An attorney for the U.S. Department of Justice recently provided an inside look at the process involved in prosecuting a mortgage fraud case. While the government is looking to lock up ringleaders of mortgage schemes, industry insiders are their biggest targets.
| Assistant U.S. Attorney Shamoil Shipchandler spoke to the Dallas Mortgage Bankers Association last month about the prosecution of fraud.
No specific statute exists for mortgage fraud, which is defined as obtaining a mortgage loan on better terms than would have been obtained without deceiving a lender. Because mortgage fraud itself is not defined as a crime, the government uses a collection of other statutes including bank fraud, where a financial institution is defrauded; wire fraud, when funds involved in a crime are wired; mail fraud, when a crime involves using an interstate courier; and money laundering, when profits from a scheme are reinvested to make the scheme work again or the profits are invested into an untraceable source. Shipchandler highlighted the differences between robbing a bank and engaging in mortgage fraud — which, he noted, is a much better way to commit a crime. Mortgage fraud doesn’t require the criminal to even leave his or her home, while bank robbers must go to the bank. While it is unlikely that fraudsters will be arrested in the parking lot at the closing, bank robbers are arrested in the parking lot. Bank robbers will have to throw away their clothes after the robbery, but fraud criminals can continue to wear the clothes that they wore to the closing.
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Shamoil Shipchandler
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He described fraud for property, where criminals commit mortgage fraud so they can live in a property.
“That’s typically not what the federal government is really that interested in,” Shipchandler said. “You know where that bad guy is. That’s an easy fix for us.”
One exception, however, was a case against O.T. Austin who, in addition to committing mortgage fraud, purchased several vehicles. Austin allegedly purchased the Plano, Texas, home of former NFL star Deion Sanders by providing fraudulent documentation for a trust fund that he said paid him $3 million annually.
Austin, who fled, was eventually caught at a car dealership where he was arranging for the purchase of six more vehicles.
Shipchandler also discussed fraud for profit, where the bad guy pulls out significant money from mortgage fraud transactions without actually being part of the transaction.
“When we go looking for that bad guy, we have to do a whole lot of work to figure out what that bad guy actually did, where that bad guy actually is [and] where that bad guy actually hid the money,” he said.
These cases generally involve multiple players because they cannot be executed by just one person. The players typically involve a mortgage industry insider, many times a mortgage broker, and often utilize subprime programs with no verification required.
Reams of documents are used to make it hard for investigators to untangle the schemes and determine exactly what happened. In addition, the perpetrators do their best to keep their names off the documents.
Shipchandler explained that before he can prosecute a case, another U.S. Department of Justice associate has to analyze the financial records to determine what might have happened. This includes a review of the real estate agents file, the closing instructions, the mortgage broker’s file and the lender’s file. It also includes a review of appraisal records and correspondence.
It takes two years to obtain all of the records involved.
Then, secret service agents handle the leg work to determine where the fraud occurred and who the victims were, while FBI agents investigate straw borrowers and investors. Even the Internal Revenue Service gets involved.
Once an investigation becomes known, the bad guys begin to liquidate their assets.
He cited a case involving Michael Carey, who was allegedly responsible for mortgage fraud on 211 Texas properties. Yet, in reviewing his case, it wasn’t totally clear what crime had been committed.
Carey purchased homes from homebuilders, using a company name that sounded very similar to the actual homebuilder. Then he simultaneously sold the properties at inflated values to unsuspecting investors and rented them out to tenants. Appraisers involved were willing to push values higher, while mortgage brokers were willing to create fraudulent loan files to get the loans approved.
The tenants were eventually evicted because the properties were foreclosed.
“What you’re never going to really find is the money that they have,” he said. “We probably, at this point in time, do not know enough to put Mr. Carey in jail or stop him from doing what he is doing.”
But he noted that the federal government prefers to prosecute the closing agents and other insiders instead of the ringleaders because they were the gatekeepers who were entrusted with protecting the lender.
“That main bad guy created a fraud, but could not have done so without industry insiders — people who were responsible for policing the industry itself,” Shipchandler stated. “The appraisers, title attorneys, closers.”
He added that appraisers are just as guilty as the ringleaders.
Related:
| Mortgage Fraud Today 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.
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