* Analysis of available law enforcement and industry resources indicates that the top ten mortgage fraud areas are California, Florida, Georgia, Illinois, Indiana, Michigan, New York, Ohio, Texas, and Utah. Other areas significantly affected by mortgage fraud include Arizona, Colorado, Maryland, Minnesota, Missouri, Nevada, North Carolina, Tennessee, and Virginia.
* There is a strong correlation between mortgage fraud and loans which result in default and foreclosure.

Emerging Schemes

* Recent statistics suggest that escalating foreclosures provide criminals with the opportunity to exploit and defraud vulnerable homeowners seeking financial guidance.
* Perpetrators are exploiting the home equity line of credit (HELOC) application process to conduct mortgage fraud, check fraud, and potentially money laundering-related activity.

FBI and Industry Respond to Escalating Mortgage Fraud

* The FBI is proactively working with the mortgage industry in an effort to curb mortgage fraud crimes. The FBI signed a memorandum of agreement with the MBA to promote the FBI’s Mortgage Fraud Warning Notice.

Introduction

The Prieston Group, a risk management solutions provider that administers an insurance product covering losses due to fraud and misrepresentation, calculated that losses attributed to mortgage fraud will most likely reach $4.2 billion for 2006. This figure does not take into account another estimated $1.2 billion spent on fraud prevention tools. – The Prieston Group, 2006 Data, 16 February 2007,and 2 April 2007.

Mortgage Fraud is defined as the intentional misstatement, misrepresentation, or omission by an applicant or other interested parties, relied on by a lender or underwriter to provide funding for, to purchase, or to insure a mortgage loan. Although no central repository collects all mortgage fraud complaints, statistics from multiple sources indicate that mortgage fraud is on the rise. Some industry explanations for this increase point to recent high mortgage loan origination volumes that strained quality control efforts, the persistent desire of mortgage lenders to hasten the mortgage loan process, the escalation of home prices in recent years, and the introduction of non-traditional loans which contain fewer quality control restraints such as low documentation and no documentation loans1.

Mortgage loan fraud is divided into two categories: fraud for property and fraud for profit. Fraud for property/housing entails minor misrepresentations by the applicant solely for the purpose of purchasing a property for a primary residence. This scheme usually involves a single loan. Although applicants may embellish income and conceal debt, their intent is to repay the loan. Fraud for profit, however, often involves multiple loans and elaborate schemes perpetrated to gain illicit proceeds from property sales. It is this second category that is of most concern to law enforcement and the mortgage industry. Gross misrepresentations concerning appraisals and loan documents are common in fraud for profit schemes and participants are frequently paid for their participation. Recent events likely resulted in an increase in mortgage fraud as higher housing prices tempted borrowers to commit fraud for property in order to qualify for a mortgage loan. Also, mortgage fraud perpetrators likely seized the opportunity to take advantage of the relaxed lending practices to commit fraud for profit.

The most common form of mortgage fraud is illegal property flipping which entails false appraisals and other fraudulent loan documents (see figure 1). Combating mortgage fraud effectively requires the cooperation of law enforcement and industry entities. No single regulatory agency is charged with monitoring this crime. The FBI, Department of Housing and Urban Development-Office of Inspector General (HUD-OIG), Internal Revenue Service, Postal Inspection Service, and state and local agencies are among those investigating mortgage fraud.

Mortgage fraud is a relatively low-risk, high-yield criminal activity that tempts many. However, according a May 2006 Financial Crimes Enforcement Network (FinCEN) report, finance-related occupations, including accountants, mortgage brokers, and lenders, were the most common suspect occupations associated with reported mortgage fraud2. Perpetrators in these occupations are familiar with the mortgage loan process and therefore know how to exploit vulnerabilities in the system.

Victims of mortgage fraud may include borrowers, mortgage industry entities, and those living in the neighborhoods affected by mortgage fraud. Lenders are plagued with high foreclosure costs, broker commissions, reappraisals, attorney fees, rehabilitation costs, and other related expenses when a mortgage fraud is committed3. As properties affected by mortgage fraud are sold at artificially inflated prices, properties in surrounding neighborhoods also become artificially inflated. When property values increase, property taxes increase as well. Legitimate homeowners also find it difficult to sell their homes as surrounding properties affected by fraud deteriorate.

During boom periods, high mortgage loan volume impacts expedited quality control efforts which often focus on production. Therefore, perpetrators may submit loans based on fraudulent information anticipating that the bogus information will be overlooked. On the other hand, loan officers, brokers, and others in the industry are paid by commission and may be tempted to approve questionable loans when the housing market is down to maintain current levels of income.

Analysis of mortgage originations indicates a decrease in demand. As a result of the declining housing market, mortgage fraud perpetrators may take advantage of eager loan originators attempting to generate loans for commission. Mortgage loan originations, including purchases and refinances declined during 2006 across the United States. The Mortgage Bankers Association (MBA) estimates that mortgage loan originations will reach $2.28 trillion during 2007 (see figure 2)4. According to an MBA December 2006 report, total home sales during 2006 decreased by approximately 10 percent from 2005 sales. New home sales declined by 17 percent and existing home sales dipped by 8 percent. In response to a decrease in demand for housing, builders reduced single-family starts (through November 2006) which were 14 percent lower than during the same time period in 2005. The MBA estimates that the oversupply of housing will continue to affect new home construction, home sales, and home prices until mid-20075.

Top Areas for Mortgage Fraud

Data was compiled and analyzed from law enforcement and industry sources to determine those areas of the country most affected by mortgage fraud during 2006. Information from the FBI, HUD-OIG, FinCEN, Mortgage Asset Research Institute (MARI), Federal National Mortgage Association (Fannie Mae), RealtyTrac Inc. (foreclosure statistics), and Radian Guaranty Inc., indicate that the top ten mortgage fraud areas for 2006 were California, Florida, Georgia, Illinois, Indiana, Michigan, New York, Ohio, Texas, and Utah. Other areas significantly affected by mortgage fraud include Arizona, Colorado, Maryland, Minnesota, Missouri, Nevada, North Carolina, Tennessee, and Virginia (see figure 3).

Analysis of available information indicates that mortgage fraud is most concentrated in the north central region of the United States. The north central region is followed by the southeast and west regions.

Regional analysis of FBI pending mortgage fraud-related investigations as of FY 2006 reveals that the north central region of the United States led the nation with the most pending investigations. The north central region was followed by the southeast, west, south central, and northeast, respectively (see figure 4).

The aggregate amount of ARM loans containing fraudulent misrepresentations is unknown. However, since mortgage fraud perpetrators hope to inflate the value of their properties and quickly sell them, they would likely gravitate towards mortgage loans that offered low and short-term interest rates such as those offered by ARMs.

Delinquency, Default, and Foreclosure: Potential Fraud Indicators

Mortgage loans based on fraudulent information usually result in delinquency, default, or foreclosure in a bear market. According to the MBA, both delinquency and foreclosures rates increased during 2006 and were largely concentrated in adjustable rate mortgage (ARM) loans, especially sub-prime ARMs. This is partly attributable to the recent rise in interest rates, placing a strain on ARMs borrowers6.

BasePoint Analytics, a fraud analytics company, analyzed more than 3 million loans and found that between 30 and 70 percent of early payment defaults (EPDs) are linked to significant misrepresentations in the original loan applications7. Radian Guaranty, Inc. is a leading provider of mortgage insurance which protects lenders against loan default. Of the top ten states Radian Guaranty Inc. ranked highest for mortgage fraud, seven of them also ranked in the company’s top ten for EPDs. This suggests that EPDs are a good mortgage fraud indicator.

During 2006 there were more than 1.2 million foreclosure filings nationally, which represents a 42 percent increase from 2005 figures. The foreclosure rate for 2006 was one foreclosure filing for every 92 households8. Foreclosures for 2006 surpassed foreclosures for 2005 during every month of the year9.

Foreclosure Fraud

Recent statistics suggest that escalating foreclosures provide criminals with the opportunity to exploit and defraud vulnerable homeowners seeking financial guidance. The perpetrators convince homeowners that they can save their homes from foreclosure through deed transfers and the payment of up-front fees. This “foreclosure rescue” often involves a manipulated deed process that results in the preparation of forged deeds. In extreme instances, perpetrators may sell the home or secure a second loan without the homeowners’ knowledge, stripping the property’s equity for personal enrichment.

While foreclosure scams vary, they may be used in combination with other fraudulent schemes. For instance, perpetrators may view foreclosure-rescue scams as a new method for fraudulently acquiring properties to facilitate illegal property-flipping and equity-skimming.

Home Equity Lines of Credit

According to a DOJ press release, Mi Su Yi and her husband, Paul Amorello, were sentenced in California in July 2006 for operating a $3 million bust-out scheme involving business lines of credit and HELOCs. The couple accessed lines of credit that had been obtained by others and paid the balances with worthless checks. They subsequently withdrew cash from the lines of credit before the checks were returned for insufficient funds. The couple laundered their proceeds through bank accounts opened under three false identities. In an attempt to avoid detection, the couple deposited cash amounts of less than $10,000 into these accounts. -US DOJ, “New Jersey Residents Sentenced to Prison for Running a $3 Million ‘Bust-Out’ Scheme,” Press Release, 25 July 2006, available at http://www.usdoj.gov

Individuals and criminal groups are exploiting the home equity line of credit (HELOC) application process to conduct multiple-funding mortgage fraud schemes, check fraud schemes, and potentially money laundering-related activity. HELOCs differ from standard home equity loans because the homeowner may borrow against the line of credit over a period of time using a checkbook or credit card. HELOCs are aggressively marketed by lenders as an easy, fast, and inexpensive means to obtain funds. HELOC funds are normally withdrawn on an as-needed basis to conduct home repairs or to pay bills, but fraud perpetrators may withdraw the entire amount within a short time period. Lenders typically focus on property equity prior to funding HELOCs. As such, many lenders do not demand a full property appraisal or a full property title search.

Perpetrators apply for multiple HELOCs to different lending institutions for a single property within a short time period. Prior to providing the funding, lenders conduct searches to determine if the property is encumbered by a lien. However, liens on a property may not be recorded for several days or months and thus cannot be immediately verified. Consequently, lenders do not discover that they hold a third, fourth, or fifth lien on a property (rather than the expected second lien) until later. The money obtained from the multiple HELOCs totals more than the original property purchase price, exceeding the out-of-pocket expenses incurred to secure the property.

Perpetrators conducting check fraud schemes may manipulate HELOC accounts and cause lenders to incur losses. For example, a perpetrator secures a HELOC and withdraws the entire allotted amount. A fraudulent check is then used to pay the balance owed on the HELOC. However, the perpetrator quickly withdraws the check amount from the HELOC before the bank realizes the check is worthless. When the check is returned for insufficient funds, the line of credit surpasses its maximum limit and the lender experiences a loss. HELOC accounts have also been used in common check frauds where perpetrators stole HELOC checks, fraudulently completed them, and deposited the funds into their own personal accounts.

HELOCs may also be used as a means of depositing and withdrawing laundered proceeds to further conceal the original funding source. As long as withdrawals from the HELOC do not exceed the line of credit limit, payments deposited into the account may be withdrawn later.

FBI and Industry Respond to Escalating Mortgage Fraud

The FBI is proactively working with the mortgage industry in an effort to curb mortgage fraud crimes. On March 8, 2007, the FBI signed a memorandum of agreement with the MBA to promote the FBI’s Mortgage Fraud Warning Notice. The Notice states that it is illegal to make any false statement regarding income, assets, debt or matters of identification, or to willfully inflate property value to influence the action of a financial institution. Under the agreement, the MBA and the FBI will make the notice available to mortgage lenders to use voluntarily as a means of educating consumers and mortgage professionals of the penalties and consequences of mortgage fraud.10

With attempted fraud on the rise and fraudsters getting more sophisticated, brokers must ensure they don’t become soft targets by doing robust due diligence on all cases

With a raft of regulations, major funding problems and widespread dual pricing mortgage brokers have a lot on their plate at the moment. But one thing they can’t afford to ignore is the specter of fraud that permanently haunts the industry.

In the good old days between 2005 and 2007 when mortgages were aplenty brokers were probably guilty of being as lax as lenders and regulators when it came to checks.

Those days are gone and the consensus seems to be that as the industry dips and business volumes fall so does fraud, but this is a dangerous complacency.

Experian’s Fraud Index reveals that attempted fraud rose by 37% in the first half of 2010 compared with the second half of 2009 due to a rise in so-called soft fraud which is when borrowers misrepresent incomes to get a deal rather than by organized crime.

Hard fraud is committed by sophisticated criminals to money launder while soft fraud is the ordinary borrower lying to get a mortgage – serious but not in the same league. The best way for brokers to guard themselves against both is simple – due diligence on their clients through rigorous checks and questioning.

“The most important thing brokers can do is to identify applicants, be skeptical of what they are being told and check the facts rigorously,” says Nick Baxter, partner at Baxter Business Consultants.

“If a broker doesn’t have an impressive record it gets around and they can be used as a conduit to fraud, perhaps accidentally,” he adds. “The biggest danger is that brokers who don’t ask the tough questions become targets for money launderers who think they are lax. Brokers must ask tough questions at the right time.”

Alan Cleary, managing director of Precise Mortgages, agrees that brokers face the danger of being used by fraudsters.

“It’s not a good thing for brokers because you can’t plead ignorance if you’ve been targeted,” he says.

“Lenders can identify specific brokers they get bad business from and there are a lot of brokers being kicked off panels at the moment – it’s a growing problem. As lenders become more vigilant brokers are caught up in it and it is damaging to their business. If you get kicked off Lloyds Banking Group’s broker panel you’re out of business because you can’t be a broker without dealing with 30% of the market.”

For money laundering in particular Baxter says it is crucial brokers ask the right questions. Brokers must have proof of their deposit and ask where the money has come from and if it is legal.

“Buy-to-let frauds with no proof of deposit are a key risk,” he says. “There is no reason why a person who wants to buy 10 properties shouldn’t be asked where the deposit has come from. They should be asked whether it comes from legitimate means and how they have produced this money.

“By asking such questions brokers will protect themselves. Genuine customers won’t care about the intrusion and money launderers will go elsewhere.”

Ray Boulger, senior technical manager at John Charcol, agrees that tough questioning is the key to brokers preventing fraud but adds that it is difficult to counteract the sophistication of some documents.

“Brokers must do the obvious checks but also be experienced enough to recognize when something doesn’t sound right,” he says. “One of the biggest problems for brokers is the sophistication of fraudsters. Some copies of passports and identity are so good that you can’t tell they are fake.

“I was at a conference a few years ago where even fraud experts struggled to differentiate the two, so brokers can have difficulties sometimes.”

John Malone, chairman of PMS and the Association of Mortgage Intermediaries’ spokesman at the National Fraud Authority’s mortgage fraud forum, says fraudsters are always years ahead of the businesses they set out to deceive.

“Fraudsters are more sophisticated these days and use technology to their advantage,” he says. “On the internet you can get pay slips, P45s, fake passports and driving licenses that look real. Fraudsters will always be up to five years ahead of businesses.”

And Malone warns some types of fraud such as identity theft are increasing. His role at AMI gives brokers a voice at the National Fraud Authority. Until he took up the role this month brokers were not represented. Malone insists brokers are crucial in the chain as a conduit between clients, solicitors, surveyors and lenders.

“Brokers are right in the middle of it,” he says. “So we are trying to educate them and limit fraud as much as we possibly can.”

Baxter agrees that fraud is still an issue but believes there has been a decrease as volumes have fallen.

“Mortgage fraud has probably reduced because the days of the one minute mortgage don’t exist anymore,” he says.

But Baxter says brokers must be wary of mortgage fraud in the long term. He says many fraudsters are clever and present themselves as plausible customers. In short, if they can deceive people they will. He criticizes the speed of applications and the focus on volume and while praising fraud checks via credit scoring to highlight risks, he does not think it is a silver bullet.

“Credit scoring checks help but it was difficult for underwriters to consider all the information in the time they had,” he says. “I have seen things in credit scoring checks that should have made them ask questions but they didn’t.

“Between 2005 and 2008 I don’t think staff were adequately trained either. That is still the case but the difference is they now have more time. Lenders need to use this to train their staff for the future. Just because the mortgage market is depressed doesn’t mean fraudsters are going to leave. Lenders must do all they can to tackle it.”

Malone believes lenders can do more, such as making sure that brokers’ client information is secure.

“You can go into an intermediary’s office and there are files and computers lying around,” he says. “But what happens when they leave the office at night? Big institutions have to go through a risk education process to try to eliminate or reduce the onset of risk.

“Of course, one of the things lenders are asking everyone to do is to protect client details in a locked safe or filing cabinet. But in brokers’ offices that often isn’t the case. That’s the kind of things lenders should be asking questions about.”

Colin Snowdon, managing director of residential mortgages at Aldermore, says brokers should not be wary if lenders start to ask questions.

“When lenders ask questions that brokers think are strange it isn’t always because they are trying to make things difficult,” he says.

“You can’t be too careful about mortgage fraud these days. Brokers have an important role as it is they who meet the clients. They have to be aware of all the issues and ensure they don’t allow themselves to be used. There is a real danger of that.”

Eddie Goldsmith, senior partner at Goldsmith Williams, has just set up the Conveyancing Association to tackle fraud in conveyancing and says lenders will always use people they are comfortable with.

“In every profession there are good and bad individuals and you can’t avoid criminals who infiltrate the industry,” he says. “What lenders need to do is work with people they know, are comfortable with, and who they trust.

“Firms that are members of our trade body are all reputable and one of the reasons we formed it is to help lenders use good firms. This won’t get rid of fraud overnight but if lenders are going down a restricted panel route we can tell them to look at the Conveyancing Association as a reputable grouping.”

Malone agrees that brokers have a huge responsibility and that the Financial Services Authority is clamping down on them. He says that for years the buzzwords have been ’know your client’ but the emphasis has now changed as the FSA seeks to talk tough on fraud and stresses the need for ’client due diligence’.

“I think the phrase puts far more onus on brokers to understand more about their clients,” he says. “At PMS if we want to take on a new firm we have to do thorough due diligence on it before taking it on board and that is what brokers have to do. ’Know your client’ was good at the time but there is a change of emphasis at the FSA which is demanding due diligence.”

He adds that it is more than just clients who need to be thoroughly checked.

“Brokers also have to look all around the client’s situation such as the property they are buying and the solicitor they are using, and check things such as how long it has been operating and whether it has had any issues with lenders,” he says.

“These are the things that brokers haven’t been doing over the years. They’ve just been accepting the solicitors their clients use but it’s their responsibility now to find out more about them.”

Cleary says due diligence is crucial and if business is coming from an introducer brokers must take appropriate steps to guard against fraud.

“If brokers are accepting business from an introducer they are basically saying that they are so confident about that individual that they will use their FSA license to get the business through,” he says. “If it goes wrong the broker is in trouble, so they have to go through the appropriate checks.”

But Cleary does not believe brokers have to do all the work as lenders have systems and structures to combat fraud.

“Brokers can’t be expected to do everything,” he says. “Lenders have access to national fraud databases and credit referencing tools, which I don’t expect brokers to have because it costs a lot of money.

“The main thing for brokers is to verify the source of introduced business and make sure they don’t get duped into accepting dodgy pay slips. If you smell a rat check it as if it’s too good to be true then it probably is – we’ve all got that sixth sense that tells us when something isn’t right.”

Malone insists brokers have a responsibility to check the client’s situation.

“Brokers have to be aware of who they are dealing with,” he says. “It can be done in a few phone calls. If lenders are reducing the legal firms they use, they are clearly going through their lists to make sure they know those acting on their behalf. Brokers must do the same.”

He says that when individual registration is brought in there will be even more onus on brokers to perform thorough checks.

“Individual registration will reduce the number of brokers in the mortgage industry,” he says. “We don’t know by how many but I think it will further reduce the numbers. We will be left with a strong, hardcore group of intermediaries who will have to protect their position. We’re asking them to protect themselves and their business by having a firmer understanding of their transactions.”

There is a clear sense that brokers are going to have more responsibilities and be subject to more scrutiny when individual registration is introduced. Malone believes brokers should start verification of clients as early as possible.

“Brokers must start to verify potential clients before they become official clients,” he says. “A lot of brokers just get clients from lead generation firms and no-one has verified them. Brokers haven’t verified clients enough in the past because of the volumes they were doing. A lot of fraud is now being uncovered from the boom years when gross lending was £700bn in 2005 and 2006. If even 5% of that was fraudulent that would amount to a massive £35bn. It is these numbers we’re grappling with.”

A spokesman for the Council of Mortgage Lenders says that varying market conditions create opportunities for criminals who always target weaknesses.

“The ground is constantly shifting with fraud and different practices that organizations follow creating different opportunities for criminals to target,” he says. “They will systematically target weaknesses. But changing market conditions have exposed fraudulent practices that may not have been so apparent when property prices were rising.

“One of the problems with fraud is that it is difficult to quantify. Someone can make a fraudulent application which is declined and we have to decide whether it is a failure that the fraud was attempted or is it a success that the fraud didn’t happen.”

He adds that the most important thing is for brokers to report suspicious information to the right authorities. He highlights the FSA’s Information from Lenders programmed as an example of what brokers should be doing.

Even in depressed times and with brokers fighting for their survival, they must remain vigilant against fraud. Lax checking can ruin careers and reputations can be forever tarnished.

Brokers don’t have all the responsibility and clearly lenders have their role to play too but it is brokers’ necks on the line if something goes wrong, so they have to be sure who they’re dealing with.

There will always be fraudsters looking to deceive them so brokers must make sure they are not a soft target. By doing robust due diligence brokers can protect themselves and fulfill their responsibilities to tackle the specter of fraud that could come back to haunt the industry in a big way.

Brokers must be the first defense

It is a well-known fact in the financial services industry that mortgage lenders have tightened their criteria significantly in an effort to protect themselves from escalating mortgage fraud losses. Coupled with this, the Council of Mortgage Lenders has reported that gross mortgage lending has fallen by 6% in August 2010 compared with August 2009.

Applications are being heavily scrutinized by lenders for signs of material misrepresentation or other anomalies.

Mortgage brokers have suffered much bad press in recent months as the unscrupulous practices of a few have led to serious repercussions for the honest majority. In many cases lenders have reduced the number of brokers on their panels and therefore the number of brokers they are prepared to do business with.

So what can brokers do to win back favor with mortgage providers? What are banks looking for from individuals who are introducing business to them?

As part of my role as fraud consultant at CoreLogic Solutions, a company that specializes in fraud detection technology for the financial services sector, I recently undertook analysis that has highlighted the most common types of mortgage fraud.

The top six most common types of mortgage fraud are:

* Income – 35% of fraudulent applications had evidence of significantly over-inflated salaries.
* Employment – around 16% of applicants had tried to hide details relating to their employer, with a large proportion not disclosing they were self-employed.
* Occupancy – 14% were applications for undisclosed buy-to-lets.
* Fake accounts – over 11% of the proven fraud cases were supported by financial accounts that were either fake or bore no resemblance to the true trading performance of the company or trading individuals.
* Valuation fraud – 11% of cases were backed by valuations that were over-inflated by up to 500%.
* Other professionals – around 6% of the sample showed evidence of fraudulent behavior by other mortgage professionals.

In my experience, the best way for brokers to win back the confidence of lenders is to act as a first line of defense. In many cases it is brokers who build rapport with applicants and have access to supporting documentation. By checking documentation relating to income, employment and occupancy and ensuring that the application appears to make sense, brokers will be able to assist lenders and speed up the application process.

Hopefully in time, this will improve the rapport between lenders and brokers and ensure that strong relationships develop and flourish as the mortgage market starts to recover.”
Mortgage broker fraud cases this year

Noel Smith of Andrew Copeland Mortgages
Noel Smith, a director of south London-based Andrew Copeland Mortgages Limited, was fined £17,500 for systems and controls failings and for exposing his business to the risk of being used to further financial crime. Smith also had his Financial Services Authority approval to perform management functions withdrawn.

The FSA concluded that Smith’s poor management controls and compliance monitoring led to 224 clients being exposed to the risk of receiving unsuitable advice and left the firm open to abuse by fraudsters. Smith also failed to oversee remedial actions outlined by the FSA to address potential poor advice given to clients. There was also no evidence that affordability had been assessed.

John Apicella was banned for lack of competency by leaving his business open to the risk of involvement in financial crime. Apicella was a sole trader at Newbury-based Mortgages 4 You.

The FSA found that Apicella failed to meet the minimum standards required of a broker by not always completing a fact-find document for new customers or taking the time to research their attitude to risk. In interviews with the FSA regarding customer’s income Apicella said that “if a lender doesn’t require it I don’t ask for it”. He added that he would accept self-employed customers’ income figures at face value. Also, Apicella did not carry out due diligence on a mortgage introducer from whom he accepted seven mortgage applications.

Neale Morton, Syed Meah and Jonathan Smith of Neale Morton IMS Limited
The individuals banned all worked for one firm, Neale Morton IMS Limited, based in Gateshead, Tyne and Wear. Neale Morton was the principal and director of IMS. The FSA prohibited and fined him £130,192 for his knowing involvement in mortgage fraud and for systems and controls failings at IMS for which he was personally culpable. Part of the fine, £5,192, represented a disgorgement of the profit he made from the fraudulent applications.

Morton not only submitted mortgage applications for himself using false income details, but also allowed his firm to be used for mortgage fraud by its advisers and customers. Advisers Jonathan Smith and Syed Meah produced falsified compliance documents during the FSA investigation. Smith also submitted falsified applications to lenders on behalf of customers and Meah did not notify the FSA that he had been arrested on suspicion of money laundering and been suspended as a mortgage adviser at IMS.

In an interview with the FSA, Smith estimated that around 5% of the mortgage business he submitted at IMS was fraudulent.
Collective action is important

This year is notable for an unwelcome first – it is the year mortgage fraud cases with a collective value of more than £1bn were heard by Crown Courts in England and Wales. But anyone who thinks things will get better soon needs to think again, and quickly. My advice is to revise estimates penciled in for 2011. If £1bn is your benchmark, you’re seriously underestimating the problem.

There are two reasons for this. First, £1bn only relates to the known cases of mortgage fraud heard by the courts during the past 10 months. Second, any fraud professional will tell you that for every case that is uncovered, up to four go undetected.

My view is that the real level of mortgage fraud exposure in the UK could be significantly higher than £1bn – and growing rapidly. And if that is the case, the sooner the industry takes appropriate action the better.

The harsh reality is that fraudsters regard lenders as easy prey where the pickings are rich and the chances of being caught pretty remote. Lax and inconsistent controls in the lending and broking community and an unwillingness to recognize the crime – particularly insider and employee fraud – have enabled con men to run riot in sectors such as buy-to-let, self-cert and commercial.

This is a major reason why we have seen a huge increase in the number of lawyers, accountants, surveyors and intermediaries who are prepared to fleece their way to easy and lucrative property paydays.

Any fraud professional will tell you that for every case that is uncovered, up to four go undetected

The Solicitors Regulatory Authority clearly thinks the problem is growing. Recently, its head of fraud went on the record stating his team was looking into the affairs of dozens of law practices suspected of being run by criminals and involved in committing mortgage fraud.

The SRA is working with several police forces to start a major clean-up. This is welcomed as it’s a break with the legal world’s traditional practice of staying silent until a threat has been eliminated. I also applaud the likes of the Association of Mortgage Intermediaries for setting up a panel to address fraud.

But the time has come for the whole industry to debate the extent of the problem in a meaningful way.

Getting to the heart of the matter will require all parties to put their egos to one side because mortgage fraud afflicts all organizations, regardless of their size, geography and corporate DNA.

It also means the industry must stop sweeping cases of insider fraud under the carpet. Organizations need to realize 60% of all fraud has a significant insider element and staff poses a threat to the well-being of businesses.

If there isn’t the collective desire to get to grips with things, then mortgage fraud will continue to be a major bête noire – and the sector will remain a safe haven for organized crime and opportunistic thieves.

PREET BHARARA, the United States Attorney for the Southern District of New York, and JOSEPH M. DEMAREST, JR., the Assistant Director-in-Charge of the New York Office of the Federal Bureau of Investigation (“FBI”), announced the unsealing of an Indictment yesterday charging LOUIS CHERICO, a lawyer who practiced in New York City and Westchester County, with participating in a wide-ranging scheme to commit mortgage fraud, obstruction of justice, and money laundering.

According to the Indictment filed in Manhattan federal court:

From July through December of 2002, CHERICO participated in a fraudulent real estate investment scheme which had, as its primary objective, the purchase of multi-million-dollar residential properties in various communities in Westchester County, New York, including Purchase, Eastchester, and Rye, with loans obtained through the submission of false and misleading information to banks and other lenders. Many of the loans were equal to or in excess of one hundred percent of a property’s actual sale price, so that the defendant and his co-conspirators did not have to put any of their own money at risk in the transaction.

CHERICO served as the attorney for various co-conspirators in negotiating and closing the fraudulent purchases that were part of the scheme. CHERICO and his co-conspirators submitted to numerous federally-insured banks various documents, including loan applications, contracts of sale, deeds, real estate transfer documents, and title reports. Those documents contained materially false or misleading information about the income, assets, existing debt and credit-worthiness of the borrower, the chain of title to the property, and the sale price of the home, as well as the borrower’s intent to reside in the property as a primary residence, when, in fact, the properties were typically purchased for investment purposes. As a result of the scheme to defraud, CHERICO and his co-conspirators obtained millions of dollars in loan proceeds, enabling them to control certain properties that they otherwise would not have been able to purchase and finance.

The Indictment also charges CHERICO with laundering the illegal proceeds obtained from the sale of one of the properties used in the mortgage fraud scheme by transferring the proceeds from a bank account controlled by CHERICO to an account that was controlled by one of his co-conspirators, DOMINICK DeVITO. The transaction was designed to conceal and disguise the nature, location, source, ownership, and control of the illegal proceeds.

The Indictment further charges CHERICO with obstruction of justice, and conspiracy to obstruct justice, in connection with the 2003 sentencing of DOMINICK DeVITO, following DeVITO’s conviction in United States v. Pasquale Parello, et al.,(01 Cr. 1120) in United States District Court for the Southern District of New York on charges of racketeering and mortgage fraud. Specifically, CHERICO assisted DeVITO in concealing profits that DeVITO earned from the sale of a property located in Purchase, New York, and in submitting an affidavit containing false and misleading information about the sale to the United States Probation Office.

CHERICO, 69, of Eastchester, New York, was arrested this morning and was presented and arraigned this afernoon in Manhattan federal court. The case has been assigned to United States District Judge COLLEEN McMAHON.

If convicted, CHERICO faces a maximum sentence of 30 years in prison on each of the six counts of mortgage fraud, 20 years in prison on the money laundering count, 10 years in prison on the obstruction count, five years in prison on the conspiracy to obstruct justice, and a fine of the greater of $1,000,000, or twice the gross gain or loss resulting from the crime.

Patricia Morgen, 62, of Oakland, California pleaded guilty in federal court in San Francisco yesterday to wire fraud, mail fraud and money laundering, United States Attorney Joseph P. Russoniello announced December 17, 2009.

In his announcement, U.S. Attorney Russoniello restated the Department of Justice’s top priority to vigorously prosecute individuals who commit mortgage fraud and other financial crimes.

In pleading guilty, Morgen admitted that the company she founded and controlled, Chicago Development and Planning (CDP) engaged in two fraudulent schemes: (1) a Ponzi scheme that defrauded more than 400 individual investors by falsely promising that their investment funds would be used to acquire, renovate, and re-sell real estate; and (2) a mortgage fraud scheme that defrauded a mortgage broker and various mortgage lenders by use of loan applications with fraudulent income and asset statements. Morgen admitted that the loss for the two schemes exceeded $8 million. In the plea agreement, Morgen agreed to make restitution in the amount of no less than $8,439,086.

The Securities and Exchange Commission (SEC) began investigating Chicago Development and Planning in 2004, and ultimately obtained a default judgment against Morgen when she failed to appear in any of the civil proceedings. In pleading guilty, Morgen admitted that when she learned of the SEC’s investigation, she instructed employees to destroy documents and then fled to Mexico to avoid federal authorities. Morgen also admitted that she instructed an employee to contact a mortgage broker who had worked on CDP real estate acquisitions in an attempt to convince the mortgage broker not to provide documents to the SEC.

On Sept. 2, 2009, Morgen’s co-defendant, Michael Ware, pled guilty to similar charges involving Chicago Development and Planning’s mortgage fraud scheme.

“This case shows that the appearance of success can be a mask for a tangled financial web of lies,” said Scott O’Brian, Special Agent in Charge, IRS-Criminal Investigation, and Oakland Field office. “Ponzi schemes can thrive for a time on false claims about how the money is being invested and where the returns are coming from. But that time is gone, and as this case shows, it’s time for those responsible to face judgment.”

Morgen was indicted by a federal Grand Jury on Nov. 20, 2008. She was charged with 11 counts of mail and wire fraud, as well as a single count of money laundering. Under the plea agreement, Morgen pled guilty to two counts of mail fraud, two counts of wire fraud, and one count of money laundering.

Morgen is currently in the custody of the Bureau of Prisons. Her sentencing is scheduled for April 7, 2010, before Judge Charles R. Breyer in San Francisco. The maximum statutory penalty for mail and wire fraud is 30 years. The maximum statutory penalty for money laundering is 10 years.

Metro Dream Homes (also known as Metropolitan Grapevine LLC, POS Dream Homes, and POS DH LLC) had all the trappings of success — its top officials lived lavish lifestyles, kept a fleet of chauffeur-driven cars, and donated generously to charities. And it used slick marketing to sell its “Dream Homes Program,” which promised to pay homeowners’ mortgages in return for an up-front fee that would be invested in profitable business ventures.

But the dream turned into a $70 million nightmare for more than a thousand investors — among the latest victims of real estate and mortgage fraud.

According to federal grand jury returned on April 22, 2009, and unsealed today, the five people behind Metro Dream Homes and the bogus mortgage payment program — Andrew Hamilton Williams, Jr., 58, of Hollywood, Fla., founder and owner of MDH; Michael Anthony Hickson, 46, of Commack, N.Y., the chief financial officer; Isaac Jerome Smith, 46, of Spotsylvania, Va., the president; and Alvita Karen Gunn, 31, of Hanover, Md., the vice president of operations — were actually running an elaborate deception… one eventually unraveled through the cooperative efforts of federal and state law enforcement agencies.

Here’s how the scam worked:

• Between 2005 and 2007, victims were persuaded into investing at least $50,000 with Metro Dream Homes, either by refinancing their existing homes or buying new homes at inflated prices.
• Investors were told not to worry about high mortgages because Metro Dream Homes would pay their future monthly payments and pay off their mortgages within five to seven years using returns on the homeowner’s original investment. Then the homeowner and Metro Dream Homes would own an equal interest in the home.
• Victims were told that their $50,000—not including an administrative fee of up to $5,000—would be used to fund investments in automated teller machines, flat-screen TV displays that carried commercial advertisements, and Touch-N-Buy electronic kiosks that sold telephone calling cards and other items.
• To make the scam seem more legitimate, the company marketed its program through live presentations at posh hotels in Washington, D.C.; Baltimore; and even Beverly Hills, California.

In the end, it was a classic Ponzi scheme: the proceeds from later investors went to pay the mortgages of earlier investors. The ATM machines, flat-screen TVs, and electronic kiosks never generated any meaningful revenue, federal prosecutors contend.

And the bulk of the money? It lined Williams’, Hickson’s, Smith’s, and Gunn’s pockets — with $200,000-a-year salaries, luxury cars, and travel to major sporting events like the Super Bowl.

By the time law enforcement shut down Metro Dream Homes, homeowners had invested about $70 million. When Metro Dream Homes stopped making the mortgage payments, the homeowners were left holding the bag. The defendants, meanwhile, are facing long prison terms for multiple counts of fraud, conspiracy to commit money laundering, and other charges.

Image by Getty Images via DaylifeThe U.S. Attorney for the Southern District of Florida (R. Alexander Acosta), and the FBI announced late last week that Steven Gordon, 49, of Miami, Florida, pled guilty to wire fraud charges related to a five-year scheme to inflate the value of mortgage loans to increase his commission compensation. Steven Gordon’s sentencing has been scheduled for April 23, 2009.

Prior to his dismissal in 2006, Gordon was a principal at Bayview Financial, LP, a Coral Gables, Florida-based finance company that buys portfolios of loans from lending institutions. Bayview Financial pooled these loans into newly formed business entities, called “special purpose entities,” and then issued securities backed by those loans to the investing public. During 2006, 2005 and 2004, respectively, Bayview Financial and its affiliates securitized approximately $2.056 billion, $0.954 billion and $1.428 billion, in offerings of residential and commercial mortgage loans, including $1.989 billion, $0.884 billion and $1.243 billion of residential mortgage loans.

While employed at Bayview Financial, Gordon held the title of Director of Residential Acquisitions. One of Steven Gordon’s primary duties was to negotiate the purchase of thousands of loans for Bayview Financial’s residential mortgage securitization program. Gordon’s incentive compensation was based, in part, on his ability to buy those loans at a low cost.

Late last week, Gordon admitted that between 2001 and 2006, he engaged in a scheme to defraud Bayview Financial, in which he regularly altered credit information affecting the value of more than 2,800 loans acquired for Bayview Financial’s residential mortgage securitization program. Gordon’s fraudulent scheme caused Bayview Financial to pay him more than $2.8 million in excessive and undeserved bonuses.

As a result of a tip his office received from FlippingFrenzy.com founder Ralph R. Roberts, Michigan’s Attorney General today filed charges against four people for conducting what the AG’s office is calling a “million-dollar mortgage fraud scheme”. According to Michigan Attorney General Mike Cox, the following people are charged with racketeering:

• Dequincy Hyatt, of Detroit
• Seaesther Thompson-Hayes, of Flat Rock
• Aaron Brooks, Jr., of Southgate

The fourth person, Pietro Biundo, of Washington, Michigan, is charged with filing false documents when selling a home in one of the mortgage fraud transactions.

Today’s actions were a direct result of information Ralph R. Roberts, founder of FlippingFrenzy.com and a real estate-focused consumer advocate, provided to the Michigan State Police and Attorney General Cox’s office!

An investigation by the State Police and the AG’s office revealed that in 2006 Dequincy Hyatt, managing partner of J.B. Homes/Construction, LLC., Seaesther Hayes, a mortgage broker, and Aaron H. Brooks, Jr., a former service representative for the People’s Trust Credit Union (PTCU), partnered together to perpetrate a large scale mortgage fraud.

In short, two properties were involved in this case. In the first case, it is alleged that Dequincy Hyatt, Seaesther Hayes, and Aaron Brooks secured a $710,000 mortgage for a $510,000 home in Shelby Township, MI. After paying fees, the three scammers were able to skim more than $163,000 off the transaction.

In the second case, it is alleged the defendants secured a $785,000 mortgage though the straw buyer for a $515,000 Clinton Township, MI, home. The seller of the home in this case, Pietro Biundo, is charged with filing false documents related to the transaction.

Attorney General Mike Cox alleges that the defendants sought and obtained a straw buyer for the two targeted luxury properties. The straw buyer was told that her name and credit, which was boosted by grossly inflated income and asset data, would be used to purchase the properties. The mortgage payments would be made for her by the defendants and her name would later be removed from the mortgages. In return, the straw buyer was promised compensation.

About a year after the transactions, however, Dequincy Hyatt, Seaesther Hayes, and Aaron Brooks stopped making the mortgage payments. The straw buyer was left with two mortgages in her name, and was not able to make payments. Not surprising, both houses went into foreclosure.

Hyatt, Hayes, and Brooks are charged with one count of continuing criminal enterprise (racketeering), a 20-year felony, and two counts of false pretenses, each a 10-year felony. Biundo is charged with one count of false pretenses based on the filing of a falsified deed in the sale of his home, a 5-year felony. Hyatt, Hayes, and Brooks have been arrested and arraigned. Biundo is expected to turn himself in to police shortly.

In 2008, Michigan Attorney General Mike Cox created a mortgage fraud unit and teamed up with the Michigan State Police and other law enforcement agencies to tackle the problem. Cox’s office has also held four mortgage foreclosure forums to help families stay in their homes during these difficult times.

The former operators of an elegant Victorian-style bed & breakfast in northwestern Vermont have been indicted for mortgage fraud. Benjamin Osmanson, 29, of Sarita, Texas, and Jillian Protzman, 26, of Essex, Vermont, stand accused by the Office of the U.S. Attorney for the District of Vermont of obtaining more than $26,000,000.00 in fraudulent loans for the purchase of approximately 50 properties in California, Florida, Kentucky, and Vermont. According to the U.S. Attorney’s Office, Osmanson and Protzman owned The Historic Highgate Manor Inn (pictured above), located about 40 miles north of Burlington, VT, and 60 miles south of Montreal, Canada.

On Thursday, October 2, 2008, a federal grand jury in Burlington returned an eleven-count indictment charging Osmanson and Protzman with, among other offenses, conspiracy to commit wire fraud and money laundering. Benjamin Osmanson was arrested on 10/1/08 in Texas, while Jillian Protzman surrendered to the FBI in Burlington a week earlier.

The indictment alleges that from at least as early as January 2006 through at least April 2007, Osmanson and Protzman orchestrated the purchase of at least 50 properties in Vermont, California, Kentucky, and Florida in the names of at least 10 investors, obtaining more than $26,000,000.00 in loans to support the purchases. In Collier County, Florida alone, the pair is accused of obtaining more than 20 different residential properties.

According to the court documents, Ben Osmanson recruited friends, family members, and acquaintances to invest in real estate. Osmanson and Jillian Protzman then submitted fraudulent loan applications in the names of the investors to obtain fully-financed mortgage loans. The indictment states that Osmanson, Protzman, and others sought loans from multiple lenders and closed the loans for each investor within a short period of time in order to preserve the appearance of the investor’s good credit until the transactions were complete.

The indictment further alleges that Osmanson and Protzman enriched themselves with rebates, fees, and commissions connected to the fraudulent property purchases, and continued to recruit investors and submit applications for new loans even after the loans to the initial investors began to fail.

Relatively speaking, Vermont is far removed from the rest of the nation when it comes to real estate and mortgage fraud and foreclosure rescue scams. According to the latest U.S. Foreclosure Market Report™ published by RealtyTrac, Vermont continues to document the nation’s second lowest state foreclosure rate, with only one in every 17,198 households receiving a foreclosure filing in August.

Osmanson and Protzman, whose trial date has not been determined as of yet, face maximum possible terms of five years on the conspiracy count, 30 years on each count of wire fraud, and 10 years for each count of money laundering. However, as astute Flipping Frenzy readers know, the actual sentence in the event of a conviction will be determined in accordance with the federal sentencing guidelines.

The U.S. Attorney for the Eastern District of California announced last Friday morning that a federal grand jury returned an indictment charging Derek Davis — aka Terry McCullough, 62 — of Sacramento, California, and Dino Rosetti, 39 (pictured left), of Roseville, California, with mail fraud and making false statements in loan documents. Davis was separately charged with attempting to cause a financial institution to fail to file a currency transaction report, and Rosetti was separately charged with engaging in a monetary transaction in criminally derived property in an amount greater than $10,000.

Dino Rosetti (pictured above) was arrested last Friday morning by federal agents. Derek Davis was previously arrested on a criminal complaint and is in custody. Both were arraigned on the indictment at 2:00 p.m. Friday afternoon before United States Magistrate Judge Kimberly J. Mueller in Sacramento.

The Davis/Rosetti indictment is the product of an extensive investigation conducted by the FBI, the IRS-Criminal Investigation, the California Department of Real Estate, and the El Dorado County District Attorney’s Office.

According to Assistant United States Attorney Courtney J. Linn, who is prosecuting the case, the indictment charges that from June 2005 through December 2006, Derek Davis and Dino Rosetti engaged in a scheme to defraud mortgage lenders in connection with residential real estate purchases in Sacramento, El Dorado, and Placer Counties.

Davis recruited various individuals, including straw and nominal purchasers, to purchase 16 properties. He orchestrated the transactions and Rosetti, through his company 1st Option Mortgage, acted as the mortgage broker.

The indictment charges that the transactions involved fraudulent or false representations to obtain 100% mortgage financing, including misstatements about the purchasers’ monthly income, intent to occupy the property, and existing liabilities.

In addition, the indictment charges that in each transaction, the purchase price was above the true market price of the property. An amount approximately equal to the difference between the purchase price and the true market price was then diverted as “cash back” at the close of each escrow to the bank account of a Nevada Corporation called Calorneva Land Company.

As part of the scheme, Derek Davis caused the cash to be concealed from the mortgage lenders. The indictment charges that Davis in fact exercised control over the Calorneva Land Company bank account and used the fraudulently obtained funds for various purposes, including extensive cash withdrawals.

From U.S. Attorney McGregor Scott:

“Over the course of numerous investigations we have seen how fraud-for-profit mortgage schemes took root in our Sacramento-area housing market, particularly in this 2005 to 2006 time frame. There were undoubtedly many catalysts to the lending crisis that now grips our national economy. Mortgage fraud was one of them. As this investigation illustrates, the Department of Justice is committed to prosecuting those responsible for mortgage fraud, and to working with federal, state, and county law enforcement agencies to investigate and prosecute those involved in these activities.”

The maximum penalty for mail fraud is 30 years in prison if the fraud affects a financial institution, and a fine of up to $250,000, or twice the value of the gain or loss, whichever is greater. The maximum penalty for making false statements in loan applications is 30 years in prison and a fine of $1,000,000. The maximum penalty for engaging in monetary transactions involving more than $10,000 in crime proceeds is 10 years in prison and a fine of $250,000, and the maximum penalty for money laundering is 20 years in prison and a fine of up to $500,000 or twice the value of the money laundered, which ever is greater. The maximum penalty for causing or attempting to cause a financial institution to fail to file a currency transaction report is ten years in prison and a fine of $500,000.

The actual sentence, however, will be determined at the discretion of the court after consideration of the Federal Sentencing Guidelines, which take into account a number of variables and any applicable statutory sentencing factors.

A New Jersey woman who raised more than $10 million from hundreds of investors in connection with real estate investments has been arrested and charged with operating a Ponzi scheme. According to Justin W. Arnold, the Assistant U.S. Attorney handling the prosecution, Marcia Sladich, 50, of Clifton, NJ, was arrested yesterday morning by Special Agents of the FBI and Postal Inspectors at her home. Prosecutors have charged Sladich with one count of mail fraud, which carries a maximum statutory prison term of 20 years and a fine of $250,000.

The U.S. Attorney’s office for the District of New Jersey alleges that beginning in 2004 and continuing through at least August of 2007, Marcia Sladich solicited hundreds of investors, most of them members of her church, to invest money with her and her company, Kay Services, LLC. According to the Criminal Complaint filed in the case, Sladich told investors that she was partnering with a successful businesswoman who would be responsible for investing their money in real estate here in the U.S. and abroad. Prosecutors say Sladich promised investors that the investments were safe and secure and guaranteed 100% annual returns.

Contrary to the representation she made to investors, Sladich did not have a successful business partner. Rather, she forged that individual’s signature on numerous investment contracts to deceive investors. What’s more, there were no bona fide investments made on behalf of any investors during the course of the scam. To perpetuate her scheme, Sladich simply used new investor money to make required payments to existing investors (i.e., she ran a Ponzi scheme).

Sladich is said to have misappropriated at least $400,000 of investor funds to purchase real estate in Florida and in Brazil for herself, and used other investor funds to pay for numerous personal expenses, including credit card bills and everyday expenses.

My apologies for the length of this post but there was an interesting joint announcement today from the U.S. Department of Justice (DOJ) and the Federal Bureau of Investigation (FBI) that bears (no pun intended) commenting on. According to a press release titled “More Than 400 Defendants Charged for Roles in Mortgage Fraud Schemes as Part of Operation “Malicious Mortgage”,” from March 1st of this year until yesterday (June 18), a coordinated effort between the two agencies resulted in 144 mortgage fraud cases being cracked and 406 defendants being charged with related crimes.

On the surface, this looks like very big news, and as one would suspect, almost every media outlet in the country is covering the story. But when you really stop to think about it, sadly, the numbers touted in today’s announcement amount to very little. Certainly, every real estate and mortgage fraud-related arrest helps, but when you consider that there were 110 days between March 1st and yesterday, Operation Malicious Mortgage netted less than two real estate and mortgage fraud scams per day (or to be more precise, 1.30909091 scams per day for each day of the 110-day effort). I don’t know about anyone else, but less than two real estate and mortgage fraud-related scams being shut down per day–when by one estimate, more than 75% of all home loans closed leading up to the current mortgage meltdown contained some level of fraud–isn’t really that big of a deal.

But Ralph, you’ll say, 406 people who were committing these horrible crimes are no longer in the business of intentionally destroying the American dream of homeownership (which is like 3.69 arrests per day); doesn’t count for something?

Of course it does… it does count for something… it counts for what’s already happening across the country in terms of arrest volume for real estate and mortgage fraud-related crimes, and it’s still not enough to make much of a difference. By my own estimate, if I were to only report real estate and mortgage fraud-related arrests or indictments here on FlippingFrenzy.com (which I don’t because this site is about more than just indictments and arrests), and we were to go back and count the number of scams that were shut down (or the number of people arrested or indicted), I could come up with a pretty sexy number to rival that which the DOJ and FBI came out with today. In the grand scheme of things, today’s announcement is actually a little bit disappointing.

Of more interest to me than the 144 mortgage fraud cases being cracked and the 406 defendants being charged with related crimes, was this (from the same press release and summarized by Kate Kelly of The Wall Street Journal):

A federal grand jury in Brooklyn, N.Y., indicted two former Bear Stearns Cos. hedge-fund managers, alleging they misled investors when their fund was in peril, lied about their financial interest in the portfolios and destroyed evidence in the investigation. The high-profile criminal case, along with a parallel civil securities-fraud action by the Securities and Exchange Commission, marks the first criminal securities-fraud charges stemming from the mortgage-market crisis. The 27-page indictment paints a picture of the scramble by the managers, Ralph Cioffi and Matthew Tannin, to keep their hedge funds alive…

Everyone, including the FBI, likes to talk about how there are two types of real estate and mortgage fraud… Fraud for Housing and Fraud for Profit. Well, what about Fraud for Wall Street?

Read the following (from the Associated Press’ Tom Hays), and tell me if you too can spot the Fraud for Wall Street:

2 charged on Wall Street in mortgage meltdown
By TOM HAYS

NEW YORK (AP) — Two former Bear Stearns hedge fund managers were hauled into jail Thursday and charged with lying to investors about the collapse of the subprime mortgage market, perhaps signaling the start of a wave of prosecutions arising from the housing meltdown.

Ralph Cioffi and Matthew Tannin were accused of encouraging investors to stay in their hedge funds, heavily exposed to subprime mortgages, even as they knew the credit market was in serious trouble.

They were indicted on conspiracy and fraud counts, the first criminal charges to hit Wall Street in the housing market meltdown.

The eventual implosion of their two hedge funds cost investors $1.8 billion and started the domino effect that led the demise of Bear Stearns itself, which barely avoided bankruptcy in a rescue buyout by JP Morgan Chase & Co.

“This is not about mismanagement of a hedge fund,” Mark Mershon, head of the New York FBI office, told reporters. “It is about premeditated lies to investors and lenders.”

The arrests came as the Justice Department in Washington announced the indictments of more than 400 players in the real-estate industry since March in a crackdown on mortgage fraud. Sixty were arrested on Wednesday alone.

That alleged fraud includes misstatement of income or assets, forged documents, inflated appraisals and misrepresentation of a buyer’s intent to occupy a property as a primary residence.
The Bear Stearns case against Cioffi and Tannin appears to be based heavily on a series of e-mails that reveal panic and disorder behind the scenes at the hedge fund as its investments began to slide.

“The subprime market looks pretty damn ugly,” Tannin wrote to Cioffi in April 2007. If Bear’s internal reports were accurate, Tannin suggested, “I think we should close the funds now,” and “the entire subprime market is toast.”

The situation became so dire that Cioffi pulled $2 million of his own cash from the fund, but the pair still told investors that they should stay in and that the outlook was good, prosecutors said.

Cioffi, 52, was arrested by FBI agents at his home on the Upper West Side of Manhattan on Thursday morning, and Tannin, 46, was taken into custody outside his New Jersey home.

Both men pleaded not guilty at an afternoon arraignment and were released on bond. Each faces up to 20 years in prison. They left court with their wives and without speaking to reporters.

The mortgage market crisis “took the whole financial world by surprise,” said Cioffi’s attorney, Edward Little. “So our question is, why is Ralph Cioffi being charged in this case?” Tannin’s lawyer, Susan Brune, said he was “being made a scapegoat for a widespread market crisis. He looks forward to his acquittal.”

Legal experts said more Wall Street figures would probably be charged in the credit crisis, the latest front for white-collar prosecutors who brought — and in most cases won — high-profile cases earlier this decade after the fall of Enron.

“There is no doubt the government is always looking to go as high as they can,” said Bill Leone, a former U.S. Attorney in Colorado. “Any time you get losses into the billions, the likelihood that higher-level executives participated in decisions increases.”

Subprime mortgages were sold to people with less-than-ideal credit. Many of them began defaulting on their loans when the housing market fell and their introductory “teaser” interest rates shot up, making their payments unaffordable.

Because many of those mortgages were sliced and repackaged as securities that could be bought and sold, the mass defaults caused widespread pain among large U.S. banks.

The collapse of the two Bear Stearns funds is just a small part of the subprime crisis, which is still rippling through the economy.

Amid the fallout for banks, prominent CEOs have lost their jobs, including Citigroup Inc.’s Charles Prince, Merrill Lynch & Co.’s Stanley O’Neal and Bear Stearns Cos.’ own James Cayne, who was stripped of his CEO title.

Hedge funds cater to large investors and the very wealthy and use complex, speculative investing methods in hopes of winning enormous gains. They operate with little government supervision and have lately come under fire from regulators.

In the Bear case, the internal e-mails provide a window into the trouble that began to engulf the hedge funds in 2007.

The indictment describes a meeting of Cioffi, Tannin and two unnamed colleagues in which Cioffi confided the hedge funds had narrowly “averted disaster” in February 2007 — news that “led to a vodka toast to celebrate surviving the month.”

The complaint says Tannin expressed doubt about Cioffi’s management in an one e-mail last March to a third fund manager with only question marks in the subject line. The e-mail said, “Is Ralph doing what he should be doing right now?”

Around the same time, Cioffi wrote to a Bear Stearns economist: “I’m fearful of these markets. … As we discussed it may not be a meltdown for the general economy but in our world it will be. Wall Street will be hammered with lawsuits.”

Tannin and Cioffi were repeatedly telling investors and Bear Stearns brokers responsible for selling funds that the outlook was good.

In once instance, prosecutors said, Tannin encouraged an investor to add money to the fund and said he would do the same, but never did.

At the same time, prosecutors say, Cioffi pulled $2 million of his own money out of the fund, about a third of his stake, and put it into a separate fund without telling investors. He was charged with insider trading in addition to fraud.

The Bear Stearns hedge funds had more than $20 billion in assets before collapsing in June 2007. Just before the collapse, Cioffi fretted in an e-mail that “I’ve effectively washed a 30-year career down the drain” if he couldn’t turn things around, the indictment said.

The case demonstrates yet again how e-mail can trip up Wall Street executives.

Prosecutors used e-mail exchanges against former Credit Suisse Group banker Frank Quattrone and famed stock analysts Jack Grubman and Henry Blodget. But prosecutors struggled to win and maintain convictions in all of those cases.

Cioffi and Tannin have already been named in lawsuits brought last year by hedge fund investors who allege they were purposely misled.

The fortunes of Bear Stearns began to crumble around the same time that the fund collapsed, getting so bad that the Federal Reserve and JPMorgan had to intervene to save the once-mighty institution from bankruptcy earlier this year.

AP Business Writer Joe Bel Bruno contributed to this report.

As I told many of the reporters who called about today’s developments (including The Detroit News), what the popular media is finally getting around to reporting isn’t even the tip of the iceberg that sank the Titanic. While it’s true that today’s announcements are a step in the right direction, its also true that this nation’s real estate and mortgage fraud-related woes go much deeper than what Operation Malicious Mortgage has uncovered. Sadly, as I recently reported, our own Attorney General, Michael Mukasey, said just 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,’’ Attorney General Mukasey says.

Hey, Mr. Attorney General… to paraphrase James Whitcomb Riley: If it walks like a duck, quacks like a duck, and looks just like a duck, I would call it a duck.

The FBI, along with the U.S. Attorney’s Office for the Southern District of New York, announced today the filing of an indictment charging Dominick Devito and Robert Didonato with participating in a broad scheme to commit mortgage fraud, and Devito and Didonato, along with John Liscio and Louis Cordasco, Jr., with participating in an associated insurance fraud scheme. Devito was also also charged with obstruction of justice.

According to the indictment filed in Manhattan federal court:

From January 2002 through November 2004, Devito was the leader of a fraudulent real estate investment scheme, which had as its primary objective the purchase of multimillion-dollar residential properties in various communities in Westchester County–including Purchase, New York–with loans obtained through the submission of false and misleading information to banks and other lenders. Many of the loans were for amounts equal to or more than 100% percent of the property’s actual sale price, so that the defendants and their co-conspirators did not have to put any of their own money at risk in the transaction.

Devito identified properties for sale, orchestrated the purchase of the properties and performed construction work at the properties. Didonato was a residential real estate broker for Devito and other co-conspirators in their purchase of the properties, which were the subject of the scheme.

In order to further their scam, the defendants submitted to various federally-insured banks loan applications, contracts of sale, deeds, real estate transfer documents, title reports, and other documents which contained materially false or misleading information about the income, assets, existing debt and credit-worthiness of the borrower, the chain of title to the property, and the sale price of the home. They also indicated the borrower’s intent to reside in the property as a primary residence, when the properties were typically purchased for investment purposes.

Devito and Didonato cashed out on certain properties by taking additional private loans against the already fraudulently-inflated sale price of the properties. The proceeds of these loans–which were never repaid in full–were deposited in a bank account used for the benefit of Devito.

As a result of the their scheme to defraud, Devito and Didonato obtained millions of dollars in loan proceeds, enabling them to control certain properties that they otherwise would not have been able to purchase and finance. In addition, Devito and Didonato earned money from fees and commissions on the sale or re-financing of the properties. The banks, on the other hand, lost millions of dollars when the Devito and Didonato and their co-conspirators defaulted on mortgage payments and caused several of the properties to go into foreclosure.

In addition, from January 2003 through February 2005, Devito, Didonato, along with John Liscio and Louis Cordasco, Jr., engaged in a scheme to defraud insurance companies by submitting false and misleading insurance claims and supporting documents for water damage caused by broken pipes at several of the homes purchased as part of the mortgage fraud scheme.

John Liscio was a licensed insurance agent who sold insurance policies to the owners of the homes purchased in the scheme and helped Devito submit insurance claims for water damage. Louis Cordasco, Jr., working for a company that specializes in emergency clean-up services for water damage to residential homes, was responsible for performing emergency clean-up services for some of the homes that were damaged as part of the insurance fraud scheme.

In February 2005, Cordasco and Liscio also planned to break pipes at a home in Purchase, NY, in order to submit a false insurance claim for water damage.

The Indictment also charges Devito with obstruction of justice in connection with a 2003 proceeding in Manhattan federal court. Specifically, Devito submitted false and misleading information regarding the value of his assets and his personal net worth following his sale of a property in Purchase, New York.

All four are expected to be arraigned before a U.S. District Court Judge next Monday (May 5, 2008).

The FBI calls it the “latest scam on the block,” but for years now we’ve been warning people and reporting about scam artists who steal your identity and then your home. Now, after years of reporting and writing about this sinister act, the FBI is stepping up its efforts to make homeowners aware of the horrible connection between identity theft and real estate fraud.

Here’s how the scam typically works:

(Image courtesy of the FBI)

It can get even more complicated than this, as we can see from a fresh case out of California that the FBI investigated with the Internal Revenue Service. A Downey, California, real estate industry insider pleaded guilty this week to federal fraud and money laundering charges, and in doing so, admitting her role in a $12 million real estate fraud scheme that targeted homeowners in default on their mortgages and falsely promised them help. Martha Rodriguez, 35, pleaded guilty to one count of mail fraud and one count of money laundering in relation to the scheme that ran from May 2003 until November 2005.

By pleading guilty, Rodriguez admitted that she and several co-schemers located victim homeowners through computerized databases that list homes going into foreclosure. Rodriguez promised victim homeowners that their homes would get refinanced. However, instead of obtaining refinancing, Rodriguez and the other defendants charged in this case submitted loan applications in the names of straw buyers who were purportedly buying the property. In some cases, the straw buyers were paid for the use of their personal information. In other cases, the defendants used personal information of people without their knowledge.

The loan applications for the straw buyers–which always contained false information–caused a series of lenders to fund mortgages that otherwise would not have been funded. The loan proceeds were used to pay off the loan in default, and the remaining proceeds were skimmed off by Rodriguez and her co-schemers.

Even though they were promised that they would keep their homes, the victim homeowners lost title to their homes. The lenders suffered losses when the straw buyers failed to make loan payments and the second loans went into default. The scheme targeted commercial lenders and more than 100 homeowners across the the southern part of Los Angeles.

The scheme was operated through Rodriguez’s real estate and escrow agencies, Silvernet Properties in Downey and Bellasi Escrow in Seal Beach.

As a result of her guilty pleas, Rodriguez faces a maximum possible sentence of 40 years in federal prison. Rodriguez has agreed to forfeit to the government her interest in five homes, a truck and approximately $900,000 in cash that was seized by the government around the time of her arrest.

Rodriguez was indicted with four co-defendants. One of them–Cynthia Valenzuela, a 24-year-old Downey resident–pleaded guilty last Friday to mail fraud charges. Rodriguez and Valenzuela are scheduled to be sentenced by is United States District Court in Los Angeles on August 20.

Three remaining defendants are scheduled to go to trial on July 10:

• Vladimir Stefanovic, 35, of Lancaster, CA (Martha Rodriguez’s common-law husband)
• Edward Seung Ok, 40, of Huntington Beach, CA
• Maria G. Juarez, 36, of Diamond Bar

There’s no telling why the FBI chooses to highlight one real estate fraud bust over another, but buried deep within a recent report about Operation Homewrecker–an extensive mortgage fraud investigation by the FBI and IRS–was a very telling piece of information. According to Drew Parenti, Special Agent in Charge of the FBI’s Sacramento office:

“Mortgage Fraud has recently been elevated to the FBI’s highest financial crime priority, and we are attempting to address the numerous reports of fraud within the real estate industry that have occurred across the country.”

Parenti went on to say that the FBI is focusing more attention than ever on industry professionals, the insiders “who have manipulated the mortgage loan process for their own financial gain.”

Parenti’s comments come on the heels of one of the FBI’s latest real estate fraud-related indictments. According to Assistant U.S. Attorneys Laura Ferris, Rob Tice-Raskin, and Ellen Endrizzi, who are prosecuting the case, the charges are broken out into two separate indictments, “Head One” and “Head Two.”

Two days ago, the FBI announced the indictment of 19 individuals for mortgage fraud-related offenses under Operation Homewrecker. The leader of the nationwide scam was Charles Head, 33, of Los Angeles, California, who targeted homeowners in dire financial straits, fraudulently obtaining title to over 100 homes and stole millions of dollars through fraudulently obtained loans and mortgages.

According to the trio of Assistant U.S. Attorneys prosecuting the case, a federal grand jury returned the first set of charges in a 13-count indictment against 16 defendants with violations of mail fraud, conspiracy to commit mail fraud, conspiracy to commit money laundering and other related offenses. “Head One” involved a “foreclosure rescue” scam, netting approximately $6.7 million in fraudulently obtained funds taken from 47 homeowners, nearly all of whom were located in California.

From January 2004 to mid-March 2006, the defendants contacted desperate homeowners, offering two options allowing them to avoid foreclosure and obtain thousands of dollars up-front to help pay mounting bills. If the homeowner could not qualify for the first option, which virtually none could, they would be offered the second option. Under the latter option, an “investor” would be added to the title of the home, to whom the homeowner would make a rental payment of an amount allegedly less than their mortgage payment, thereby allowing the homeowner to repair their credit by having the mortgage payments made in a timely fashion.

Unfortunately all of this was a scam. The defendants would recruit straw buyers as the investors and oftentimes these individuals would in fact replace the homeowners on the titles of the properties without the homeowners’ knowledge. These straw buyers were often friends and family members of the defendants. Once the straw buyer had title to the home, the defendants immediately applied for a mortgage to extract the maximum available equity from the home. The defendants would then share the proceeds of the ill-gotten equity and rent being paid by the victim homeowner. When the defendants ultimately would sell the home, stop making the mortgage payment, and/or pursue an eviction proceeding, the victim homeowner was left without their home, equity, or repaired credit.

The following defendants were charged in the February 28, 2008 “Head One” indictment:

• Charles Head, 33, of La Habra, California
• Jeremy Michael Head, 30, of Huntington Beach, California
• Elham Assadi, aka Elham Assadi Jouzani, aka Ely Assadi, 30, of Irvine, California
• Leonard Bernot, 51, of Laguna Hills, California
• Akemi Bottari, 28, of Los Angeles, California
• Joshua Coffman, 29, of North Hollywood, California
• John Corcoran, aka Jack Corcoran, 52, of Anaheim, California
• Sarah Mattson, 27, of Phoenix, Arizona
• Domonic McCarns, 33, of Brea, California
• Anh Nguyen, 36, of Los Angeles, California
• Omar Sandoval, 32, of Rancho Cucamonga, California
• Xochitl Sandoval, 29, of Rancho Cucamonga
• Eduardo Vanegas, 28, of Phoenix, Arizona
• Andrwe Vu, 39, of Santa Ana, California
• Justin Wiley, 28, of Irvine, California
• Kou Yang, 32, of Corona, California

On March 13, the federal grand jury returned a five-count indictment in “Head Two” against seven defendants, including:

• Charles Head, John Corcoran, Kou Yang, each also charged in “Head One”
• Keith Brotemarkle, 42, of Johnstown, Pennsylvania
• Benjamin Budoff, 41, of Colorado Springs, Colorado
• Domonic McCarns, 33, of Brea, California
• Lisa Vang, 24, of Westminster, California

“Head Two” involved an equity-stripping scheme that netted approximately $5.9 million in stolen equity from 68 homeowners in states across the nation. While still targeting distressed homeowners and defrauding mortgage lenders through the use of straw buyers, this time Charles Head altered the scheme so that he would receive approximately 97% of the stolen equity, while his employees, and the other defendants, would receive either the remaining 3% of equity or a salary from the fraudulently-obtained funding.

Instead of recruiting friends and family members as straw buyers, as in “Head One,” in “Head Two” the defendants recruited strangers via the Internet. They also used referrals from mortgage brokers to identify and solicit new victim homeowners. Beyond advertising on the Internet, the defendants also would send blast faxes to mortgage brokers throughout the United States and generate mass emails to potential victims. Through material misrepresentations and omissions, victim homeowners would be offered what appeared to be their last best chance to save their homes. Unfortunately, as in “Head One,” these victims also were left without their homes, equity, or repaired credit.

Following a two-week trial, a jury in federal district court returned guilty verdicts late Monday afternoon against Keith Garner, Gregg Savage, Shalonda Harris, all of Atlanta, Georgia, and Latesha Garner, of Durham, North Carolina, on charges of conspiracy to commit mortgage fraud and wire fraud related to $6 million in fraudulent real estate financing from SunTrust Mortgage Company over a ten week period in the summer of 2006.

According to court documents, Keith Garner, 48, solicited his daughter, Latesha Garner,27, a loan processor with SunTrust Mortgage, in the spring of 2006 to handle fraudulent loan applications submitted on behalf of straw borrowers recruited by the elder Garner and his co-conspirators. Because she was responsible both for verifying borrower employment and asset information as well as for approving closing documentation, Latesha Garner was uniquely positioned to defraud SunTrust Mortgage, which she did by falsely verifying borrower credentials and approving hundreds of thousands of dollars in false payoffs to her father.

Keith Garner paid Latesha $33,000–the equivalent of one year’s salary–across four transactions to facilitate his criminal scheme. He also enlisted the help of Susan Khodadad, a closing paralegal with several area real estate firms, to ensure that the false payoffs to Garner and his co-conspirators were included in SunTrust Mortgage’s loan documentation. Khodadad pleaded guilty to the conspiracy count of the indictment prior to trial and testified against her co-conspirators.

Focusing on the “Country Club of the South” and other high-end developments and subdivisions in the Atlanta area, Keith Garner and his fellow fraudsters acquired numerous properties in the name of their straw borrowers, often without the straw borrower’s consent. Each of the properties was accompanied by an inflated appraisal, which, in addition to the submission of false loan applications, enabled Garner to secure real estate financing from SunTrust Mortgage in excess of the fair market value of the properties. He then stole the “spread” between the inflated and fair market value of the properties primarily through Latesha and Khodadad, who ensured that SunTrust Mortgage either directly paid a bogus seller’s obligation or was never made aware that a substantial portion of seller’s proceeds was being paid to the defendants outside of closing pursuant to a criminal agreement with the seller.

Gregg Savage, 24, was convicted of realizing more than $830,000 in false profits in just seven days as a seller of two properties, from which he paid Keith Garner $200,000 for supplying the straw buyers. Shalonda Harris, 36, a licensed REALTOR, was convicted of receiving $66,000 from Keith Garner and Savage related to her role in locating properties and straw buyers on two indicted transactions.

Each faces a 20-year prison term and $250,000 fine on the conspiracy count of the indictment and a separate 20-year prison term and $250,000 fine on each of their wire fraud convictions. A sentencing date has not yet been scheduled.

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.

Investigators from Nevada’s Secretary of State office today arrested a 64-year-old Las Vegas man on 32 felony charges related to the fraudulent purchase of Las Vegas area homes. State officials served Matthew Marlon with an arrest warrant earlier today when he arrived at the home of two of his victims who were cooperating with investigators. Marlon, who is described as a local businessman, is scheduled for arraignment tomorrow morning at 7:30 a.m.

Marlon is currently facing numerous charges, including:

• Thirty-two (32) counts of offering a false document for filing or recording
• Two (2) counts of theft of property by false pretenses
• Two (2) counts of obtaining property by false pretenses from victims over the age of 60
• Five (5) counts of forgery

According to Secretary of State officials, Marlon targeted homeowners who were anxious or desperate to sell their homes. Using an alias, he would tell a homeowner that he would assume the responsibility of their mortgage in exchange for the deed to the home and, in some cases, a small amount of cash, sometimes as little as $200.00.

After taking physical possession of the home, Marlon would then rent the home to new tenants, collecting rent, but never paying the mortgage as he had promised the original homeowner. Homeowners would then find out after a few months had passed, that no payments had been made on the loan, which was still in their name.

Nevada officials believe Marlon used a series of fraudulently created corporations as part of the transactions, and made promises to his victims that were not made in the documents he presented for the victims to sign. He also told his victims that a real estate agent could not be involved in the transaction, and that he would take care of all the paperwork. To the unsuspecting victims, what Marlon presented was an opportunity to avoid looming foreclosure and a ruined credit rating.

State officials are continuing their investigation by working directly with the office of Nevada’s Attorney General. Homeowners should always be aware that if they sell their home but do not make sure that the mortgage is paid off as part of the transaction, they will still be obligated to pay the lender and the property will go into foreclosure. Using a reputable title company should assure that the mortgage is paid off by the buyer before title to your home is transferred. Most mortgages cannot be “transferred” to a new person without the lender’s written permission.

Some of the warning signs of potentially questionable or fraudulent mortgage deals include:

• You are asked to sign a deed or other papers, and the seller promises to pay off your mortgage, but no escrow is opened
• You are told that a real estate agent or title company “doesn’t need to be involved”
• You are told that the buyer will “take over the payments”
• The buyer tells you he will buy your house for the sum of the mortgages owing and an additional amount of money which he will pay in cash.

State officials are seriously concerned that the initial charges against Marlon represent just the tip of the iceberg. If you live in Nevada and believe you have been the victim of real estate or mortgage fraud, please contact the Nevada Secretary of State’s office at (702) 486-2440, or (775) 688-1855.

For more about this case, read the Criminal Complaint against Matthew Marlon.

• 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 Launches Mortgage Fraud Task Force in the Nation’s Capital: The FBI is launching a mortgage fraud task force in its Washington field office, joining a widening net of state and local investigators digging into the market crisis. Investigators are seeking to uncover evidence of overvalued home appraisals, shoddy lending practices and alleged irregularities in the packaging and sale of groups of loans that were marketed to ordinary investors, state investment funds and big Wall Street banks.
• Foreclosure Fraud: Freddie Mac Warns Borrowers with Video Dramatization on ‘YouTube’: Can a custom made video posted to YouTube keep troubled borrowers from losing their homes to fraud artists? Freddie Mac aims to find out. One of the nation’s largest investors in residential mortgages, Freddie Mac decided to produce an Internet video dramatizing a common foreclosure fraud scheme after a new survey found one in four delinquent borrowers go to the Internet before their bank or lender for information about avoiding foreclosure. Freddie Mac’s anti-fraud video can be found at http://www.youtube.com/AvoidFraud.
• Six face federal indictments in Provo, Utah mortgage fraud scheme: Six people have been indicted on federal charges for an alleged mortgage fraud scheme that inflated the value of high-end homes in an affluent Provo neighborhood. Prosecutors say the six formed a network of mortgage brokers, investors, real estate agents, appraisers, straw buyers and escrow agents to fraudulently obtain loans secured with property worth less than the loans.
• In Modesto (Calif.), Fraud Destroyed The American Dream For Many: The terms of the loans may have been unusual. But for many of the immigrants who signed up for them, they were simply a way to afford the $300,000 and $400,000 new homes along streets with names like Rancho Encantado and a litany of saints.
• Lousy credit? Buy somebody else’s: The Bush administration came up with one fix for some sub-prime borrowers who are in trouble. A San Diego company offers another: Buy a better credit score. With one or more of the “seasoned primary accounts” that TradeLine Solutions Inc. began selling this week, the company’s website says, you can “dramatically increase your credit score” for as little as $1,199.

A 60-year-old Washington, DC man has been sentenced to nearly six years in federal prison for engaging in what the FBI says was a scam to obtained money by selling–or offering to sell–homes he did not own. George A. Cowser’s scam netted over $1 million. He was order to pay nearly $560k in criminal penalties and $30k in victim restitution. Following his incarceration, Cowser will have to serve three years of supervised release, during which time he cannot buy, sell or list any property, or open any credit lines or engage in any financial transactions over $5,000.

According to the indictment, between May of 2005 and March of 2006, Cowser devised a scheme to defraud homeowners, buyers, and a mortgage company by making false and fraudulent pretenses, representations, and promises. The purpose of the scam was clear–to sell or attempt to sell real estate in the District of Columbia that Cowser claimed to own or was his to sell by virtue of a particular company’s (Reverse Properties, Inc.) interest in the property.

Neither Cowser nor Reverse Properties, Inc. owned any of the properties, had an independent claim of ownership to the properties, or had any contract to sell the properties on behalf of their true owners. Even though Cowser knew he did not own the properties, he signed sales contracts and closed on the transfer of the properties for significant personal profit.

In one sale, Cowser used a forged deed to claim ownership of a home in the 1300 block of West Virginia Avenue, NE. Amazingly, he succeeded in selling the property to three separate individuals, obtaining money from all three, and actually engaged in two separate closings to two separate people in the same week! Because of the closings, Cowser or his corporate designee received over $540,000, some of which was used to purchase a new car.

Cowser also attempted to fraudulently sell at least two other houses, one in the 1200 block of Orren Street, NE, and the other in the 1300 block of W Street, SE. He did so by signing fraudulent quit claim deeds and recording the quitclaim deeds with the D.C. Recorder of Deeds. He then obtained money from the purported buyers, unbeknownst to the true homeowners. In both cases, the sales did not successfully close. Nevertheless, the FBI says the buyers were not able to recover all of their money and that the true owner of one of the homes had her personal property damaged, including antique furniture, when it was moved out of her house without her knowledge during the attempted sale.

As part of his scam, Cowser claimed that he owned dozens of properties throughout the District of Columbia, even though, in truth, he didn’t own any, and wasn’t even a registered real estate agent. During its investigation, the government discovered that prior to his arrest, Cowser had executed at least 14 forged quit claim deeds to various properties throughout the District of Columbia; each of the forged deeds contained a forged signature of the true owner of the property. Although Cowser did not record these particular deeds, he did use them to defraud other investors out of some serious money.

Christopher Rakel, 29, of St. Louis County, Missouri has been charged in a two-count indictment alleging a far-ranging scheme to defraud banks and mortgage lenders and money laundering. According to the indictment, Rakel, a mortgage broker with Tri-State Mortgage, facilitated the purchase of dozens of fraudulent real estate transactions, primarily in South St. Louis, during 2005 and 2006. Rakel would prepare fraudulent loan applications and other documents to assist buyers in obtaining millions of dollars in financing they could not otherwise obtain. The indictment alleges the mortgage fraud scheme involved dozens of properties, and a number of co-conspirators, including investors, mortgage brokers and appraisers.

Rakel was indicted by a federal grand jury on one felony count of conspiracy to commit bank, wire and mail fraud, and one felony count of money laundering. If convicted, he faces up to 15 years of imprisonment and $500,000 in fines.