How Does Mortgage Fraud Affect You Orion


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How Does Mortgage Fraud Affect You Orion

  1. 1. Mortgage Fraud is Costing You Francois K. Gregoire, IFA, RAA State Certified Residential Appraiser #0000142
  3. 3. about Frank………... <ul><li>Licensed since 1976 </li></ul><ul><li>Realtor® since 1977 </li></ul><ul><li>Appraising since 1977 </li></ul><ul><li>State-Certified Residential Appraiser since 1989 </li></ul><ul><li>Real Estate License Law and Appraisal Instructor since 1977 </li></ul><ul><li>Qualified Expert Witness - Pinellas County Circuit Court, United States Bankruptcy Court </li></ul>
  4. 4. Frank does not speak for: <ul><li>State of Florida </li></ul><ul><li>Department of Business and Professional Regulation </li></ul><ul><li>Division of Real Estate </li></ul><ul><li>Florida Real Estate Appraisal Board </li></ul><ul><li>Florida Association of REALTORS® </li></ul>
  5. 5. Mortgage Fraud <ul><li>What is it? </li></ul><ul><li>Different Types </li></ul><ul><li>Laws Prohibiting </li></ul><ul><li>Current Schemes </li></ul><ul><li>Who Pays? </li></ul><ul><li>Penalties </li></ul><ul><li>Enforcement Agencies and Where to Report </li></ul>
  6. 6. Mortgage Fraud What is it? <ul><li>Each Mortgage Fraud Scheme has some type of </li></ul><ul><li>“ Material misstatement, misrepresentation, or omission relied upon by an underwriter or lender to fund, purchase or insure a mortgage loan.” </li></ul>
  7. 7. Types of Mortgage Fraud <ul><li>#1. Fraud for Property/Housing </li></ul><ul><li>borrower as the perpetrator, usually on a single loan. </li></ul><ul><li>Few misrepresentations, (income, personal debt, and property value, or down payment) </li></ul><ul><li>Borrower wants the property and intends to repay the loan. </li></ul>
  8. 8. Types of Mortgage Fraud <ul><li>Fraud for Property/Housing </li></ul><ul><li>Sometimes industry professionals are involved – varying degrees </li></ul><ul><li>Sales Concessions / Incentives? </li></ul><ul><li>Fraud for Property/Housing accounts for 20 percent of all fraud. </li></ul>
  9. 9. Types of Mortgage Fraud <ul><li>#2. Fraud for Profit </li></ul><ul><li>involves industry professionals </li></ul><ul><li>multiple loan transactions </li></ul><ul><li>several financial institutions </li></ul><ul><li>numerous gross misrepresentations </li></ul><ul><li>backstopped by co-conspirators </li></ul><ul><li>inflated appraisals </li></ul><ul><li>Ca$h back at Clo$ing (LOT$!) or paid to third parties </li></ul>
  10. 10. SO WHAT! <ul><li>TITLE 18 U.S.C. </li></ul><ul><li>CRIMES AND CRIMINAL PROCEDURE PART I - CRIMES CHAPTER 47 - FRAUD AND FALSE STATEMENTS </li></ul><ul><li>Sec. 1014 . Loan and credit applications generally </li></ul><ul><li>Offenders, if convicted may be: </li></ul><ul><li>fined not more than $1,000,000 </li></ul><ul><li>imprisoned not more than 30 years </li></ul><ul><li>or both! </li></ul>
  11. 11. SO WHAT! <ul><li>Chapter 475, Florida Statutes </li></ul><ul><li>Section 475.25 – Discipline </li></ul><ul><li>If licensee is guilty of fraud, misrepresentation, concealment, or </li></ul><ul><li>Has aided, assisted or conspired with another engaged in such conduct, or </li></ul><ul><li>Formed an intent to engage in such misconduct </li></ul><ul><li>Regardless of damage, loss or restitution </li></ul><ul><li>The Licensee is subject to Discipline </li></ul>
  12. 12. What are the Schemes? <ul><li>Churning </li></ul><ul><li>Chunking </li></ul><ul><li>Property Flipping </li></ul><ul><li>Silent Seconds </li></ul><ul><li>Straw Buyers </li></ul>
  13. 13. What are the Schemes? <ul><li>Foreclosure Rescue Scam </li></ul><ul><li>Equity theft </li></ul><ul><li>Affinity Fraud </li></ul><ul><li>Backward Applications </li></ul><ul><li>Inflated Appraisals </li></ul>
  14. 14. CHURNING <ul><li>Excessive selling/lending activity for the purpose of generating fees and commissions or Comparable Sales </li></ul><ul><li>Bogus sales among members of a fraud ring with misrepresented down payments creates false impression of value </li></ul><ul><li>Appraisers knowingly or unknowingly use bogus sales as Comparables in Appraisals for Sales and Refinance Transactions </li></ul>
  15. 15. Chunking <ul><li>Fraudster promises to show “investors” how to get rich buying investment </li></ul><ul><li>Multiple loan applications submitted to various lenders not disclosing “investor’s” intent to purchase other properties </li></ul><ul><li>Sometimes the fraudster promises to handle the transactions, including leasing the properties. He takes a cut of the profit and never leases the property </li></ul>
  16. 16. Property Flipping <ul><li>Illegal property flipping occurs when a property is refinanced or resold immediately after purchase for an artificially inflated value. </li></ul>
  17. 17. Silent Seconds <ul><li>Buyer of a property borrows the down payment from the seller through the issuance of a non-disclosed second mortgage </li></ul><ul><li>Primary lender is duped to believe the borrower has invested his own money in the down payment </li></ul><ul><li>The second mortgage may not be recorded to further conceal its status from the primary lender </li></ul>
  18. 18. Straw Buyers <ul><li>A person used to buy property to conceal the actual owner </li></ul><ul><li>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 </li></ul><ul><li>The straw buyer is usually compensated for use of his identity </li></ul>
  19. 19. Foreclosure Rescue Scam <ul><li>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 </li></ul><ul><li>Terms are impossible to live up to, the homeowner loses his home and any equity he may have </li></ul><ul><li>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 </li></ul>
  20. 20. Equity Theft <ul><li>Fraudsters forge a deed to transfer title or a satisfaction of lien and then obtain new liens on the property </li></ul><ul><li>The homeowner does not know about it until he receives an eviction notice </li></ul><ul><li>Foreclosure rescue scam is also a version of equity theft </li></ul>
  21. 21. Affinity Fraud <ul><li>Fraudsters rely on a common bond to support the scam </li></ul><ul><li>Specific ethnic, religious, professional or age-related groups are targeted </li></ul>
  22. 22. Backward Applications <ul><li>After identifying a property to purchase, a borrower customizes his/her income to meet the loan criteria </li></ul><ul><li>Usually includes a “customized” appraisal to go along with the bogus application </li></ul>
  23. 23. Inflated Appraisals <ul><li>Appraisal ordered by a party to the transaction </li></ul><ul><li>Comparable properties are a significant distance from the subject </li></ul><ul><li>Occupant shown to be a tenant or unknown </li></ul><ul><li>Significant appreciation in short period of time </li></ul>
  24. 24. Inflated Appraisals <ul><li>Appraisal indicates transaction is a refinance when it is a purchase </li></ul><ul><li>Large positive adjustments made to comparable properties </li></ul><ul><li>Owner is someone other than seller shown on sales </li></ul>
  25. 25. Indicators? <ul><li>Offer substantially higher than listed price – overage to 3 rd party </li></ul><ul><li>Cash payment terms in contract addendums only </li></ul><ul><li>Buyer or their agent unusually insistent on certain lender, appraiser, closing agent </li></ul><ul><li>Substantially higher commissions or bonuses to be paid to Agents and/or Appraisers </li></ul>
  26. 26. Indicators? <ul><li>Buyer or their agent seem disinterested in the property </li></ul><ul><li>Buyer is unusually passive in the transaction </li></ul><ul><li>Buyer is out of state holding company </li></ul><ul><li>False Statements concerning owner occupancy </li></ul><ul><li>Earnest Money Deposit Check is not drawn from buyer’s account </li></ul>
  27. 27. Most Recent West Coast Florida case <ul><li>Do you know Mary Bolan? </li></ul>
  28. 28. November 30, 2006 Mary E. Bolan, 46, former mortgage broker and Licensed Real Estate Broker, Bradenton, Florida, was sentenced to: <ul><li>Six months in prison </li></ul><ul><li>Six months home detention </li></ul><ul><li>Three years supervised release </li></ul><ul><li>pay restitution of $1,782,019.47 </li></ul>
  29. 29. <ul><li>The Florida Real Estate Commission or the Florida Real Estate Appraisal Board may: </li></ul><ul><li>deny license </li></ul><ul><li>Suspend license </li></ul><ul><li>Revoke license </li></ul><ul><li>fine licensee up to $5,000 </li></ul><ul><li>reprimand licensee </li></ul><ul><li>all of the above </li></ul>SO WHAT!
  30. 30. SO WHAT! Who Pays? <ul><li>Mortgage Fraud may contribute to foreclosures </li></ul><ul><li>Mortgage Fraud may contribute to failing neighborhoods </li></ul><ul><li>Mortgage Fraud may contribute to higher ad valorem taxes </li></ul><ul><li>Mortgage Fraud affects the SAFETY of your investments </li></ul>
  31. 31. SO WHAT! Who Pays? <ul><li>September, 2002 - FBI had 436 mortgage fraud investigations </li></ul><ul><li>March, 2007 – FBI had 1,036 mortgage fraud investigations (over 230% increase in less than five years) </li></ul><ul><li>More than half of the 2007 cases have expected losses of more than $1,000,000 </li></ul>
  32. 32. SO WHAT! Who Pays? <ul><li>About 57% of the victims are federally insured financial institutions </li></ul><ul><li>About 8% are government entities like the Department of Housing and Urban Development </li></ul><ul><li>About 35% are Investors </li></ul>
  33. 33. SO WHAT! Who Pays? <ul><li>Suspicious Activity Reports (SARs) related to mortgage fraud </li></ul><ul><li>Fiscal Year 2000 - 3,515 </li></ul><ul><li>Fiscal Year 2006 - over 28,000 </li></ul><ul><li>2006 SARS will likely result in $1,000,000,000 in losses </li></ul>
  34. 34. Remember…. <ul><li>There is no such thing as a FREE LUNCH </li></ul><ul><li>If it sounds TOO Good to Be True.. </li></ul><ul><li>It’s often better to say NO! </li></ul>
  35. 35. Where to Report <ul><li>Florida Attorney General - Economic Crimes Division </li></ul><ul><li>Office of Financial Regulation - Florida </li></ul><ul><li>Florida Real Estate Commission </li></ul><ul><li>Florida Real Estate Appraisal Board </li></ul><ul><li>Federal Bureau of Investigation </li></ul>
  36. 36. More Information <ul><li> </li></ul><ul><li> </li></ul><ul><li>Information Data Services </li></ul><ul><li> </li></ul><ul><li> </li></ul>
  37. 37. Francois K. Gregoire, IFA, RAA State Certified Residential Appraiser #0000142 Gregoire & Gregoire, Inc Realtor - Appraiser 727-344-3393 [email_address]