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Fraud _ Forgery by zhangyun


									Warning Signs of Fraudulent
         Kelly Rickenbach, Esq.
     Stewart Title Guaranty Company
                 Region C
 IRS Criminal Investigation Real Estate
           Fraud Statistics
                            FY2007   FY2006   FY2005

Investigations Initiated    337      309      235

Prosecution                 217      198      167
Indictments/Information's   134      157      127

Convictions                 130      131      91

Sentenced                   147      96       78

Incarceration Rate          85.7%    87.5%    89.7%

Average Months to Serve     35       47       45
               Recent Statistics
• Nationally, mortgage fraud has jumped by nearly 31% to
  46,717 cases during the 2007 fiscal year based on a
  recent report issued by the FBI.

• FBI investigations rose from 818 to 1,380 in 2006.

• According to, fraudulent mortgages
  topped $4 billion last year from $1.6 billion the prior year.
The Federal Bureau of Investigation spent
more than $0.5 billion in mortgage fraud
restitutions last year.
      Is Fraud Increasing???
• Dozens of lenders have gone out of
• Thousands of workers have lost their jobs
• The subprime market has virtually stopped
• Lenders have imposed tighter underwriting

 So…that means that mortgage fraud is
 declining, right????

Mortage fraud just takes on
     different forms.
How bad is your area?
Top 10 States for Mortgage Fraud
            • California
              • Florida
             • Nevada
              • Illinois
             • Arizona
            • Michigan
            • New York
               • Ohio
             • Virginia
               • Utah
• According to a recent FBI investigation underway in
  Nevada, Las Vegas has been nicknamed “Mortgage
  Fraud Ground Zero”.
• People were flocking to the Las Vegas market when real
  estate was “hot” in 2004, and paying as much as
  $200,000.00 to $400,000.00 more than the houses
  warranted. And while the market was hot, a lot of that
  was being manipulated.
• In addition to lender losses, fraud resulted in significant
  reduced property values and left a large number of
  homeowners owing more than their properties are worth.
WA Attorney General’s Office has been proactive, and
recently introduced legislation to help protect
homeowners from foreclosure rescue scams where the
rescuer agrees to purchase the distressed property then
sell or lease it back to the original homeowner.

HB 2791 will take effect June 12, 2008. The new law
requires the purchaser prove the homeowner can make
the payments and must clearly disclose the terms in a
written contract. The homeowner has the right to cancel
the contract within 5 business days. It also requires that
the original homeowner receive at least 82 % of the
difference between the property’s fair market value and
the underlying mortgage should the home be sold to a
third party.
Common Real Estate
  Fraud Schemes
           Property Flipping
Ownership of one property changes several times in
a brief period. Flips are often used to artificially
inflate the value of the property to obtain larger
loans than what might otherwise be possible and to
skim the equity off the property. Flips are also used
to conceal the identity of the true buyer or seller of
the property.
What a legal flip should look like
What an illegal flip looks like…
 Red Flags of Flip Transactions
• Ownership changes two or more times in a really short
  period of time
• Two or more closings occur almost simultaneously
• Property seller is not in title
• Parties to the transaction are affiliated
• Up and down fluctuations of sales price over short period
  of time
• Purchases disguised as refinances to circumvent a down
• Property seller is a corporation/entity
• Comparable sales on appraisal are previously flipped
Different Settlement Statements
 Scheme where one settlement statement is
 prepared and provided to the seller that
 accurately reflects the true selling price of the
 property and then a second fraudulent
 statement is given to the lender showing a
 highly inflated different selling price. The
 lender agrees to provide a loan based on the
 inflated value of the property, and after the
 loans are settled, the proceeds are divided
 amongst the conspirators.
Red Flags…what you should do
• Be wary of this kind of requests, even if the loan officer is
  in agreement with the actions being taken.
• Do your best to comply with lender requirements, as you
  should do with all closing instructions.
• Do not knowingly issue a settlement statement that
  misrepresents the source, nature or value of
  consideration handled by the closer.
• Know that if the lender later has to foreclose and suffers
  a loss, in hindsight it may be claimed that the closer's
  failure to comply with this lender requirement and/or to
  provide an accurate settlement statement was the cause
  for the loan closing with an unqualified borrower.
Mortgage Elimination Schemes
Common internet schemes that advertise that a
homeowner can eliminate his/her mortgage payments in
full for a fee. The eliminators rely on untrue and wild
theories about why the money used to fund the loan
wasn’t really money. For instance, some argue that the
bank never advanced money to the borrower, it was
simply a transfer of funds, so the loan is illegal and it is
illegal for the bank to ask for repayment because they
never provided anything of value. This is the term “vapor
Homeowner sends money to the mortgage
eliminator who agrees to serve as a guide through
the process and indicates that he will agree to
represent the homeowner in court. Then they
instruct the homeowner to file a phony release form
(“Discharge of Debt”) with the county
auditor/recorder stating that the original loan has
been released. Although the mortgage remains in
place and the homeowner still owes the money to
the bank, if the county clerk records the discharge of
debt it gives the appearance that the homeowner
owns the property free and clear.
If the homeowner appears to own the home free and
clear, he/she can apply for one or more additional loans
on the property. All of this is usually done with the
assistance of the mortgage eliminator. When the loan or
loans are approved, the mortgage eliminator and the
homeowner split the proceeds, often with the mortgage
eliminator walking away with the lion's share.
                 Red Flags
• Remember that virtually no one owns a home or
  property "free and clear."
• If you get a title report or you search the record
  and it shows no current mortgage on the
  property, double check it to be sure.
• If upon rechecking, the record still comes up
  clear, look at the releases or discharges on the
  prior mortgages. Any odd form of release should
  be cause for concern.
• Remember debt elimination programs claiming
  Federal Reserve approval are bogus.
Does anyone really fall for this?
Recent statistics indicate that as many as 3,500
homeowners were victims of ONE COMPANY
participating in these types of scams. (See the Dorean
Group Scam). But are they really victims? What would
the court say?
To be a victim, the homeowner must be able to show the
following is true:
     1) no knowledge
     2) no personal gain
     3) direct suffering as a result
      Falsified Applications
Conspirators represent that for a fee, they
can help individuals obtain financing for the
purchase of real estate. To do so, they mail
false, fraudulent loan applications to banks
and mortgage lending companies. The
applications inflate income and assets and
often contain falsified pay stubs, gift letters
and bank statements. The applications also
falsely represent the source of the down
payment, which usually has been loaned by
the conspirators.
      Down Payment Scams
A commonly seen lender requirement in closing
instructions is that the buyer or borrower bring cash to
the closing, as a down payment or to help refinance
existing debt. Loan underwriting guidelines may differ
between lenders, and in some cases this requirement
may be more important to one loan than to another.
Sometimes the parties will, usually at the last moment,
try to circumvent this requirement by claiming that a
payment has been made outside closing, or by
substituting some other form of consideration instead of
                   Red Flags
• A seller agrees to take a second mortgage instead
  of a cash payment
• A seller agrees to accept other forms of payment,
  including precious gems, etc., with a stipulated value
• Parties request that the closer prepare a settlement
  statement indicating cash rather than the substituted
               Silent Second
A property buyer borrows a down payment from the
seller through a non-disclosed second mortgage. The
lender believes the borrower has put his/her own money
down as a down payment; however, the money is simply
borrowed and the second mortgage may never be
recorded, which prevents the primary lender from finding
out about it. It fools the primary lender into thinking the
borrower has a lower risk, and the ability to make the
down payment.
    But is this really fraud?
Some borrowers take the position that if
they know about it, the person lending on
the “silent second” knows about it, and the
bank lending the money for the first
mortgage requires the down payment to
make the loan, what’s the problem?
                  Red Flags
• Date of settlement is delayed without explanation
• Reference is made to undisclosed secondary
  financing or double escrow
• HUD-1 contains unusual credits, disbursements,
  related parties, etc.
• Excessive fees
• Zero amount due to/from the buyer
• More than one mortgage lender is reflected in the
  file but not on the final documentation
• Unusually long or short loan processing times
         Federal Land Grant
A scheme that involves tricking homeowners into
believing that they can protect their homes from
foreclosure by deeding their property to a Federal Land
Grant. The companies require homeowners to pay up to
$10,000 to put their property in a so-called land grant
which the company claims will prevent foreclosure. The
homeowners then sign over the deed to their home &
usually agree to pay the company rent.
Land grant transfers, used hundreds of years ago when
the United States was still acquiring land from other
countries, are no longer recognized by any court or
county assessor.
To make the meaningless grants appear legitimate, the
company attached a land survey from when property
was transferred to the United States by a foreign entity
hundreds of years ago. In San Diego, for example, the
company attached a survey from the Spanish Land
Grant of 1872 and said that the deed reinstated the Land
Grant and would protect homes from foreclosure.
            Equity Skimming
An investor collaborates with a “straw buyer” who
purchases property using false documents and fake
credit reports. The sellers are usually in a situation close
to foreclosure and are convinced they aren’t selling the
home but are renting from the investor (a.k.a. the equity
skimmer). After closing, the straw buyer signs the
property over to the investor by a quitclaim deed which
relinquishes all rights to the property and provides no
guaranty of title. The investor does not make any
mortgage payments on the property but collects rents
from the tenants (who are most likely the former owners)
until the property enters foreclosure.
                 Red Flags
• Quit claim deed used right before or after closing
• Investment property represented as owner-occupied
• Names have been added to purchase and sale
• Someone signing on borrower’s behalf
• High FICO Score
• Power of attorney for borrower
• Indication of default by property seller
              House Stealing
A group or an individual finds a vacant home. They look
up the deed information. They either assume the current
owner’s identity (or create a fake one if the home has
been foreclosed on) and create IDs, driver’s licenses,
etc. They quickly sell the house, usually for a rock-
bottom price to facilitate a quick sale before anyone
catches on.
• There’s also a variation on that theme where someone
  with a fake identity promises to help those in mortgage
  trouble with refinancing, but they end up stealing the title
  and the money.
                      Red Flags
• Beware of excuses for not providing proper identification.
  They must have identification.
• Contrary to popular belief, many forgeries are obvious to a lay
• Check document authenticity. You can verify by phone with
  the notary or the person who signed the document that the
  document is genuine and they approve of the transaction.
• Remember, any strong resistance you may get for wanting to
  check the document is also a red flag.
• An important document that has been notarized elsewhere,
  not at your closing, is always suspect.
• Inconsistent borrowers names, phone numbers, addresses or
  social security numbers.
     Builder Bailout Scheme
In response to the number of unsold homes, lenders
wanting to be paid off, and the absence of buyers,
some builders attempt to creatively disguise a
fraudulent home sale as a legitimate transaction,
colluding with real estate appraisers, mortgage loan
brokers, and settlement agents in the perpetration of
this type of fraud. It generally happens when a
builder or developer is motivated to move property
quickly in a depressed or depreciated real estate
• Convincing buyers to purchase a property by offering to
  pay excessive incentives that aren’t disclosed to the
  lender. This could include a down payment and/or
  closing cost assistance (i.e. no money down
• Forming false corporations that purchase inventory at
  inflated values. Builder finances 100% of closing costs
  and in some cases gets cash out. Falsely promotes the
  builder’s ability to sell inventory.
• Offering secondary purchase financing in order to create
  a position of “equity” for the borrower (80/20 loans)
                     Red Flags
• The builder is desperate to sell the property
• The borrower is barely qualified or unqualified
• The sales price and appraisal show signs of inflation
• No money down sales are heavily promoted
• "Silent" second mortgages are involved
• The source of funds is questionable
• Incentives such as buy-down funds appear excessive
• The source of secondary financing on the HUD-1 or
  purchase contract is unclear or indeterminable
• Parties to the transaction are affiliated, or the transaction
  does not appear to be an arms length transaction
• Indicators of straw buyer activities
A person takes out multiple loans for the same
home simultaneously. In this mortgage fraud
scenario, scam artists apply for multiple home-equity
loans with multiple lenders at the same time. Their
credit and loan history are often clean, facilitating a
fast-closing process. Due to the delay between the
dates the loans are closed and the dates the liens
are filed with the county recorder, lenders are not
aware of the other liens when making their
underwriting decisions.
               Red Flags
• Unusually short loan processing times
• Patterns or similarities in loan packages
  received from a specific broker, loan
  originator, realtor or property seller
• More than one mortgage lender is
  reflected throughout the file
• Excessive fees
• Reference to another (double) escrow
Can anyone do anything to help?
The mortgage industry is responding to this new
scheme by finding a way of alerting lenders before
they give a loan to someone who may be applying
for the same loan elsewhere, as a type of closing
alert. A new company CoreLogic proactively
delivers notifications to a lender identifying potential
multiple closings from other participating lenders.
The tool was designed to help lending institutions
stop these scams before they can take the cash and
          Inflated Appraisals
The scheme involves a borrower presenting a property
at an inflated price (based on an appraisal) so the
borrower and sometimes the appraiser and broker can
obtain loan funds in excess of what would normally be
offered. Usually 2 – 3 conspirators involved, who look
either for a lender to loan more than the actual value of
the property based on the artificially inflated value, or
they find an innocent purchaser to buy the property at
the inflated value. Sometimes the appraiser is involved
directly, but other times, the appraiser simply doesn’t do
a thorough investigation of the property and relies on
prior transactions/information.
                    Red Flags
• Ordered by any party to the transaction other than the
• Appreciation in stable or declining area
• Most recent sale on subject property and comps is
• Date of appraisal is prior to date of sales contract
• New home isn’t large enough for intended occupants
• High land value in an urban area
• Excessive distance of comps from subject property
• Photos don’t match the description of the property
• Appraiser is located outside the subject property county
• Photos of the subject property or comps look familiar
        Things to think about…
In many of the scams we are talking about, the deeds
and mortgages (other than those based on a false loan
application) may be perfectly good. The problem exists
when the lender has loaned significantly more than the
property is worth (in a good market). Sooner than later
the loan will be in default and the lender must recognize
a big loss. If there is a downturn in real estate values, it
gets even worse.
Obviously, neither a closer nor a title underwriter should
be considered responsible for problems with value or
condition of a property involved in a transaction.
In the past several years, lenders faced with
major fraud and forgery losses have
asserted claims (specifically targeting
closers) based on allegations that the closer
knew or should have known of the
fraudulent conspiracy.
April 2008 – Loan Broker Mr. Swift was recently
sentenced to 15 months in prison and ordered to pay
$38,843 in restitution for bank fraud and money
laundering. Swift admitted that he defrauded two
homeowners and lenders by fraudulently refinancing two
homes in order to receive substantial loan broker
commissions. To accomplish this fraud, Swift solicited
two homeowners and falsely told them that they would
receive loans with favorable terms, such as a lower rate
that would not increase above a certain rate cap. He
also falsely led the homeowners to believe that their
prepayment penalties on their existing mortgages would
be returned in the form of a rebate.
Denver 2007 – Amerifunding investigation involving
mortgage loans obtained by utilizing stolen identities to
facilitate the scheme. The scam involved over $200
million in fraudulent loans over a 24 month period. One
of the subjects obtained fraudulent identities by placing
"help wanted" advertisements in a local newspaper.
Information from the victims applications were used to
apply for mortgage loans between $300,000 and
$500,000. The proceeds of the scam were used to pay
personal expenses of the defendants. To date, six
subjects have been indicted. Losses totaled $37.5 million
and approximately $16 million in assets have been
2006 – Bank Manager Mr. Young directed loan officers
and processors in the origination of 233 fraudulent FHA
loans valued at over $25 million. Mr. Young conspired
with other mortgage company employees and with
employees of General Realty to manufacture and submit
false employment and income documentation for
borrowers. The majority of the borrowers were illegal
immigrants from Mexico. To date, 58 loans with a total
value of $6.2 million have gone into default, with a loss
to HUD of over $1.9 million. The Nevada First
Residential Mortgage Company is no longer in business.
Mr. Young was found guilty on 32 counts of submitting
false information.
April 2008 – President and CEO Mr. Rich was sentenced to 20
years in prison and ordered to pay $10.4 million in
restitution. Mr. Rich and his company (Pac Equities) solicited
investors to invest in real estate development projects and loans
promising 10% annual returns and claimed the investments were
secured by deeds of trust with at least 30% equity and no more
than 70% loan to value ratio. They created the facade of a
successful business using investor principal to make monthly
payments to investors, claiming that the payments represented
interest earned from profitable investment and loan activity, then
used this facade to recruit additional investors and retain existing
investors, knowing that the only sources of income for Pac
Equities were from a few projects and loans. These amounts
were insufficient to meet monthly interest obligations which Pac
Equities owed its investors. Mr. Rich misrepresented his
educational background, his employment history, and the nature
and security of the contracts, which caused over 300 people to
invest more than $18 million with Pac Equities.
              More in Oregon
April 2008 – Mr. Bonneau was sentenced to 30 months in
prison for his role in a mortgage fraud scheme involving two
residential real estate transactions in 2004. He was indicted in
2006 along with his co-defendants (real estate loan broker &
real estate agent), on charges including wire fraud, false
statements to a Federally Insured Bank, money laundering,
and engaging in prohibited financial transactions. The 3
devised a scam to defraud the Union Federal Bank of
Indianapolis by providing false loan applications in connection
with transactions involving 2 properties, one co-owned by the
defendants. In each transaction the sales price of the home
was significantly inflated so that Mr. Bonneau could apply for
a larger mortgage and divert the extra cash to bank accounts
he controlled. False appraisals were submitted and false
closing statements were signed concealing the fact that the
extra cash was being diverted. The bank funded the
mortgage loans in reliance on these statements.
October 2007 - Azem Limani was sentenced to 18 months in
prison for violations of wire fraud and engaging in monetary
transactions in criminally derived property related to a
mortgage fraud scheme. In addition to prison time, Mr. Limani
was ordered to pay $190,000 in restitution to Countrywide
Home Loans and FNMA. According to the information
presented to the court, Mr. Limani engaged in a wide ranging
mortgage fraud scheme using a number of others to obtain a
series of nominee loans that hid the true borrower. Mr. Limani
was aided in the scheme by his co-defendant, Kourosh
Partow, who was a loan officer and branch manager of
Countrywide Home Loans and arranged for fraudulent loans
to be issued to the nominees by falsifying their income, assets
and other matters on the loan applications. Mr. Partow was
previously sentenced to a term of 25 months in prison.
              Escrow Claim
Escrow officer called on a file asking for advice. The
sales price per the contract was one amount but the
documents provided by the lender listed a different sales
price (no one informed the Seller of the difference). The
lender told her to show the sales price of one amount
and then an acquisition price of another amount, and told
her to hold $38,500.00 to be released to the buyer later.
These instructions came from the lender, but the escrow
officer said the entire escrow has been arranged and
driven by the buyer, who works for the lender. The real
estate agent is not responding to my requests regarding
clarification. What would you do?
Pay attention to your gut!
The escrow officer called the legal/underwriting staff
who confirmed her suspicions and said no way to
agree to the phony up pricing. What is the different
between the acquisition on the one hand and a sale
on the other? Only a point of view, and the numbers
should be the same. Money back to the buyer, who
appears to have a relationship with the lender,
sounds like fraud, unless there is a
rehab/refurnish/construction aspect to the loan, and
the lender should be very clear about how that is
going to work.
                  Title Claim
The Jones purchased a home in 2002 and made several
improvements to the home. In 2006, they were falling
behind in mortgage payments and responded to an
Internet Ad for a company entitled “Funding
Foreclosures” (FF). After filling out an online application
form, the Jones were called by someone from FF
indicating that a loan officer would be coming out to their
house with a loan application and paperwork. 3 days
later, a loan officer arrived with a stack of papers that
had already been filled out and only required signatures.
They signed the papers and he left. He called and said
a notary would be out in a few days to get signatures for
the closing documents.
A few weeks later, a notary arrived and identified the
papers as the loan documents, which the Jones then
signed. The Jones were told the loan would cost them
$60k, and that they would receive $36k in return. A
check for $36k was received in March. The following
month, the Jones received a letter from the title office
advising that $225,000 had been wired pursuant to the
instructions and enclosed a copy of the Sellers Closing
Statement. The Jones were told to make payments to
Nations Property Management company in the amount
of $3,000, after the loan closed in March 2006. They
continued to make these payments. In January of 2007,
they received a notice of default for a Mr. Thomas at the
house, saying his loan was in default.
The Jones believed they were current, as they had been
making all of their payments per the instructions.
However, when they called NW Trustee Services, they
were told they were not the record owners. Mr. Thomas
purchased the property they sold to him in March of
2006, per the documentation that was brought to the
house. Enclosed in the paperwork was a statutory
warranty deed that had been signed by the Jones
conveying the property to Mr. Thomas. Mr. Thomas has
not been found, and the Jones have filed suit to quiet
title to the property and void the subsequent transfer to
Mr. Thomas and void his two loans currently
encumbering the Property.

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