Top 10 Real Estate Schemes per FBI Opened Cases
Top 5 riskiest states according to FBI National Fraud Index• FY 12 Mortgage Fraud Suspicious Activity Reports (as of 9/25/12): 69,030 withlosses of $2.6 billion• FBI Mortgage Fraud Task Forces/Working Groups: 83• Pending Investigations (as of 6/30/12): 2,307 with 71 percent involving losses of$1 million or more• Total cases opened in FY 2011: 599• Successes in FY 2011: 1,220 indictments/informations; 1,089 convictions Top 5 riskiest cities according to FBI National Fraud Index
Fraudulent Mortgage Originations by Year Fraud Index by Zip Code
Principle Alert Categories of Fraudulent Mortgage OriginationsEmployment • An intentional misrepresentation of employment information in order to qualify for a loanIdentity • Any scenario in which an identity is altered, created or stolen to obtain a loanIncome • An intentional misrepresentation of income by applicantOccupancy • Deliberate intention by applicant to claim residency to secure incentives, lower interest rate, etc.Property • Intentional misrepresentation of property value to achieve fraudulent gains through fraudulent flip[ping, flopping or money launderingUndisclosed Debt • Intentional failure of applicant to disclose debts during the origination process falsifying their debt-to-income ration in order to qualify for a loan.
Employment Fraud Risk IndexFlorida, Nevada and Arizona are the top three for this category.All three states also have equal to, or higher than, the nationalunemployment rate with increasing under-employment rates.California is a medium risk state for employment fraud.
Identity Fraud Risk IndexNevada, Mississippi and Alaska lead the states in identity fraudbut California is in the top 10. After briefly slowing in Q4 ‘10 andQ1 ‘11, rates have risen steadily again.
Income Fraud Risk IndexWashington DC, New York, Florida and California lead the statesin income fraud. This index has dropped some since Q3 ‘11 as aresult of lenders requesting borrower tax transcripts on anincreasing number of originations by instituting new ‘bestpractices’.
Property Fraud Risk IndexFlorida, Illinois and Oklahoma lead the states in property fraud.This index has dropped for the last four quarters but is expectedto remain high due to increased short sale volumes and the effectof new Fannie & Freddie short sale guidelines.
What’s in YOUR market?• Short sale fraud is still most prevalent Unlicensed negotiators Outside of escrow payments DRE is investigating transactions where listing brokers are indicating preferential treatment• Loan modification fraud• Bail-out Specialists / Home Rescue Schemes• Squatters Grow Houses Adverse possession• Rental Fraud / Craig’s List Scams• House Stealing (Identity Theft / Mortgage fraud)• Reverse Mortgage Fraud (Elder Abuse) Forgery Diminished Capacity Undue Influence Fraud
• Real property crime can take many forms, but most often involves grand theft, forgery, and a relatively recent scheme, identity theft• Fraudulent real estate investment schemes, typically involving the sale of trust deeds. Trust deeds may be unsecured, or inadequately secured.• Use of forged escrow instructions to steal escrow deposits.• Fraud in private sales of property, such as failure to disclose all liens against the property.• Fraud in installments land sales contracts. The seller may accept payments from the buyer, but fail to pay the underlying mortgage, causing the property to be foreclosed.• Forgery of grant deeds.• Forgery or alteration of a trust deed or grant deed before recording. For example, the loan amount on a trust deed may be altered to look like the borrower owes much more.• Undisclosed addenda that are not submitted to short sale lenders with the original purchase contract.• Another variation on the theme of short sale negotiator payments is seen in agreements wherein sellers are crediting buyers with so-called non-recurring closing costs.• DRE is investigating transactions where listing brokers are indicating in their advertisements that only offers where buyers request a non-recurring closing cost credit from the seller to pay for the short sale negotiator fee will be submitted to the short sale lender.• The Department has also learned of several occurrences in which buyers and/or sellers are receiving undisclosed monies and credits outside of escrow.• Foreclosure Bailout• Home Equity and Home Renovation Fraud• Deceptive Timeshares• Forensic Loan Audits• Home Mortgage Relief Thru Litigation• False & Misleading designation or claims
Short Sale Flipping/FloppingOne of the major and recurring schemes is short saleflopping, where real estate agents and brokers havedefrauded a short sale lender with respect to the value of aproperty and purchase offers received, and then, in turn,resold the property for a much higher price.These types of scenarios usually involve a false appraisal orbroker price opinion (BPO) that was provided by the listingbroker to the short sale lender with the intent of underpricing and falsely stating the value of property.Sometimes, the listing broker will withhold offers from theshort sale lender and will only submit one offer from a buyer,or straw buyer, that they have personally secured for thepurchase of the property at an artificially low price.Without the knowledge of the short sale lender, the listingbroker will then resell the property for a profit, sometimesimmediately
Short Sales Involving LLC’sAn LLC Buyer or Go-between in a short sale transaction has longbeen a red flag for potential fraudulent activity. ‘Standard’ shortsales have just over 2% rate of fraudulent activity while shortsales involving LLC’s have a 34% rate, although that has declinedsomewhat
Short Sales and Resale AgeCoreLogic data has shown that in 2008 & 2009, nearly 50% of fraudulent short sale activitycould be traced to homes that were flipped (or flopped) within 30 days, nearly 20% withconcurrent escrows. In 2010 and 2011 that seasoning has gradually increased to 60 to 120days. Part of that comes from new seasoning rules enforced by lenders, part of it comesfrom fraudsters learning what set off a red flag with lenders.
Short Sales and Price GainSince 2010 CoreLogic has also observed a rising trend in the percentage of short salesflipped for more than $50,000. More than 60% of suspicious transactions involve a re-salefor more than $50,000 over the initial sale price. Either they’re doing much better re-habsthan they used to or they’re evolving into a more profitable strategy.
What do you get when you combine two popular rackets these daysidentity theft and mortgage fraud? A totally new kind of crime: HOUSE STEALING. Here’s how it generally works: …The con artists start by picking out a house to steal— say, YOURS. …Next, they assume your identity—getting a hold of your name and personal information (easy enough to do off the Internet) and using that to create fake IDs, social security cards, etc. …Then, they go to an office supply store and purchase forms that transfer property. …After forging your signature and using the fake IDs,they file these deeds with the proper authorities, and lo and behold, your house is now THEIRS.*
Potential Red Flags Are you being asked to pay ‘up-front fees’ Are you being asked to pay for something in cash? Are you being asked to pay for something ‘outside of escrow’ ‘on the side’ or ‘afterclosing’ Are you being asked to pay the real estate agent directly Are you dealing with unlicensed agents, brokerage companies or short salenegotiators Are you being asked to transfer your title to a 3rd party Are you being encouraged to make payments to a 3rd party Are you being told not to contact your lender yourself Are you being asked to ‘not show that to the bank’ Are they offering a ‘forensic loan audit’ Are you dealing with an ‘attorney backed business’ or out of state attorneys Is the buyer an LLC representing an investor Is there a concurrent escrow Does the program or organization claim to represent a Federal or State programwithout backup Does the sales pitch have obvious holes, inconsistencies or blue-sky’ assumptions Are you being provided the mandatory state and federal disclosures early in the transaction Refuses to met in an actual office, lack of actual office or refuses to meet in person.
• Effective with your next transaction certain document fees go from $3 to $10.• The fees are imposed whenever an individual or business records a deed of trust, anotice of default, notice of trustee sale, affidavit, lien, lease or quitclaim deed, as well asother documents filed with the Office of the Assessor-Clerk-Recorder.• Revenue generated from the fees is deposited into the Real Estate Prosecution TrustFund, from which the D.A.s office withdraws money as needed - - restricted forinvestigations and prosecutions of mortgage and foreclosure- related scams.• The assessors office receives a relatively small portion of the money to cover costsassociated with mailing "courtesy notices" that alert homeowners whenever adocument has been filed that impacts his or her property.• DA’s office received more than 2,400 referrals for real estate fraud investigation infiscal 2011-12, up more than 500 from the previous fiscal year.• The expanded office would create regional teams in the southwest county and Indioto investigate fraud allegations in those areas. The Riverside office’s staff of fourinvestigators would grow to seven, and a forensic accountant, a real estate frauddocument examiner and a forensic computer analyst would be among the other staffadditions.
Call: Mark Singerton Deputy DA firstname.lastname@example.org