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.

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Re Professionals 2009

  1. 1.
  2. 2.
  3. 3. REAL ESTATE FRAUD<br />Stanislaus County District Attorney<br />W.R. McKenzie, Deputy District Attorney<br />Glenn Gulley, Criminal Investigator<br />Mark Smith, Criminal Investigator<br />
  4. 4. A LITTLE ABOUT US:<br />June 2005…SB 537 passed (Govt. Code 27388)<br />$3.00 every Recorded Real Estate Document to go to Trust Fund for Fraud<br />Stanislaus County began January 2006<br />Full Time DDA<br />Two Criminal Investigators<br />
  5. 5. What do we Do:<br />Focus on investigation and prosecution of Real Estate Fraud<br />Emphasis on Crimes that impact Vulnerable Victims:<br />Elderly, Disabled, Unsophisticated, Foreclosure victims<br />Educational programs in the Community<br />To help reduce the number of victims<br />
  6. 6. More Specifically,What do we Do:<br />Investigate Frauds and Forgeries<br />Foreclosure Fraud<br />Title Fraud<br />Filing False Financial Statements in relation to Mortgage Fraud<br />Embezzlement & Misappropriation of Funds<br />Construction Fraud<br />
  7. 7. What is fraud?<br />Theft…Stealing someone’s money or property<br />False pretenses…criminal lies and induces someone to part with their money or property <br />
  8. 8. Who are Perpetrators?<br />Individuals<br />Notaries<br />Lenders<br />Brokers/Agents<br />Construction Contractors<br />Family<br />
  9. 9. Common crimes:<br />Forged Title Transfers<br />Foreclosure Fraud<br />Embezzlements<br />Mortgage Fraud<br />Predatory Lending<br />Rental Schemes/Rent Skimming<br />Real Estate Investment Schemes<br />Identity Theft<br />
  10. 10. Forged Documents/Fraudulent Conveyances:<br />Steal the Equity in the Home<br />Loan taken on Property or sell Property<br />Victim/Homeowner has no knowledge<br />Achieved by forged Grant Deed and Recording Title Transfer<br /> Sometimes Accomplished through forged Power of Attorney<br />Result: Conversion of Victim’s property to cash <br />
  11. 11. What kind of fraud do we see in your industry?<br />
  12. 12. Foreclosure Fraud:<br />Desperate Homeowner in Foreclosure<br />May offer to take title to cure default<br />May offer to rent back house<br />Often tells homeowner saving their credit<br />Steals Equity…Sells House…Evicts Victim<br />Often Foreclosure sale will give distressed homeowner the equity after debt is paid!!<br />
  13. 13. EQUITY SKIMMING<br />Straw Buyer Used<br />Forged or False Loan Documents submitted to the Lender<br />False Credit Reports<br />Straw Buyer Quit Claims to Investor<br />Investor Fails to make Mortgage Payments<br />Rents Property Until Foreclosure <br />
  14. 14. Mortgage Elimination Scams:<br />Dorian Group<br />Seminars all over the country<br />Over-inflated appraisals<br />Multiple Loans on property w/Gift-back programs<br />Lender never sees last minute addendums<br />Millions of dollars on a single piece of property<br />
  15. 15. Predatory Lending:<br />Loans with Exorbitant Fees and Points<br />Never explained to Victim<br />Elderly and Disabled are targeted by unscrupulous Lenders<br />Victim is unable to make monthly payments and Lender makes the loan anyway<br />
  16. 16. Reverse Mortgages:<br />Targets Elderly<br />SB 1609/Civil Code 1923.2<br />Prohibits lender from Requiring Victim to Purchase or offer an Annuity to the victim<br />Requires Lender to refer borrower to counseling… 5 approved by HUD<br />Borrower must have a certificate of completion of counseling services before completion of loan<br />
  17. 17. How does this crisis affect us? <br />Hundreds of Subprime lenders have gone out of business.<br />Billions of dollars were lost in city taxes from foreclosed/abandoned properties<br />Confidence in the American Marketplace is at an all time low<br />Confidence in the government and the industry is at an all time low. <br />
  18. 18. What is happening now?<br />
  19. 19. Buy and Bail<br />Borrower purchases a new home and then allows their previously owner-occupied home to go into foreclosure.<br />Borrower tells new lender that they intend to sell or rent out the old house. <br /><ul><li>Old home upside down
  20. 20. Inflated rental income
  21. 21. No intent to sell or rent but states otherwise to new lender
  22. 22. Falsified rental agreements
  23. 23. Other false statements regarding the old home</li></li></ul><li>Short Sale Fraud<br /><ul><li>Property appraised below FMV. Sold to “new purchaser” who then re-sells it for FMV
  24. 24. Pockets the money or
  25. 25. Resells to original owner for far less than they originally owed.
  26. 26. Both the current and new lender are victims in this crime.</li></li></ul><li>Equity Stripping<br />Foreclosure specialist assists homeowner<br />Homeowner told to make payments to rescuer<br />Deed transfer may be hidden in the paperwork<br />Rescuer pockets the money<br />
  27. 27. Fraud Enforcement and Recovery Act (FERA)<br />May 20, 2009<br />Expands federal jurisdiction<br />Federally related mortgage loan<br />Secured by residential property<br />Occupied by 1 to 4 families<br />Proceeds used to pay of an existing loan secured by property<br />And which<br />Involves FDIC or HUD or Fannie, Ginnie etc…<br />Or creditor invests more than $1m per year in residential<br />
  28. 28. 18 U.S.C. 1014<br />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.<br />Statute of Limitation is 10 years.<br />Maximum punishment $1m fine and 30 years<br />
  29. 29. Signed by Governor in 2009<br />
  30. 30. SB 36<br />Requires a license endorsement for real estate brokers who solicit or negotiate mortgages<br />Business and Professions Code §10166<br />Fines, License consequences<br />
  31. 31. SB 94<br />Loan Modification <br />NO ADVANCE FEES … PERIOD<br />Misdemeanor $10,000 or $50,000 fine. <br />Also Requires translation<br />
  32. 32. SB 237<br />Appraisal Changes<br />B&P 11302<br />Creates registration program for appraisal management companies<br />Requires licensing and background for all<br />
  33. 33. SB 239<br />Real Estate Fraud PC 532f – Felony<br />Lies or omits on a mortgage application<br />Allows the above lie to take place<br />Receives ANY compensation knowing either of the above<br />Records any documents knowing any of the above<br />
  34. 34. AB 260<br />Predatory Lending Civil Code 4995<br />Defines “higher priced mortgage loan”<br />Limits prepayment penalties to 2% 1st year 1% second year<br />Prohibits negative amortization<br />Limits total amount of compensation<br />Requires a Fiduciary duty on part of broker<br />Restricts “steering”<br />$10,000 fine plus loss of license<br />
  35. 35. AB 329<br />Reverse Mortgage Civil Code section 1932.2<br />Seller cannot be associated with other financial or insurance entities<br />No referals to other products<br />Give list of at least 10 HUD approved counsellors<br />Must give Checklist of questions for counsellor<br />Loan Cannot be approved until signed checklist returned to lender<br />
  36. 36. AB 957<br />Seller CANNOT require a specific escrow agent or title insurance<br />3 times total cost<br />Civil Code Section 1103.20<br />
  37. 37. AB 1160<br />Mortgages must now include a summary of terms in whatever language is used to negotiate it<br />Prior to execution and no less than 3 days after release of application<br />Spanish, Chinese, Tagalog, Vietnamese or Korean.<br />$10,000 fine.<br />
  38. 38. Other Crimes<br />Filing False Statements (PC 115.5)<br />Forgery (PC 470)<br />Obtaining $ or Property by False Pretenses (PC 532)<br />False Financial Statements Credit/Loan Applications (PC 532a)<br />Unlawful Notarial Acts (GC 8227.2)<br />Elder Financial Abuse (PC 368) <br />
  39. 39. REAL ESTATE AGENTS Business & Professions 10176<br />Applies to Agents<br />Covers Misrepresentations<br /> & False Loan Documents<br />Can subject you to investigation by the DRE; which may then be referred to us.<br />
  40. 40. REPORTING A CRIME:<br />Immigration status of the victim is not relevant<br />Contracts for the sale of real property should be in your first language<br />Don’t be embarrassed to report the crime<br />Fraudsters prey on people who will trust them…Don’t trust them!!!!! <br />
  41. 41. HOW ARE YOU A PERPETRATOR…?<br />“BY AIDING & ABETTING…”<br />
  42. 42. PRINCIPALS<br />DIRECTLY & ACTIVELY COMMIT THE ACT CONSTITUTING THE CRIME; (E.G. “THE FORGER”)<br />AIDERS/ABETTERS<br />EQUALLY GUILTY<br />
  43. 43. AIDERS & ABETTERS<br />A Person Person aids and abets when:<br />(1) with knowledge of the unlawful purpose of the perpetrator and;<br /> (2) with the intent or purpose of committing/encouraging or facilitating the commission of a crime<br />(3) by act or advice aids, promotes, encourages, or instigates the commission of a crime <br />You know a statement is false and submit the loan anyway… <br />
  44. 44. WHAT ABOUT DUTY OF CONFIDENTIALITY…?<br />Government Code Section 7470 provides in relevant part:<br />“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…”<br />
  45. 45. Red Flags in Real Estate Transactions:<br />Power of Attorney used without Explanation<br />No property inspection <br />Seller procures Appraiser<br />Request to Avoid Escrow<br />Request to Avoid Title Insurance<br />Cash Payments made outside Escrow <br />
  46. 46. More Red Flags…<br />Disparity in Document Dates<br />Recent Liens<br />Post Office Box Listed for Borrower or Employer<br />Sudden Changes to Escrow<br />Escrow Instructions & Addendums not sent to Lender<br />
  47. 47. WHAT CAN YOU DO…?<br />Pay attention to the Red Flags<br />If you see a Red Flag ask questions<br />Conduct a limited inquiry and /or investigation<br />Contact you attorney ask for advice<br />If it doesn’t sound right it probably isn’t<br />If you suspect FRAUD...Call our office!<br />
  48. 48. WHAT TO REMEMBER?<br />DISCLOSURE!<br />DISCLOSURE!<br />DISCLOSURE!<br />
  49. 49. OFFICE OF THE DISTRICT ATTORNEY<br />(209) 525-5550<br />
  50. 50.
  51. 51. 10 tips for Avoiding Fraud:<br />What are you signing…Get an attorney<br />Check References of Industry Professionals<br />Beware of Promises of Outrageous Profits <br />Always conduct business in Office or Bank<br />Beware of Telephone solicitations <br />Check Comparable sales in area<br />Check Documents carefully…Avoid pressure to sign<br />
  52. 52. 10 Tips to Avoid Fraud (cont.)<br />Review History of property<br />Make sure you understand the terms of your mortgage then check against actual documents<br />Beware of Alleged Business people who are “Mobile”…<br />Never sign Blank Documents<br />If it sounds to good to be true…. IT IS!!!!!<br />

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