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June 18, 2010

Multitudinous mortgage fraud

The FBI, which Thursday announced hundreds of arrests for mortgage fraud nationwide, notes that the scammers are choosing from a long menu of possibilities in this uncertain market. For instance:

Bankruptcy as a scammer tool. "Mortgage fraud perpetrators are exploiting the U.S. bankruptcy system by filing fraudulent bankruptcy petitions to delay the foreclosure process and extract the maximum profit from victims during the commission of advance fee, fractional transfer, and sale-leaseback-repurchase foreclosure rescue schemes," the FBI says in its newest mortgage fraud report.

Flopping distressed property. "The perpetrators collude with appraisers or real estate agents to undervalue the property using an appraisal or a broker price opinion to further manipulate the price down (the flop) to increase their profit margin when they later flip the property," the FBI notes. "They negotiate a short sale with the bank or lender, purchase the property at the reduced price and flip it to a pre-selected buyer at a much higher price." (Here's an example of two Connecticut real estate agents -- make that former real estate agents -- who did just that.)

Stealing bank-owned property. Some enterprising crooks are recording fake deeds on empty bank-owned property, changing the locks and renting them out. "Recorders do not conduct due diligence to verify or otherwise determine the validity of property or other legal documents," the FBI says. "With access to the appropriate software and knowledge of required real estate documents, a perpetrator can create fictitious documents such as a deed of trust, have the deed notarized, pay a nominal fee, and present or mail the deed to the recorder."

Commercial real estate. Yup, it's not just houses anymore: "Perpetrators, including loan officers, real estate developers, appraisers, and apartment management companies, are increasingly submitting fraudulent documents that misrepresent their assets and property values to qualify for loans to buy or retain property," the FBI says. "When the loans are funded, the perpetrators often cease payment of their mortgages, resulting in foreclosure."

Where is this criminal commercial real estate behavior happening, you ask? Right here.

"Preliminary analysis indicates that the commercial markets exhibiting the most significant signs of distress are in areas where there is also a significant mortgage fraud problem," the FBI says. "These areas include the New York metropolitan area, Miami, Los Angeles and Orange County, Chicago, Boston, Dallas, Fort Worth, Houston, the District of Columbia, Atlanta, and Baltimore."

Maryland as a whole frequently appears on mortgage fraud top-ten lists. HUD's Office of Inspector General, which had 591 single-family loan investigations last fiscal year, said the states that showed up the most on its caseload were Illinois, California, Florida, Texas, New York, Maryland, Georgia, Colorado, Ohio and Pennsylvania.

Posted by Jamie Smith Hopkins at 7:00 AM | | Comments (7)
Categories: Mortgage fraud/scams
        

Comments

Wow, I have never heard of "flopping", but it makes sense. I'm also surprised not to see Nevada or Arizona on the top 10 list.

principal reduction would lead to more sustainable loan modifications, fewer foreclosures and less fraud.

Rob, I'd like you to expand on that statement. How much of the fraud the FBI sees is driven by desperation--by ordinary homeowners, regular citizens, who are underwater?

It would be interesting to see how many of these fraud artists are already in prison. Some inmates fraudulently received the first time homebuyer's tax credit. So from their point of view, why not try house flipping.

Actually Laura, many of the fraudsters are never caught. They come up with new techniques and abandon old ones as the Feds finally catch up. By that time, it is too late and they find another way to scheme the system. Inmates in jail that claimed the credit got caught because there was a way to track them by the IRS. Mortgage fraud is completely different. The fraudsters are smart. What usually catches up to them is their greed in trying to make another score after they have gotten away with it numerous times before.

It's amazing how people continue to try to beat the system, and the fact that people are trying to rent homes currently in foreclosure that they never owned is mind boggling. I would also have to agree with Robert’s comment that a Florida Mortgage Principle Reduction program would help to reduce the amount of upcoming foreclosures and “strategic defaults”. As long as homes continue to lose value, there will always be homeowners willing to destroy their credit in an effort to preserve their savings.

Great blog. Until "free market" principles are allowed to work in this country and until the government stands out of the way, we will continue to see the defaults rocket.

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About Jamie Smith Hopkins
Jamie Smith Hopkins, a Baltimore Sun reporter since 1999, writes about the regional economy. Her reporting on the housing market has won national and local awards. Hopkins is a Columbia native and has lived in Maryland all her life, save for 10 months spent covering schools in Ames, Iowa.
She trained to become a wonk by spending large chunks of time as a geek and an insufferable know-it-all.
Baltimore Sun articles by Jamie
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