how does mortgage fraud affect you orion

Mortgage Fraud Mortgage Fraud isis

Costing YouCosting You

Francois K. Gregoire, IFA, RAAFrancois K. Gregoire, IFA, RAA

State Certified Residential AppraiserState Certified Residential Appraiser

#0000142#0000142

Mortgage Fraud-© 2007 Francois Gregoire

2

PREPARED FORPREPARED FOR


3

about Frank………...about Frank………...

• Licensed since 1976• Realtor® since 1977• Appraising since 1977• State-Certified Residential Appraiser since

1989• Real Estate License Law and Appraisal

Instructor since 1977• Qualified Expert Witness - Pinellas County

Circuit Court, United States Bankruptcy Court


4

FrankFrank does not speak for: does not speak for:

• State of Florida• Department of Business and Professional

Regulation• Division of Real Estate• Florida Real Estate Appraisal Board• Florida Association of REALTORS®


5

Mortgage FraudMortgage Fraud

• What is it?• Different Types• Laws Prohibiting• Current Schemes• Who Pays?• Penalties• Enforcement Agencies and Where to

Report


6

Mortgage Fraud Mortgage Fraud What is it?What is it?

Each Mortgage Fraud Scheme has some type of

““Material misstatement, Material misstatement, misrepresentation, or omission misrepresentation, or omission relied upon by an underwriter relied upon by an underwriter or lender to fund, purchase or or lender to fund, purchase or

insure a mortgage loan.”insure a mortgage loan.”


7

Types of MortgageTypes of Mortgage Fraud Fraud

#1. Fraud for Property/Housing• borrower as the perpetrator, usually on a

single loan. • Few misrepresentations, (income, personal

debt, and property value, or down payment)

• Borrower wants the property and intends to repay the loan.


8


Fraud for Property/Housing• Sometimes industry professionals are

involved – varying degrees • Sales Concessions / Incentives?• Fraud for Property/Housing

accounts for 20 percent of all fraud.


9


#2. Fraud for Profit• involves industry professionals• multiple loan transactions • several financial institutions • numerous gross misrepresentations • backstopped by co-conspirators • inflated appraisals• Ca$h back at Clo$ing (LOT$!) or paid to

third parties


10

SO WHAT!SO WHAT!TITLE 18 U.S.C.TITLE 18 U.S.C.

CRIMES AND CRIMINAL PROCEDURE PART I - CRIMES

CHAPTER 47 - FRAUD AND FALSE STATEMENTS

Sec. 1014. Loan and credit applications generally

Offenders, if convicted may be:• fined not more than $1,000,000 • imprisoned not more than 30 years• or both!


11

SO WHAT!SO WHAT!

Chapter 475, Florida StatutesChapter 475, Florida StatutesSection 475.25 – DisciplineSection 475.25 – Discipline

If licensee is guilty of fraud, misrepresentation, concealment, or

Has aided, assisted or conspired with another engaged in such conduct, or

Formed an intent to engage in such misconduct

Regardless of damage, loss or restitutionThe Licensee is subject to Discipline


12

What are the What are the Schemes?Schemes?

• Churning• Chunking• Property Flipping• Silent Seconds• Straw Buyers


13

What are the What are the Schemes?Schemes?

• Foreclosure Rescue Scam• Equity theft• Affinity Fraud• Backward Applications• Inflated Appraisals


14

CHURNINGCHURNING

• Excessive selling/lending activity for the purpose of generating fees and commissions or Comparable Sales

• Bogus sales among members of a fraud ring with misrepresented down payments creates false impression of value

• Appraisers knowingly or unknowingly use bogus sales as Comparables in Appraisals for Sales and Refinance Transactions


15

ChunkingChunking

• Fraudster promises to show “investors” how to get rich buying investment

• Multiple loan applications submitted to various lenders not disclosing “investor’s” intent to purchase other properties

• Sometimes the fraudster promises to handle the transactions, including leasing the properties. He takes a cut of the profit and never leases the property


16

Property FlippingProperty Flipping

Illegal property flipping occurs when a property is refinanced or resold immediately after purchase for an artificially inflated value.


17

Silent SecondsSilent Seconds

• Buyer of a property borrows the down payment from the seller through the issuance of a non-disclosed second mortgage

• Primary lender is duped to believe the borrower has invested his own money in the down payment

• The second mortgage may not be recorded to further conceal its status from the primary lender


18

Straw BuyersStraw Buyers

• A person used to buy property to conceal the actual owner

• The straw buyer does not intend to occupy the property or make payments and often deeds the property to the another individual immediately after closing

• The straw buyer is usually compensated for use of his identity


19

Foreclosure Foreclosure Rescue ScamRescue Scam

• homeowner is deceived into signing over title to the property believing he will be able to remain in the house as a tenant and eventually buy it back

• Terms are impossible to live up to, the homeowner loses his home and any equity he may have

• Homeowners led to believe they are signing documents to bring the mortgage current, but end up surrendering their ownership and usually don't know they've been scammed until evicted


20

Equity TheftEquity Theft

• Fraudsters forge a deed to transfer title or a satisfaction of lien and then obtain new liens on the property

• The homeowner does not know about it until he receives an eviction notice

• Foreclosure rescue scam is also a version of equity theft


21

Affinity FraudAffinity Fraud

• Fraudsters rely on a common bond to support the scam

• Specific ethnic, religious, professional or age-related groups are targeted


22

Backward Backward ApplicationsApplications

• After identifying a property to purchase, a borrower customizes his/her income to meet the loan criteria

• Usually includes a “customized” appraisal to go along with the bogus application


23

Inflated AppraisalsInflated Appraisals

• Appraisal ordered by a party to the transaction

• Comparable properties are a significant distance from the subject

• Occupant shown to be a tenant or unknown

• Significant appreciation in short period of time


24

Inflated AppraisalsInflated Appraisals

• Appraisal indicates transaction is a refinance when it is a purchase

• Large positive adjustments made to comparable properties

• Owner is someone other than seller shown on sales


25

Indicators?Indicators?• Offer substantially higher than listed price –

overage to 3rd party• Cash payment terms in contract addendums

only• Buyer or their agent unusually insistent on

certain lender, appraiser, closing agent• Substantially higher commissions or bonuses to

be paid to Agents and/or Appraisers


26

Indicators?Indicators?• Buyer or their agent seem disinterested in the

property• Buyer is unusually passive in the transaction• Buyer is out of state holding company• False Statements concerning owner occupancy• Earnest Money Deposit Check is not drawn from

buyer’s account


27

Most RecentMost RecentWest Coast West Coast Florida caseFlorida case

Do you know Mary Bolan?


28

November 30, 2006 November 30, 2006

Mary E. Bolan, 46, former mortgage broker and Licensed Real Estate Broker, Bradenton, Florida,

was sentenced to:

• Six months in prison• Six months home detention• Three years supervised release • pay restitution of $1,782,019.47$1,782,019.47


29

The Florida Real Estate Commission or the Florida Real Estate Appraisal Board may:

• deny license• Suspend license• Revoke license• fine licensee up to $5,000• reprimand licensee• all of the above

SO WHAT!SO WHAT!


30

SO WHAT!SO WHAT!Who Pays?Who Pays?

• Mortgage Fraud may contribute to foreclosures

• Mortgage Fraud may contribute to failing neighborhoods

• Mortgage Fraud may contribute to higher ad valorem taxes

• Mortgage Fraud affects the SAFETY of your investments


31


• September, 2002 - FBI had 436 436 mortgage fraud investigations

• March, 2007 – FBI had 1,036 1,036 mortgage fraud investigations (over 230% increase in less than five years)

• More than half of the 2007 cases have expected losses of more than $1,000,000 $1,000,000


32


• About 57%57% of the victims are federally insured financial institutions

• About 8%8% are government entities like the Department of Housing and Urban Development

• About 35%35% are Investors


33


Suspicious Activity Reports (SARs) related to mortgage fraud

• Fiscal Year 2000 - 3,5153,515 • Fiscal Year 2006 - over 28,00028,000• 2006 SARS will likely result in

$1,000,000,000$1,000,000,000 in losses


34

Remember….Remember….

• There is no such thing as a FREE LUNCH

• If it sounds TOO Good to Be True..

• It’s often better to say NO!


35

Where to ReportWhere to Report

• Florida Attorney General - Economic Crimes Division

• Office of Financial Regulation - Florida• Florida Real Estate Commission• Florida Real Estate Appraisal Board• Federal Bureau of Investigation


36

More InformationMore Information

• www.MortgageFraudBlog.com• www.MortgageFraud.org • Information Data Services

www.idsnetwork.com/alerts.htm• www.fbi.gov• www.fincen.gov


37

Francois K. Gregoire, IFA, RAAFrancois K. Gregoire, IFA, RAA

State Certified Residential Appraiser State Certified Residential Appraiser #0000142#0000142

Gregoire & Gregoire, IncGregoire & Gregoire, Inc

Realtor - AppraiserRealtor - Appraiser

727-344-3393727-344-3393

[email protected]@tampabay.rr.com