Last blog I started a list of fraud schemes covered in Rachel Dollar’s MortgageFraudBlog Conference held in Miami. We started the list with The Classic, The Straw Buyer, Air Loans and Double Sales. Here’s a few more:
- Affinity Fraud – where the perpetrator looks to specific groups for victims. They will recruit ringleaders who have contacts at a church group, within ethnic groups, senior groups and professional groups like nurses or teachers. By virtue of the fact that they are already part of that group, they are more readily accepted and after making sure the first couple victims are treaty like royalty – the rest fall like dominoes.
- Soliciting Investors – you’ve seen the signs by the side of the highway – ‘We Buy Houses for Cash’, ‘Investors Needed’ that sort of thing. By and large they are looking for people to act as Straw Buyers and while we can’t say with 100% certainty that these are ALL scams, in some counties in Florida, Code Enforcement is directed to confiscate these signs. In some cases, law enforcement have called the numbers on the signs and set up stings for illegal operations.
- Builder Bail-Outs – Increasingly common in some areas where builders have large sitting inventories. By offering incentives like cars and vacations, together with inflated appraisals, they entice buyers (sometimes using straw buyers) to purchase their inventory of homes. The buyer then defaults and keeps the car but the builder has gotten another home off their inventory.
- Buy & Bail – sometimes referred to as ‘Borrowers Revenge’ has already been discussed in other posts in this section. Basically it involves a homeowner who is upside-down in a property. They owe $400,000 on their home but they can now buy the identical place for $250,000 down the street. They qualify for a new loan by providing fraudulent rental papers showing their current home will be leased. They get into the new place and immediately bail on the old one. Often times they will actually rent the old place for the few months until it goes into foreclosure, pocketing the rent and deposit and leaving the renter twisting in the wind when they get evicted.
- Flipping – not in and of itself fraudulent. Many people have successfully and legally purchased properties over the years that are in less than ideal condition, invested a little sweat equity and sold the resulting home for a tidy profit. However, there is a whole subculture of illegal flipping involving fraudulent appraisals & straw buyers. Sometimes these scams take the form of ‘investor groups’ who buy several houses in a neighborhood and then re-sell them to each other several times at ever inflating prices. While the first few sales will involve inflated appraisals, after 3 or 4 times, they create their own microcosm of appraised value within that neighborhood. After running the sales prices up significantly, they simply pocket the gains, bail on the neighborhood and start over in another area.
- Foreclosure Rescue Scams – the newest addition to the genre. I know in our area of SoCal we are seeing some of the same people who ran the kiting scams coming back into the market as ‘foreclosure specialists’ to help people avoid losing their home. They have a ready made clientel because all the people they screwed getting them into a predatory loan or inflated value home, now they can screw them again on the way out by promising miracles and delivering doo-dah. Whether it’s a Foreclosure Rescue Scam, a Loan Modification Scheme or a ‘Payment Assistance Scam’, it’s the same principle. These perpetrators are catching homeowners at their most vulnerable, when they have already made one bad decision and are about to lose their home. Almost every one of these cases involve the homeowner transferring or deeding the property over to the fraudster to ‘avoid foreclosure’. The fraudster will tell them they can make minimum payments to them until they’re back on their feet while the fraudster will make the full payment to the lender and then deed it back to the original homeowner once the default is caught up. Of course they don’t actually do this. Instead they pocket the payments from the homeowner, make no payments to the lender and typically take the deed and use it to refi the house using a fraudulent appraisal (and without the original homeowners knowledge). By the time the homeowner starts getting the NOD’s, the fraudster is long gone with their money and the home is encumbered for even more than the owner originally owed. They have also learned a valluable (and costly) lesson that there is a significant difference between having your name off the deed to the house and having your name off the mortgage loan. They still owe the money, their credit is shot and there is no recourse.
- Rental Property Scam – I’ve written about this one before. In it’s simplest form somebody owns a home, maybe in a buy & bail, maybe a legitimate owner. They rent the house out collecting first & last plus a deposit. Then they quit making their payments to their lender and just pocket the monthly rent from their tenant. Some months later the tenant is leaving for work one morning and sees the Notice of Trustee Sale tacked to their front door. Even if they immediately stop making payments to the owner (and there’s some legal issues there in the owners favor), they are still likely to be out at least a months rent plus the deposit which they will never see and they get to move their family again paying for the move and a new series of first & last & deposits.
- Rental Property Scam II – even nastier. A perpetrator gets the combination for a bank owned home and runs an add in the newspaper or Craigslist offering the house for rent. They get to the property and take the ‘For Sale’ sign down and then meet the prospective tenants, showing them through the property like everything’s legit. They sign the papers on the spot taking first & last plus a deposit and give the new tenant a set of keys. Next day the tenant shows up with their moving truck and discovers the keys don’t work and the phone number for the ‘owner’ is disconnected. In the worst local case I’ve heard about, 14 people were snared by one perpetrator to the tune of $3,400 each. They discovered the hoax when multiple families started showing up with their moving trucks a couple days later.
Well, that about covers the major scams. If you hear of something happening in your area, please feel free to post it here as a caution to the rest of us. These scams have a way of showing up in more than one area and in slightly different forms. The perpetrators who pulled off The Classic in our area with over 128 homes, pocketed over $12 million dollars over a 2 year period and left lenders holding the bag on about $70 million in foreclosed houses. They had already been busted for pulling the same scheme in Pennsylvania but were not prosecuted, paid a small fine and headed to California, where they learned from their mistakes and lived the high life for several more years.
There’s only one way to head these schemes off early and that’s for Realtors to communicate. Law enforcement often doesn’t find out about many of these scams until they’ve already cleaned house and left. Lenders often don’t find out until their risk management teams notice patterns of losses but by then it’s usually to late. Realtors are frequently in the front line and see these things develop. If you see something fishy or something doesn’t quite pass the smell test – let your Broker know. Talk to others in your association to see if they’ve experienced the same thing. Talk to your Board Counsel or a good real estate attorney and bring it to the attention of your local law enforcement, your District Attorney, U.S. Attorney, Department of Real Estate, Attorney General, Securities and Exchange Commission and FBI. Most will ignore you but this has become such a high profile issue that sooner or later someone will listen.
Realtors are part of the solution – not part of the problem. Make it so.
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‘Recognizing Mortgage Fraud – Day 3’
The opinions in this commentary are strictly Gene Wunderlich’s personal opinions. While any reasonable and/or rational indivdual should agree wholeheartedly, the opinons reflected herein may not necessarily be those of SRCAR/GADBLOG, ActiveRain, The Valley Business Journal or any local or state government or other mental institution.