The FBI calls it the “latest scam on the block,” but for years now we’ve been warning people and reporting about scam artists who steal your identity and then your home. Now, after years of reporting and writing about this sinister act, the FBI is stepping up its efforts to make homeowners aware of the horrible connection between identity theft and real estate fraud.

Here’s how the scam typically works:

(Image courtesy of the FBI)

It can get even more complicated than this, as we can see from a fresh case out of California that the FBI investigated with the Internal Revenue Service. A Downey, California, real estate industry insider pleaded guilty this week to federal fraud and money laundering charges, and in doing so, admitting her role in a $12 million real estate fraud scheme that targeted homeowners in default on their mortgages and falsely promised them help. Martha Rodriguez, 35, pleaded guilty to one count of mail fraud and one count of money laundering in relation to the scheme that ran from May 2003 until November 2005.

By pleading guilty, Rodriguez admitted that she and several co-schemers located victim homeowners through computerized databases that list homes going into foreclosure. Rodriguez promised victim homeowners that their homes would get refinanced. However, instead of obtaining refinancing, Rodriguez and the other defendants charged in this case submitted loan applications in the names of straw buyers who were purportedly buying the property. In some cases, the straw buyers were paid for the use of their personal information. In other cases, the defendants used personal information of people without their knowledge.

The loan applications for the straw buyers–which always contained false information–caused a series of lenders to fund mortgages that otherwise would not have been funded. The loan proceeds were used to pay off the loan in default, and the remaining proceeds were skimmed off by Rodriguez and her co-schemers.

Even though they were promised that they would keep their homes, the victim homeowners lost title to their homes. The lenders suffered losses when the straw buyers failed to make loan payments and the second loans went into default. The scheme targeted commercial lenders and more than 100 homeowners across the the southern part of Los Angeles.

The scheme was operated through Rodriguez’s real estate and escrow agencies, Silvernet Properties in Downey and Bellasi Escrow in Seal Beach.

As a result of her guilty pleas, Rodriguez faces a maximum possible sentence of 40 years in federal prison. Rodriguez has agreed to forfeit to the government her interest in five homes, a truck and approximately $900,000 in cash that was seized by the government around the time of her arrest.

Rodriguez was indicted with four co-defendants. One of them–Cynthia Valenzuela, a 24-year-old Downey resident–pleaded guilty last Friday to mail fraud charges. Rodriguez and Valenzuela are scheduled to be sentenced by is United States District Court in Los Angeles on August 20.

Three remaining defendants are scheduled to go to trial on July 10:

• Vladimir Stefanovic, 35, of Lancaster, CA (Martha Rodriguez’s common-law husband)
• Edward Seung Ok, 40, of Huntington Beach, CA
• Maria G. Juarez, 36, of Diamond Bar

A 60-year-old Washington, DC man has been sentenced to nearly six years in federal prison for engaging in what the FBI says was a scam to obtained money by selling–or offering to sell–homes he did not own. George A. Cowser’s scam netted over $1 million. He was order to pay nearly $560k in criminal penalties and $30k in victim restitution. Following his incarceration, Cowser will have to serve three years of supervised release, during which time he cannot buy, sell or list any property, or open any credit lines or engage in any financial transactions over $5,000.

According to the indictment, between May of 2005 and March of 2006, Cowser devised a scheme to defraud homeowners, buyers, and a mortgage company by making false and fraudulent pretenses, representations, and promises. The purpose of the scam was clear–to sell or attempt to sell real estate in the District of Columbia that Cowser claimed to own or was his to sell by virtue of a particular company’s (Reverse Properties, Inc.) interest in the property.

Neither Cowser nor Reverse Properties, Inc. owned any of the properties, had an independent claim of ownership to the properties, or had any contract to sell the properties on behalf of their true owners. Even though Cowser knew he did not own the properties, he signed sales contracts and closed on the transfer of the properties for significant personal profit.

In one sale, Cowser used a forged deed to claim ownership of a home in the 1300 block of West Virginia Avenue, NE. Amazingly, he succeeded in selling the property to three separate individuals, obtaining money from all three, and actually engaged in two separate closings to two separate people in the same week! Because of the closings, Cowser or his corporate designee received over $540,000, some of which was used to purchase a new car.

Cowser also attempted to fraudulently sell at least two other houses, one in the 1200 block of Orren Street, NE, and the other in the 1300 block of W Street, SE. He did so by signing fraudulent quit claim deeds and recording the quitclaim deeds with the D.C. Recorder of Deeds. He then obtained money from the purported buyers, unbeknownst to the true homeowners. In both cases, the sales did not successfully close. Nevertheless, the FBI says the buyers were not able to recover all of their money and that the true owner of one of the homes had her personal property damaged, including antique furniture, when it was moved out of her house without her knowledge during the attempted sale.

As part of his scam, Cowser claimed that he owned dozens of properties throughout the District of Columbia, even though, in truth, he didn’t own any, and wasn’t even a registered real estate agent. During its investigation, the government discovered that prior to his arrest, Cowser had executed at least 14 forged quit claim deeds to various properties throughout the District of Columbia; each of the forged deeds contained a forged signature of the true owner of the property. Although Cowser did not record these particular deeds, he did use them to defraud other investors out of some serious money.

From Robert Siciliano, CEO of IDTheftSecurity.com:

The speed of technology in the 21st century has created a slew of opportunity for criminals. High tech crimes can consists of hacking into major networks or simply applying new technology to old tried and true criminal acts. The crime of Identity Theft can be described as using parts of someone’s identity to open new accounts or liquidates existing accounts under someone else’s identity. Identity theft can also occur when someone poses as you and lives life as you and conducts every and all transaction legal or not, under your identity.

Mortgage fraud generally occurs when someone manipulates the facts to work in their behalf or purposefully defrauds both lenders and buyers for financial gain.

Identity theft and mortgage fraud together is the perfect crime. Identity Theft and Mortgage Fraud are like peanut butter and chocolate. They go great together. There are a few types of identity theft when it comes to mortgage fraud.

1. A buyer poses as someone else to obtain a home to live in.
2. An identity thief poses as a buyer to flip a property and keep the proceeds.
3. An identity thief poses as a seller to sell a property and keep the proceeds.
4. An identity thief poses and an owner and refinances a home and keeps the proceeds.
5. An identity thief poses as a mortgage professional, appraiser, real estate agent, attorney or any other professional involved in a real estate transaction using their professional credentials specifically to defraud someone out of their money and do it undetected.

In each of these scenarios, someone along the line suffers a financial loss whether directly or indirectly when their good name and reputation is smeared because of an identity thief. Often, due to a fundamentally flawed system of identification, the thief is not caught.

Identity theft will continue to fuel mortgage fraud for four reasons:

1. The social security number has become our national financial identifier available in thousands of places. Anyone who access those none numbers can commit mortgage fraud under your name.
2. Our systems of identification provide little to no security due to advances in technology. Anyone with a PC, scanner, printer or just an internet connection and credit card can become anyone at any time by creating or buying a fake ID.
3. Till this day, we still have not properly identified who’s who. Until biometric technologies are incorporated into the system of identification, which is at least 10 years away, anyone who decides to become someone else can, simply by adopting that persons identity through forged paper work and a little social engineering.
4. Credit, and the way the system is set up, is wide open. Our credit is open to anyone who obtains our social security number. Once they have our SSN, then they simply access and open accounts using our credit with little resistance.
5. Due to wide open credit, the SSN as a primary identifier and IDs having no authenticating value, there is zero accountability when it comes to identity theft in the mortgage transaction.

The solutions to eliminate identity theft as a contributing factor to mortgage fraud is to:

1. Support and fully implement the RealID Act. Congress passed legislation to properly identify citizens requiring multiple forms of authentication when applying for an ID. The critical components of the RealID Act involves the citizen submitting to a biometric scan of a fingerprint that is then recorded and properly identifies the person from then on. These technology once available needs to be implemented into the Mortgage transaction every step of the way. No document or transaction should be valid without properly identifying and authenticating the buyer, seller or professional responsible for that next step. Here, accountability will mean something.
2. Support legislation requiring credit freezes across the board. While many in the mortgage and banking industries oppose credit freezes because it will “gum up the system”, a credit freeze is essential due to our wide-open system of credit. Unfortunately, anyone can access credit any time with little resistance. Credit and your financial well being, should be under lock and key and not wide open for anyone at anytime to access effect your credit.