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Re Professionals 2009

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Presented by W.R. McKenzie, Stanislaus County Deputy District Attorney at the Modesto Real Estate Marketing Meeting on Wednesday, October 28, 2009.

Presented by W.R. McKenzie, Stanislaus County Deputy District Attorney at the Modesto Real Estate Marketing Meeting on Wednesday, October 28, 2009.


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  • 1.
  • 2.
  • 3. REAL ESTATE FRAUD
    Stanislaus County District Attorney
    W.R. McKenzie, Deputy District Attorney
    Glenn Gulley, Criminal Investigator
    Mark Smith, Criminal Investigator
  • 4. 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
  • 5. 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
  • 6. 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
  • 7. What is fraud?
    Theft…Stealing someone’s money or property
    False pretenses…criminal lies and induces someone to part with their money or property
  • 8. Who are Perpetrators?
    Individuals
    Notaries
    Lenders
    Brokers/Agents
    Construction Contractors
    Family
  • 9. Common crimes:
    Forged Title Transfers
    Foreclosure Fraud
    Embezzlements
    Mortgage Fraud
    Predatory Lending
    Rental Schemes/Rent Skimming
    Real Estate Investment Schemes
    Identity Theft
  • 10. 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
  • 11. What kind of fraud do we see in your industry?
  • 12. 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!!
  • 13. 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
  • 14. 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
  • 15. 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
  • 16. 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
  • 17. 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.
  • 18. What is happening now?
  • 19. 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
    • 20. Inflated rental income
    • 21. No intent to sell or rent but states otherwise to new lender
    • 22. Falsified rental agreements
    • 23. 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
    • 24. Pockets the money or
    • 25. Resells to original owner for far less than they originally owed.
    • 26. 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
  • 27. 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
  • 28. 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
  • 29. Signed by Governor in 2009
  • 30. SB 36
    Requires a license endorsement for real estate brokers who solicit or negotiate mortgages
    Business and Professions Code §10166
    Fines, License consequences
  • 31. SB 94
    Loan Modification
    NO ADVANCE FEES … PERIOD
    Misdemeanor $10,000 or $50,000 fine.
    Also Requires translation
  • 32. SB 237
    Appraisal Changes
    B&P 11302
    Creates registration program for appraisal management companies
    Requires licensing and background for all
  • 33. 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
  • 34. 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
  • 35. 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
  • 36. AB 957
    Seller CANNOT require a specific escrow agent or title insurance
    3 times total cost
    Civil Code Section 1103.20
  • 37. 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.
  • 38. 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)
  • 39. 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.
  • 40. 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!!!!!
  • 41. HOW ARE YOU A PERPETRATOR…?
    “BY AIDING & ABETTING…”
  • 42. PRINCIPALS
    DIRECTLY & ACTIVELY COMMIT THE ACT CONSTITUTING THE CRIME; (E.G. “THE FORGER”)
    AIDERS/ABETTERS
    EQUALLY GUILTY
  • 43. 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…
  • 44. 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…”
  • 45. 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
  • 46. 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
  • 47. 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!
  • 48. WHAT TO REMEMBER?
    DISCLOSURE!
    DISCLOSURE!
    DISCLOSURE!
  • 49. OFFICE OF THE DISTRICT ATTORNEY
    (209) 525-5550
  • 50.
  • 51. 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
  • 52. 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!!!!!