Helping Protect the American Dream
Today’s Goal: Provide A Brief Overview OfMortgage Fraud and How to Fight   What is Mortgage Fraud   Types of Schemes   Whe...
What is Mortgage FraudMortgage Fraud is any materialmisstatement, misrepresentationor omission relied upon by anunderwrite...
What is Mortgage Fraud Cont . . .  What does that mean?  Sounds a lot like Justice Stewarts  definition of pornography: “I...
What is Mortgage Fraud Cont . . .Simply Put:  Mortgage fraud is lying  to get money from a  bank
Two Categories of Mortgage Fraud Fraud for Property: minor misrepresentations by the applicant solely for the purpose of p...
Today’s Goal: Provide A Brief Overview OfMortgage Fraud and How to Fight   What is Mortgage Fraud   Types of Schemes   Whe...
Bankruptcy                  Bankruptcy                                   Schemes                                   Schemes...
Loan Origination: Flipping False statement can include:  False appraisal  False straw buyer financial  qualifications  Fal...
Most Common Fraud –Flipping/Equity StrippingFlipping Scheme:
Flipped Home
Flipped Home
Builder-Bailout False statement can include:  False appraisal lender relies on  for loan approval  False transaction docum...
Builder-Bailout Example   Step 1                                                 Step 2                                   ...
Reverse Mortgage
Equity Skimming: Reverse Mortgage Home Equity Conversion Mortgage (“HECM”) Scheme:  Perpetrators purchase properties using...
Foreclosure Rescue Scam False statement can include:   Failure to disclose homeowner’s   interest in property in subsequen...
Foreclosure Rescue Scam                                         Step 1Step 3                               Perpetrator con...
Short Sale Scheme False statement can include:   False appraisal lender relies on for loan   approval   False transaction ...
Short Sale Schemes:  Perpetrator identifies a home in the process of foreclosure.  Bank is owed $500,000.  Perpetrator fin...
Today’s Goal: Provide A Brief Overview OfMortgage Fraud and How to Fight   What is Mortgage Fraud   Types of Schemes   Whe...
Motivational Quote “Like music, lying requires exquisite timing, a consistent beat and a melodic quality designed to sooth...
Form 1003  Is it claimed as a  primary residenceIs the employmenthistory true
Motivational Quote 2 “ Like painting, lying requires varying shades of color, depending on the visual or intellectual effe...
Tax Returns     &   W-2s
Gift Letter
Motivational Quote 3 “ Like poetry, lying has to be precise, measured, lyrical and appealing.” Robert F. Miller, real esta...
VOE
VODSeasoning Accounts
Appraisal
HUD-1Cash at closingfrom Borrower
Final Motivational Quote “ Are you kidding? I couldn’t make this much money selling crack in Detroit. Besides, this way no...
Real Estate Investment Schemes Louis J. Borstelmann:   $18.9 Million Real Estate Ponzi Scheme   Over 100 Victims in Severa...
Today’s Goal: Provide A Brief Overview OfMortgage Fraud and How to Fight   What is Mortgage Fraud   Types of Schemes   Whe...
Why We CareMortgage fraud hasthe single biggest       State        12 Month Housing                                      P...
ForeclosuresIn 2008, Oregon’sforeclosure ratejumped 121 percentIn 2009, Oregonforeclosures 12thhighest in nationIn 2010, O...
FHA
Losses
Today’s Goal: Provide A Brief Overview OfMortgage Fraud and How to Fight   What is Mortgage Fraud   Types of Schemes   Whe...
Possible Federal ChargesBank FraudWire FraudMail FraudLoan Application Fraud/False Statement toBanksConspiracyMoney Launde...
Possible Oregon ChargesAggravated Theft – by deceptionForgery (and related offenses)Income Tax Fraud/EvasionMortgage Broke...
Why Oregon Racketeering (“RICO”)?    Can bring federal charges such as bank    and/or wire fraud and state charges.    Uni...
What do you need for RICO?A Pattern of Racketeering Activity (“PRA”)At least two or more incidents with same/similar:    I...
2 underused RICO weapons                          RICO                        ORS 166.720(3) Enterprise (only)            ...
Why underused???Because lawyers are like this guy…
Unlawful Proceeds         and Mortgage FraudORS 166.720(1)  IF proceeds from PRA and  Proceeds used to finance enterprise,...
RICO example #1Unlawful proceeds in Mortgage Fraud                                Suspect uses                            ...
RICO example #2 Unlawful proceeds in Mortgage Fraud                         Suspect uses                         unlawful ...
Interest or Control         and Mortgage FraudORS 166.720(2) IF from a PRA, a person Acquires, maintains, direct or indire...
RICO example #3Interest or Control in Mortgage Fraud                                                    Suspect thenSuspec...
Some Oregon Charges available?Racketeering (1x) with predicates: Aggravated Theft (3x) Bank Fraud (3x) Wire Fraud (3x)---i...
So why not charge RICO?RICO is a class A felony.Maximum penalty:   20 years   $375,000 fineActual penalties can includesen...
Sample Proceeds (subsec.1)     Indictment Language“The Defendant, between [begin date here] through [enddate here], in [co...
Sample Interest/Control (subsec.2)      Indictment Language “The Defendant, between [begin date here] through [end date he...
RICO RemediesInjunctions and orders   Divestitures of --interests in enterprise OR real   property;   Restricting future a...
Civil RICO ComplaintAny DA, state agency, investigative agency, or the AGO –may file civil RICO.Any aggrieved person – may...
RICOUse Oregon RICO to fight mortgage fraud –  When there is a predicate involving a  pattern of mortgage fraud.    Two or...
Questions?
AUSA Scott BradfordAAG Jonathan Groux 541-465-6771 scott.e.bradford@usdoj.gov 503-934-4400 Jonathan.groux@doj.state.or.us
Oregon Mortgage Fraud and State RICO
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Oregon Mortgage Fraud and State RICO

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Oregon Mortgage Fraud and State RICO

  1. 1. Helping Protect the American Dream
  2. 2. Today’s Goal: Provide A Brief Overview OfMortgage Fraud and How to Fight What is Mortgage Fraud Types of Schemes Where the Lies are Why We care How to Fight – prosecution
  3. 3. What is Mortgage FraudMortgage Fraud is any materialmisstatement, misrepresentationor omission relied upon by anunderwriter or lender to fund,purchase or insure a loan.
  4. 4. What is Mortgage Fraud Cont . . . What does that mean? Sounds a lot like Justice Stewarts definition of pornography: “I know it when I see it.” Jacobellis v. Ohio, 378 U.S. 184, 197 (1964) (concurring).
  5. 5. What is Mortgage Fraud Cont . . .Simply Put: Mortgage fraud is lying to get money from a bank
  6. 6. Two Categories of Mortgage Fraud Fraud for Property: minor misrepresentations by the applicant solely for the purpose of purchasing a property for a primary residence. Usually a single loan. Fraud for Profit: gross misrepresentations concerning appraisals and loan documents and participants are frequently paid for their participation. Usually involves several loans.
  7. 7. Today’s Goal: Provide A Brief Overview OfMortgage Fraud and How to Fight What is Mortgage Fraud Types of Schemes Where the Lies are Why We care How to Fight – prosecution
  8. 8. Bankruptcy Bankruptcy Schemes Schemes Foreclosure Foreclosure Rescue – – 2% Rescue 2% Fraud - 1% Fraud - 1% Advance Advance Fee -2% Fee -2% Builder BuilderBailout – 2% Bailout – 2% Equity Equity Skimming – 2% Skimming – 2% Commercial Commercial Short Sale Short Sale Real Estate Real Estate Settlement Settlement 4%4% Fraud – – 4% Fraud 4% related related Real Real Schemes Schemes Loan Origination estate estate (kickbacks) (kickbacks) Loan Origination Investment 14% Investment 14% (property flipping) (property flipping) 7% 7% 62% 62%
  9. 9. Loan Origination: Flipping False statement can include: False appraisal False straw buyer financial qualifications False transaction documents based on phony price
  10. 10. Most Common Fraud –Flipping/Equity StrippingFlipping Scheme:
  11. 11. Flipped Home
  12. 12. Flipped Home
  13. 13. Builder-Bailout False statement can include: False appraisal lender relies on for loan approval False transaction documents based on phony price Fictitious down payment
  14. 14. Builder-Bailout Example Step 1 Step 2 Step 3 Builder/Developer can’t sell Builder/Developer gets Loan Documents falsely his/her inventory inflated appraisal state $500,000 For $500,000 for a Transaction price $400,000 home Step 5 Step 4Based on phony down payment. Lender funds a mortgage Lender funds 100% of loan of $400,000 believinghomes value. Builder/ Developer that $100,000 was paid to the keeps his profit builder, creating home equity
  15. 15. Reverse Mortgage
  16. 16. Equity Skimming: Reverse Mortgage Home Equity Conversion Mortgage (“HECM”) Scheme: Perpetrators purchase properties using straw buyers Deed then transferred to senior After 60 days, with inflated appraisal, perpetrator helps senior obtain HECM, usually in lump sum Perpetrator absconds with all the money
  17. 17. Foreclosure Rescue Scam False statement can include: Failure to disclose homeowner’s interest in property in subsequent financing transactions Subsequent lender is misled if title transfer/deed is manipulated or forged
  18. 18. Foreclosure Rescue Scam Step 1Step 3 Perpetrator convinces Homeowner homeowner they can save their home from foreclosure through deed transfers and up-front fees Step 2 Up-front feesThe Perpetrator may sell the victim’s home without Homeowner signsthe homeowner’s knowledge deed over to Deed Transfer. Perpetrator Victim’s HouseStep 4 The deed is manipulated and forged by the Perpetrator The Perpetrator may secure a second loan without the homeowner’s knowledge
  19. 19. Short Sale Scheme False statement can include: False appraisal lender relies on for loan approval False transaction documents based on phony price Perpetrators secret control of transaction and fact that straw buyer does not intend to be responsible for payments on loan
  20. 20. Short Sale Schemes: Perpetrator identifies a home in the process of foreclosure. Bank is owed $500,000. Perpetrator finds a buyer to purchase the property for $400,000 Perpetrator makes an offer to the bank to purchase the property in a “short sale” for $300,000. Bank agrees believing that a buyer willing to pay $300,000. Lender agrees to the short sale not knowing that the buyer has agreed to purchase the property for $400,000. Perpetrator sells the property at actual value for a profit, or has the property artificially inflated to conduct an illegal property flip
  21. 21. Today’s Goal: Provide A Brief Overview OfMortgage Fraud and How to Fight What is Mortgage Fraud Types of Schemes Where the Lies are Why We care How to Fight – prosecution
  22. 22. Motivational Quote “Like music, lying requires exquisite timing, a consistent beat and a melodic quality designed to sooth the most cynical beast.” Robert F. Miller, real estate con-artist, Statement to the United States District Court, District of Columbia, 1:05CR00143
  23. 23. Form 1003 Is it claimed as a primary residenceIs the employmenthistory true
  24. 24. Motivational Quote 2 “ Like painting, lying requires varying shades of color, depending on the visual or intellectual effect desired.” Robert F. Miller, real estate con-artist, Statement to the United States District Court, District of Columbia, 1:05CR00143
  25. 25. Tax Returns & W-2s
  26. 26. Gift Letter
  27. 27. Motivational Quote 3 “ Like poetry, lying has to be precise, measured, lyrical and appealing.” Robert F. Miller, real estate con-artist, Statement to the United States District Court, District of Columbia, 1:05CR00143
  28. 28. VOE
  29. 29. VODSeasoning Accounts
  30. 30. Appraisal
  31. 31. HUD-1Cash at closingfrom Borrower
  32. 32. Final Motivational Quote “ Are you kidding? I couldn’t make this much money selling crack in Detroit. Besides, this way no one shoots me and I get to wear a suit.” A. S., Straw Buyer, Proffer Session, EDKY
  33. 33. Real Estate Investment Schemes Louis J. Borstelmann: $18.9 Million Real Estate Ponzi Scheme Over 100 Victims in Several States, including Oregon, California, Hawaii, Montana, and Texas 108 Months’ Incarceration and $18.9 Million in Restitution
  34. 34. Today’s Goal: Provide A Brief Overview OfMortgage Fraud and How to Fight What is Mortgage Fraud Types of Schemes Where the Lies are Why We care How to Fight – prosecution
  35. 35. Why We CareMortgage fraud hasthe single biggest State 12 Month Housing Price Index % Changeimpact on quality oflife in an area California -4.73% Nevada -6.56% In Central Oregon Arizona -13.38% and Coastal cities Florida -5.79% Oregon -10.02% prices have dropped more than 10 percent
  36. 36. ForeclosuresIn 2008, Oregon’sforeclosure ratejumped 121 percentIn 2009, Oregonforeclosures 12thhighest in nationIn 2010, Oregon’sforeclosure rateincreases 20 percentto 3rd highest in nation
  37. 37. FHA
  38. 38. Losses
  39. 39. Today’s Goal: Provide A Brief Overview OfMortgage Fraud and How to Fight What is Mortgage Fraud Types of Schemes Where the Lies are Why We care How to Fight – prosecution
  40. 40. Possible Federal ChargesBank FraudWire FraudMail FraudLoan Application Fraud/False Statement toBanksConspiracyMoney LaunderingBankruptcy Fraud
  41. 41. Possible Oregon ChargesAggravated Theft – by deceptionForgery (and related offenses)Income Tax Fraud/EvasionMortgage Broker Fraud (see list in ORS 86 et seq)Aggravated Identity TheftMoney LaunderingRacketeering--includes the above charges, and Federal Charges listed in Federal RICO such as: Bank Fraud, Wire Fraud, Mail Fraud, Money Laundering
  42. 42. Why Oregon Racketeering (“RICO”)? Can bring federal charges such as bank and/or wire fraud and state charges. Uniquely suited to target organized mortgage fraud. If real property – enterprise not required. Required pattern evidence – advantage. Class A felony.
  43. 43. What do you need for RICO?A Pattern of Racketeering Activity (“PRA”)At least two or more incidents with same/similar: Intents, results, accomplices, victims, OR Methods of commission, OR, Otherwise are interrelated by distinguishing, including a nexus to the same enterprise (and not isolated) PRA –or “predicates” can include: Aggravated Theft (Oregon), Bank Fraud (Federal), Wire Fraud (Federal)…
  44. 44. 2 underused RICO weapons RICO ORS 166.720(3) Enterprise (only) (4) Conspire/ Endeavor (1) PROCEEDS & (2) INTEREST.. REAL PROPERTY in REAL PROP. (or enterprise) (or enterprise)
  45. 45. Why underused???Because lawyers are like this guy…
  46. 46. Unlawful Proceeds and Mortgage FraudORS 166.720(1) IF proceeds from PRA and Proceeds used to finance enterprise, OR In the acquisition of any title to, or any right, interest or equity in, real property Injury from proceeds itself. Kotera v. DAIOH International, 179 Or.App. 253, 277 (2002) THEN CHARGE RICO
  47. 47. RICO example #1Unlawful proceeds in Mortgage Fraud Suspect uses unlawful proceeds as down payment Suspect generates $$$$$ unlawful proceeds through 2x mortgage fraud Suspect’s unlawful proceeds used to obtain real property
  48. 48. RICO example #2 Unlawful proceeds in Mortgage Fraud Suspect uses unlawful proceeds as down payment $$$$$Suspect generatesunlawful proceedsthrough 2x drug sales Suspect’s unlawful proceeds used to obtain real property
  49. 49. Interest or Control and Mortgage FraudORS 166.720(2) IF from a PRA, a person Acquires, maintains, direct or indirect, interest or control Of any enterprise,OR ANY REAL PROPERTY Injury from acquisition, etc., itself. Kotera v. DAIOH Int’l, 179 Or.App. 253, 277 (2002) THEN CHARGE RICO
  50. 50. RICO example #3Interest or Control in Mortgage Fraud Suspect thenSuspect falsely Obtains HELOC #2Represents to from Bank #2 forTo Bank #1 that House #2 by usingHELOC is for money from HELOC #1home improvement. and by concealingIn reliance, Bank #1 Origin of money.Issues HELOC #1for house #1 Money from HELOC #2 is used to acquire House #3 by concealing the origin of the money.
  51. 51. Some Oregon Charges available?Racketeering (1x) with predicates: Aggravated Theft (3x) Bank Fraud (3x) Wire Fraud (3x)---if electronic….Aggravated Theft (3x)….More…….
  52. 52. So why not charge RICO?RICO is a class A felony.Maximum penalty: 20 years $375,000 fineActual penalties can includesentencing based on thehighest level predicate.Sentencing may beconsecutive to underlyingpredicates. State v. Blossom,88 Or.App. 75, 78-79 (1987).
  53. 53. Sample Proceeds (subsec.1) Indictment Language“The Defendant, between [begin date here] through [enddate here], in [county here], did unlawfully andknowingly receive the direct or indirect proceeds of apattern of racketeering activity, used or invested,directly or indirectly, any part of such proceeds,derived from the use thereof, in the acquisition oftitle, rights, interests, or equity in real property, to-wit; [identifying real property information/location here]The pattern of racketeering activity consisted of incidentsthat were not isolated but that had the same or similarintents, results, accomplices, victims, or methods ofcommission, or were otherwise interrelated bydistinguishing characteristics is more particularlydescribed as follows:[allege predicates individually here]”
  54. 54. Sample Interest/Control (subsec.2) Indictment Language “The Defendant, between [begin date here] through [end date here], in [county here], through a pattern of racketeering activity, did unlawfully and knowingly acquire, maintain, directly or indirectly, an interest or control in real property, to-wit; [identifying real property information/location here] The pattern of racketeering activity consisted of incidents that were not isolated but that had the same or similar intents, results, accomplices, victims, or methods of commission, or were otherwise interrelated by distinguishing characteristics is more particularly described as follows: [allege predicates individually here]”
  55. 55. RICO RemediesInjunctions and orders Divestitures of --interests in enterprise OR real property; Restricting future activities, investments, enterprise; Dissolution or reorganization of any enterprise. Suspensions or revocations of licenses, permits, etc. Forfeiture/revocation of authority to conduct business.Forfeiture of personal or real property, and proceedsSeizure without court process -- incident to arrest,administrative inspection warrant, prior RICO judgment.Award of costs of investigation and litigation - foragencies working case. Includes attorney fees.The AG, any DA, and state agency with jurisdiction overpredicates may institute civil forfeiture proceedings.
  56. 56. Civil RICO ComplaintAny DA, state agency, investigative agency, or the AGO –may file civil RICO.Any aggrieved person – may file civil RICO, with limit: It must follow a RICO criminal conviction with appeal rights expired OR Civil RICO Complaint limited to selected list of predicates from ORS 166.715(6)(a) – most not mortgage fraud. May seek forfeited property or proceeds superior to the state, attorney’s fees, three-fold the actual damages sustained and, when appropriate, punitive damages. Damage awards are supplemental and not mutually exclusive of other damages.Collateral Estoppel: If criminal RICO conviction, thenestoppel in subsequent civil actions or proceedings.
  57. 57. RICOUse Oregon RICO to fight mortgage fraud – When there is a predicate involving a pattern of mortgage fraud. Two or more is sufficient for a pattern Use to bring federal and state charges.
  58. 58. Questions?
  59. 59. AUSA Scott BradfordAAG Jonathan Groux 541-465-6771 scott.e.bradford@usdoj.gov 503-934-4400 Jonathan.groux@doj.state.or.us

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