metropolitan areas tracked in the report. Seven cities in California were in the top 10, led by Stockton in the top spot. One in every 75 Stockton area households received a foreclosure filing in May– more than six times the national average. Other California cities in the top 10 were Merced at No. 3, Modesto at No. 4, Riverside-San Bernardino at No. 5, Vallejo-Fairfield at No. 7, Bakersfield at No. 8, and Sacramento at No. 9.

The Cape Coral-Fort Myers metro area in Florida registered the second highest metro foreclosure rate in May, with one in every 79 households receiving a foreclosure filing during the month. The other Florida metro area in the top 10 was Port Lucie-Fort Pierce at No. 10.

Las Vegas was the only city outside of California and Florida with a foreclosure rate ranking among the top 10. One in every 96 Las Vegas households received a foreclosure filing in May, more than five times the national average and No. 6 among the metro areas.

Metro areas with foreclosure rates among the top 20 included Phoenix at No. 12, Detroit at No. 14, San Diego at No. 17 and Miami at No. 19.

Next up: Speculation about when the slide will end / have we seen the worst of the worst. Weighing in on the topic is Joe G. Henry of Long & Foster-affiliated W.C & A.N Miller Realtors in Virginia (comment found on ForeclosurePulse):

Defendable recovery will be 2011 due to the highest volume of ARM resets occurring in June 2008 and the typical foreclosure process lasts 12 months from Notice of Default, Notice of Trustee Sale, Foreclosure Auction, then seasoning to a Bank Owned (REO) — plus a 15-18 month housing inventory. Moreover, for every one bank-owned listing in Fairfax County, we have three short sales, which 80 percent of these will actually be foreclosed. There are three crisis response talking points concerning this scenario: (1) added liquidity; (2) mark down distressed assets; and (3) act now.

What’s your take? Do you agree with Joe G. Henry or do you have a theory of your own?

If you are interested in the federal government’s handling of real estate and mortgage fraud prevention and prosecution, read “FBI Halts Some Cases to Investigate Mortgage Frauds,” by Bloomberg’s Robert Schmidt. If you don’t have time to read the entire article, here’s just what you need to know:

• The FBI, confronting a surge in mortgage fraud, has ordered more than two dozen of its field offices to stop probing certain financial crimes so agents can focus on real estate and mortgage fraud.
• Kenneth Kaiser, chief of the bureau’s criminal investigative division, issued this directive late last week on a video conference call with the heads of 26 FBI offices in areas where real estate fraud is out of control.
• An FBI spokesperson said the shift was made after an analysis of how agents are spending their time. Approximately 150 FBI agents were working on more than 1,300 real estate fraud cases before the directive was issued.
• The 26 FBI field offices were told to temporarily suspend opening new cases dealing with price fixing, mass marketing, wire fraud, mail fraud and environmental crimes. Current cases aren’t being dropped, the FBI spokesperson said.
• FBI field offices in Florida, Georgia, California, Nevada, Arizona, Texas, New York, Ohio, Michigan, Illinois, Indiana and Minnesota–all rated as real estate and mortgage fraud hot spots–are participating.
• “Diverting FBI resources to deal with cases of mortgage fraud is exactly what Chairwoman Mikulski wants to avoid,” Melissa Schwartz, a spokeswoman for U.S. Senator Barbara Mikulski, who heads the appropriations subcommittee for the FBI, told Bloomberg late yesterday.
• The Attorney General of the United States, Michael Mukasey said last week that the Justice Department, the FBI’s parent agency, “won’t create a national task force to combat mortgage fraud as the government did with corporate crime after Enron. “This isn’t that kind of phenomenon,” he said.

For more on this developing story, read FBI Halts Some Cases to Investigate Mortgage Frauds.

The latest foreclosure statistics from RealtyTrac are out, and the news isn’t very good. According to the Q1 2008 U.S. Foreclosure Market Report, which tracks foreclosure filings (including default notices, auction sale notices and bank repossessions), 649,917 properties were foreclosed upon during the first quarter of the year, a 23% increase from the previous quarter and a 112% increase from the first quarter of 2007. The report also shows that one (1) in every 194 U.S. households received a foreclosure filing during the quarter.

Foreclosure activity in the quarter increased on a year-over-year basis in 46 out of the 50 states and in 90 of the nation’s 100 largest metro areas, demonstrating that most regions of the country are seeing more foreclosures. In some areas there are also some unusual, non-market factors impacting the foreclosure numbers. For example, the city of Philadelphia in late March issued a temporary moratorium on all foreclosure auctions for April, and the city has since adopted a program that will delay foreclosure proceedings on owner-occupied properties until the owners have met face-to-face with lenders to attempt a loan workout plan that would prevent foreclosure.

While programs like those in Philadelphia are certain to have a positive long-term impact, they could be simply deferring another flood of foreclosures, and that could extend the length of time it takes the market to recover from the current downward cycle, in which we’ve already seen seven consecutive quarters of increasing foreclosure activity.

Click on the map to the left for a close up view of exactly where foreclosure-related activity is playing out across the United States. As you’ll see, one (1) in every 54 Nevada households received a foreclosure filing during the first quarter, the highest foreclosure rate in the nation and 3.6 times the national average. Foreclosure filings were reported on 19,595 Nevada properties during the quarter, up 3% from the previous quarter and up 137% from the first quarter of 2007.

Foreclosure filings were reported on 169,831 California properties during the first quarter, the highest total in the nation at a rate of one (1) in every 78 households — the nation’s second highest foreclosure rate. Foreclosure activity in California increased 32% from the previous quarter and was up nearly 213% from the first quarter of 2007.

Arizona documented the nation’s third highest state foreclosure rate, with one (1) in every 95 households receiving a foreclosure filing during the quarter. Foreclosure filings were reported on 27,404 Arizona properties during the quarter, up 45% from the previous quarter and up nearly 245% from the first quarter of 2007.

Foreclosure filings were reported on 87,893 Florida properties during the first quarter, the second highest state total and giving Florida the nation’s 4th highest foreclosure rate — one (1) in every 97 households received a foreclosure filing during the quarter. Foreclosure activity in the state was up 17% from the previous quarter and up 178% from the first quarter of 2007.

Colorado foreclosure activity increased 33% from the previous quarter and 78% from the first quarter of 2007, and the state’s foreclosure rate ranked No. 5 among the states. Foreclosure filings were reported on 18,996 Colorado properties during the quarter, a rate of one in every 110 households.

Other states with foreclosure rates among the top 10 were Georgia, Michigan, Ohio, Massachusetts and Connecticut.

Back at the beginning of February, Arizona Attorney General Terry Goddard said the mortgage industry “needed to reach out to more homeowners at risk of foreclosure if the nation’s housing crisis is to be brought under control.” Now, just three months later, Goddard isn’t letting up. Citing a new national report on subprime mortgages, Goddard last week said efforts of servicers and government officials to prevent foreclosures have increased but still fall short of the need to effectively respond to the foreclosure crisis and prevent millions of unnecessary foreclosures. The report, “Analysis of Subprime Mortgage Servicing Performance,” was issued last Tuesday by the State Foreclosure Prevention Working Group, a group of state Attorneys General and banking regulators working to prevent home foreclosures.

Major findings of the report include:

1. Seven out of 10 seriously delinquent borrowers are still not on track for any loss-mitigation outcome. The number of borrowers in loss mitigation has increased, but it has been matched by an increasing number of delinquent loans.
2. Data suggest that servicers’ loss-mitigation departments are severely strained in managing the current workload. The report noted that almost two-thirds of all loss-mitigation efforts started are not completed in the following month.
3. Homeowners who do receive loss-mitigation help are most likely to receive some form of loan modification. The Working Group said such modifications are a solution that seems to offer better long-term prospects for successful resolution of problem loans. Many servicers are replacing their use of repayment plans in favor of loan modifications.

The State Working Group said it believes “more robust approaches to avoid preventable foreclosures are necessary.” The Working Group said servicers, investors and state officials should work together on:

• Developing a more systematic loan work-out system to replace the intensive, individual, “hands-on” loss-mitigation approach. The Group says it continue to work with servicers to promote systematic solutions to modify loans in a more streamlined and efficient manner.
  

• Slowing down the foreclosure process to allow for more work-outs. Targeted efforts to slow down subprime foreclosures may give homeowners and servicers more time to find solutions to avoid foreclosure, the report says. Many states have enacted or are considering such measures, according to the report.

The State Foreclosure Prevention Working Group began as a cooperative dialogue of state officials and mortgage servicers in September of 2007. Since October of 2007, the Working Group has been collecting data from the largest subprime mortgage servicers, with 13 of the largest 20 servicers participating, representing approximately 60% of subprime mortgage loans serviced. The Group is led by representatives of the Attorneys General of 11 states, including Arizona, California, Colorado, Iowa, Illinois, Massachusetts, Michigan, New York, North Carolina, Ohio and Texas); two state banking departments (New York and North Carolina); and the Conference of State Bank Supervisors.

For more info, read Analysis of Subprime Mortgage Servicing Performance (Warning: clicking on the preceding link will download a 30-page PDF file).

The Securities and Exchange Commission (SEC) has charged three people who targeted military families in a multi-million dollar real estate fraud scheme that forced victims into personal bankruptcy and their homes into foreclosure. The scam also targeted other affinity groups, including members of Southern California’s Filipino community and the accused’ fellow church members. James Duncan, Hendrix Montecastro, and Maurice McLeod stand accused of soliciting investors investors in Southern California, Arizona, and elsewhere using sham investment seminars and “referral partners” including a member of the Air Force who solicited his fellow servicemen.

The SEC’s complaint alleges the three men gained control over investors’ finances by offering them securities in the form of real estate investment contracts, and purporting that the money investors earned would help make mortgage payments on investment homes purchased on their behalf. Instead of investing client funds as promised, Duncan, Montecastro, and McLeod operated a Ponzi scheme by using money from new investors to make mortgage payments on previously purchased investment homes. When the scheme unraveled, it cost more than 75 investors an estimated $10 million.

With the type of fraud Duncan, Montecastro, and McLeod operated (commonly referred to as “affinity frauds”), con artists infiltrate tight-knit groups by showcasing a respected member of that community as one of their successful investors, giving the false illusion of a safe and secure investment opportunity and conning new investors into their Ponzi-like schemes.

Between October 2004 and June 2006, Duncan, Montecastro, and McLeod operated through Murrieta, Calif.-based Pacific Wealth Management, LLC (PWM) and Stonewood Consulting, Inc., to defraud investors from several affinity groups. The SEC’s complaint alleges that all three falsely promised investors that their funds would be invested in real estate and various other investments that would subsidize their investment homes. The SEC’s complaint further alleges that Duncan, a recidivist, raised $1.2 million in a separate offering of preferred membership units in Total Return Fund, LLC, to approximately 20 investors. The complaint alleges that the proceeds raised in both offerings were commingled and used to run a Ponzi-like scheme that fell apart and left investors with homes in foreclosure and forced some investors to declare bankruptcy.

According to the SEC’s complaint, Duncan, Montecastro, and McLeod failed to disclose several key facts about the purchase of the investment homes. They charged exorbitant real estate transaction fees financed by the investors, and submitted false mortgage loan applications on behalf of investors. The complaint also alleges that Duncan, who was touted as a financial genius, failed to disclose his prior securities laws violations.

The SEC’s complaint further alleges that Duncan and Total Return Fund misrepresented how investor money would be used. Specifically, while the Total Return Fund offering documents stated that 95 percent of investor funds would go towards the purchase of real estate, business assets, or accounts receivable, in fact, investor funds were used to pay returns to prior investors, and were used as part of the PWM fraud.

The SEC’s complaint charges Duncan, Montecastro, and McLeod with violating the antifraud and registration provisions of the federal securities laws, and seeks permanent injunctions, disgorgement of ill-gotten gains, and civil penalties. The complaint also names Christopher Oetting, Anthony M. Contreras and Biocybernaut Institute, Inc., as relief defendants, alleging that they received ill-gotten gains from the defendants’ fraudulent conduct.

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!

Imagine buying your dream home. Your credit is a bit shaky but you manage to secure a subprime loan with an adjustable rate mortgage. A few years later, interest rates jump and you can no longer afford to pay your mortgage. You see an advertisement in a local newspaper for a business that’s willing to help–the ad states they can pay your mortgage for a modest monthly fee while you take the necessary time to get back on your feet. But here’s the bad part: It’s a scam. The company just takes your money and runs!

This is just one of the real estate and mortgage fraud-related schemes the FBI is concerned about, and according to senior criminal investigators at the Bureau, the problem is only going to worsen over the next 18 months. These scams–which I write about in my latest book, Foreclosure Self-Defense For Dummies–include plenty of shenanigans with mortgages and subprime loans and are costing this great nation of ours tens of billions of dollars a year, if not more.

“Greed is definitely not good for our economy right now,” says Ken Kaiser, the FBI’s top criminal investigative executive. “It’s hurting homeowners. It’s hurting honest businesses. And it’s hurting investors and markets around the world.”

With those thoughts in mind, the FBI says it is now squarely focused on proactive initiatives designed to crack down on the largest of these financial crimes, and is even shifting resources as trends emerge, all the while working hand-in-hand with a host of government and private sector partners.

In particular:

• As we wrote last week, the FBI is now investigating 14 corporations involved in subprime lending as part of its “Subprime Mortgage Industry Fraud Initiative” launched last year. The companies being investigated come from across the financial services and real estate industry, from mortgage lenders to investment banks that bundle loans into securities sold to investors.
• The Bureau now has more than 1,200 open real estate and mortgage fraud cases (that’s up about 40% from last year), mostly involving fraud for profit, where straw buyers and real estate industry insiders rig schemes to buy properties that are illegally flipped or allowed to go into foreclosure.

The FBI also says suspicious activity reports–for potential real estate and mortgage fraud–have increased from 3,000 in 2003 to 48,000 in fiscal year 2007, and are projected to reach more than 60,000 such reports in 2008.

Finally, the FBI’s latest “hotspot list” for real estate and mortgage fraud includes: California, Texas, Arizona, Florida, Ohio, Michigan, and Utah (Utah is new to the list); and, on a somewhat surprising note, the Bureau now says it sees no links whatsoever to organized crime syndicates, street gangs, or terrorist groups in its real estate and mortgage fraud case portfolio.