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R. Alexander Acosta, United States Attorney for the Southern District of Florida, Michael Fithen, Special Agent in Charge, U.S. Secret Service, Miami Field Office, Daniel W. Auer, Special Agent in Charge, Internal Revenue Service, Criminal Investigation, Duncan Foster, Chief of Police, Coral Springs Police Department, and Sheriff Al Lamberti, Broward Sheriff’s Office, announced that Peter Affatati, 39, of Coral Springs, FL, was sentenced to 13 years in prison in federal court in West Palm Beach for his role in a multi-million dollar mortgage fraud scheme. Affatati was also ordered to pay restitution in the amount of $8.8 million.

Specifically, Peter Affatati was charged with and pled guilty to orchestrating a $40 million mortgage fraud scheme that involved more than 50 residential mortgages, most of them in South Florida. Affatati used nominee purchasers/straw buyers to purchase the homes, then used his company, Assurance Title, to falsify the straw buyers’ employment, income, and asset information to qualify them for large mortgages from institutional lenders.

Upon the funding of the mortgage, Affatati diverted a large portion of the proceeds for his personal benefit.

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The State of Florida unveiled a new website today designed to help homeowners avoid real estate and mortgage fraud-related scams. The website, Florida Mortgage Fraud, provides homeowners and their loved ones with access to current investigations, complaint forms, and tips to identify and avoid a number of different types of real estate and mortgage fraud, including foreclosure rescue fraud.

“Companies and individuals are taking advantage of our homeowners in these tough economic times by preying on their financial situations,” said Florida’s Attorney General, Bill McCollum, in announcing the launch of the website. “If we can increase consumer education and empower people to spot scams and avoid them in advance, we can help decrease the number of victims targeted by this fraud.”

Homeowners can use the site to obtain information about active litigation involving companies the State of Florida has taken action against and can download affidavit forms to fill out if they feel they have been victimized by one of the companies on the list. You can also use the site to access a list of investigations being conducted by the Attorney General’s Mortgage Fraud Task Force to see if a particular company is currently being scrutinized.

The website also features answers to frequently asked questions about real estate and mortgage fraud, consumer tips, and a list of warning signs that a company or an individual might be engaging in foreclosure rescue fraud. Additional resources are also available, including a link to a new Florida Bar website containing information for attorneys and consumers on legal training, housing help workshops and clinics being held in Florida, and information concerning the Florida Bar Lawyer Referral Service and qualified legal aid agencies throughout Florida.

In 2007, Florida’s Attorney General initiated an agency-wide Mortgage Fraud Task Force to address the issues of mortgage and foreclosure rescue fraud. Since then, the Task Force has filed six lawsuits, has settled with seven companies, and is actively investigating more than 50 additional companies under the Foreclosure Rescue Fraud Prevention Act, which took effect October 1, 2008. The Task Force has also reviewed information pertaining to the business practices of more than 200 foreclosure rescue businesses.

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

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

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

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

Reported incidents of real estate and mortgage fraud in the U.S. increased by 45% on fewer loan applications in the second quarter of 2008 from a year ago, according to a report released today by the Mortgage Asset Research Institute (MARI). The MARI Quarterly Fraud Report is based on data submitted by MARI subscribers on loans originated in the second quarter of this year that have since been classified as fraudulent.

Key findings from the report include:

• Fraud most often occurs at the beginning of the loan process. More than 65% of fraud incidents are attributed to “General Application Misrepresentation,” a trend that has continued over the past two quarters. General Application Misrepresentation occurs when information such as a name, occupancy or assets is incorrectly stated during the application process.
• Income misrepresentation on loan applications rose 5% during the second quarter of 2008 versus the first quarter of 2008.
• Asset and debt misrepresentation on the loan application rose 7% during the second quarter of 2008 versus the first quarter of 2008.
• Tax return and financial statement misrepresentation rose 4% during the second quarter of 2008 versus the first quarter of 2008.
• Verification of deposit and bank statement misrepresentation rose 3% during the second quarter of 2008 versus the first quarter of 2008.
• Appraisal misrepresentation climbed to 21% for an overall increase of 6% during the second quarter of 2008 versus the first quarter of 2008.
• Florida, California, and Illinois compose the top three states for reported incidents of fraud. Florida saw a 5% increase in General Application Misrepresentation in the second quarter, while California saw a 20% decrease. Illinois recorded the highest percentages of income and employment misrepresentation on loan applications.

As was the case for the first quarter of 2008, Florida tops the list with the most reported loans with misrepresentation in the second quarter. Twenty-one percent (21%) of reports for loans originated during this time period were for properties in Florida. California ranks second, with 15% of loans reported; and Illinois rounds out the top three with 12% of all loans reported.

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.

While members of Congress, President Bush, and the Treasury Department attempt to work out (pun intended) the $700 billion Troubled Asset Relief Program, real estate and mortgage fraud continues to be the fastest-growing white collar crime in American:

WaMu loaned millions to California home flippers convicted in fraud scheme: Records show WaMu, America’s largest savings and loan, financed at least 43 mortgages worth $24.5 million on properties bought and sold by members of the Soni family since 2007. Of the 22 homes sold in that period, at least six have become problems for WaMu: Four were foreclosed, one received a notice of default and another was listed for sale at a $260,000 loss. Total value of WaMu’s mortgages on the troubled properties: $2.7 million.

Weld County’s ‘Most Wanted’ fugitive — a developer — busted in Mexico: Weld County’s “Most Wanted” fugitive sits in a California jail today after a dogged investigation led to his arrest in Mexico. Mark Strodtman, a Greeley developer, was indicted March 25 by Weld County grand jury on 23 felonies, including racketeering. Strodtman, 51, and two others are accused in a mortgage fraud scheme that left many Greeley area families in foreclosure, reduced property values of neighboring homes and defrauded lenders, according to the Weld County District Attorney’s Office.

Brothers admit to million-dollar mortgage fraud: Federal prosecutors say two Virginia brothers have pleaded guilty in a million-dollar mortgage fraud scheme. Twenty-nine-year-old Mohammed Rababeh of Vienna and 31-year-old Ahmed Rababeh of Haymarket pleaded guilty Wednesday to conspiring to commit bank fraud.

Former mortgage loan officer pleads guilty to fraud scheme: A 25-year-old woman pleaded guilty in federal court yesterday to participating in a mortgage fraud scheme and faces up to five years in prison and $250,000 in fines. Paula Galacgac admitted that, while working as a loan officer for Mortgage Ability, LLC she recruited two “straw buyers” for properties on O’ahu and assisted them in fraudulently applying for mortgage loans worth more than $400,000. Other members alleged to be part of the fraud conspiracy were named in a separate criminal indictment returned by a federal grand jury May 30.

Officials say Florida man is part of mortgage scheme: A Seffner man was arrested Wednesday in connection with a multimillion-dollar mortgage fraud scheme that victimized dozens of people since 2004, the Florida Department of Law Enforcement said. Michael Fetterhoff, 37, of 205 Kingsway Road, was charged with grand theft of more than $100,000. Fetterhoff worked in sales for Advanced Mortgage Solutions, a mortgage broker company associated with other home improvement businesses that persuaded mostly minority customers in poor areas of Florida to take out home loans, FDLE spokeswoman Trena Reddick said.

Kansas City mortgage fraud ringleader sentenced to 13 years: A Kansas City businessman was sentenced to 13 years in prison for a $17 million mortgage fraud scheme that included buying a home owned by former Jackson County Executive Katheryn Shields and her husband. Raymond Zwego Jr. will also pay nearly $5.6 million in restitution and serve three of those years in prison for a probation violation.

AARP Calls For Help For Victims of Mortgage Fraud: Florida is one of only three states that doesn’t offer financial protection to victims of fraudulent loans. We’re also first in the nation for mortgage fraud. The Florida Association of Mortgage Brokers and AARP are calling on lawmakers to revive the Mortgage Brokerage Guaranty Fund. The fund was quietly cut in the 90’s. It would pay some victims or mortgage fraud 20,000 dollars for their losses. AARP Spokesman Dave Bruns said if the program hadn’t been canceled, today the state would have 24 (m) million dollars to help victims.

Delray Beach mortgage agent guilty of fraud: A Delray Beach mortgage broker pleaded guilty Friday to participating in a wire fraud scheme to misappropriate more than $1.2 million in client funds supposedly held in escrow for real estate transactions and related expenses. John Mohan, 38, faces up to 20 years in prison when he is sentenced Dec. 19 in federal court. According to the U.S. Attorney’s Office, Mohan worked as a mortgage broker and closing agent. He collected money from buyers and lenders and represented to the parties that the funds were being held in escrow to be disbursed for various specified purposes, including the satisfaction of pre-existing mortgages. Prosecutors said Mohan used the money for personal use and investments and tried to conceal the fraud and prevent immediate foreclosure of the property by sometimes making payments on the homeowner’s original mortgage.

Virginia mortgage broker sentenced in real estate fraud scheme: A mortgage broker from Norfolk has been sentenced to four years in federal prison in a mortgage fraud case involving a home in northern Virginia. Fifty-year-old David A. Freelander was sentenced last Friday in Alexandria federal court. He has to pay more than $5.4 million in restitution.

Florida AG suing 10 companies, 15 individuals for mortgage fraud: Florida Attorney General Bill McCollum announced last Friday that his state’s Mortgage Fraud Task Force is suing 10 companies and 15 individuals for their alleged roles in a Central Florida mortgage fraud scheme. The suit alleges that the group obtained more than $37 million in mortgage loans for at least 60 homes and siphoned off more than $6 million of the loan proceeds for their personal use.

12 indicted in Atlanta mortgage fraud scheme: Local authorities said last Monday they charged 12 men with an elaborate mortgage fraud scheme in Atlanta’s West End neighborhood and seized more than $200,000 of assets. In indictments filed last week, Fulton County District Attorney Paul Howard Jr. accused the men of buying and selling nine homes using false appraisals that were more than double the homes’ actual value. Seven of the houses were in the 30310 zip code in the West End, where 26 homes were put up for foreclosure auction in late June.

A Baptist church pastor and radio show host and his mortgage broker wife were arrested today on charges stemming from a State of Florida investigation into a $1 Million real estate fraud scam.

Investigators with Florida’s Dept. of Financial Services’ Division of Insurance Fraud, along with the state’s Office of Financial Regulation, say the couple — Rodney McGill and Shalonda McGill — have been enjoying expensive leased vehicles, including a Rolls-Royce, and other luxuries while sticking their so-called clients with more than $1 million in mortgage debt. The two were arrested today on charges of Racketeering, Conspiracy to Commit Racketeering, Grand Theft (2 counts), and Obtaining a Mortgage by False Representation. The McGills are now being held in the Martin County (Fla.) Jail, with bond set for each at $1.4 million. Deputies with the Martin County Sheriff’s Department arrested the pair during a routine traffic stop.

Shalonda McGill and Rodney McGill sourced clients through various programs including the Young Millionaire’s Group, RSM Investment and Mortgage, and the New Hope Outreach Center, all of which operated out of a facility located at 2110 Arch St. in Jensen Beach, Florida. State corporation documents identify Rodney McGill as president and Shalonda McGill as vice president of the New Hope Outreach Center, which is incorporated as a nonprofit church with the McGills listed as pastors.

The investigation found that Rodney McGill, as president of the Young Millionaire’s Group, also solicited customers through a daily local radio program he hosted on WJFP 91.1 FM in Fort Pierce, FL. He told his listeners would teach teach and mentor them on how to buy and sell real estate without any out-of-pocket expense, with the goal of earning $50,000 in 90 days.

In July 2006, state investigators charge, Rodney McGill solicited listeners of his radio show to call in and qualify, based on their credit, to become one of his “Fab 5.” program. Callers allegedly were assured that they would learn McGill’s real estate investing “cash-out technique.”

The McGills purchased real estate in Martin and St. Lucie counties (Florida) by preparing and submitting fraudulent loan applications, and then flipped the properties to Fab 5 members for huge profits. Based on the fraudulent loan applications, four mortgages were obtained in excess of the property’s actual worth, and the McGills are said to have skimmed off the profits leaving three members of the so-called Fab 5 with more than $1.115 million in mortgage payments they were unable to make.

In one case, Florida investigators charge that the McGills paid $210,000 for a home at 1000 N.E. County Line Road in Jensen Beach, FL, in June of 2006. Three months later, they sold the home for $365,000 — a 74% increase at a time when home values in Florida were plummeting. In another scam, the McGills paid $147,000 for a house at 2814 S.W. Ann Arbor Road in Port St. Lucie, FL, according to property records, in August 2006. Three months later, they sold the house at a 56% increase ($229,000).

Florida officials say all of the McGills related properties are either in or are facing foreclosure. The buyers of course all believed they were part of the Fab 5 and were learning the McGill’s real estate investing techniques.

The investigation into Shalonda McGill and Rodney McGill’s fraudulent trappings is ongoing into other real estate transactions in which the McGills were involved. Anyone with information about the McGill’s is asked to contact Detective Ted Padich, (561) 837-5635, with Florida’s Division of Insurance Fraud, or Investigator Steve Brignola, (561) 837-5233, with Florida’s Office of Financial Regulation.

Scripps Treasure Coast Newspapers reported earlier this year that Rodney McGill was arrested in April on a child abuse warrant stemming from an incident involving allegations that beat his daughter with a household extension cord. The girl later recanted her story and the charges were dropped. The same newspaper service also reported that McGill led an October 2007 march from his church to his town’s city hall in which 300 people protested high utility bills.

Reported incidents of mortgage fraud in the U.S. increased by nearly 50% in the first quarter of 2008 from a year ago, according to a new report released this week. The report is based on data submitted by Mortgage Asset Research Institute (MARISM) subscribers about loans that were originated in the first quarter of this year and have since been classified as fraudulent, and shows a whopping 42% increase in filings. At the local level, Florida continues to lead all states in reported mortgage fraud. In fact, according to the report, Florida accounted for 24% of all properties with material misrepresentation for loans originated during the first quarter of 2008, and the Miami MSA alone boasts 49% of all of the reports submitted for properties in the state.

California ranked second in the first quarter of this year (with 52% of the properties with misrepresentation coming from the Los Angeles area), followed by a three-way tie for third place among Illinois, Maryland and Michigan.

Major urban areas also score the highest in Illinois, Maryland and Michigan. Ninety-four percent of investigations in the state of Illinois are for properties in the Chicago MSA, while in Maryland, 25% of reports are in the Baltimore MSA. In addition, the Detroit MSA counts for 56% of all of the misrepresentation reported for Michigan.

For all states, the most common type of fraud was in the “General Application Misrepresentation” category, followed closely by misrepresentations related to income and employment. In addition, multiple types of fraud types–such as identity theft and identity fraud–continue to appear in a significant percentage of loan transactions.

The report–which available for download here–presents a number of interesting and noteworthy trends:

• In general, misrepresentation on the mortgage application trends high in each of the states.
• Income and employment misrepresentation on the mortgage application rank high in Florida,
  California, Illinois and Maryland. Florida and Maryland report higher income than employment misrepresentation, and California and Illinois report slightly higher employment than income misrepresentation.
• Michigan shows a high percentage of asset and debt misrepresentation on the mortgage application.
• Appraisal misrepresentation (including value inflation and incorrect use of comparables) is most prevalent in Michigan.
• Maryland has an abnormally high percentage — 69% — of tax return and financial statement misrepresentation.

In its final analysis, this week’s report concludes the following:

1. The first quarter data reveals that loan application misrepresentation continues to plague the industry. According to the FBI’s 2007 Mortgage Fraud Report, “the downward trend in the housing market provides an ideal climate for mortgage fraud perpetrators to employ a myriad of schemes suitable to a down market.” Simply stated, mortgage fraud will not disappear — in fact, it is expected to significantly grow, evolve and penetrate new areas within the industry.
2. As the nation’s lenders redraw their credit practices, we see a continued need to highlight and eliminate loans that are not in good order at the point of origination, well before prefunding processors spend any effort to seek added verification or validation of the mortgage application information. If loan applications are not in good order when submitted, the loan data may likely be adjusted to fit the business practice expectation to meet the requirements for funding, which ultimately may result in funded loans that quickly go bad.
3. To save itself from schemes both commonplace and new, the mortgage industry must continue to strengthen its attention to and practice of due diligence to ensure that transactions are in good order at the point of origination. This includes an analysis of the borrower’s identity, as well as the players involved in each of the real estate roles whether they are outsourced or work directly for the lender.
4. As lenders pursue higher-quality loans for the market, the priority should be on identifying poor quality at the earliest possible point in the process — and at the lowest possible cost. In MARI’s view, the origination and prefunding processes offer the largest and least expensive opportunities to assure funding of higher quality loans. How a lender accepts or rejects a loan application at the front door is often all a criminal needs to see how much further he or she may push through the loan process.
5. Pre-funding fraud detection solutions can help prevent the risk of application discrepancies, exposure to compromised identities and establishment of relationships with insiders who leverage someone’s good name to perpetrate fraud. If on the mortgage application general misrepresentation or income, appraiser or employer misrepresentation were checked adequately at origination and pre-funding, in this quarter’s examples, would there still be significant fraud to report…?
6. Mortgage fraud inflicts damage to profits, reputations and consumer confidence. Today, it is wise to ensure you know the customers, employees and vendors involved in every loan transaction — doing this early in the process can result in overall protection from tainted pipelines and hidden threats to loan quality.

According to the Federal Bureau of Investigation (FBI), which earlier today issued yet another Mortgage Fraud Advisory, here are the latest Real Estate Fraud statistics:

• Estimated Annual Losses: $4 billion to $6 billion
• Total Mortgage Fraud Suspicious Activity Reports in Fiscal Year 2007: 46,717, with $813 million in losses
• Total FBI Mortgage Fraud Task Forces/Working Groups (June 2008): 42
• Pending FBI Mortgage Fraud Investigations (May 2008): 1,380
• Cases opened in Fiscal Year 2007: 462 (compared to 295 in Fiscal Year 2003)
• Successes in Fiscal Year 2007: 321 indictments/informations; 260 convictions
• States with Significant Mortgage Fraud problems in 2008:

1. Florida
2. Nevada
3. Michigan
4. California
5. Utah
6. Georgia
7. Virginia
8. Illinois
9. New York
10. Minnesota

The United States Attorney for the Middle District of Florida–Robert E. O’Neill–yesterday announced the return of a 47-count indictment against four real estate industry insiders, charging them with conspiracy, making false statements in connection with bank loans, a scheme to defraud seven FDIC insured banks, and money laundering.

The indicted defendants are:

• Neil Mohamed Husani, 38, formerly a resident of Sarasota, Florida, and owner and principal officer of Capital Force, Inc., an business which purportedly purchased and sold commercial real estate in Sarasota and Manatee Counties
• Michael A. Tringali, 46, a resident of Sarasota, owner and principal officer of G & T Land Development, an entity which purportedly purchased and developed commercial real estate, primarily in Sarasota and Manatee (FL) Counties
• John A. Yanchek, 48, a resident of Sarasota, and a practicing attorney licensed by the State of Florida.
• Larry P. Nardelli, age 49, a resident of Tampa, and a businessman associated with Elba International, LLC and other companies.

John A. Yanchek was arrested yesterday morning without incident. Michael A. Tringali and Larry P. Nardelli were expected to surrender to the authorities today, while Neil Mohamed Husani current whereabouts is said to be unknown.

The maximum penalty for a violation of conspiracy (18 U.S.C. §371) is five years imprisonment and a fine of $250,000. The maximum penalty for a violation of making false statements to a financial institution in connection with a loan (18 U.S.C. §1014) and bank fraud (18 U.S.C. §1344) is 30 years imprisonment and a $1,000,000 fine. The maximum penalty for a violation of a 1956 money laundering charge (18 U.S.C. §1956) is 20 years imprisonment and a $500,000 fine. The maximum penalty for a 1957 money laundering charge (18 U.S.C. §1957) is 10 years imprisonment and a $250,000 fine.

According to the allegations in the indictment, the defendants conspired to obtain approximately $82,790,000.00 in loans from seven financial institutions in the Tampa/Sarasota, Florida area by making false statements to those banks.

If you’ve been following the Cay Clubs’ mess here on FlippingFrenzy.com, you’re already familiar with a former JPMorgan Chase & Co. (NYSE: JPM) loan officer named Ross Pickard. According to a number of Cay Club investors, including Carisa and Craig Urban, unbeknownst to them, while working at Chase, Ross Pickard intentionally fudged their income and assets in order to get their Cay Clubs-related loans approved. As a result, according to the Urban’s, as recently as April of this year, there was a task force looking into Mr. Pickard’s practices, and it may only be a matter of time before he is possibly charged with a real estate or mortgage fraud-related crime.

Fast forward three months and we’re just now learning that Ross Pickard is employed in a loan officer-related role at Wells Fargo. As near as we can tell (from phone calls to placed to Mr. Pickard’s own office), Ross Pickard now works for Wells Fargo Private Client Services‎, which is located at 5625 Strand Blvd. in Naples, Florida.

We’re not sure about anyone else, but we sure are surprised that Wells Fargo chose to engage Mr. Pickard when he stands to lose so much as a result of these alleged bad acts. Inflated incomes and assets–both by homeowners and loan officers–created a lot of our current mortgage mess in the first place, and if Mr. Pickard is doing the same under Wells Fargo’s roof, they too may become caught up in something they just didn’t bargain for when agreeing to work with the likes of Ross Pickard.

More Americans are facing foreclosure than at any other time in recent memory. According to the May 2008 U.S. Foreclosure Market Report™ from RealtyTrac, foreclosure filings (i.e., default notices, auction sale notices, and bank repossessions), were reported on 261,255 properties during the month of May, which translates into a 7% increase over April and a 48% increase from May 2007. The report also shows one (1) in every 483 U.S. households received a foreclosure filing during the month of May, the highest monthly foreclosure rate since RealtyTrac began issuing its report in 2005.

Nevada, California, and Arizona post top state foreclosure rates

With one in every 118 households receiving a foreclosure filing in May, Nevada posted the highest state foreclosure rate for the 17th consecutive month. Foreclosure filings were reported on a total of 9,009 Nevada properties, an increase of nearly 24% from the previous month and a 72% increase from May 2007.

California’s foreclosure activity in May increased 11% from the previous month and 81% from May 2007, helping the state continue to register the nation’s second highest state foreclosure rate. One (1) in every 183 California households received a foreclosure filing during the month of May, a rate that was 2.6 times the national average.

Arizona’s May foreclosure rate — 1 in every 201 households received a foreclosure filing during the month — ranked third highest in the U.S. for the second month in a row. Arizona’s foreclosure activity increased nearly 12% from the previous month and almost 119% from May 2007.

One in every 228 Florida households received a foreclosure filing in May, giving it the fourth highest foreclosure rate in the country. Michigan foreclosure activity in May increased nearly 25% from the previous month, helping the state’s foreclosure rate to jump to fifth highest in the country after ranking No. 9 the previous month. One in every 353 Michigan households received a foreclosure filing in May.

Other states with foreclosure rates ranking among the top 10 for the month of May were Georgia, Colorado, Massachusetts, Ohio and New Jersey.

Detailed state-by-state data is available here.

For the second month in a row, California and Florida cities accounted for nine out of the top 10 metropolitan foreclosure rates among the 230 metropolitan areas tracked in the report. Seven cities in California were in the top 10, led by Stockton in the top spot. One in every 75 Stockton area households received a foreclosure filing in May– more than six times the national average. Other California cities in the top 10 were Merced at No. 3, Modesto at No. 4, Riverside-San Bernardino at No. 5, Vallejo-Fairfield at No. 7, Bakersfield at No. 8, and Sacramento at No. 9.

The Cape Coral-Fort Myers metro area in Florida registered the second highest metro foreclosure rate in May, with one in every 79 households receiving a foreclosure filing during the month. The other Florida metro area in the top 10 was Port Lucie-Fort Pierce at No. 10.

Las Vegas was the only city outside of California and Florida with a foreclosure rate ranking among the top 10. One in every 96 Las Vegas households received a foreclosure filing in May, more than five times the national average and No. 6 among the metro areas.

Metro areas with foreclosure rates among the top 20 included Phoenix at No. 12, Detroit at No. 14, San Diego at No. 17 and Miami at No. 19.

Next up: Speculation about when the slide will end / have we seen the worst of the worst. Weighing in on the topic is Joe G. Henry of Long & Foster-affiliated W.C & A.N Miller Realtors in Virginia (comment found on ForeclosurePulse):

Defendable recovery will be 2011 due to the highest volume of ARM resets occurring in June 2008 and the typical foreclosure process lasts 12 months from Notice of Default, Notice of Trustee Sale, Foreclosure Auction, then seasoning to a Bank Owned (REO) — plus a 15-18 month housing inventory. Moreover, for every one bank-owned listing in Fairfax County, we have three short sales, which 80 percent of these will actually be foreclosed. There are three crisis response talking points concerning this scenario: (1) added liquidity; (2) mark down distressed assets; and (3) act now.

What’s your take? Do you agree with Joe G. Henry or do you have a theory of your own?

If you are interested in the federal government’s handling of real estate and mortgage fraud prevention and prosecution, read “FBI Halts Some Cases to Investigate Mortgage Frauds,” by Bloomberg’s Robert Schmidt. If you don’t have time to read the entire article, here’s just what you need to know:

• The FBI, confronting a surge in mortgage fraud, has ordered more than two dozen of its field offices to stop probing certain financial crimes so agents can focus on real estate and mortgage fraud.
• Kenneth Kaiser, chief of the bureau’s criminal investigative division, issued this directive late last week on a video conference call with the heads of 26 FBI offices in areas where real estate fraud is out of control.
• An FBI spokesperson said the shift was made after an analysis of how agents are spending their time. Approximately 150 FBI agents were working on more than 1,300 real estate fraud cases before the directive was issued.
• The 26 FBI field offices were told to temporarily suspend opening new cases dealing with price fixing, mass marketing, wire fraud, mail fraud and environmental crimes. Current cases aren’t being dropped, the FBI spokesperson said.
• FBI field offices in Florida, Georgia, California, Nevada, Arizona, Texas, New York, Ohio, Michigan, Illinois, Indiana and Minnesota–all rated as real estate and mortgage fraud hot spots–are participating.
• “Diverting FBI resources to deal with cases of mortgage fraud is exactly what Chairwoman Mikulski wants to avoid,” Melissa Schwartz, a spokeswoman for U.S. Senator Barbara Mikulski, who heads the appropriations subcommittee for the FBI, told Bloomberg late yesterday.
• The Attorney General of the United States, Michael Mukasey said last week that the Justice Department, the FBI’s parent agency, “won’t create a national task force to combat mortgage fraud as the government did with corporate crime after Enron. “This isn’t that kind of phenomenon,” he said.

For more on this developing story, read FBI Halts Some Cases to Investigate Mortgage Frauds.

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.

Three real estate industry insiders have been sentenced in Florida for their roles in a humongous real estate fraud conspiracy. Richard Crowder, II, a former licensed mortgage broker and owner of America’s Best Mortgage Services, along with former title attorney Gary Mills (who owned Four Star Title) and a former Wachovia Bank loan officer (Karen Sullivan), all received stiff sentences on Wednesday from U.S. District Judge Jose Martinez. Crowder received nine (9) years’, while Mill and Sullivan received three years’ and eight months and four years’ and one month imprisonment, respectively. All three are scheduled to appear again in court on May 29 for a hearing to determine the amount of restitution they must pay to the victims in this case.

To carry out their scheme, mortgage broker Crowder identified residential properties, including luxury condominiums on South Beach in Miami, Florida, that were available for purchase. He then recruited buyers for the properties, representing that he could obtain 100% financing for their purchase. After finding a purchaser, Crowder would apply for equity lines of credit on their behalf with Wachovia Bank. To induce Wachovia to issue the equity lines of credit, Crowder and title attorney Mills prepared fraudulent HUD-1 settlement forms stating the buyers already owned the properties and also significantly understated the amount of the first mortgages on the properties. The fraudulent HUD-1 settlement forms were then given to Wachovia Bank loan officer Sullivan, who used the forms to facilitate the issuance of equity lines of credit from the bank.

Simultaneously, or shortly after obtaining the equity lines of credit from Wachovia, Crowder applied for the first mortgages on the properties. These applications overstated the buyers’ assets and income, and also included false verification of deposit forms prepared by Wachovia Bank loan officer Karen Sullivan. To further induce the lenders to issue the loans, title attorney Gary Mills prepared documents falsely representing that the buyers were using their own money for the down payments and closing costs. In fact, the buyers were using funds from the fraudulently obtained Wachovia equity lines credit or funds provided by mortgage broker Richard Crowder.

At the end of the day, Crowder, Mills and Sullivan caused the fraudulent purchase of 17 different luxury condominiums at The Continuum on South Beach and at The Point of Aventura using more than $37,000,000 in fraudulently obtained mortgage loans.

A U.S. District Judge in Florida has sentenced a former mortgage broker to seven years in prison and ordered him to pay more than $2.3 million in restitution for his role in a mortgage fraud scheme that racked up more than $17 million in fraudulently secured loans. Justin D. Barker, 31, of Jacksonville, Florida, who was sentenced earlier this week in the Middle District of Florida, was also ordered to forfeit $4,419,024.15, jointly and independently with other conspirators.

According to court documents, Barker’s scheme operated in 2005 and 2006 when he negotiated the purchase of residential real estate properties, either on behalf of himself personally, on behalf of a company he controlled, or on behalf of a third-party buyer. Barker, his company, or the buyer would then enter into a purchase and sale agreement with the seller of the property in question. Barker then retained a licensed real estate appraiser to appraise the property at a significantly inflated price. The appraiser would appraise the property at the price Barker requested, using inappropriate comparable properties and other fraudulent methods to obtain the price requested.

At the closing on the properties in question (more than 40 in total), Barker or his company would receive the difference between the loan amount, which was based on the inflated appraisal, and the actual purchase price, usually described with terms such as “assignment fee” or “payoff of second mortgage” that did not exist. This difference was the proceeds of the fraud.

During the course of the scheme, fraudulent loans totaling about $17.7 million were obtained on more than 40 properties. These loans would not have been approved but for the fraud. To recover some of these illicit proceeds, the government seized from Barker the following items:

• 2004 Bentley Continental
• 2007 Cadillac Escalade
• 2002 BMW 745Li
• 2005 Chaparral 330 Signature 36′ boat
• 1997 19′ Wellcraft boat
• 2006 and 2001 Yamaha motorcycles
• 2-carat loose diamond
• 1-carat diamond necklace
• .5-carat diamond necklace
• Diamond stud earrings
• Two Movado watches

Barker’s co-conspirator in the case, a title agency manager named Robert W. Hulbert Jr., pleaded guilty to the same charges and was sentenced this past December to three years in prison.

Imagine buying your dream home. Your credit is a bit shaky but you manage to secure a subprime loan with an adjustable rate mortgage. A few years later, interest rates jump and you can no longer afford to pay your mortgage. You see an advertisement in a local newspaper for a business that’s willing to help–the ad states they can pay your mortgage for a modest monthly fee while you take the necessary time to get back on your feet. But here’s the bad part: It’s a scam. The company just takes your money and runs!

This is just one of the real estate and mortgage fraud-related schemes the FBI is concerned about, and according to senior criminal investigators at the Bureau, the problem is only going to worsen over the next 18 months. These scams–which I write about in my latest book, Foreclosure Self-Defense For Dummies–include plenty of shenanigans with mortgages and subprime loans and are costing this great nation of ours tens of billions of dollars a year, if not more.

“Greed is definitely not good for our economy right now,” says Ken Kaiser, the FBI’s top criminal investigative executive. “It’s hurting homeowners. It’s hurting honest businesses. And it’s hurting investors and markets around the world.”

With those thoughts in mind, the FBI says it is now squarely focused on proactive initiatives designed to crack down on the largest of these financial crimes, and is even shifting resources as trends emerge, all the while working hand-in-hand with a host of government and private sector partners.

In particular:

• As we wrote last week, the FBI is now investigating 14 corporations involved in subprime lending as part of its “Subprime Mortgage Industry Fraud Initiative” launched last year. The companies being investigated come from across the financial services and real estate industry, from mortgage lenders to investment banks that bundle loans into securities sold to investors.
• The Bureau now has more than 1,200 open real estate and mortgage fraud cases (that’s up about 40% from last year), mostly involving fraud for profit, where straw buyers and real estate industry insiders rig schemes to buy properties that are illegally flipped or allowed to go into foreclosure.

The FBI also says suspicious activity reports–for potential real estate and mortgage fraud–have increased from 3,000 in 2003 to 48,000 in fiscal year 2007, and are projected to reach more than 60,000 such reports in 2008.

Finally, the FBI’s latest “hotspot list” for real estate and mortgage fraud includes: California, Texas, Arizona, Florida, Ohio, Michigan, and Utah (Utah is new to the list); and, on a somewhat surprising note, the Bureau now says it sees no links whatsoever to organized crime syndicates, street gangs, or terrorist groups in its real estate and mortgage fraud case portfolio.

Some mortgage fraud cases will not be criminally prosecuted!: Amid all the anguish arising from the swelling volume of home foreclosures in and around Stockton, California, there has been much talk about real estate fraud. But most of the complaints cannot be criminally prosecuted, representatives of the San Joaquin County Office of the District Attorney said yesterday.

Foreclosure vultures prey on Portland, Oregon, homeowners: As national foreclosure rates hit their highest levels ever, people calling themselves “foreclosure consultants,” are filling Craigslist, billboards and mailers with offers to “save your home.” Detective Liz Cruthers, who investigates white-collar crimes for the Portland, Oregon, Police Bureau, says she’s spending much of her time learning the intricacies of “mortgage rescue fraud” and chasing down the bad guys.

Utah seeks stiffer penalties for real estate fraud: A Utah legislative committee is recommending the passage of a bill aimed at increasing criminal and civil penalties against people involved in mortgage fraud. The Senate Business and Labor Standing Committee on Tuesday unanimously approved SB134 for further consideration by the state Legislature.

FBI targets mortgage fraud in Hawaii: The FBI has opened multiple mortgage fraud investigations in Hawai’i as a result of the fallout from the nation’s subprime mortgage crisis, the bureau’s director said yesterday. FBI Director Robert S. Mueller III, speaking to reporters on a stopover following a trip to Asia, confirmed the subprime mortgage mess has reached Hawai’i.

Countrywide accused of mortgage fraud: Already burned in the subprime mortgage meltdown, lending giant Countrywide Financial Corp. is now under investigation in Florida for possible unfair and deceptive trade practices, state officials said Thursday. Officials say they have received more than 150 formal complaints about Countrywide since setting up a mortgage fraud hotline last year.

Arrest made in Erie, Pennsylvania, real estate fraud case: A key figure in an ongoing federal investigation into suspected mortgage fraud in the city of Erie, Pennsylvania, will plead guilty to fraud and money-laundering charges. The U.S. Attorney’s Office in Erie on Thursday filed criminal charges against Frank Kartesz II. Kartesz, 39, is accused of one count each of mail fraud and criminal conspiracy to commit mail fraud, wire fraud and bank fraud. The government alleges he was part of a scheme in which he and others bought run-down houses and sold them at artificially inflated prices. Most of the buyers were low-income people who knew little about the home-buying process.

Illinois mortgage broker in jail for selling credit histories: Homeowners already worried about with a slumping real estate market and tighter restrictions on home loans should look to the case of an Illinois mortgage broker as another cautionary tale.

Georgia real estate appraiser sentenced to prison for mortgage fraud: After submitting fraudulent appraisals on incomplete houses as part of a mortgage fraud scheme, a Georgia real estate appraiser has been sentenced to prison.

Florida’s Attorney General today announced a multi-pronged initiative to combat mortgage fraud and rescue foreclosure scams, and the filing of a lawsuit asserting South Florida-based National Foreclosure Management and multiple affiliates defrauded at least 80 homeowners out of approximately $1.7 million in home equity.

Beginning in October 2004, National Foreclosure Management–which now does business as American Home Rescue, Inc.–selected homeowners who had substantial equity in their homes but were in the process of being foreclosed upon. The company would offer to hold the titles to the homes for a year, refinance the debt, and provide cash and credit repair counseling to the homeowner, all while allowing the homeowner to remain in the house. The company claimed it would deed the property back at the end of the year after the foreclosure had been avoided and the homeowner’s credit was repaired.

Once the company had obtained the title to the house, the Attorney General’s lawsuit alleges the company would strip the equity from the homes by refinancing them at inflated prices and by assessing fraudulent fees and costs, leaving little or nothing for the homeowner to recoup. The home would then be sold outright to an investor or a straw buyer who would lease the home back to the homeowner at a rental rate far exceeding the original mortgage payment, virtually ensuring the homeowner’s eventual eviction. According to the lawsuit, the homeowners would end up with neither the titles to the homes nor the equity that rightfully belonged to them.

The lawsuit, which is the first filed by the Attorney General’s Mortgage Fraud Task Force, seeks restitution to the affected homeowners, dissolution of the rescue foreclosure companies, and revocation of the mortgage brokers’ licenses revoked. Florida’s mortgage fraud task force has been in operation since September and is made up of 25 lawyers and investigators in the Attorney General’s Office, stationed in locations throughout the state.

In addition to filing the lawsuit, Florida’s Attorney General today announced the filing of the “Foreclosure Rescue Fraud Prevention Act,” sponsored by Senator Mike Fasano (R–New Port Richey) and Representative Clay Ford (R–Gulf Breeze). The proposed legislation will ensure, among other things, homeowners are properly informed about their rights when they are signing a contract with a foreclosure rescue entity. Specifically, the proposed legislation offers the following key provisions:

1. A five-day right of cancellation period that allows the consumer to cancel the agreement with the foreclosure rescuer.
2. Requirements that foreclosure rescuers include in the contract clear and conspicuous notice to homeowners of this right of cancellation as well as a recommendation that the homeowner contact the lender or mortgage servicer prior to the signing of the agreement and a provision that states the consultant is prohibited from accepting any form of payment until all services are completed.
3. Definitions of such terms as “Equity Purchaser,” “Foreclosure Consultant,” “Foreclosure-related Services,” and “Foreclosure Rescue Transaction.”
4. That all violations of the new Foreclosure Rescue Fraud Prevention Act are defined as an unfair and deceptive trade practices and are subject to the penalties included in Part II of Chapter 501, Florida Statutes.

Parties named in today’s lawsuit include:

• National Foreclosure Management, Inc.
• American Home Rescue, Inc.
• National Property Holding Group, LLC
• The Mortgage Practice, Inc.
• Southeast Capital Mortgage Company
• Barrister Title Services, Inc.
• GMC Land Services of Florida, Inc., doing business as Richmond Abstract, Inc.
• Bernard Williams
• Wyman F. Roberts
• Lakeisha Marion
• Anna Silva
• Albert Nae
• Linda Rubinchik
• Rhona Oliver
• Tracy Needleman
• Gina Rock
• John Sarlo
• Dianna Brown-Flournoy
• Reina Roman

A copy of the lawsuit against National Foreclosure Management is available here.