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.

The Mortgage Bankers Association (MBA) yesterday announced that the Mortgage Asset Research Institute (MARI) has completed its 10th Periodic Mortgage Fraud Case Report to MBA. The report examines the current state of residential mortgage fraud and misrepresentation in the U.S. based on participating subscribers’ reports to MARI.

The report, which sites Florida as topping the MARI Fraud Index list for the second consecutive year and Nevada climbing to the No. 2 ranking, was released during MBA’s annual National Fraud Issues Conference in Chicago.

Clearly, the current market conditions, compounded by mortgage fraud, are having a detrimental impact on our entire national economy. The MARI report provides critical insight for those in the real estate finance industry to better understand the factors contributing to these circumstances so that our communities are better protected.

According to the Mortgage Fraud Case Report, “The conditions in the mortgage industry for the last half of 2007 made the year one for the record books.” Overall, 2007 marked the lowest volume of mortgage loan originations since 2002, the highest number of delinquencies and foreclosures, rapid and near complete shutdown of the non-conforming secondary market and hundreds of announced closures of mortgage originators.

Highlights in the Mortgage Fraud Case Report include:

• In addition to Florida and Nevada, the remainder of this year’s top ten (in order): Michigan, California, Utah, Georgia, Virginia, Illinois, New York and Minnesota
• Colorado showed the greatest improvement from prior years’ rankings, dropping out of the top ten for the first time in five years
• The most common types of fraud found in 2007 originations continue to be in the areas of employment history and claimed income
• The continuing unsettled state of the mortgage market as a whole does not bode well for any improvement in avoiding fraud in the coming year

The complete Mortgage Fraud Case Report is available both on the MBA Website, and MARI’s Web site.

Following a two-week trial, a jury in federal district court returned guilty verdicts late Monday afternoon against Keith Garner, Gregg Savage, Shalonda Harris, all of Atlanta, Georgia, and Latesha Garner, of Durham, North Carolina, on charges of conspiracy to commit mortgage fraud and wire fraud related to $6 million in fraudulent real estate financing from SunTrust Mortgage Company over a ten week period in the summer of 2006.

According to court documents, Keith Garner, 48, solicited his daughter, Latesha Garner,27, a loan processor with SunTrust Mortgage, in the spring of 2006 to handle fraudulent loan applications submitted on behalf of straw borrowers recruited by the elder Garner and his co-conspirators. Because she was responsible both for verifying borrower employment and asset information as well as for approving closing documentation, Latesha Garner was uniquely positioned to defraud SunTrust Mortgage, which she did by falsely verifying borrower credentials and approving hundreds of thousands of dollars in false payoffs to her father.

Keith Garner paid Latesha $33,000–the equivalent of one year’s salary–across four transactions to facilitate his criminal scheme. He also enlisted the help of Susan Khodadad, a closing paralegal with several area real estate firms, to ensure that the false payoffs to Garner and his co-conspirators were included in SunTrust Mortgage’s loan documentation. Khodadad pleaded guilty to the conspiracy count of the indictment prior to trial and testified against her co-conspirators.

Focusing on the “Country Club of the South” and other high-end developments and subdivisions in the Atlanta area, Keith Garner and his fellow fraudsters acquired numerous properties in the name of their straw borrowers, often without the straw borrower’s consent. Each of the properties was accompanied by an inflated appraisal, which, in addition to the submission of false loan applications, enabled Garner to secure real estate financing from SunTrust Mortgage in excess of the fair market value of the properties. He then stole the “spread” between the inflated and fair market value of the properties primarily through Latesha and Khodadad, who ensured that SunTrust Mortgage either directly paid a bogus seller’s obligation or was never made aware that a substantial portion of seller’s proceeds was being paid to the defendants outside of closing pursuant to a criminal agreement with the seller.

Gregg Savage, 24, was convicted of realizing more than $830,000 in false profits in just seven days as a seller of two properties, from which he paid Keith Garner $200,000 for supplying the straw buyers. Shalonda Harris, 36, a licensed REALTOR, was convicted of receiving $66,000 from Keith Garner and Savage related to her role in locating properties and straw buyers on two indicted transactions.

Each faces a 20-year prison term and $250,000 fine on the conspiracy count of the indictment and a separate 20-year prison term and $250,000 fine on each of their wire fraud convictions. A sentencing date has not yet been scheduled.

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.

Raymond Costanzo, Jr., 63, of Clayton, Georgia, was sentenced last Friday to three years, five months in prison, followed by four years of supervised release, and was ordered to pay $7,843,184 in restitution related to charges of bank fraud and conspiracy in a multi-million dollar mortgage fraud scheme.

From 2004 through 2006, Costanzo participated in closing millions of dollars in fraudulently inflated mortgage loans for unqualified straw borrowers. These straw borrowers were paid as much as $600,000 from fraudulently obtained loan proceeds through shell companies. Costanzo himself obtained mortgage loans totaling over $1.5 million by providing lenders with false qualifying information, and he also falsified down payments. Costanzo received $250,000 in scheme proceeds from this transaction, and arranged for disbursements of fraudulently obtained loan proceeds to co-conspirators.

Such blatant fraud by a licensed professional and real estate market ‘gatekeeper’ cannot be tolerated, which is exactly what U.S. Attorney David Nahmias said about the Costanzo case. “Closing attorneys are the lenders’ eyes and ears at the closing table and must guard against mortgage fraud,” Nahmias said.

The integrity of closing attorneys is essential in the effort to prevent real estate and mortgage fraud. Attorneys who choose to be part of the fraudulent transactions rather than part of the solution should understand that their future may be in a federal prison, right alongside Raymond Costanzo, Jr.

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.

A U.S. District Judge in Georgia has sentenced a Decatur, Georgia real estate appraiser for his role in a multi-million dollar scheme to defraud mortgage lenders through fraudulent appraisals that reflected completed construction. Darryl Cooper, 27, received a one year, six month sentence in federal prison to be followed by three years of supervised release, and was ordered to pay restitution in an amount equal to that which he stole–$4.7 million.

According to the U.S. Attorney for the Northern District of Georgia, Cooper’s sentence was reduced substantially due to his cooperation in the investigation. Cooper pleaded guilty in November of last year on a charge of mortgage fraud conspiracy. Cooper’s appraisals supported fraudulent loans for purchases in the names of so-called out-of state investors of incomplete homes from builder and coconspirator Jeffery Teague, who in October of last year was sentenced to serve nearly 16 years in jail and was ordered to pay more than $7.5 million in restitution.

Cooper was recruited by Teague, who ran a company called Value Homes Ltd., to prepare fraudulent appraisals reflecting photographs and $5 million in appraisal valuations for 15 completed houses in the Greenleaf subdivision of Forsyth County, Georgia, when Teague had clearly not completed the construction of those homes. A California lender relied on Cooper’s fraudulent appraisals, which reflected completed construction, to make the $4.7 million in loans. Many of the borrower/purchasers from California, New York and Florida also relied on the Cooper’s appraisals, rather than inspecting the properties before closing on their loans.

While Georgia’s reported fraud cases dropped significantly through the first quarter of 2006 (compared to the same quarter in 2005), the state’s real estate and mortgage fraud woes are well documented. Georgia was the undisputed leader in fraud rates from 2002 through 2005, and continues to rank in the top five of virtually every major fraud index, and has an increasingly high number of foreclosures–which as everyone should know by now is caused in-part by real estate and mortgage fraud.

Many people believed this day would never come, but exactly one year to the day from when he was apprehended by Federal authorities, this nation’s most notorious Real Estate and Mortgage Fraud-related criminal has finally been sentenced for his role in a brazen string of acts that stunned nearly everyone who had ever played a hand in Real Estate and Mortgage Fraud forensics.

Thirty-eight-year-old Matthew Bevan Cox, the poster child for Real Estate and Mortgage Fraud in this country… the same man who kept federal authorities at bay for over three years and was the subject of an intense nationwide manhunt (and whose face landed on the U.S. Secret Service’s list of the Most Wanted Fugitives for his role in numerous Real Estate and Mortgage Fraud scams)… cried like a little baby in U.S. District Court in Atlanta yesterday afternoon, and was promptly sentenced to serve 26 years in Federal prison AND pay his victims up to $12 million in restitution.

For those of you who have never heard Matthew Cox talk about his crimes, the following clip, from NBC affiliate WSMV-TV in Nashville, Tennessee, will give you a small taste of what was going his mind:

Matthew Cox was indicted by a Federal grand jury in Atlanta in late-September of 2005 on 42 counts of mortgage fraud, identity theft, money laundering, and conspiracy. The Middle Districts of Tennessee and Florida filed criminal charges against Cox in April of this year, charging him conspiracy to commit mortgage fraud, aggravated identity theft, and passport fraud.

Cox, who was pleaded guilty to all charges on April 10th of this year, was apprehended on November 16, 2006 in Tennessee after a Nashville man read about him in a local newspaper and tipped off U.S. Secret Service agents. In the world of Real Estate and Mortgage Fraud forensics, no one person’s name sends a shiver up the back of a spine more so than Matthew Cox, who was also known as Maxwell Price, David Richard Freeman, Gerald Scott Cugno, Michael Shawn Shanahan, Gary Lee Sullivan, Michael John Eckert, Michael White, Kevin White, David White, James Redd.

Matthew Cox used stolen identities to obtain drivers licenses, purchase vehicles, lease mail drops, rent apartments, and open bank accounts to receive Real Estate-related scheme proceeds throughout the states of Georgia, Florida, Alabama, South Carolina and North Carolina. Cox’s accomplice in many of his scams– Rebecca Marie Hauck–was sentenced on November 15, 2006 (the day before Cox was captured) by a U.S. District Judge in Georgia to serve 5 years and 10 months in prison for her role in the now infamous string of mortgage and bank fraud-related crimes.

How Cox be able to afford the $12 million he was ordered to pay in victim restitution is anyone’s guess, but despite his wicked ways, Matthew Cox was–and may still be–a talented writer and artist who just so happened to leave behind a number of works. According to WXIA-TV in Atlanta, a representative of the victims is planning to offer, perhaps as soon as this coming week, four of Cox’s paintings for sale on eBay, with 100 percent of the proceeds going into the victims’ restitution fund. Cox did signed away the rights to his future works, including any additional paintings and unpublished novels, past and future, to his victims’ restitution fund, so that too may provide some relief.

For now, we can all sleep a little better at night knowing that Matthew Cox is finally paying for his crimes. That said, 26 years in prison and $12 million in fines may not be enough for this guy or the others who try to follow his example.

Following up on a story FlippingFrenzy.com first report on September 25th, a Marietta, Georgia closing attorney who admitted that he was a member of a mortgage fraud ring that federal prosecutors say included more than a dozen people, is now cooperating with the government in a trial that began earlier week in U.S. District Court. From Law.com:

Following up on a post from September 25, on Tuesday, federal prosecutors identified real estate closing attorney James F. Stovall III — formerly a partner in the now-defunct law firm, King, Taylor & Stovall — as the lawyer who finalized as many as 50 fraudulent home sales. The sales were part of a scheme that bilked banks out of at least $20 million in 2000 and 2001, prosecutors said.

Stovall is the most recent Georgia attorney caught using his law practice to perpetuate mortgage fraud, a crime that has cost the country’s banks hundreds of millions of dollars. As a warning to other real estate lawyers, U.S. District Judge Thomas W. Thrash Jr. in 2005 sentenced disbarred DeKalb County attorney Chalana C. McFarland to 30 years in prison for her role in a mortgage fraud scheme that cost lenders more than $11.5 million — the toughest sentence to date handed down in Georgia on dozens of mortgage fraud defendants who have faced federal prosecution here since 2000.

This year, two other Georgia real estate closing attorneys pleaded guilty to charges associated with yet another, wide-ranging mortgage fraud scheme in which they played roles similar to Stovall’s — but on hundreds, rather than dozens, of properties.

In August, Thrash sentenced one of those two lawyers, J. Christopher Halcomb of Cumming, to 37 months in prison and ordered him to pay more than $15 million in restitution. He has also been disbarred. The other lawyer, Andrew E. Wolf, is still awaiting sentencing.

Click here for more information on Stovall and the mess he helped to create.

Fifty-six year-old James Stovall of Roswell, Georgia, pleaded guilty yesterday in federal district court to charges of conspiracy to commit bank, mail and wire fraud, bank loan application fraud, money laundering, and wire fraud in connection with a series of Real Estate fraud schemes valued at more than $20,000,000.00.

According to the U.S. Attorney overseeing the case (David Nahmias) and the information presented in court, Stovall is a real estate attorney who participated in a mortgage fraud scheme involving property flips orchestrated by one of his clients, Reti Relocation Services, Inc. From April 2000 to June 2001, Reti flipped some 50 properties in the metro-Atlanta area (more specifically, in the Brookstone subdivision of Acworth, the Windward and Seven Oaks subdivisions in Alpharetta, and the Towne Lake subdivisions in Woodstock).

Reti would acquire properties and on the same day resell them to straw borrowers who were paid for participating in the transactions. Reti paid recruiters for locating straw borrowers, loan officers for preparing and submitting false loan applications and false qualifying documents, and appraisers for preparing fraudulent appraisals with inflated values that were submitted to lenders.

Stovall closed nearly all of the same day fraudulent flips and, in doing so, failed to advise his clients, the lenders, of those flips, prepared false HUD-1 settlement statements that were submitted to the lenders, and moved the proceeds of the scheme through his escrow account and into off-shore bank accounts. The scheme also involved the submission of false qualifying information and documents through the mail and the wire transfer of scheme proceeds. In the overall scheme, financial institutions and lenders were fraudulently induced to make loans totaling over $20 million.

Stovall pleaded guilty to one count of conspiracy to commit bank, mail, and wire fraud, bank loan application fraud, and money laundering, and one count of wire fraud. Upon sentencing, he could receive five years in prison and a fine of up to $1,500,000.00.

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.

Georgia’s push to irradiate real estate and mortgage fraud began with the premise that the victims of fraud are not just large, faceless financial institutions. The victims–as Flipping Frenzy readers well know–include individuals and damaged neighborhoods and communities where fraud-related delinquencies and foreclosures contribute to the deterioration of residential properties, resulting in lower home values and distorted tax assessments. In Georgia, many homeowners and community leaders became concerned about the impact that extensive fraud activity was having on the quality of life and real estate in two of the state’s neighboring counties near Atlanta.

Some of the affected neighborhoods became homes for squatters, drug traffickers, prostitutes and car theft rings.

In March of 2001, a loose confederation of people interested in addressing mortgage fraud met for the first time. They called themselves the Georgia Real Estate Fraud Prevention and Awareness Coalition (GREFPAC) and characterized themselves as “outraged at the impact [of mortgage fraud] upon their families’ and neighbors’ quality of life and safety.” According to the latest Mortgage Bankers Association / Mortgage Asset Research Institute Periodic Mortgage Fraud Case Report, GREFPAC deserves significant credit for mobilizing, educating and energizing many of the parties involved in Georgia’s attack on fraud.

In late 2003, the Georgia Department of Banking and Finance made the fight against mortgage fraud a priority by introducing a new examination program that focused significant resources on anti-fraud efforts. Subsequently, the number of Cease and Desist Orders and license revocation actions rose dramatically.

In May of 2005, the Georgia Legislature responded to passed the Georgia Residential Mortgage Fraud Act. In doing so, Georgia became the first state to criminalize mortgage fraud and provided severe penalties of up to 10 years in jail for first offenders and 20 years per property for violations involving multiple properties and loans. The legislation became effective immediately upon being signed by the governor and, within days, four people were arrested and charged under the Act.

About the same time, Georgia’s Department of Banking and Finance took steps to have all of its mortgage examiners trained and qualified as Certified Fraud Examiners.

Law enforcement officers set up sting operations in which more than three-dozen arrests were made at, or near, the closing table. Additional arrests, indictments and prosecutions followed at both the state and federal levels. They focused on mortgage brokers, bank officers, closing attorneys, paralegals, Real Estate agents, appraisers and straw borrowers involved with multiple properties. One closing attorney received a 30-year federal sentence, and jail time was handed down for others involved with her—paralegals, mortgage brokers, real est