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. Investigators from the Colorado Bureau of Investigation [CBI] say they discovered hundreds of houses were sold by the defendants to undocumented immigrants. In 191 transactions, every single document a home buyer used was fraudulent, said Bob Brown, the agent in charge of CBI’s Complex Crime Unit.

The article, penned by the DBJ’s Michael Perrault, goes on to document case after case where fraudulent driver’s licenses and social security numbers, along with forged tax documents to match fake income statements, were used to obtain government-backed loans. According to the article, total loses–for the cases uncovered to date–appear to be in the neighborhood of $10,000,000.

Click here for Perrault’s article.