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Mortgage broker, originator and banker criminal cases. Real estate flipping and appraisal fraud. Mortgage fraud prevention, studies and analysis.



Mortgage Fraud Today

New types of schemes emerge

September 14, 2008

By MortgageDaily.com staff


The latest mortgage fraud schemes involve Eastern Europeans who come to the United States just long enough to acquire a property, obtain multiple loans on it and return home to live comfortably, a mortgage fraud attorney recently told a group of mortgage bankers. And appraisal fraud now involves appraising properties for less than the actual value.

Those were some of the schemes Rachel Dollar spoke about during a presentation to the Dallas Mortgage Bankers Association on Sept. 4.

Dollar, who represents mortgage lenders that have been victimized by mortgage fraud, estimated annual losses tied to mortgage fraud are in the neighborhood of $100 billion.

A red flag pops up when a house that has been on the market for a long period of time all of a sudden sells for more than the original asking price, according to Dollar, who operates MortgageFraudBlog.com. Those transaction usually include fraudulent appraisals and are often orchestrated by outside firms that will earn a big fee.

Another scam involves sellers that lend buyers the down payment. The MLS price is raised to avoid detection and the real estate broker or agent earns higher commissions.

photo of Rachel Dollar
Rachel Dollar

"We're going to see a lot more indictments ... in that area," stated Dollar, who is a partner in charge of the mortgage banking group at the firm of Smith Dollar PC. "A lot of times, also, the way that we find it is that the commissions are based on the real sales price, not the inflated sales price."

Some builders are giving cash, gifts or even a second house to the buyers but not disclosing this to the lenders.

A growing number of real estate agents and brokers, faced with a dramatic decline in income recently, see mortgage fraud as a crime of necessity. Faced with the choice of feeding their children or avoiding mortgage fraud, they are choosing to commit fraud.

She noted attorneys have been known to advise clients that they are not necessarily involved in a crime even though they are committing mortgage fraud.

The longest prison sentence ever for a mortgage fraud defendant was for Georgia attorney Chalana C. McFarland, who was sentenced to 30 years in federal prison.

In one New Jersey case, a meth drug dealer earning $200,000 to $300,000 weekly used his drug addict customers in a mortgage fraud scheme and paid them with drugs. Dilapidated properties were sold as renovated to first-time homebuyer immigrants. But most of the buyers were usually unable to occupy the properties for more than a couple weeks due to the condition.

Some marijuana dealers are using real estate to launder drug money. They will harvest pot plants inside a home, then sell the home to another dealer at a price that includes the value of the pot.

Dollar spoke of "shot gunning," a scheme where multiple second liens are rapidly and simultaneously filed on the same property. The scheme, which started in Michigan, exploits the inability of title companies and lenders to identify the other liens being filed -- enabling cashout transactions that far exceed the value of the property.

The players are often Eastern Europeans who briefly enter the United States specifically to execute the scheme then immediately return to their own countries with the proceeds.

"It's a way to make enough money to really live the rest of their lives in comfort within their own country, and it doesn't take very long to do here," Dollar said. "With competition between title agencies -- who don't want other title agencies to know what loans they're closing -- and with the way our systems record, you don't get any notice of it. There's really no advance notice at all until all the liens are closed.

"It also gives them enough time to escape, because, of course, until foreclosure proceedings start three months or six months down the road on those loans -- they don't even check title."

On the servicing side, some borrowers are convincing lenders to accept a short sale then going through subsequent transactions to take ownership back on the property -- at a much lower price. In these situations, the appraisal fraud that occurs involves an estimated value that is lower than the actual value. In some cases, possum urine is placed in the attic creating a smell which prompts appraisers to regularly devalue the house.

Dollar explained the industry is teaching people to do fraudulent loans.

"It's all about volume, and it's all about closing loans and it's all about doing deals."

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