WASHINGTON—Noah Black, 42, of Hyattsville, Maryland, pled guilty today to federal charges of wire fraud and aggravated identity theft in connection with a mortgage fraud scheme, announced U.S. Attorney Ronald C. Machen Jr.; James W. McJunkin, Assistant Director in Charge of the FBI’s Washington Field Office; and David Beach, Special Agent in Charge, Washington Field Office, U.S. Secret Service.

Black entered his guilty pleas in U.S. District Court for the District of Columbia. The Honorable Judge Richard W. Roberts scheduled sentencing for June 16, 2011.

According to the factual proffer presented to the court, during May 2006, Black arranged a fraudulent real estate sale of a home in Upper Marlboro, Maryland that at one time was owned in the name of one of his family members. Black pretended to be another individual, referred to in court as “D.S.,” in order to secure mortgage loans of approximately $700,000. He had obtained the identifying information of D.S. when Black, a realtor, attempted to sell a different home to the victim.

In order to corroborate his alleged identity, Black had a fraudulent Maryland driver’s license created. The license combined Black’s own photo with the identifying information of the victim. He continued using the fraudulent identification when he obtained two motor vehicles by fraud later that year.

On or about May 18, 2006, as part of the settlement process on the home in Upper Marlboro and relying upon the defendant’s fraudulent representations, New Century Mortgage Corp., which is located in Reston, Virginia, sent a fax to Settlement Solutions, which is located in Maryland. After the sale was completed, the mortgage eventually went into default while it was listed as owned by D.S.

In announcing the guilty plea, U.S. Attorney Machen, Assistant Director in Charge McJunkin, and Special Agent in Charge Beach praised the outstanding work of the special agents who worked on the case from the FBI’s Washington Field Office and Secret Service. They also acknowledged the assistance of Paralegal Specialist Mary Treanor and Assistant United States Attorney Thomas E. Zeno, who prosecuted this case.

A licensed real estate agent in Texas has been sentenced to serve one year and six months in federal prison for bank fraud and engaging in financial transactions with criminally derived property stemming from a mortgage fraud investigation. In addition to an 18-month prison term, U.S. District Judge Keith Ellison ordered John Turner Jr., 52, to pay a $2,000 fine and serve three years of supervised release upon completion of his prison term.

According to his plea agreement, Turner arranged for a straw borrower to purchase a residence in Houston, Texas. He amended the purchase contract, instructing the title company to disburse $62,000 of the loan proceeds to a remodeling company of the buyer’s choice, ostensibly for repairs and upgrades to be made at the residence. First National Bank of Arizona funded the $213,377 mortgage loan in November of 2006. At closing, Turner submitted a $62,000 false invoice in the name of First Class Construction Inc., for repairs and remodeling. The title company and First National Bank of Arizona were unaware that First Class Construction, Inc., was owned by Turner nor that the repairs and remodeling had not been done and would never be done.

Turner took the $62,000 check to a check cashing business where, after cashing the check, he received receiving 51 $1,000 money orders, a money order in the amount of $365, and $9,992 in cash.

According to Realtor Lori Polin, she was totally unaware that what she was involved with consisted of real estate and mortgage fraud. If ignorance of the law was an appropriate defense, she could be off the hook. Unfortunately it’s not. According to a recent story in the St. Petersburg Times entitled “Unsigned letter accuses agent of mortgage fraud” Polin was allegedly involved in classic cash back at closing schemes.

Here’s how a cash back at closing scheme works:

• The buyer pays more for a property than it’s worth, and the seller agrees to kick back the surplus cash to the buyer at the closing.

On its surface, cash back at closing seems to benefit everyone involved. The buyer pockets some extra cash. The seller unloads his house at or near the asking price. The real estate agent gets a bigger commission. The loan officer chalks up another successful loan. And the lender stands to earn more interest over the life of the loan. Everybody wins.

Or so it seems.

Unfortunately, as with most deals that seem too good to be true, cash back at closing schemes are just another way of scamming someone–in this case, the lender, who’s fooled into loaning more money than the collateral used to secure that loan is worth. If the borrower defaults on the loan (which is almost a sure thing in cash back at closing schemes), then the lender can’t recover the money by selling the property.

Cash back at closing also:

• Inflates housing values, making housing less affordable
• Artificially raises property taxes
• Hurts honest real estate agents because they lose business to dishonest agents who offer cash back deals
• Stimulates foreclosure and destroys neighborhoods that begin to buckle when homeowners default on the inflated loans

With cash back at closing, what may have seemed like a win-win situation leaves plenty of losers in its wake.

According to an anonymous letter distributed to the press and many of Polin’s colleagues, Polin artificially inflated the prices of nine homes in Tampa and North Pinellas, so buyers could get larger loans. In most cases, the homes were mortgaged for approximately $100,000 more than their true market value, and if the allegations prove true, then these transactions definitely fall into the category of cash back at closing. The perpetrators need to be brought to justice. The question is, did Lori Polin do anything wrong?

Polin firmly believes she is innocent, because, in her own words, “All these deals were put together by attorneys and title companies and lenders.” All she did was list and sell the homes. Some of the evidence, however, makes it look as though Polin could not possibly be unaware of what was going on.

In the case of Iris Alfonso, for example, Alfonso’s house had been on the market for several months when Polin allegedly asked if she would accept a reduced price of $449,900. Shortly thereafter, Alfonso received a purchase contract offering her $540,000 for her home. Why would any buyer offer a seller $90,100 more than the seller was willing to accept? The only possible answer is cash back at closing.

According to Polin, she simply listed the homes for sale. What the buyer and seller agree to has nothing to do with her, according to Polin. If the reported incidents did occur, a law was clearly broken. As the FBI clearly states (emphasis mine):

“It is illegal for a person to make any false statement regarding income, assets, debt, or matters of identification, or to willfully overvalue any land or property, in a loan and credit application for the purpose of influencing in any way the action of a financial institution.”

Whether or not Polin broke the law and is guilty of conspiring to commit fraud is up to law enforcement and the courts to decide. Whatever the outcome, this case highlights the need for real estate and mortgage fraud training in the real estate and mortgage lending industries. Attorneys and law enforcement agencies could also benefit from such training programs. Time and time again, I hear about professionals who should know better becoming involved in fraudulent transactions. Some are willing accomplices or even ringleaders. Others are unwilling accomplices or victims who are simply abused by savvy con artists. By receiving the proper training, these professionals can help defend themselves, their clients, and the housing industry from those who are committed to destroying the American Dream of homeownership.

To learn more about the dangers associated with cash back at closing and other common and not so common real estate and mortgage fraud scams, pick up a copy of one of my latest books, Protect Yourself from Real Estate and Mortgage Fraud: Preserving the American Dream of Homeownership

In the past, Real Estate and Mortgage Fraud cases in one central California town might have gone undetected or sent to federal authorities, but thanks to a two-year-old Real Estate Fraud Unit funded by a $2 surcharge on every real estate transaction recorded, Modesto, California, is cracking down on the bad guys at a higher rate than ever before. Case in point: The Stanislaus County district attorney’s office recently filed a 68-count criminal complaint against three real estate agents and seven others.

The three are accused of stealing more than $2 million from lenders by filing false documents with Stanislaus County’s clerk-recorder’s office, indicating that loans on three properties had been paid–all so straw buyers could secure new loans, then cash out with the illegally obtained proceeds.

From The Modesto Bee:

For more, read 3 accused of mortgage fraud.

The accused, courtesy of The Modesto Bee:

• Real estate agent Eric Charles Braun, 29, of Modesto is charged with 63 felonies. He is accused of masterminding the scheme with Noah Yates, who handled the paperwork while Braun did the legwork.
• Real estate agent Noah Adam Yates, 29, of Modesto is charged with 53 felonies. He is accused of having a home full of computers used to create fraudulent documents and a Web site that said people legally can eliminate their mortgages.
• Jearod Miles Robinson, 34, of Ceres is charged with 18 felonies. He is accused of acting as a straw buyer in a mortgage elimination scheme run by his cousin, Braun, who never paid Robinson $100,000 as promised.
• Real estate agent Doug Eugene Wallick, 32, of Waterford is charged with 15 felonies. He is accused of using a Modesto home he owned in a mortgage elimination scheme with Yates and Braun.
• Darin Eric Abell, 41, of Turlock is charged with nine felonies. He and his wife are accused of using a Turlock home he owned in a mortgage elimination scheme with Braun and Yates.
• Dawna Lea Abell, 38, of Turlock is charged with nine felonies. She and her husband are accused of using a Turlock home he owned in a mortgage elimination scheme with Braun and Yates.
• Elizabeth Marcela Ayhens, 24, of Stockton is charged with two felonies. She is accused of forging names on real estate documents and receiving $1,000 from Yates.
• Nicholas Matthew Ayhens, 24, of Modesto is charged with two felonies. He is accused of using forged names on real estate documents and receiving $20,000 from Yates.
• Arnold Vergara Rodriguez, 32, of Modesto is charged with two felonies. He is accused of receiving $50,000 for referring Braun to a lender who was targeted in a fraudulent scheme.
• Brian William Heytz, 32, of Ceres is charged with one felony. He is accused of attempting to defraud a lender by making false representations while trying to purchase a home from Wallick and Yates.

To help kick off RISMedia’s 2nd Annual CEO Exchange (July 23 & 24 at the Sanctuary Golf Course and Clubhouse in Salida, Colorado), I will be providing each attendee a complimentary copy of my latest book, Protect Yourself from Real Estate and Mortgage Fraud: Preserving the American Dream of Homeownership, co-authored with Rachel Dollar, a legal expert in the mortgage lending industry.

If you’re unfamiliar with RISMedia’s CEO Exchange, it’s an exclusive gathering of over 100 top brokers and Real Estate industry leaders for the purpose of discussing the most pressing issues facing the residential real estate industry today, and as Rachel and I point out in the new book, the most pressing issue is the proliferation of fraud in the Real Estate and lending industries. Real estate and mortgage fraud are a cancer that is eating away at the very foundation of the American Dream of homeownership.

According to the FBI, Real Estate fraud is one of the fastest growing white-collar crimes in the U.S. From 2003 to 2004, reports of mortgage fraud jumped 146%, and another 28% from 2004 to 2005. Reported dollar losses from mortgage fraud increased 90% from 2003 to 2004 and 136% from 2004 to 2005. Currently, lenders report over $1 billion in losses annually from mortgage fraud, and this accounts for only about a third of the losses actually suffered (only a third of the industry is subject to mandatory reporting requirements).

Industry leaders have long known about this growing problem, but con artists are able to adapt as quickly as new legislation is passed. In my experience, the best defense is education–teaching Real Estate professionals as well as consumers exactly what constitutes fraud, how to spot the signs of fraud, how to stop it, and how to get the word out about con artists and their accomplices.

I view the CEO Exchange as the perfect opportunity to further the crusade against Real Estate and mortgage fraud. By getting our book into the hands of industry leaderswe can take advantage of the trickle-down effect. Once industry insiders and thought leaders read the book, they will sound the alarm, and the rest of the industry will begin to take the threat more seriously. By becoming educated and joining forces, we can defeat the con artists and preserve the health of the Real Estate.

Protect Yourself from Real Estate and Mortgage Fraud: Preserving the American Dream of Homeownership provides real-world examples illustrating exactly how real estate and mortgage fraud are committed, pointing out the common signs of each scam, and providing tips on how professionals and consumers can protect themselves from becoming unwilling victims or unwitting accomplices. Topics covered in the book include:

• Defining real estate and mortgage fraud.
• Demonstrating the catastrophic effects of fraud on individual homeowners; the real estate industry; and local, state, and national economies.
• Differentiating between fraud for profit and fraud for housing.
• Identifying common schemes and schemers, including asset rental, air loans, chunking, double sales, straw buyers, nominees, and faulty appraisals.
• Spotting the warning signs of a fraudulent real estate deal.
• Proven tips and tricks for avoiding fraud and steering clear of gray areas in your real estate transactions.
• Practical advice for real estate agents, appraisers, mortgage brokers, investors, title companies, lawyers, and homeowners.
• Reporting fraud: One person can shut down a shady deal. Why you need to be that person and what you should do when you suspect fraud.
• Guidance on what to do if a con artist has victimized you or a relative, friend, or acquaintance.
• Advice on what to do if you or a loved one has knowingly or unwittingly been involved in a fraudulent deal.

This is just the beginning of a revolution in the real estate and lending industries to take back control from the con artists and other opportunists who are committed to milking the industry dry for their own benefit.

It’s interesting what some real estate industry professionals will do to advance their position in a highly competitive market. A Michigan-based home builder recently offered to pay one of my company’s real estate agents a direct commission on the sale of a condo. For those of you who don’t know, in almost every case, it is illegal for a REALTOR® to receive a commission payment from a source other than the brokerage he or she works for. In other words, in almost every single instance, a Realtor’s commission is paid first to their brokerage, who in turn pays the REALTOR®.

An honest mistake, right? Well, that’s what I thought too, until I learned from my agent that the method of payment for her commission was to be a direct deposit into a debit card account. And on top of that, the debit card in question bore the National Association of Realtor’s trademarked word “REALTOR” directly on the face of the card. (Even if I didn’t work in Real Estate Fraud Forensics, as a REALTOR®, all sorts of alarms should have been going off in my head; and luckily for me, my agent had the same reaction.) After confirming that the offending home builder knew that the agent worked for my brokerage, I sent him the following letter:

Dear Sir:

I have tried to reach you through email and phone messages and have not heard back from you. I have some concerns about your current marketing. My first concern is the REALTOR REWARDS debit card you are offering agents. First of all, the word “Realtor” is trademarked by the National Association of Realtors® (NAR), and therefore should not be used on the face of a debit card.

Second, paying commissions directly to agents is illegal; commissions are not allowed to be paid to an agent except through their broker. Any commissions that you have paid directly to agents not under your control should be audited and their brokers contacted so that these payments can be rectified.

Your enthusiasm may have over taken you and I hope that your intentions were not to infringe on any trademarks or break any laws–so I would appreciate a call back so that we can discuss these matter immediately.

Sincerely,

Ralph R. Roberts
Ralph Roberts Realty, LLC
30521 Schoenherr Road
Warren, MI 48088 USA

As an active member of the National Association of Realtors®, I have sworn to uphold the Association’s Code of Ethics, and when I see a potential violation of our professional standards, I don’t just sit by and let it happen.

Long story short, the home builder in question finally returned my call, and upon hearing that the National Association of Realtors® would be issuing a cease and desist order on his unauthorized REALTOR REWARDS debit card, he agreed to stop issuing and using the card, and also agreed to stop his practice of paying REALTOR® commissions directly to broker-affiliated agents.

So what does all of this have to do with Real Estate and Mortgage Fraud? Well, if you stop to think about it, if it was easy enough for some random home builder in the state of Michigan to convince a bank to issue ‘affinity’ debit cards with the word “REALTOR” on them, how hard would it be for a savvy real estate fraudster to do the same. Too easy, I’m guessing. The more people who know about the potential dangers associated with offending debit cards, as well as builders who pay commissions directly to Realtors who do not work for their firms, the better off we all will be.

2006-03-07 09:00

CONVICTED OF REAL ESTATE FRAUD BUT STILL SELLING HOMES!

In early-October of last year, a Federal jury in Iowa convicted a Des Moines real estate agent of three of nine real estate-related fraud charges that were brought against him. According to The Des Moines Register, 52-year-old Leonard Fazio was convicted of one count of mail fraud and two counts of wire fraud stemming from the unlawful resale of foreclosed homes in boith 2002 and 2003. From the archives of The Des Moines Register:

Des Moines, Iowa: October 11, 2005 — Prosecutors claimed during Fazio’s trial that the Des Moines real estate agent orchestrated a scheme from his Re/Max A-1 Best Realtors office to improperly pad his commission from a California-based mortgage company. Jurors acquitted Fazio of five of those six charges but found him guilty of mail fraud involving Fazio’s request to be reimbursed $1,650 in August 2002 for trash clean-up at a Des Moines home. Prosecutors alleged that that and other bills were inflated using fake invoices and checks written on a closed account.

Fazio insisted during the trial that the fraud was carried out by a former office manager whom prosecutors had given immunity. The remaining two convictions involve the sale of a New Virginia house that was sold to Candy Olson, Fazio’s former girlfriend. The house, which was sold to Olson for $48,000, was resold less than three weeks later for $110,000. Olson testified during the trial that she was unaware of the deal. Fazio acknowledged signing some documents for Olson but said he did so with her knowledge.

Now comes word out of Iowa that despite his conviction, Fazio is still selling homes! Can you believe that? I couldn’t! From NBC-affiliate, WHO TV in Des Moines:

Indicted, and convicted of fraud. But it’s business as usual for a metro realtor. A federal jury found Leonard Fazio guilty on two counts of wire fraud and one count of mail fraud back in October. But he’s still selling homes. Why?

The Iowa Real Estate Commission says the law won’t let them suspend or revoke a real estate license until a judge has signed-off on a conviction. That doesn’t happen until sentencing, and that doesn’t happen for Fazio until March 16th. The CEO at the Iowa Association of Realtors says he’s seen it before. He says the association can’t legally revoke membership until the state revokes the license.

Did you read that last part? While everyone knows that Fazio is guilty, his state’s real estate commission cannot stop him from working as a REALTOR. Remember now, the Iowa Real Estate Commission’s mission is to “protect the public through the examination, licensing, and regulation of real estate brokers,” and there’s still not a darned thing they can do to stop fraudsters like Fazio from representing buyers and sellers in real estate transactions. That my friends is nothing but a darned shame.

In September of 2004, the FBI’s Assistant Director for its Criminal Investigative Division told CNN that rampant fraud in the real estate industry had increased so sharply that it had the potential to be an “epidemic” that could have as much impact in the U.S. as the S&L crisis of the mid 1980s. A year-and-a-half later, and the FBI was right.

As most of us know, epidemics spread rapidly and extensively, and when left unchecked–or when attended to with minimal or underfunded resources–get out of control, to the point where most everyone is impacted in some way or another.

Imagine for a second the following scenario: No matter what time of day you awoke or went to sleep, and no matter hard you worked, you completed just three percent (3%) of the items on your daily to-do list. You’d be frustrated, scrambling for resources, and in need of serious help, wouldn’t you? That’s how I imagine the Financial Institution Fraud Unit of the FBI feels. In 2005 there were over 21,994 reports of suspicious activities filed within the real estate industry, yet only three percent (3%) were ever investigated.

With those staggering statistics in mind, take a look at what the Minnesota Association of REALTORS (MAR) did earlier this week. From yesterday’s online edition of the St. Paul Pioneer Press:

The Minnesota Association of Realtors on Tuesday said it mailed state regulators paperwork documenting at least four recent allegedly illegal mortgage deals as part of ongoing investigations into mortgage and real estate fraud.

The FBI and state investigations, first revealed last November, have focused on schemes in which homes being sold were appraised at artificially high values and then sold at the inflated price, with the extra money given as kickbacks to parties involved, said Glenn Dorfman, chief operating officer and lobbyist for the Minnesota Association of Realtors in Edina. That’s the basic model for the fraud, but there are a variety of hybrids, Dorfman said.

Dorfman went on to tell the Pioneer Press that the Minnesota Association of REALTORS hopes that when the FBI “comes out with this” that they’ll have solid evidence to prosecute the people involved. (Click here for the entire article.) I hope so too, and I am also looking forward to the day when each and every state REALTOR association does the exact same thing that Minnesota is doing. State and Federal regulators, along with local and national law enforcement, need our help.

Remember, committing fraud is no accident, and neither should stopping it!