Re Professionals 2009

REAL ESTATE FRAUD
Stanislaus County District Attorney
W.R. McKenzie, Deputy District Attorney
Glenn Gulley, Criminal Investigator
Mark Smith, Criminal Investigator

A LITTLE ABOUT US:
June 2005…SB 537 passed (Govt. Code 27388)
$3.00 every Recorded Real Estate Document to go to Trust Fund for Fraud
Stanislaus County began January 2006
Full Time DDA
Two Criminal Investigators

What do we Do:
Focus on investigation and prosecution of Real Estate Fraud
Emphasis on Crimes that impact Vulnerable Victims:
Elderly, Disabled, Unsophisticated, Foreclosure victims
Educational programs in the Community
To help reduce the number of victims

More Specifically,What do we Do:
Investigate Frauds and Forgeries
Foreclosure Fraud
Title Fraud
Filing False Financial Statements in relation to Mortgage Fraud
Embezzlement & Misappropriation of Funds
Construction Fraud

What is fraud?
Theft…Stealing someone’s money or property
False pretenses…criminal lies and induces someone to part with their money or property

Who are Perpetrators?
Individuals
Notaries
Lenders
Brokers/Agents
Construction Contractors
Family

Common crimes:
Forged Title Transfers
Foreclosure Fraud
Embezzlements
Mortgage Fraud
Predatory Lending
Rental Schemes/Rent Skimming
Real Estate Investment Schemes
Identity Theft

Forged Documents/Fraudulent Conveyances:
Steal the Equity in the Home
Loan taken on Property or sell Property
Victim/Homeowner has no knowledge
Achieved by forged Grant Deed and Recording Title Transfer
Sometimes Accomplished through forged Power of Attorney
Result: Conversion of Victim’s property to cash

What kind of fraud do we see in your industry?

Foreclosure Fraud:
Desperate Homeowner in Foreclosure
May offer to take title to cure default
May offer to rent back house
Often tells homeowner saving their credit
Steals Equity…Sells House…Evicts Victim
Often Foreclosure sale will give distressed homeowner the equity after debt is paid!!

EQUITY SKIMMING
Straw Buyer Used
Forged or False Loan Documents submitted to the Lender
False Credit Reports
Straw Buyer Quit Claims to Investor
Investor Fails to make Mortgage Payments
Rents Property Until Foreclosure

Mortgage Elimination Scams:
Dorian Group
Seminars all over the country
Over-inflated appraisals
Multiple Loans on property w/Gift-back programs
Lender never sees last minute addendums
Millions of dollars on a single piece of property

Predatory Lending:
Loans with Exorbitant Fees and Points
Never explained to Victim
Elderly and Disabled are targeted by unscrupulous Lenders
Victim is unable to make monthly payments and Lender makes the loan anyway

Reverse Mortgages:
Targets Elderly
SB 1609/Civil Code 1923.2
Prohibits lender from Requiring Victim to Purchase or offer an Annuity to the victim
Requires Lender to refer borrower to counseling… 5 approved by HUD
Borrower must have a certificate of completion of counseling services before completion of loan

How does this crisis affect us?
Hundreds of Subprime lenders have gone out of business.
Billions of dollars were lost in city taxes from foreclosed/abandoned properties
Confidence in the American Marketplace is at an all time low
Confidence in the government and the industry is at an all time low.

What is happening now?

Buy and Bail
Borrower purchases a new home and then allows their previously owner-occupied home to go into foreclosure.
Borrower tells new lender that they intend to sell or rent out the old house.
Old home upside down
Inflated rental income
No intent to sell or rent but states otherwise to new lender
Falsified rental agreements
Other false statements regarding the old home

Short Sale Fraud
Property appraised below FMV. Sold to “new purchaser” who then re-sells it for FMV
Pockets the money or
Resells to original owner for far less than they originally owed.
Both the current and new lender are victims in this crime.

Equity Stripping
Foreclosure specialist assists homeowner
Homeowner told to make payments to rescuer
Deed transfer may be hidden in the paperwork
Rescuer pockets the money

Fraud Enforcement and Recovery Act (FERA)
May 20, 2009
Expands federal jurisdiction
Federally related mortgage loan
Secured by residential property
Occupied by 1 to 4 families
Proceeds used to pay of an existing loan secured by property
And which
Involves FDIC or HUD or Fannie, Ginnie etc…
Or creditor invests more than $1m per year in residential

18 U.S.C. 1014
Whoever knowingly makes any false statement or report, or willfully overvalues any land, property or security for the purpose of influencing in any way any business or person that makes federally related mortgage loan.
Statute of Limitation is 10 years.
Maximum punishment $1m fine and 30 years

Signed by Governor in 2009

SB 36
Requires a license endorsement for real estate brokers who solicit or negotiate mortgages
Business and Professions Code §10166
Fines, License consequences

SB 94
Loan Modification
NO ADVANCE FEES … PERIOD
Misdemeanor $10,000 or $50,000 fine.
Also Requires translation

SB 237
Appraisal Changes
B&P 11302
Creates registration program for appraisal management companies
Requires licensing and background for all

SB 239
Real Estate Fraud PC 532f – Felony
Lies or omits on a mortgage application
Allows the above lie to take place
Receives ANY compensation knowing either of the above
Records any documents knowing any of the above

AB 260
Predatory Lending Civil Code 4995
Defines “higher priced mortgage loan”
Limits prepayment penalties to 2% 1st year 1% second year
Prohibits negative amortization
Limits total amount of compensation
Requires a Fiduciary duty on part of broker
Restricts “steering”
$10,000 fine plus loss of license

AB 329
Reverse Mortgage Civil Code section 1932.2
Seller cannot be associated with other financial or insurance entities
No referals to other products
Give list of at least 10 HUD approved counsellors
Must give Checklist of questions for counsellor
Loan Cannot be approved until signed checklist returned to lender

AB 957
Seller CANNOT require a specific escrow agent or title insurance
3 times total cost
Civil Code Section 1103.20

AB 1160
Mortgages must now include a summary of terms in whatever language is used to negotiate it
Prior to execution and no less than 3 days after release of application
Spanish, Chinese, Tagalog, Vietnamese or Korean.
$10,000 fine.

Other Crimes
Filing False Statements (PC 115.5)
Forgery (PC 470)
Obtaining $ or Property by False Pretenses (PC 532)
False Financial Statements Credit/Loan Applications (PC 532a)
Unlawful Notarial Acts (GC 8227.2)
Elder Financial Abuse (PC 368)

REAL ESTATE AGENTS Business & Professions 10176
Applies to Agents
Covers Misrepresentations
& False Loan Documents
Can subject you to investigation by the DRE; which may then be referred to us.

REPORTING A CRIME:
Immigration status of the victim is not relevant
Contracts for the sale of real property should be in your first language
Don’t be embarrassed to report the crime
Fraudsters prey on people who will trust them…Don’t trust them!!!!!

HOW ARE YOU A PERPETRATOR…?
“BY AIDING & ABETTING…”

PRINCIPALS
DIRECTLY & ACTIVELY COMMIT THE ACT CONSTITUTING THE CRIME; (E.G. “THE FORGER”)
AIDERS/ABETTERS
EQUALLY GUILTY

AIDERS & ABETTERS
A Person Person aids and abets when:
(1) with knowledge of the unlawful purpose of the perpetrator and;
(2) with the intent or purpose of committing/encouraging or facilitating the commission of a crime
(3) by act or advice aids, promotes, encourages, or instigates the commission of a crime
You know a statement is false and submit the loan anyway…

WHAT ABOUT DUTY OF CONFIDENTIALITY…?
Government Code Section 7470 provides in relevant part:
“This section shall not preclude a financial institution , in its discretion from initiating contact with, and disclosing customer financial records to, appropriate state agencies concerning suspect violations of any law…”

Red Flags in Real Estate Transactions:
Power of Attorney used without Explanation
No property inspection
Seller procures Appraiser
Request to Avoid Escrow
Request to Avoid Title Insurance
Cash Payments made outside Escrow

More Red Flags…
Disparity in Document Dates
Recent Liens
Post Office Box Listed for Borrower or Employer
Sudden Changes to Escrow
Escrow Instructions & Addendums not sent to Lender

WHAT CAN YOU DO…?
Pay attention to the Red Flags
If you see a Red Flag ask questions
Conduct a limited inquiry and /or investigation
Contact you attorney ask for advice
If it doesn’t sound right it probably isn’t
If you suspect FRAUD...Call our office!

WHAT TO REMEMBER?
DISCLOSURE!
DISCLOSURE!
DISCLOSURE!

OFFICE OF THE DISTRICT ATTORNEY
(209) 525-5550

10 tips for Avoiding Fraud:
What are you signing…Get an attorney
Check References of Industry Professionals
Beware of Promises of Outrageous Profits
Always conduct business in Office or Bank
Beware of Telephone solicitations
Check Comparable sales in area
Check Documents carefully…Avoid pressure to sign

10 Tips to Avoid Fraud (cont.)
Review History of property
Make sure you understand the terms of your mortgage then check against actual documents
Beware of Alleged Business people who are “Mobile”…
Never sign Blank Documents
If it sounds to good to be true…. IT IS!!!!!

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Re Professionals 2009

by CV Real Estate on Nov 02, 2009

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