Growing Real Estate Fraud
An article in Forbes talked about a report released by the Federal Bureau of Investigation this week stating that real estate fraud cases were on the rise. They said reports of suspicious mortgage filings increased 36% during fiscal 2008 compared with 46,700 filings the year before, and that 2/3rds of all pending FBI mortgage fraud investigations last year involved more than $1 million at a clip, putting a rough estimate of the total at $1 billion.
It’s easy to understand why people would try to exploit a bad economy to help themselves, since that’s what criminals do, but it’s scary to see just how pervasive it is. Just this week, there were four instances in four different states confirming what the FBI stated.
In North Carolina, banking regulators fined mortgage lender North American Real Estate Services Inc. $320,000 and revoked its state operating license after ruling the firm used shell companies and fictitious names to avoid state regulation. They also ordered the company to refund $60,000 in what it called “illegal” broker fees to 13 borrowers. Regulators allege the firm was engaged in a practice known as “net branching, which is where an existing mortgage company gives a franchise to another mortgage company in order to carry out its business in a particular area.” Only, in this case, all the companies were under the same umbrella. The North Carolina Commissioner of Banks’ office says it has taken enforcement actions against a number of net branch companies in recent years, with fines and settlements exceeding $1.3 million.
In Georgia, former attorney Steven H. Ballard pled guilty in federal district court to defrauding over a dozen victims in Georgia, Florida and Tennessee in a real estate investment scam. Ballard collected over $2 million between September 2002 and May 2006 in what officials called a Ponzi scheme. In a news release from federal officials, they stated “He told the victims that he was making ‘lucrative’ real estate and other investments which were not actually transacted. He often used bogus HUD-1 settlement statements, warranty deeds and sales contracts to reflect non-existent property purchases, while using a portion of the scheme proceeds to repay former victim investors. While the repayments included investors’ principal plus “returns” often exceeding 50 percent of their initial investment, those repayments were all funded with money from new victim investors.”
In the Philadelphia area, Jason Bloom was charged with keeping more than $1 million that was intended for mortgage and tax payments, according to the U.S. Attorney’s Office there. He was charged in one-count information, which is considered to be the prelude to a guilty plea. He did this over an almost 4 year period, and could be sentenced to 30 years in prison and fined $1 million.
And finally, in the Detroit area, 7 men were charged in two separate real estate schemes. In the first instance, 5 men were accused of using straw buyers (people who use, or allow their credit to be used, for the purchase of a property they never intend to use or control) to get fraudulent loans and sell homes with fake appraisals and buyers. A fifth man was arrested for finding people to pose as home buyers. In the second instance, a mortgage broker was charged with buying foreclosed, rundown or uninhabitable properties cheaply, then selling them using fake appraisals that overvalued the properties, while his partner paid underwriters to disregard any irregularities.