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

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

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

To update a story we first told you about on October 13, 2008, Derek Davis — aka Terry McCullough, 62, of Sacramento, California — pled guilty last week to mail fraud and structuring currency transactions with a financial institution to evade Currency Transaction Reports (CTR) in connection with his role in a widespread mortgage fraud scheme involving cash-back-at-closing. Davis’ misdeeds cost lenders more than $2,500,000.

According to Assistant United States Attorneys Courtney Linn and Phil Ferrari, Derek Davis admitted that between March 2005 and December 2006, he participated in a mortgage fraud scheme in which several individuals purchased approximately 20 residential real properties using a form of 100 percent financing called “80/20.”

In the transactions, Derek Davis caused material misstatements to be made about the purchasers’ monthly income and intent to occupy the property. He further admitted that in the transactions an amount approximately equal to the difference between the purchase price and the true market price of the properties was credited as cash-back-at-closing of each escrow to the bank account of a Nevada Corporation he controlled called Calorneva Land Company.

Not surprising, Davis concealed the cash-back-at-closing credits from lenders. Some of the proceeds from the cash back facet were diverted to accounts held in the name of third parties, but in fact controlled by Derek Davis, and used for a variety of purposes, including making mortgage payments on several of the properties. In total, approximately $1,400,000 was transferred to Calorneva Land Company from escrow companies in connection with the approximately 20 real property transactions.

Cash-back-at-closing schemes prey upon lenders willing to finance as much as 100 percent of the purchase price of real property.

Derek Davis is scheduled to be sentenced on February 27, 2009. Charges remain pending against a second defendant in this case, Dino Rosetti, who is next scheduled to appear in court this Friday, January 9, 2009.

California REALTOR® Jose Oliva Sentenced for Real Estate Fraud: A real estate agent from Fontana, Calif., who was arrested in July of this year on felony charges connected to real estate fraud, has finally been sentenced… to six (6) months in jail followed by three (3) years probation.

John Matouk pleads guilty in Michigan of quitclaim deed fraud: According to the Wayne County Prosecutor’s Office, in February 2004, Matouk, who owned half a property in the 1100 block of Telegraph in Dearborn, forged a quitclaim deed from an elderly couple that transferred the entire property to his company, LM Investments of Dearborn LLC. Before his sentencing last week, Matouk was ordered to pay $26,000 in real estate taxes, the outstanding balance on a $650,000 loan, and court and probation costs. Because of his plea, Matouk received a sentence of two (2) years’ probation.

Rockland County, New York, task force targets mortgage fraud: Rockland County, NY, officials are trying to fight the worsening mortgage fraud problem by forming a Real Estate Fraud Investigation Task Force. The task force, a joint effort of Rockland District Attorney, County Clerk and County Sheriff, will investigate and prosecute cases involving recorded real estate documents, with an emphasis on instances in which the victim’s home is at risk of foreclosure.

U.S. Attorney charges Missouri mortgage brokers with cash-back-at-closing fraud: John F. Wood, United States Attorney for the Western District of Missouri, announced that several mortgage brokers are among six Missouri residents indicted by a federal grand jury last week for participating in several related mortgage fraud schemes. Charles M. Davis, 34, of Rogersville, Mo., Cheryl Joan Kassebaum, 42, and her husband, Scott Allen Kassebaum, 42, both of Ozark, Mo., Randall Lee Hall, 59, and Shanda Lynn Moore, 44, both of Springfield, Mo., and Steven Ray Spencer, 47, of Carl Junction, Mo., were charged in a 55-count indictment returned by a federal grand jury in Springfield. Davis, a former mortgage broker, was the owner of Master Marketing Consultants. The Kassebaums, former mortgage brokers, were owners of Metro Consulting Group. Hall is a former mortgage broker.

Westport, Connecticut, mortgage broker Fred Stevens pleads guilty to mortgage fraud: Stevens, 53, of Easton, Conn., is charged with submitting fraudulent mortgage applications with IndyMac Bank and other financial institutions resulting in losses of over $1,000,000.

Florida real estate appraiser Juan Gonzalez guilty of mortgage fraud: Gonzalez fraudulently obtained loans on more than 40 properties, victimizing numerous lenders and grossing over $5,000,000 in the process. As a result, the 51-year-old will spend the next 30 years in federal prison and pay a $1 million fine.

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.

John C. Richter, the United States Attorney for the Western District of Oklahoma, announced last Friday afternoon that Terry Hugh Mahon, 69, of Broken Arrow, Oklahoma, has been sentenced to 13 years in federal prison in connection with a fraudulent investment scheme involving cash-back rebate coupons and home mortgages.

On March 26, 2008, a jury found Terry Mahon guilty on charges of conspiracy, mail fraud, and money laundering. Mahon has been incarcerated since the jury’s verdict in March. A co-defendant, Grover Harold Phillips of Stillwater, Oklahoma, pled guilty to conspiracy and money laundering on March 21, shortly before trial. His sentencing is pending.

Mahon and Phillips concocted a scheme whereby they falsely promised buyers and homeowners that if they took out a new mortgage or refinanced their existing mortgage they could pay it off in just five years, but there was just one catch — they had to buy a bogus “cashback rebate coupons” which promised financial freedom but delivered nothing but misery.

Starting in the year 2000, Terry Mahon operated a Nevada corporation called Rebates International, Inc., with its office in Hollister, Missouri. Grover Phillips worked in tandem with Mahon through a Nevada business trust called Amsterdam Fidelity Business Trust (Amsterdam’s offices were located in Phillips’s home in Stillwater, Oklahoma).

The evidence at trial showed that from 2000 to 2003, Phillips and Mahon worked with other people, including Emzie Huletty of Oklahoma City, to sell cashback rebate coupons that would supposedly allow purchasers to pay off their home mortgages in five years.

Mahon and the other conspirators made false representations that if victims paid 17% of the value of their homes to them, they would receive rebate coupons worth the entire value of their homes. The money that they paid was to be invested in high-yield trading programs, according to court documents. At the end of five years, the victims could supposedly redeem these rebate coupons for face value and pay off their mortgages.

Many victims re-financed their homes to generate the 17% required to participate in the program.

According to U.S. Attorney Richter, the jury in Terry Mahon’s case heard more than two days of testimony, including evidence offered by victims who took out mortgages so that they could pay tens of thousands of dollars into the program. The evidence presented at trial demonstrated that the only investment in anything resembling a “high-yield” trading program was a $50,000 payment in April of 2002 to OsGold, a massive Ponzi scheme that folded in the wake of a federal investigation.

The jury in this case also heard evidence that Terry Mahon and other conspirators siphoned off hundreds of thousands of dollars that were supposedly to be invested for the benefit of coupon holders.

After deliberating just over an hour, the jury convicted Mahon on all four counts in which he was charged. These included conspiracy to commit mail fraud, using a commercial interstate carrier to commit fraud, engaging in a financial transaction over $10,000 in criminally derived proceeds, and engaging in a financial transaction designed to conceal the nature of the funds involved.

Terry Mahon was sentenced to 13 years in prison for his crimes. He was also ordered to pay $3,079,684.95 in restitution to hundreds of victims and is subject to a forfeiture order in the amount of $1,061,294.85.

Emzie Huletty, who operated EASE Corporation, Vision Services, Inc., and Sunset Financial Group, all located in Oklahoma City, pled guilty to mortgage fraud on March 24, 2006, and was sentenced to two years in prison.

Hats off to the great investigative work conducted by the FBI and the Criminal Investigative Division of the IRS with the assistance of the Oklahoma Department of Securities.

The U.S. Attorney for the Eastern District of California announced that a federal grand jury returned an indictment yesterday charging nine people in connection with a mortgage fraud scheme involving the purchase of 13 properties in Solano County, California, in 2006. The individuals charged include:

• JOY JOHNSON, 33, former RE/MAX Real Estate Agent, Vacaville, Calif.
• CORY WHALEN, 33, of Solano County, Calif.
• ELIZABETH CARRION, 38, of Vacaville
• LENIN GALEANO, 32, of Vacaville
• CARMEN GALEANO, 30, of Vacaville
• ANGELITO EVANGELISTA, 39, of San Francisco, Calif.
• CLARISA ANG, age 43, of Elk Grove, Calif.
• CRIS ANG, 46, of Elk Grove
• LYDIA ANG, 71, of American Canyon, Calif.

According to the U.S. Attorney’s office for the Eastern District of California, the indictment charges ELIZABETH CARRION, ANGELITO EVANGELISTA, CLARISA ANG, CRIS ANG, and LYDIA ANG with mail fraud arising out of their involvement in the fraudulent purchase of 11 real estate properties between May 2006 and September 2006.

The indictment further charges LENIN GALEANO, CARMEN GALEANO, CRIS ANG and CLARISA ANG with making false statements to a financial institution in connection with the purchase of two additional real estate properties in April and May of 2006.

Finally, the indictment charges ELIZABETH CARRION, ANGELITO EVANGELISTA, CRIS ANG, CLARISA ANG, CORY WHALEN, LYDIA ANG, and JOY JOHNSON with engaging in monetary transactions involving more than $10,000 in criminally derived property.

The scheme involved purchasing properties at prices substantially higher than the list price without the lenders’ knowledge. They were entirely financed with so called “80/20″ loans. The difference between the list price and the inflated sales price was then credited at the close of escrow to fictitious businesses controlled by the defendants and others. The defendants and others then used the credited funds mainly to make mortgage payments on the properties and for their own living expenses. In addition, the loan applications contained false information about income, personal assets, and intent to occupy properties as a primary residence. Most of the loans that were secured by the properties have either been foreclosed upon or are in default.

The maximum penalty for mail fraud in these cases is 20 years in prison, a fine of up to $250,000, or both. The maximum penalty for making a false statement to a financial institution is 30 years in prison, a fine of up to $1,000,000, or both. The maximum penalty for engaging in a monetary transaction involving criminally derived property is 10 years, a fine of up to $250,000, or both.

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

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

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

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

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

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

My background

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

January 2007

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

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

Developer/Seller – Partners:

• Crown - California company
• MCZ Centrum - Chicago company

Sales and Marketing by:

• Urbis Properties, Cheryl King, Owner (Licensed)

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

March 2007

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

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

Power Broker No. 1 - Moser & Perry

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

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

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

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

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

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

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

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

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

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

Summer 2007

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Ruth Lamb

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

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

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

Late in 2007 I received a tip about exclusive opportunities to invest in Cay Clubs Resorts. Apparently, several investors had already seized the opportunity, and more than a few of them felt that they had fallen victim to a scam. I decided to take a closer look.

I fired up my computer, headed to Google, looked up “cay clubs resorts,” and clicked the most promising-looking link. This took me to the official Web site of Cay Clubs Resorts at www.cayclubs.com, where I learned that Cay Clubs Resorts had “headquarters in Clearwater, Florida and operations throughout the Florida Keys, Orlando, Las Vegas, Sarasota and Colorado.” (Soon after I began investigating Cay Clubs Resorts, access to its Web site was blocked.)

I found a phone number for Cay Clubs Resorts and placed a call. A few weeks later, a representative by the name of Dani Potter, a licensed real estate agent for Jet Realty (5526 W.13400, Suite 501, Herriman, UT 84096), called me back and delivered her sales pitch. She informed me that the company had different investment opportunities in Florida; Las Vegas, Nevada; and a new project in Galveston, Texas. She sent me pricing on a few units and information for two of their “preferred lenders.”

She also offered me the option of participating in what she referred to as “the fund.” As Potter described it, the fund was the creation of Ren Richardson and Mike Hansen, who set up a company that managed the fund — H & K Asset Management LLC. If I chose to invest in the fund, I could expect to receive a 4% to 7% percent return per month!

The fund was actually part of a cash back at closing scheme. If I invested in the Texas property, the company would lease the property back from me for two years while it was being developed. I would receive a lease back payment of $30,000 at closing and $30,000 at a later date for a total of $60,000. This would cover my down payment on the property along with my monthly mortgage payments for the first two years I owned the property.

To earn some additional income, I could choose to invest my $60,000 of leaseback money in the fund, in which case, they would pay me the entire $60,000 at closing rather than in two separate payments. I would then earn interest on that money — 4% to 7% per month.

Potter told me that if I were interested, she would send over a couple documents for me to sign, so she could set up a conference call with Richardson and Hansen, who could explain the secret fund in greater detail. Potter sent me two documents:

• Non-Disclosure/Non-Circumvention Agreement: This document had two purposes: 1) To prevent me from sharing information with anyone — I suspect that they were most concerned that word would leak to law enforcement authorities. 2) To force me into dealing through their investment organization rather than directly with anyone they introduced me to — in other words, they wanted to be sure they were not cut out of the deal, which is understandable.
• Non-Solicitation Letter: To protect themselves from any claims that they had solicited my involvement in this scheme, they wanted me to sign the Non-Solicitation Letter. The letter was also worded in a way to protect them against any future accusations of security fraud.

You can view these documents in their entirety by clicking the following links: Non-Disclosure/Non-Circumvention Agreement or Non-Solicitation Letter.

I never signed or returned the documents, but Potter, Richardson, and Hansen proceeded with the conference call anyway. They seemed very eager to explain the fund and how it worked. During the conference call, I was told the following:

• According to them, they had never experience a month in which the fund lost money.
• Even though Potter said I would get a 4% to 7% return, they actually cap it at 5% a month for investors. The way they make their money is that they take anything above 5%. If my investment earned 30%, I would get 5% that month, and they would keep the other 25%.
• Ren Richardson is a self-proclaimed expert, mentor, and instructor in the area of investing.
• Mike Hansen received his experience working for the Trump organization.

One of their investors, a licensed RE/MAX-affiliated real estate agent in Salt Lake City, let me know that he was fully satisfied with the fund. He told me that I should have no concern about getting my money out of the fund if I needed to. He once tested the fund by requesting his money, and he received it in full within 24 hours rather than the promised 48 hours.

Whether or not I could get my money out of “the fund” is a moot point. What is important here is that this organization is involved in cash back at closing — a commonly recognized form of mortgage fraud. Even though the cash is rolled into a fund, it is still cash back at closing. The lender is being fooled into approving a loan for more money than the property is worth, and the excess money is being used for another purpose. The value of the property could not possibly be securing the loan, because the purchase price of the property was lower than the mortgage loan taken out to purchase the property!

Although these “investment gurus” pretend that they have discovered a new twist on cash back at closing that makes it legal, don’t be fooled. Although it’s dressed differently and called something else, it is still cash back at closing, and it is still illegal.

• Officials Falling Behind on Mortgage Fraud Cases (The New York Times): The number of mortgage fraud cases has grown so fast that government agencies that investigate and prosecute them cannot keep up, lenders and law enforcement officials have said. Reports of suspected mortgage fraud have doubled since 2005 and increased eightfold since 2002. Banks filed 47,717 reports this year, up from 21,994 two years ago, according to statistics from the Federal Bureau of Investigation and the Financial Crimes Enforcement Network of the Treasury Department. In 2002, banks filed 5,623 reports.
• Legislature must place legal curbs on ‘rescue’ practice: The bank was threatening to foreclose on Lonnie Davis’ El Cerrito home. One day, the 76-year-old retired school custodian got a postcard in the mail from someone offering 11th-hour help. But what seemed like a life preserver would drag Davis and his wife, Dorothy, to rock bottom faster than a pair of cement boots. Lonnie Davis not only lost the home where he had lived more than half of his life, the person he trusted to help him wound up being the new owner. The Davises were victims of a legal but deceptive mortgage lending practice euphemistically referred to as a “foreclosure rescue.” The “rescuer” takes advantage of a person’s desperation and financial naivete to convince him to sign over his deed. The “rescuer” offers to pay the distressed homeowner’s delinquent payments, which allow him to stay in his house, then gives him a new loan. A lot of people don’t realize that they will no longer own the property. Once the title has been transferred, the rescuer takes money out of the house by refinancing. Real estate fraud investigators call that “equity stripping.”
• When Receiving Cash Back at Closing is Legal: As real estate brokers, we are often told that “As long as the information is presented on the HUD statement, the transaction is legal.” What happens in almost all situations such as the scenario presented here, is that the professionals involved create two HUD statements-one for the closing and another that is sent to the bank or they camouflage the $80,000 junior lien or a recently created obligation of the seller. In other words, all is not being fully disclosed.
• Parent Company of Mercantile Bank takes Real Estate Fraud-related hit in Florida: The holding company of Mercantile Bank in Florida expects a $32 million provision for credit losses in the current fourth quarter, in part because of loan problems in Florida. That’s up substantially from the $10.5 million provision in the third quarter of 2007 and $8.8 million provision in the fourth quarter of 2006. The company also said it has revised downward its expected recovery of loans in a real estate fraud scheme in North Carolina.
• Minnesota man sentenced in mortgage-fraud scheme: The crime of mortgage fraud continues to be a priority with the United State’s Attorney’s Office as the first defendant in the LHS mortgage fraud case–involving a Prior Lake woman, a Credit River Township man and a Minneapolis man–was sentenced in federal court today in Minneapolis. Mario Augustin Lewis, 37, of Minneapolis was sentenced to serve four-and-a-half years in prison and ordered to pay $437,814.41 in restitution.
• Long Beach Mortgage Rep Faces Five Years in Prison: John Ngo, 27, of Dublin, California, pleaded guilty before United States District Judge William B. Shubb to lying under oath before a federal Grand Jury in connection with an on-going mortgage fraud investigation. The case is the product of an extensive investigation by the Federal Bureau of Investigation and Internal Revenue Service-Criminal Investigation. Several other individuals have been indicted in connection with this investigation and those charges remain pending.
• New Year, New Consumer Scams: It has been a tough year for consumers. With housing prices falling and the subprime-mortgage mess raging on, we won’t blame you if you’re looking forward to a fresh start in 2008. Better watch out: The financial woes and natural disasters of 2007 have armed scammers with plenty of new tricks — or resourceful spins on old ones — aimed at separating you from your cash. Here the five most treacherous scams to watch out for in 2008.

In response to my recent blog posting, “High Profile Realtor Caught in the Crosshairs of Cash-Back-at-Closing,” a newly licensed associate broker from Washington state e-mailed me asking whether a cash back at closing deal could ever be legal. His question applied to the following scenario:

1. The seller is facing foreclosure and his highly motivated to sell.
2. The buyer has good credit, a suitable down payment, and a desire to make a deal.
3. The home is listed and has been appraised at $480,000.
4. The seller is willing to discount the home by $80,000. (The seller loses some equity in the home but dodges the foreclosure bullet and saves part of his credit in the process.)
5. Instead of purchasing the home for $80,000 less, the buyer agrees to pay the full price of $480,000 with the agreement that the seller will pay back an “incentive” at closing of $80,000. This would give the buyer the necessary funds to fix up the property.
6. The buyer delivers a real cash down payment that is proven to be in his bank account prior to the purchase, as per the bank’s requirements.
7. The bank has approved the loan based on its own appraiser’s evaluation and receives a suitable down payment of 5-20% depending on the loan requirements.

The broker then followed up with a couple excellent questions: “How can this be inappropriate or wrong if the seller takes a loss but is happy with the deal? Where is the harm if all is fully disclosed, and the bank is not put at any risk?”

Consumers and professionals often justify such deals by claiming that the true market value of the home shows that the bank is receiving sufficient collateral. However, the true market value of the home is the lesser of the appraised price or the actual price paid for the property. In this case, the true market value of the property is not $480,000. It is actually the price the seller is willing to accept–$400,000. Presenting to the bank that the actual sales price is $480,000 is misleading and constitutes fraud.

As real estate brokers, we are often told that “As long as the information is presented on the HUD statement, the transaction is legal.” What happens in almost all situations such as the scenario presented here, is that the professionals involved create two HUD statements–one for the closing and another that is sent to the bank or they camouflage the $80,000 junior lien or a recently created obligation of the seller. In other words, all is not being fully disclosed.

This is obviously a deceptive practice designed to mislead the bank into approving a loan it would otherwise reject. If you have to create two HUD statements–one for the closing table and one for the lender or one that is camouflaged in some way to justify a transaction, then what you are doing is illegal. If the HUD was a person then it could be accused or indicted as a co-conspirator.

I know of only a handful of situations in which receiving cash back at closing is legal:

• You refinance your mortgage to cash out some or all of the equity in your home.
• Your agent agrees to refund a portion of his or her commission at closing.
• The buyer makes a deposit into the escrow fund, obtains a 100% loan, and then receives a credit back. This isn’t considered cash back at closing, because it is the buyer’s own money.

Other than scenarios such as these, cash back at closing deals are unethical and illegal.

Now you might argue that illegal acts such as these are victimless crimes, but they do have the potential of causing harm. Consider the following:

• The buyer’s mortgage payment is higher than it needs to be, making it more difficult for the buyer to afford and more likely that the buyer will ultimately default on the mortgage.
• The bank approves a loan for $80,000 more than the true market value of the home. If the bank must foreclose on the home in the future, it may not be able to sell the home for enough money to cover the remaining balance of the debt.
• The inflated sales price influences the prices of homes in the same area, making housing in the area less affordable and boosting property taxes.

As you can see, there are good reasons behind the rules and regulations that govern real estate transactions. When we begin to bend those rules under the false assumption that nobody is getting hurt, we compromise the very integrity of the real estate industry and damage the industry on which we make a living.

According to Realtor Lori Polin, she was totally unaware that what she was involved with consisted of real estate and mortgage fraud. If ignorance of the law was an appropriate defense, she could be off the hook. Unfortunately it’s not. According to a recent story in the St. Petersburg Times entitled “Unsigned letter accuses agent of mortgage fraud” Polin was allegedly involved in classic cash back at closing schemes.

Here’s how a cash back at closing scheme works:

• The buyer pays more for a property than it’s worth, and the seller agrees to kick back the surplus cash to the buyer at the closing.

On its surface, cash back at closing seems to benefit everyone involved. The buyer pockets some extra cash. The seller unloads his house at or near the asking price. The real estate agent gets a bigger commission. The loan officer chalks up another successful loan. And the lender stands to earn more interest over the life of the loan. Everybody wins.

Or so it seems.

Unfortunately, as with most deals that seem too good to be true, cash back at closing schemes are just another way of scamming someone–in this case, the lender, who’s fooled into loaning more money than the collateral used to secure that loan is worth. If the borrower defaults on the loan (which is almost a sure thing in cash back at closing schemes), then the lender can’t recover the money by selling the property.

Cash back at closing also:

• Inflates housing values, making housing less affordable
• Artificially raises property taxes
• Hurts honest real estate agents because they lose business to dishonest agents who offer cash back deals
• Stimulates foreclosure and destroys neighborhoods that begin to buckle when homeowners default on the inflated loans

With cash back at closing, what may have seemed like a win-win situation leaves plenty of losers in its wake.

According to an anonymous letter distributed to the press and many of Polin’s colleagues, Polin artificially inflated the prices of nine homes in Tampa and North Pinellas, so buyers could get larger loans. In most cases, the homes were mortgaged for approximately $100,000 more than their true market value, and if the allegations prove true, then these transactions definitely fall into the category of cash back at closing. The perpetrators need to be brought to justice. The question is, did Lori Polin do anything wrong?

Polin firmly believes she is innocent, because, in her own words, “All these deals were put together by attorneys and title companies and lenders.” All she did was list and sell the homes. Some of the evidence, however, makes it look as though Polin could not possibly be unaware of what was going on.

In the case of Iris Alfonso, for example, Alfonso’s house had been on the market for several months when Polin allegedly asked if she would accept a reduced price of $449,900. Shortly thereafter, Alfonso received a purchase contract offering her $540,000 for her home. Why would any buyer offer a seller $90,100 more than the seller was willing to accept? The only possible answer is cash back at closing.

According to Polin, she simply listed the homes for sale. What the buyer and seller agree to has nothing to do with her, according to Polin. If the reported incidents did occur, a law was clearly broken. As the FBI clearly states (emphasis mine):

“It is illegal for a person to make any false statement regarding income, assets, debt, or matters of identification, or to willfully overvalue any land or property, in a loan and credit application for the purpose of influencing in any way the action of a financial institution.”

Whether or not Polin broke the law and is guilty of conspiring to commit fraud is up to law enforcement and the courts to decide. Whatever the outcome, this case highlights the need for real estate and mortgage fraud training in the real estate and mortgage lending industries. Attorneys and law enforcement agencies could also benefit from such training programs. Time and time again, I hear about professionals who should know better becoming involved in fraudulent transactions. Some are willing accomplices or even ringleaders. Others are unwilling accomplices or victims who are simply abused by savvy con artists. By receiving the proper training, these professionals can help defend themselves, their clients, and the housing industry from those who are committed to destroying the American Dream of homeownership.

To learn more about the dangers associated with cash back at closing and other common and not so common real estate and mortgage fraud scams, pick up a copy of one of my latest books, Protect Yourself from Real Estate and Mortgage Fraud: Preserving the American Dream of Homeownership

In his recent article “Miami condo at ground zero in mortgage fraud,” Reuters-affiliated writer Tom Brown highlights the fact that foreclosures follow fast on the heals of Real Estate and Mortgage fraud. As he points out, “fraud accounts for a sizable share of the bad bets on mortgages,” which often result in foreclosures. Lenders get stuck holding the bag, but as we have seen recently, problems in the mortgage industry affect the entire national economy and can even destabilize the global economy.

Brown focuses his article on a 643-unit condo known as the Club at Brickell (pictured above), which is located in Miami’s swank international banking district. Con artists and other opportunists used this building as a vehicle to commit rampant fraud in what are commonly known as cash-back-at-closing deals. With cash back at closing, buyers, sellers, appraisers, real estate agents, and other real estate professionals often conspire to inflate the value of a property to fool a lender into approving a loan that grossly exceeds the true market value of the property.

The buyer receives the excess proceeds, the sellers are able to sell their property for close to their asking price, the real estate agent receives a higher commission based on the inflated price tag, and the appraiser is rewarded with another satisfied customer.

These cash back at closing schemes have become very popular during the latest housing boom, because they seem like “everybody wins” deals. On the surface, even the lender seems to win-loaning more money and earning more interest over the life of the loan. Unfortunately, however, when the housing bubble bursts, someone gets stuck holding the bag-the lender. And when enough lenders get stuck holding the bag, they simply pass the costs on to investors, homeowners, and taxpayers. The only winners are the con artists who rake in the cash at the closing table.

Real estate professionals and homeowners need to keep in mind that cash back at closing is wrong, however right it may seem when someone pitches the idea. They also need to keep in mind that cash back at closing is just one of the many schemes that con artists use to rip off the system.

Remember that the best defense against scams and the scumbags who perpetrate it is education. (Not to sound like a paid advertisement or anything, but to learn how to spot, stop, and post (report) real estate and mortgage fraud, and save your home and neighborhood, pick up a copy of one of my latest books, Protect Yourself from Real Estate and Mortgage Fraud.)

Alexander MacInnes of the Herald News interviewed me this week for a story about a Bergen County, NJ, Real Estate developer who for years exploited unsuspecting homebuyers while bribing city employees to direct tenants in the houses he managed. The developer, 63-year-old Michael Eliasof, pleaded guilty Wednesday to conspiracy to commit money laundering. He was charged with taking nearly $2.5 million in illegal proceeds from the sale of overvalued properties to buyers not qualified to purchase them. Eliasof, who will be sentenced in late-February of next year, is looking at 10 years in prison and up to $250,000 in fines (or twice the amount he gained from his criminal activity).

From the Herald News, courtesy of NorthJersey.com:

The circle of professionals Eliasof worked with included Garfield Municipal Judge William C. Colacino Jr., who was the closing attorney for dozens of deals Eliasof lined up with inexperienced buyers. Colacino was not in court Wednesday and has not been indicted. He declined to comment Wednesday.

Eliasof and 10 co-conspirators, including mortgage brokers, loan officers and appraisers, artificially inflated the values of properties throughout Paterson. They then falsified loan applications and income levels for those buyers whom Eliasof lured in with “no money-down” deals, according to the federal charges.

Eliasof, 63, admitted to controlling the profits and dispersing kickbacks to his lawyer and mortgage broker. In another example of his reach, Eliasof admitted in court Wednesday that he bribed Paterson Section 8 caseworkers to direct tenants in the houses he managed.

In March, 14 public employees from Paterson and Passaic County were arrested on charges of taking bribes from an unnamed property manager who was cooperating with federal investigators. U.S. Attorney Hope Olds, who is prosecuting those cases, said the witness started cooperating after being caught in a real estate scheme.

More from Alexander MacInnes and the Herald News:

National real estate experts said the description of the fraud that occurred in Paterson is a variation of either illegal house flipping or a deal called “cash back at closing” — a scheme in which money is transferred off the books between the parties involved.

Ralph Roberts, a Michigan Realtor and author of “Protect Yourself from Real Estate and Mortgage Fraud: Preserving the American Dream of Homeownership,” said there’s a reason this type of fraud exists.

“It’s extremely profitable,” Roberts said. “That’s why they do it. It’s easier than working.”

As lucrative as the deals are, they often falter and leave a distinct footprint on communities.

“They hurt the neighborhoods, they hurt the tax base, they the hurt schools,” Roberts said. “Imagine living across the street from the house that now sits vacant.”

Read MacInnes’ entire article: “Magnate guilty in housing scheme”

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

Slow housing market speeds up scam

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

By JEFF OSTROWSKI
Palm Beach Post Staff Writer

Sunday, October 28, 2007

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

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

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

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

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

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

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

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

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

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

Anatomy of a swindle

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

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

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

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

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

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

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

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

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

Sellers be wary

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

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

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

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

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

Boomtime prices tell tale

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

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

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

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

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

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

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

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

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

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

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

Those sentenced last week include:

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

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

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