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 estate agents, appraisers and a money launderer.

Today, some six-plus years after Georgia sprung into action, there continues to be dialogue, interaction, education efforts and cooperation among members of the Real Estate industry, their regulators, representatives of victimized neighborhoods and law enforcement. The FBI, the Georgia Department of Banking and Finance, and the offices of the U.S. Attorney and the Georgia Attorney General have conducted training. Cooperative investigations have involved local police, the Georgia Bureau of Investigation, the FBI, HUD, IRS, U.S. Secret Service, FDIC, the VA and the U.S. Postal Inspection Service.

The result: MARI’s latest Periodic Mortgage Fraud Case Report shows that Georgia has the greatest improvement from prior years’ rankings, slipping from first and fourth place nationwide in terms of incidences mortgage fraud in 2006.

Recommended reading from this morning’s Wall Street Journal:

Recommended Reading for March 12, 2007
By Keith Huang - The Wall Street Journal

Detroit-based realtor Ralph Roberts has been selling real estate for more than 25 years. In recent years, Mr. Roberts has turned his attention to real-estate and mortgage fraud.

Mr. Roberts has even worked with federal officials to educate state and local law enforcement, regulators and financial institutions on how to detect and avoid common real-estate scams.

Some of the more common schemes include property flipping with false statements to lenders, or the use of fraudulent qualifications, such as a buyer fabricating an employment history or credit record.

Mr. Roberts says con artists have increasingly been turning to the Web to perpetrate their scams. To combat this rise, he has helped nurture an online network of fraud busters.

According to a recent report by the Internal Revenue Service, the booming real-estate market has been complemented by an increase in real-estate-related schemes. In fact, the IRS said the number of real-estate fraud investigations the agency initiated doubled between fiscal 2001 and fiscal 2003.

Mr. Roberts, who has written numerous books on the subject, runs FlippingFrenzy.com, a blog about real estate fraud. He’s also a contributing author to “Flipping Houses For Dummies.” More recently, he and Rachel Dollar co-wrote Protect Yourself Against Real Estate and Mortgage Fraud,” which is scheduled for publishing this summer.

Here is a selection of Web sites from Mr. Roberts.

MortgageFraudBlog.com, MortgageFraudBlog.com

“Hosted and maintained by nationally recognized mortgage-fraud expert, Rachel Dollar, this blog delivers the daily buzz on mortgage fraud. Visitors can also learn about what mortgage lenders, real-estate professionals, law enforcement agencies, legislators, and community activists are doing to stop it.”

Georgia Real-estate Prevention and Awareness, GREFPAC.org

“Georgia is the first state to have officially declared mortgage fraud a crime, and one of the key driving forces behind the legislation was Georgia Real Estate Prevention and Awareness (or GREFPAC). Here, you can learn more about the group and find out what you can do in your own community to curb real-estate and mortgage fraud.”

Stop Mortgage Fraud, StopMortgageFraud.com

“This is an excellent site for consumers who may suspect that they’re about to become the victim of predatory-lending practices. The site features a borrower’s bill of rights, a list of warning signs that commonly indicate abusive lending practices, as well as information on how to report suspected incidents of predatory lending.”

Freddie Mac’s Don’t Borrow Trouble, DontBorrowTrouble.com

“On behalf of mortgage lenders and homeowners, Freddie Mac has created this site to promote its ‘Don’t Borrow Trouble’ program. Homeowners who have trouble maintaining their monthly mortgage payments can learn how to regain their financial footing without falling prey to predatory lenders. This is also an excellent Web site for homeowners who are facing foreclosure.”

U.S. Department of Housing and Urban Development (HUD), HUD.gov

“HUD provides a vast amount of reliable information about renting, buying, owning, and financing the purchase of homes. The site also features articles on fair housing, foreclosure, subsidized housing and home improvements. This site is excellent for first-time buyers and established homeowners.”

Realty Times, RealtyTimes.com

“Realty Times is the leading Real Estate News site on the Internet for both consumers and real-estate professionals. Although the site’s offerings are not exclusively dedicated to topics related to real-estate and mortgage fraud, it regularly features articles about the overall health of the real-estate industry.”

Inman News, Inman.com

“Inman News features articles and commentary from a wide selection of the top residential and commercial real-estate experts across the country. Articles cover everything from current mortgage-interest rates to tips for real-estate professionals and investors. The site also includes regular features on real-estate and mortgage fraud.”

RISMedia, RISMedia.com

“Founded in 1980 by CEO and Publisher John E. Featherston, RISMedia is committed to being the definitive source for news and information pertaining to residential-real estate. The site’s content is primarily directed toward residential real-estate professionals and includes regular features on real-estate and mortgage fraud.”

Conference of State Bank Supervisors, CSBS.org

“Whether you’re in the mortgage loan industry or a consumer, this site shows how CSBS and other mortgage banker associations are working together to curb abuses in the industry.”

Star Power, GoStarPower.com

“Headed by Howard Brinton, Star Power is dedicated to bringing top producing real-estate agents [Stars] together to share their proven tips and strategies. Click the Products link to find out more about STAR POWER Systems ‘Detecting and Preventing Real Estate Fraud’ program.”

The famous U.S. inventor Thomas Edison once said, “Many of life’s failures are people who did not realize how close they were to success when they gave up.” With that thought in mind, I know I speak on behalf of many of us who are involved in fighting real estate and mortgage fraud, when I say that I’m that glad Ann Fulmer never gave up.

For the uninitiated, Ann is widely considered the ‘Dean” of the real estate fraud forensics sect. As Business Week magazine noted in October of last year, she’s a graduate of the University of Akron School of Law, and in a previous life she defended insurance companies against arson and fraud. After several years of being at home to raise her children, Ann began a one-woman mortgage fraud odyssey in 1997, and then joined forces in 2000 with another local Gwinnett County (GA) homemaker to form the Georgia Real Estate Fraud Prevention & Awareness Coalition . Nowadays, Ann works full-time as Vice President of Industry Relations at Interthinx–a company that provides the mortgage industry with compelling, innovative and comprehensive tools to prevent fraud.

The reason I mention all of this is because of an article I read over the weekend from the Athens Banner-Herald. Part homage to Ann, part an accounting of many costs associated with real estate and mortgage fraud, the article reminded me of the size and scope of Ann’s impact in my world. From the Athens Banner-Herald:

Scam is a costly ‘cancer’: Subdivision shows area not immune

Ann Fulmer was suspicious about houses in her Stone Mountain neighborhood that sold for extraordinary prices only to fall badly into disrepair, especially at a time in the late 1990s that preceded the Atlanta metro area real estate boom. So, when the stay-at-home mother and lawyer began checking DeKalb County real estate records, she found homes were being bought and sold by the same people, sometimes doubling in price, and in the process uncovered a mortgage fraud scheme that authorities shut down and put the ringleaders in jail.

Emboldened by her success, Fulmer in 2002 co-founded Georgia Real Estate Fraud Prevention and Awareness Coalition, a collection of real estate and lending professionals, state regulators, and local, state and federal law enforcement agencies. The group was formed to fight what Fulmer calls a “cancer” that was plaguing the Atlanta area, known as the nation’s mortgage fraud capital.

But an ongoing investigation of an Athens-Clarke subdivision that’s the epicenter of what may be one of the state’s largest-ever mortgage schemes shows no community is immune from the spreading plague of fraud, investigators and real estate experts said. It’s a fast-growing form of white-collar crime that the FBI said cost the country $1 billion last year, up from $46 million a decade ago.

Telltale signs of mortgage fraud, like Fulmer found in her neighborhood, include houses being bought and quickly resold at inflated prices, only to be abandoned to deteriorate and bring down adjoining property values. “One thing that makes Georgia vulnerable is you have a lot of immigration here from around the country, of people from high-cost areas like Boston, D.C. and Los Angeles, and they don’t know the property values so they rely on the integrity of professionals to guide them,” Fulmer said.

The most common form of mortgage fraud is called “flipping,” when unscrupulous investors buy houses in disrepair, fraudulently inflate their appraisals and sell them at high profits. The schemes are easier to hide in high-density areas like Atlanta, Fulmer said, because appraisers need to get comparable values within a mile of a house being sold. What sets apart the alleged scheme in Athens - which centers around Milford Hills subdivision off Barnett Shoals Road - is that it involves new construction, said Andrew Carswell, an assistant professor of Housing and Consumer Economics at the University of Georgia.

For the scheme to work, it requires industry professionals, including brokers, appraisers and attorneys, to be in on the fraud, he said. “That’s the other thing that makes it one of the more unique cases of fraud is because there are so many parties involved,” Carswell said.

An Athens-Clarke County Magistrate Court arrest warrant names 23 co-conspirators in the alleged Milford Hills scheme, with other “known and unknown” players. Nine arrests under the state’s Racketeering Influenced and Corrupt Organizations Act have been made in recent weeks.

Click here to read the rest of the article (free registration required), which provides a lot of additional information about Ann and the size and scope of the real estate fraud problem in Georgia.

Thank you Ann for never giving up. We’re all better off for your “Stick-To-It-ism!”