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

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

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

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

Charged in the scheme are:

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

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

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

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

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

Details of the scheme include:

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

It took nearly 13 months and a change in administration, but Florida’s Attorney General’s Office has finally issued an official consumer advisory warning Floridians of common mortgage fraud scams. Back in January of 2006–as evidenced by this blog entry, I sent a letter to each and every states’ Attorney General warning of the growing problems associated with real estate and mortgage fraud. Last Friday, Florida’s recently elected Attorney General, Bill McCollum, revealed that mortgage fraud-related scams are included among the top ten categories of complaints received by his office over the last 12 months, and encouraged residents to be aware of scams and fraud aimed at Florida homeowners.

There are several variations of home equity scams which homeowners everywhere should be aware. Equity Stripping occurs when a lender encourages a prospective homeowner to manipulate their loan application in order to qualify for a greater loan amount. Loan Flipping involves lenders who repeatedly encourage homeowners to refinance their loans, which may require them to borrow more money and as a result, accumulate higher fees. Other scams include baiting and switching, where the lender offers one set of terms prior to the loan application and then pressures consumers to agree to a different set of terms after the application is signed. Deceptive Loan Servicing, another common complaint, happens when lenders do not provide their clients with accurate or complete account statements and payoff figures.

Consumers shopping for a mortgage loan should take into consideration high interest rates and additional costs which could place undue financial burdens. Always shop around before choosing a lender and do not sign a loan agreement if the terms are not the same as those you were given when you applied. You should also always ask for explanations of any dollar amount, term or condition you don’t fully understand, and if you’re using a broker, research the brokers’ credentials to ensure they are properly licensed and certified before entering into a contract.

In addition to tips, strategies, and warnings that can be found throughout FlippingFrenzy.com, Florida’s Attorney General’s Office provides the following tips to consider when applying for home equity loans:

• Keep careful records of any amount paid
• Lenders should never pressure applicants
• Read all items on the contract or application carefully
• Never sign an application or contract with blank spaces
• Ask specifically if credit insurance is required as a condition of the loan
• Check contractors’ references for any construction and get more than one estimate

Florida’s Home Ownership and Protection Act of 1994 addresses certain unfair and deceptive practices in home equity lending. The law establishes requirements for certain loans with high rates or high fees. Additionally, the act prevents balloon payments, which are large lump-sum payments scheduled at the end of a series of considerably smaller periodic payments and negative amortization which arises when the mortgage payment is smaller than the interest due and causes the loan balance to increase rather than decrease. The law also prevents default rates that are higher than pre-default rates and most prepayment penalties.

My apologies for the length of today’s post, but it’s a good one. A few weeks ago I sent the following letter to each and every states’ Attorney General:

———————————————————–
Dear Attorney General,

Ralph R. Roberts
———————————————————–

As of this morning, I’ve only heard back from five (5) of the Attorney Generals we wrote to. Here’s a summary of what each has had to say:

From the office of the Attorney General for the District of Columbia (Washington, DC):

Dear Mr. Roberts,

Your email dated January 11, 2006 to the Mayor and Attorney General was forwarded to the Department of Insurance, Securities and Banking for a response. My name is Stephen M. Perry and I am the Associate Commissioner of the Enforcement and Investigation Bureau, Department of Insurance, Securities and Banking (DISB).

My Bureau has responsibility, along with the DISB Banking Bureau, to be vigilant for real estate and mortgage frauds in the District of Columbia. We actively investigate any reports of these types of fraud. I am familiar with the Ralph Roberts web site “Flipping Frenzy.com” and your “On Demand Video web cast”. We will continue to check your web site for the very informative ” Mortgage Fraud Alerts” and act on any that refer to the District of Columbia.

We sincerely appreciate your interest in fighting fraud and the service you provide state regulators by educating the public on real estate and mortgage fraud.

Sincerely,

Stephen M. Perry, Director-Enforcement & Investigation Bureau
DC Department of Insurance, Securities and Banking (DISB)

From Arizona Attorney General Terry Goodard’s office:

The Consumer Protection and Advocacy Section of our office would like to thank you for the information you sent. Viligant citizens like you are the main source of information for our consumer fraud work. The time and effort it takes for consumers to pass on information to us does not go unnoticed.

To keep track of this practice, we will keep your correspondence in our records. The information you provided will help us monitor questionable business practices and determine priorities in our law enforcement efforts and legislative recommendations.

If we can assist you in the future, please do not hesitate to contact our office. Again, thank you for your good citizenship.

Sincerely,

Pamela Crabtree
Legal Assistant

From Georgia Attorney General Thurbert Baker’s office:

The Attorney General has asked me to respond to your recent letter. Please be aware that our office serves as legal counsel for state government. Therefore, we will be forwarding your information to the Federal trade Commission (”FTC”). The FTC is vested with the authority to investigate matters like the one that concerns you. You can address any future complaints to the FTC by filing an online complaint to www.ftc.gov/ftc/complaint.htm . I have included their address for your convenience.

Federal trade Commission
Consumer Response Center
600 Pennsylvania Avenue, N.W.
Washington, DC 20580

Think you again for bringing this matter to our attention. I regret we were unable to assist you, but trust you will find this responsive to your request.

Sincerely,

Jeffrey W. Stump
Assistant Attorney General

From Ohio Attorney General Jim Petro’s office:

Thank you for your recent letter regarding [sic: Credit Launchers]. Attorney General Petro always appreciates receiving information of this type from concerned citizens like you.

Letters such as yours are the source of much of our information and often the first indication of a problem that may warrant investigation. The information you have provided will be recorded in our complaint retention system that enables us to identify patterns of questionable business practices that may violate Ohio’s consumer laws.

With the assistance of citizens such as you, we can continue working to eliminate deceptive and unconscionable practices in the Ohio marketplace.

Again, thank you for taking the time to bring this issue to our attention. Please feel free to contact our office in the future with any of your consumer-related concerns.

Very truly yours,

Jonathan L. Ward
Consumer Protection Specialist

Jonathan from the Ohio AG’s office has since followed up via e-mail with the following:

We have received your complaint regarding [sic: Credit Launchers]. Unfortunately, you failed to provide me with Credit Launchers address. Before your complaint can be assigned to a Complaint Specialist for mediation, this information must be provided. Please send this information to me as soon as possible so I may process your complaint in an expedient manner.

Attorney General Petro appreciates the opportunity to serve you.

Very truly yours,

Jonathan L. Ward
Consumer Protection Specialist

Ohio’s attention and responsiveness is in stark contrast to North Dakota’s. See for yourself:

I am responding on behalf of the Attorney General to your email. The Attorney General and his staff are prohibited by law from providing legal advice or legal assistance to members of the public or private businesses - we may only serve as legal advisors to state agencies and officials, state’s attorneys, and certain city officials.

This office does not have authority to enact new laws or change existing laws; the next legislative session begins January 1, 2007. Thank you for contacting us with your concerns; we will keep this information on file for future reference.

Liz Brocker
Executive Assistant/PIO
ND Office of Attorney General

Here’s my reply to Liz in the North Dakota AG’s office:

Dear Ms. Brocker,

Thank you for your e-mail correspondence dated January 11, 2006 (referenced below). Given the tenor of your reply, I have no option but to believe one of two things:

1. You did not read my original message in its entirety; or
2. You misunderstood the message in its entirely.

To recap, I wrote to your office on January 10, 2006 (see attached), to share information–not to, as your response alluded to, request “legal advice” or “legal assistance.” In short, I wrote to “inform” the North Dakota Attorney General of fraudulent real estate-related activities taking place in North Dakota.

In closing, I would sincerely appreciate a more appropriate response to my correspondence than the one you sent (which, quite frankly, felt like an automated response rather than one which took into account the facts and data I so freely and sincerely shared).

Respectfully,

Ralph R. Roberts

My reply brought the following one back from Liz in the ND AG’s office:

The “legal advice” language is disclaimer language that is included in all our email responses. I assure you I read your entire email, as did my supervisor when she approved my response.

Our consumer protection division has not received any consumer complaints relating to the companies referenced in your email, nor are we aware of any such operations in North Dakota at this time. You may be interested in reviewing North Dakota’s consumer fraud statutes, online at: http://www.legis.nd.gov/cencode/t51c15.pdf, and information on our website at: http://www.ag.state.nd.us/CPAT/ConsumerInfo.htm, and http://www.ag.state.nd.us/CPAT/ScamsShamsFlimFlams.pdf.

If the alleged activity is currently occurring outside North Dakota’s borders, you may find it more helpful to contact the US Attorney’s office or Attorney General’s office having jurisdiction. As previously indicated, we will keep your original email on file for future reference.

Liz Brocker
Executive Assistant/PIO
Office of Attorney General

We’ve since been able to uncover Credit Launcher attempting to operate in North Dakota, so we’ll be contacting the ND AG again!

If anyone would like to join us in our letter writing campaign, simply leave a comment in the ‘Comment’ section below. Together we CAN put an end to Real Estate-related fraud!