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

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

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



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

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

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

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

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

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

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

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

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

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

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

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

25 Indicted in Chicago mortgage fraud scheme: Federal authorities have charged 25 people in what is considered one of the largest mortgage fraud schemes in Chicago area history. Following a four-year investigation, the FBI and U.S. Attorney’s office alleged in three indictments that more than 150 homes were involved in fraudulent mortgage transactions worth $25 million.

Colorado real estate agents get lesson in fraud: Summit County, Colorado, real estate agents got a lesson in identity theft prevention this week at a workshop detailing a nationwide problem quickly seeping into the industry. Janet Elkins, a fraud specialist at Alpine Bank, gave a quick tutorial on how individuals can prevent against identity theft, as well as how business can make smarter choices to prevent thieves from getting their foot in the door.

Ogden, Utah, businessman charged with real-estate fraud: The Utah Attorney General’s Office has filed criminal charges against an Ogden businessman accused of bilking hundreds of investors out of more than $140 million. Val Edmund Southwick, 62, was charged in Salt Lake City’s 3rd District Court today with nine counts of securities fraud, a second-degree felony. Prosecutors accuse him of bilking 817 investors out of millions in a commercial real-estate investment scheme. The federal Securities and Exchange Commission filed a separate civil action against Southwick over his Ogden-based business, VesCor Capital, which it alleges was a “massive Ponzi scheme.”

State cracks down on mortgage brokers: Colorado regulators Friday announced their first actions against mortgage brokers under a new set of state laws aimed at curbing unscrupulous lending practices. In one case, the state’s Division of Real Estate issued a cease-and-desist order against Cade Emerson Lee, who it accused of acting as an unregistered mortgage broker in Colorado despite having been convicted of felony securities fraud.

Mortgage fraud spiraling out of control in London, England: “Endemic” mortgage fraud on new homes has triggered a wave of repossessions and forced a widespread crackdown by regulatory authorities. Initiatives to address lenders’ concerns that residential mortgage fraud is on the rise are either under way or will be launched by the Council of Mortgage Lenders, Financial Services Authority–the City watchdog–the Royal Institution of Chartered Surveyors and police forces around the country.

Michigan tax accountant sentenced in $21 million mortgage fraud case: A Dearborn Heights, Michigan, tax accountant, convicted of stealing $21 million in a mortgage fraud scheme, was sentenced in federal court Thursday to five years in prison. U.S. District Judge David Lawson sentenced tax accountant Kalil Khalil, 36, to 60 months in prison for wire fraud based on a two-and-a-half-year scheme to defraud mortgage lenders.

Kingpin of $30M mortgage fraud scam in Canada jailed: The kingpin of a $30-million mortgage fraud believed to be the largest in Alberta (Canada) history was sentenced Thursday to six years in prison. Gohar (Carmen) Ahmed Pervez, 45, pleaded guilty to 54 counts of fraud that netted him more than $1.8 million in profit in less than five years. He received two-for-one credit for the two years he has served in the remand centre and is now slated to spend two more years behind bars.

Texas couple indicted for $3 million real estate fraud: A Navarro County, Texas, grand jury handed down indictments against three individuals Thursday, in connection with what prosecutors are calling “an organized mortgage fraud scheme.” Lynn Marriott, 54, and Kandace Y. Marriott, 51, both of Gun Barrel City, along with Karen Hayes, 56, of Kemp, were indicted for the first degree felony. Cpl. Mark Nanny of the Corsicana Police Department uncovered the operation, subsequently bringing in the Housing and Urban Development department (HUD) to the investigation. The defendants were doing business as One Way Home & Land, dealing with manufactured housing. Prosecutors allege the company falsified residential loan applications in order to assure the buyers’ loans were approved by mortgage lenders.

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

From Shawn Patrick at 9News.com:

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

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

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

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

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

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

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

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

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

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

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

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

Click here to read the entire indictment against Germain.

A leading online marketplace for foreclosure properties, yesterday released its August 2007 U.S. Foreclosure Market Report, which shows that a total of 243,947 foreclosure filings–default notices, auction sale notices and bank repossessions–were reported during the month, up 36 percent from the previous month and up 115 percent from August of last year. This is the highest number of foreclosure filings in a single month that RealtyTrac has reported since it began issuing the monthly report in January 2005.

The national foreclosure rate of one foreclosure filing for every 510 households for the month is also the highest figure ever issued in the report.

The jump in foreclosure filings may just be the beginning of the next wave of increased activity for house flippers, as a large number of subprime adjustable rate loans are now beginning to reset. A significant factor in the increased level of foreclosure activity is that the number of REO filings (bank repossessions) is increasing dramatically, which means that a greater percentage of homes entering foreclosure are going back to the banks.

Nevada, California, Florida post top state foreclosure rates

Nevada continued to register the nation’s highest state foreclosure rate, one foreclosure filing for every 165 households–more than three times the national average. The state reported 6,197 foreclosure filings during the month, a 21 percent increase from the previous month and more than triple the number reported in August 2006.

California’s foreclosure rate jumped to second highest among the states thanks to a 48 percent month-over-month spike in foreclosure activity. The state reported 57,875 foreclosure filings during the month, a foreclosure rate of one foreclosure filing for every 224 households–more than twice the national average.

Florida foreclosure activity jumped 77 percent from the previous month, boosting the state’s foreclosure rate from seventh highest to third highest among the states. The state reported 33,932 foreclosure filings, a foreclosure rate of one foreclosure filing for every 243 households.

Other states with foreclosure rates ranking among the nation’s 10 highest were Georgia, Ohio, Michigan, Arizona, Colorado, Texas and Indiana.

Sun Belt, Rust Belt states dominate top foreclosure totals

Seven of the top 10 states in terms of total foreclosure filings in August were located in the Sun Belt, and three of the top 10 states were in the Rust Belt. After California and Florida, Ohio registered the third highest state total, with 17,793 foreclosure filings during the month. The state documented a foreclosure rate of one foreclosure filing for every 281 households, fifth highest in the nation.

Texas, Michigan and Georgia all reported more than 10,000 foreclosure filings for the month, documenting the fourth, fifth and sixth highest state foreclosure totals respectively, followed by Arizona, Colorado, Illinois and Nevada.

Top Metro foreclosure rates in California, Michigan, Florida, Nevada and Ohio

California cities once again accounted for six of the top 10 metro foreclosure rates in August, with the top three spots all taken by California cities. Modesto documented the nation’s highest metro foreclosure rate, one foreclosure filing for every 79 households, followed by Stockton and Merced. Other California cities in the top 10 included Vallejo-Fairfield at No. 5, Riverside-San Bernardino at No. 6 and Sacramento at No. 7.

Detroit posted a foreclosure rate of one foreclosure filing for every 87 households, the nation’s fourth highest metro foreclosure rate and more than five times the national average. Fort Lauderdale, Las Vegas and Cleveland, ranked Nos. 8, 9 and 10.

In a follow up to Monday’s post about a Colorado Real Estate appraiser whose license was suspended over suspicion that she over valued properties, the appraiser in question, Julie O’Gorman, has hired an attorney and is denying claims that led the Colorado Division of Real Estate to pull her license. From the Northern Colorado Business Report:

O’Gorman denied the allegations in a statement issued Friday by her attorney, Daniel Foster. She is seeking a motion from the courts to stay the order until a hearing can be held. Foster’s statement indicates that many of the charges against O’Gorman date back to 2002 and that she has cooperated with the board during its investigation.

“It is unfortunate that the board has chosen this PR strategy in an attempt to damage Ms. O’Gorman’s professional reputation and to try and use her as a scapegoat for many industry-wide problems,” Foster wrote.

More on this story from the Greeley Tribune:

“It’s just been really hard on everybody here,” said Gloria Prim, a bookkeeper for Front Range Real Estate Consultants, of which O’Gorman is president and owner.

Prim said O’Gorman is not allowed to work nor is she allowed to visit her business during the suspension. A hearing has been scheduled for Aug. 2, but no hearing was held before the appraisers board issued a “summary suspension.”

Division of Real Estate Director Erin Toll said Friday the suspension was a rare move because it does not involve a hearing.

Appraisers work with mortgage brokers, real estate agents and other entities to determine how much a piece of property is worth. They compare similar properties and use various factors to come up with fair market prices, or valuations.

Toll said O’Gorman’s suspension was necessary because O’Gorman had been overvaluing property in the area. That leads to high foreclosure rates, she added.

But O’Gorman’s attorney, Daniel Foster of Denver, said Monday the suspension was an “absolute abuse.”

“They want to make an example of someone in order to try and show that they’re getting tough on any of the ills in this industry,” Foster said. “It’s easy to pick out a person and point your finger, make unsubstantiated allegations, and the best part is, they don’t even have to give you a hearing.”

He filed for an injunction to delay O’Gorman’s suspension pending a hearing, but he has not yet been scheduled to appear in court on the matter.

O’Gorman was told not to comment about the case.

O’Gorman’s situation clearly illustrates that there are two sides to every story. Rachel Dollar, the co-author of my next book (”Protect Yourself from Real Estate and Mortgage Fraud: Preserving the American Dream of Homeownership,” which is being published in August by Kaplan Publishing), is correct when she tells the readers of her blog that the information and notices contained on the Flipping Frenzy blog are intended to summarize recent developments in real estate-related fraud cases nationwide. The posts on Flipping Frenzy are presented as general research and information and are not intended, and should not be regarded, as legal advice or official rulings. Much of the information on this site–including that pertaining to O’Gorman–concerns allegations. All persons mentioned in our postings are presumed innocent, including O’Gorman, unless convicted of a crime.

The Colorado Department of Regulatory Agencies announced last Friday that the state’s Division of Real Estate issued an emergency summary license suspension of Loveland, Colorado, appraiser Julie M. O’Gorman. Summary suspensions are rare and used only where the public’s safety or welfare requires immediate action.

The Board of Real Estate Appraisers, operating through the Division of Real Estate, claims that O’Gorman grossly overvalued eight properties, most of which were in the Greeley, CO, area. These eight properties are the subject of charges previously filed against O’Gorman. The emergency action was precipitated by O’Gorman’s appraisal of the Los Leones Ranches in Walsenburg, CO, for a conservation easement.

Conservation easement valuation requires specialized expertise that the Board says O’Gorman did not have. A conservation easement is a legal agreement that prevents the development of a parcel of land to protect natural resources. Conservation easements entitle a landowner to significant state and federal tax credits based upon the appraised value of the land. The greater the valuation, the greater the tax benefit to the property owners.

In a separate case, the Board assessed a $24,000 fine against Pueblo, CO, appraiser James Esters for overvaluing eight properties. Esters agreed to permanently surrender his appraiser license and pay $7,500, the balance of the fine becoming due should he attempt to reapply for licensure.

Overvaluing property contributes to rising foreclosure rates.

A report released yesterday by RealtyTrac shows more than 1.2 million foreclosure filings were recorded nationwide in 2006, up 42 percent from 2005. The 2006 RealtyTrac Foreclosure Market Report also revealed that there is one foreclosure filing for every 92 U.S. households. While foreclosures are not at historically high levels, a 42 percent year-over-year increase is certainly noteworthy and cause for concern. When foreclosure rates rise, con artists crawl out from the rocks they were hiding under to prey on the vulnerable homeowners. To protect yourself, you should know your options and know your rights.

According to the report, the total number of foreclosure filings rose from a little over 885,000 in 2005 to 1,259,118 in 2006. Colorado documented the nation’s highest state foreclosure rate for the year, one foreclosure filing for every 33 households or 3 percent of the state’s households. The state reported 54,747 foreclosure filings during the year, an 85 percent increase from 2005 and the eighth highest total among all states.

Georgia and Nevada both reported one foreclosure filing for every 41 households in 2006, but Georgia edged out Nevada with a slightly higher percentage of households in foreclosure, 2.5 percent compared to 2.4 percent in Nevada. Georgia reported 75,975 foreclosure filings during the year, the sixth most of any state and a 67 percent year-over-year increase. Nevada foreclosures surged in fourth quarter, pushing the state’s total for the year to 21,045, nearly three times the number reported in 2005.

Other states with foreclosure rates among the nation’s 10 highest included Texas, Michigan, Indiana, Florida, Ohio, Utah and Tennessee. Texas reported 156,876 foreclosure filings for the year, the most of any state, and nearly 13 percent of the national total. The state consistently reported big foreclosure numbers throughout 2006, documenting the highest monthly total eight times, and foreclosures for the year were up more than 14 percent from 2005. Texas’ foreclosure total represented nearly 2 percent of the state’s households, or one foreclosure filing for every 51 households, giving the Lone Star state the nation’s fourth highest state foreclosure rate.

Rising foreclosure activity in the fourth quarter pushed California’s 2006 foreclosure total to second highest among all U.S. states. California reported 142,429 foreclosure filings during the year, more than twice the number reported in 2005, and accounting for more than 11 percent of the national total. California’s 2006 foreclosure rate of one filing for every 86 households ranked 14th in the U.S.

Florida’s foreclosure activity remained relatively flat in 2006, up just 2 percent from 2005, but the state’s foreclosure total still placed third highest among all the states. Florida reported 124,721 foreclosure filings during the year, a foreclosure rate of one foreclosure filing for every 59 households. The state’s foreclosure rate dropped to seventh highest in 2006 after claiming the top spot in 2005.

With an average of more than 10,000 foreclosure filings in each quarter, Detroit, Michigan, documented the highest annual foreclosure rate among the nation’s 100 largest metropolitan areas. Atlanta, Georgia’s 2006 foreclosure total of 63,737 represented 4.4 percent of the city’s households, ranking it second in the nation. Indianapolis, Indiana’s foreclosures decreased in the second, third and fourth quarters of 2006, but the city still documented the nation’s third highest metro foreclosure rate: 4.3 percent of all households.

Other cities with foreclosure rates among the nation’s 10 highest include Denver, Dallas, Fort Worth, Las Vegas, Memphis, Fort Lauderdale, and Miami.

In an ongoing effort to curb mortgage and foreclosure fraud in his state, Colorado’s Attorney General announced yesterday a legislative proposal that targets appraisal fraud and mortgage brokers who engage in deceptive trade practices.

Last year, thanks to the efforts of a state-appointed Mortgage Fraud Task Force, new consumer protections were adopted for Colorado families facing foreclosure and stiffer penalties were enacted to address mortgage fraud. This year, Colorado’s AG is interested in taking further steps to protect homeowners. The legislation he announced yesterday targets the growing problem of appraisal fraud, and adds additional penalties against mortgage brokers who engage in unfair practices.

Under the proposed legislation:

• Colorado’s Division of Real Estate will have the authority to deny or revoke the registration of a mortgage broker who has been prohibited by any court from engaging in deceptive conduct relating to brokering a mortgage loan.
• To address the growing wave of appraisal fraud, the legislation will also prohibit a mortgage broker from compensating, coercing, or intimidating a real estate appraiser in order to obtain an artificially inflated appraisal.
• Finally, the legislation will prohibit anyone else, including realtors, other brokers, lenders, or investors from improperly influencing, or attempting to influence an appraiser and the value of a residence, and prohibits an appraiser from knowingly submitting a false appraisal.
• Violators will be subject to criminal prosecution as a Class One misdemeanor upon a first conviction and a class 6 felony upon a second or subsequent conviction. They will also be subject to civil liability under the state’s Consumer Protection Act.

In July 2005, Colorado’s AG formed a Mortgage and Foreclosure Fraud Task Force. The Task Force’s recommendations subsequently led to new laws requiring that all transactions between homeowners and foreclosure consultants or equity purchasers be in writing, and which prohibits consultants who provide advice or assistance from acquiring any interest in a homeowner’s property, and calls for a three-day cooling off period.

The United States Attorney for the District of Colorado announced yesterday that Lakewood, Colorado, real estate agent William Mendez, age 41, has been sentenced to serve a little over four (4) years in federal prison for his role in a massive mortgage fraud scam involving illegal aliens. U.S. District Court Judge Wiley Daniel additionally slapped Mendez with a fine totaling more than $1.2 million.

Mendez was indicted by a federal grand jury back in September of 2005. He pled guilty in March of this year, and as part of his plea agreement, agreed not to work in any facet of real estate, whether as a broker, lender, mortgage banker or investor.

Seven other people were indicted for participating in the fraud, which involved preparing hundreds of false and fraudulent residential home loan applications for illegal aliens that were insured by HUD through the Federal Housing Administration. According to the U.S. Attorney, Mendez also made payments to loan officers to insure the approval of the applications.

According to the Mendez’s plea agreement, starting back in 1999, he began developing practices that allowed him and his other real estate agents and employees to assist clients whom they knew to be illegal aliens or otherwise unqualified, to receive home mortgages to purchase homes.

Since 2003, the U.S. Attorney’s office in Denver has brought 12 indictments, charging 84 defendants with mortgage fraud–and most of these cases involve illegal immigrants, says U.S. Attorney’s spokesman Jeff Dorschner, according to the Denver Post.

I’m back in Boulder, Colorado, today and tomorrow working with Howard Brinton and his amazing staff over at STAR POWER® Systems on a new real estate and mortgage fraud education/awareness product for Realtors. While I’m not at liberty to say too much about the product itself (detailed info will be available soon enough), I will share that it’s going to be a great resource in the ongoing effort to spot, stop, and report real estate fraud.

Funny thing happened on the plane ride out to Denver from Detroit. While working with my assistant on my new book–Flipping Houses For Dummies, which will be published by John Wiley & Sons this November 2006 (ISBN: 0470043458)–we met Gregory Campbell, Inspector in Charge of the U.S. Postal Inspection Service-Detroit Division. Because most real estate and mortgage fraud cases involve allegations of Mail Fraud, the U.S. Postal Inspection Service, and Inspectors like Mr. Campbell, are all too aware of the dangers of real estate and mortgage fraud. It’s a small word, isn’t it?

I had a great dinner last night at The Briarwood Inn in Golden, Colo. If you ever make it out to this part of the country, you have to stop by The Briarwood. Nestled in the foothills of Golden, the Briarwood’s an idyllic setting for any occasion. With me were Howard and his wife Babs, my assistant, and Anita Padilla-Fitzgerald and her husband Gene from MegaStar Financial. We talked a lot about the challenges facing real estate industry professionals, and for Howard and Anita, even though they live so close, it was their first time meeting in person.

After I wrap things up here in Boulder with Howard and his team, I’ll be headed down to Denver to meet with Anita and her team of superstars. Then, tomorrow afternoon, Howard and my assistant and I fly to Indianapolis for STAR POWER’s Real Estate Summit, which I believe is close to being sold out, so if anyone’s still thinking about attending, now’s the time to register.

2006-03-15 09:45
Here’s some feedback I received related to yesterday’s blog posting about Colorado’s proposed Mortgage Broker Registration Act (HB 1161). I posted the following question on a discussion board over at BrokerOutpost.com:

Late last week, Colorado’s House of Representatives passed a Bill that–if approved by the state’s Senate and Governor–calls for all mortgage brokers to:

1. Register with the State.

2. Submit to a criminal background check.
3. Disclose any relevant administrative discipline that has ever been taken against them.
4. Post a $25,000 bond.

I’m just curious: what does your state require of you, and how do you feel about Colorado’s proposed law (especially the bonding part)?

Here are the responses I’ve received thus far:

1. It’s about time. CO lets anyone be a broker/LO without any regards to their abilities and no regulation. — Scott from Washington

2. This is to be a broker, not just an Loan Officer, right? Stuff like this makes our work more exclusive and helps justify our pay. If you are still in the biz with a law like this, then you’re probably worth your fees. — Andrew from Massachusetts
3. Kentucky requires a $50,000 bond! — Chris from Kentucky
4. For NY Mortgage Bankers… It is just the cost of doing business. — Martin from New York
5. Georgia requires a $50k bond as well. As an AE, it’s relatively handy in signing brokers up b/c a bond acts in lieu of company financials and shows liquidity. For the broker that doesn’t like to open up his books or even print off a balance sheet it makes things simple. — Scott from Georgia
6. Ohio requires a $50k bond also and there has to be some form of regulation in each state in order to improve the industry. — Dave from Ohio
7. In all seriousness, a $75k or higher bond should be required for a shop to open it’s doors, and it should increase with every originator added to the office. Any Loan Officer caught originating WITHOUT the bond in place should bring a fat fine to the office. Maryland is going to begin a more expensive lic’g process for Loan Officers that would have a fee attached, and part of it will have to be paid again, any time an LO moves to another shop. The hurdles to get into the biz are a joke in most cases. — Steve in Maryland
8. A 25K bond does not cost much of anything to buy… just a couple hundred a year. Bad thing is you have to personally guarantee it. — Corey in Missouri
9. West Virginia requires a $50k bond. Virginia requires a $25k bond. Both cost about $350.00 per year. — Natalie in Virginia
10. The idea that Loan Officers at mortgage companies somehow should have been immune from having the same requirements as Loan Officers at brick and mortar local banks was stupid in the first place. I hope to God that Missouri gets some kind of licensing requirements passed. I will be down there taking the exam the first day it’s available, and I’ll be laughing like a maniac at all the fools who can’t pass the exam or don’t meet background check requirements. — Matt in Missouri

It seems like everyone agrees… a $25,000 bond is a small price to pay to play.

Did you know that Alaska and Colorado are the only two states that don’t require mortgage brokers to at least register with the state in order to conduct business? I didn’t, and that’s why I’m happy to share that last Friday, Colorado’s House of Representatives voted 50-12 to pass the state’s very first Mortgage Broker Registration Act (HB 1161). If approved later this year by Colorado’s state Senate, 1161 would require all mortgage brokers in the state to register every three years with the director of the state’s Division of Real Estate. Mortgage brokers would also be required to submit to a criminal background check, disclose any relevant administrative discipline that has ever been taken against them, and post a $25,000 bond.

According to language contained within the Act, Colorado’s Real Estate Division could deny registration to any applicant who has filed an application containing material misstatements; been convicted within the last five (5) years of a crime concerning fraud, deceit, material misrepresentation, theft, or the breach of a fiduciary duty; or had a license, registration, or certification related to real estate, insurance, law, or investments revoked or suspended in Colorado or elsewhere.

Oddly enough, despite the fact that Colorado appears on the FBI’s list of top 10 “hot spots” for mortgage fraud, the Rocky Mountain News takes exception with the bonding requirement. From this morning’s online edition of the state’s second largest daily newspaper:

“…we support HB 1161…with one exception: The Senate should remove from the bill a mandate for brokers to post a $25,000 bond before they register… It could easily prevent would-be brokers who lack experience or personal wealth from entering a business that should not demand extensive certification or deep pockets.

Click here to read the Rocky Mountain News’ entire editorial.

Personally, I like the $25k bond requirement. I say leave the language in the Bill as is. The cost of a bond of that size–according to the Rocky Mountain News–would be around $400-$500 per year, which I feel is a small price to pay for an additional insurance that each and every mortgage broker in the state is operating above-board and in accordance with the law.

What do you think?

On the heels of the FBI calling Colorado’s real estate and mortgage fraud problem among the worst in the country, federal and state officials are now aggressively prosecuting real estate agents, mortgage brokers and homeowners engaged in a wide range of real estate schemes. From yesterday’s online edition of the Denver Business Journal:

Investigators have uncovered hundreds of cases in which real estate agents, mortgage brokers and fake-document vendors have collaborated to sell homes to illegal immigrants using fraudulent drivers’ licenses, Social Security numbers, and fabricated income and tax documents.

Grand juries across the state have indicted nearly 90 people since early 2003 who’ve been prosecuted by the U.S. Attorney General’s Office in Colorado or are facing charges ranging from mail and wire fraud to witness tampering and money laundering.

One, nearly year-long case recently culminated in the indictments of 10 defendants by three different grand juries in Jefferson County.