Residential Mortgage Fraud Enforcement: Trends and Identifying Schemes Gary Crabtree, SRA Affiliated Appraisers Bakersfield, CA
For Profit: Kickback Father, Mother, Daughter Team Approach distressed seller (Divorce, Bankruptcy, Medical, Fraud) and offer $60-$100K above list price. Father was “straw” buyer w/ falsified loan applications - Mother/Daughter were real estate agents that handled the transaction Utilized “sub-prime” lenders and hired their own “favorite” appraiser who falsified values. After close, seller would pay buyer the $60-100K out of loan proceeds.
For Profit: Kickback Father, Mother, Daughter Team Buyer would rent property and never make a payment and wait for default and foreclosure (9-12 months) Five properties with a total of $430K in “kickbacks” Actual loss to lenders - $2,051,500. Prosecuted by local District Attorney with “plea deal” resulting in 6 years for mother and daughter and 4 years for father – no restitution. Appraiser voluntarily surrendered license – not prosecuted.
For Profit: Equity Skimming Realtor ® Team Largest in Eastern District of California Involved 127 properties with loans totaling $81.8M and $32.1M in lender losses. Realtors ® had own brokerage, own mortgage company and two “favorite” appraisers. Would purchase homes and “flip” to other agents in the office and “straws” with the average flip being > $200K.
For Profit: Equity Skimming Realtor ® Team Used funds to buy additional properties and “live large”. (Luxury homes, Company Jet, High end autos, Bodyguards) Case reported to FBI, DRE, OREA and Local DA on 10/19/2006. Case opened by FBI on 12/05/06. Fraud included false applications, income verifications, credit reports and appraisals. 18 including the brokers, loan officers, straw buyers, CPA were indicted – no appraisers.
For Profit: Equity Skimming Realtor ® Team To date, 1 plead guilty and received 27 months. 9 have plead guilty in 1/2010 and have yet to be sentenced. 9 have plead not guilty and are awaiting trial to begin in 1/2014. The two “primary” appraisers were not indicted and had their licenses “placed on probation” for five years by CA OREA. Both later surrendered their licenses. One was sued by one lender and settled for $559,000 by his P.L. insurer.
Other Cases Realtor ® Kickback Inflated and sold 8 properties and took $50K kickback on each. One appraiser falsified all appraisals. Failed to renew his license. – Realtor not disciplined or prosecuted. Developer Flipping Bought 32 apartment project, converted to condo and sold to “straw” buyers for $250K each. Most all defaulted. Same developer repurchased as “foreclosures” at $30-$50K each. – Not prosecuted.
Newer Schemes: Short Sale Fraud Insider Trading: 1.Seller placed home on market as “short” for $275K; Realtor performed BPO; Home received 5 offers from $350-$365K; Realtor did not present offers to lender; Home sold for $275K. – ALL PARTICIPANTS WORKED IN SAME BROKERAGE OFFICE. (Seller, Listing Agent, BPO Agent and Buyer/Agent) 2. Seller owed $640K. Listed with Realtor® as a “short” for $393,000. Realtor ® assisted in BPO and lender negotiations. Property valued at $470K. Seller cancelled listing and shortly thereafter property sold for $390K to a relative and seller still occupied. 1 year later property was “quit claimed” back to original owner.
Working with Law Enforcement DON’T BE A WHISTLEBLOWER Disqualifies you from forensic review work with agency in question. You will be thoroughly investigated as a potential witness. You are ineligible to receive compensation or rewards. (IRS exception). You will lose assignments from other clients. Be prepared to be threatened.
Working with Law Enforcement IF YOU REPORT MORTGAGE FRAUD Be prepared to educate local law enforcement and prosecutors. Be prepared to present “solid” evidence or the case won’t be considered. Don’t expect state licensure agencies to be interested or helpful.
Forensic Review Appraisals HUD AND GSE RETROSPECTIVE REVIEWS Mostly handled by AMC’s that pay “cram down” fees for the scope of work involved. Fair fees when representing lenders that are defending “buy back” loans. Fair fees when representing professional liability insurance carriers in their claims process.