Category Archives: Mortgage Fraud

It’s time for a ban on all third party short sale negotiators.

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Not a day goes by that I do not hear a story from a Realtor, loan originator or consumer about a questionable if downright bad experience with a third party short sale negotiator. We’ve reached a point in time where we ought to consider eliminating all third party short sale negotiators. At the end of this article I will provide suggestions for home sellers, home buyers, real estate brokers/Realtors, attorneys, and regulators in order to maximize good consequences and minimize bad consequences for all parties.

Yesterday I received a frantic call from a homebuyer we’ll call Maggie, who found me online via this blog post. Maggie fell in love with a short sale house but after her offer was accepted and moving toward the close of escrow, the third party short sale negotiator announced that since the lender would not pay his full fee (short sale negotiator was already being paid $3000), as the buyer, she would have to come up with an additional $7,000 at the close of escrow.  Maggie was in love with the house but didn’t have the extra 7K so the third party short sale negotiator suggested she get a loan and pay him after the close of escrow.

There are so many things wrong with the above scenario I don’t even know where to begin.  So let’s begin at the beginning. The growth of fee-based, third party short sale negotiators was fueled by a perfect storm:

1) Collapse of the real estate bubble and resulting growth of over-mortgaged homeowners.
2) Rapid growth in the need for real estate listing brokers who know how to negotiate a short sale.
3) Decimation of the subprime industry and resulting out-of-work loan originators and Realtors.
4) “Get rich quick

Short Sales & the “new” Mortgage Fraud

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see-no-evilShort Sales continue to be problematic for all concerned. So much so that “right” seems to be the minority “opinion”. At least I think I’m “right”…but apparently so does everyone else with a completely opposite opinion.

So you tell me…Am I RIGHT or am I RIGHT?

The pretty simple short of it is: IF you sell your house short…you have to MOVE OUT! While many do not dispute this, I recently commented on this question of a Broker in Florida on this issue. I appear to be the ONLY person in almost 200 comments, most all from agents, who thinks the agent is supposed to check that the seller has moved out on the day of closing, or the day all parties agree that the seller was supposed to move out.

Crazy. Just Crazy!

As my friend in Philly once said to me,

“Ardell, everyone does “the right thing”. We just don’t all agree on what “the right thing” is.

In the post the question is “What is the Penalty for Breaking an Arm’s Length Transaction Notice?”BUT he seems to think his problem is that he drove by months later and the “former owners” waved at him from the front lawn. He thinks he just “found out” the sellers didn’t move out, when in fact he should have been “in charge” of knowing whether or not they DID move out in the first place! I mean…seriously…do agents not accept responsibility for ANYTHING anymore??? …and…wait for it…this guy TEACHES a class on Short Sales. Jillayne’s gonna LOVE that one.

The Buyer, Seller and BOTH AGENTS signed this:

arm's length

No ambiguity there. Seller is NOT to remain in the property…PERIOD! But apparently “see no evil” is the excuse! Didn’t bother to notice that the seller hadn’t moved out on the day of closing? It’s pretty obvious the agent DID know the seller wasn’t going to move out that day…but “thought” that was a short term thing. BUT didn’t write a short term occupancy agreement to cover that and send it to all parties to sign, and the lienholder, PRIOR to closing!

But…no one except me thinks the agent was supposed to check that the seller in fact…MOVED OUT! Crazy. Just Crazy.

Examples of other responses:

“Well you certainly did not do anything wrong and you have little to worry about. the buyer and seller have to worry unless they can prove that the idea of the sellers regain occupancy came AFTER close of escrow..and the longer after the close, the better.”

A general consensus is all is well as long as they did not “intend” to stay as tenants at the time they signed the Arms Length Agreement and LATER decided not to move out. Even the attorney who responded says it is about “intent” when they signed the Arms Length Agreement, and not whether or not the seller actually moved out!

My response was long and very clear that the agent needs to LOOK IN THE HOUSE on the day of closing and make sure the seller is GONE! If not…I list the steps that need to be followed BEFORE the property closes. YES…STOP the closing!

“You are likely at fault for not providing the necessary paperwork for all to sign at closing to address the property not being vacant on the day of closing. The standard is not what you did know. It is what you should have known. If the contract had no post occupancy terms for the lienholder to review and know about before closing, it is because you did not cause them to be there.

So it depends on whether or not they broke an agreement AFTER closing, that you wrote before or at closing. If the contract stated possession day as closing day, then you were aware, or should have been aware, that the possession was not transferring on day of closing in accordance with the contract terms. You should have seen/witnessed a vacant property before closing OR written up a post possession agreement if it were not vacant.

If on the day of closing you knew it was not empty (and you should have even if you didn’t) and the loose agreement between buyer and seller was an extra day or more of occupancy, then you should have written up that agreement with an end date. You should then have sent that agreement to all parties, including the lienholder and the buyer’s lender. If the buyer bought it as owner occupied vs an investor loan, there is potentially lender fraud on two counts, but you can probably get concurrent terms of sentence on that. 🙂

Was the insurance policy at closing for an owner, or a landlord policy? Did it have a vacant property rider? Or was the policy done as an occupied property with a tenant in place? Pretty easy for investigators to note if the buyer’s insurance policy did not note a landlord policy with a vacant property rider, meaning the buyer, buyer’s lender and buyer’s insurance company thought it would be vacant at closing vs occupied.

If the agreement had no post occupancy provision (and since you don’t mention one I’ll assume it did not), then it was your obligation to view the property as vacant prior to closing and prior to giving the buyer the keys to the house.

There is no excuse for your not knowing the property wasn’t vacant and writing up a post possession agreement once you knew it was not vacant immediately prior to closing.

Let’s say you DID write up a 3 day post possession or a 10 day post possession or even a 30 day post possession agreement, and that document was signed by buyer and seller as part of the contract and sent to all parties and lenders/lienholders. If the parties subsequently extended or ignored that agreement, then you “may” not be liable, depending on how that post posession was worded.

But if the property was not vacant prior to closing and you did not write that up in a post possession agreement, then you are liable for not having done so.

To which several replied:

“See no evil…hear no evil…speak no evil. i would leave well enough alone.”

Forget “crazy”…this answer is INSANE!:

“There is a legal way to get around these laws because this is the United States and people are free to do as they please.”

Lots of nails in this coffin…where are the agent’s brokers? Don’t they read this stuff?

“Shrewd buyer. Approach the sellers “AFTER” the short sale. Sellers are innocent, and you have an “Avoid Jail Free” card.”

“It appears that no one has done anything wrong…”

“Sounds like an issue for the two lenders involved, not the RE agents.”

“I’m sure the bank is too busy with all the other foreclosures and short sales to really be trying to document all the new tenants in homes that have closed. I’m sure you’ll be fine…”

And a direct response from the agent in the transaction who wrote the blog post:

“ARDELL. I completely disgree that I have an obligation to check whether or not the property is vacant at time of closing.”

Recently my friend Kevin Tomlinson said this about The “new” Mortgage Fraud:

“An example of a non-arms-length transaction would be where a seller “short sells

Former Loan Originator Eliza Bautista Finally Arrested in Seattle

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Liza Bautista worked for a mortgage broker with a strong client base inside her Christian church in Tukwila. After successfully closing several prime loans for folk with A-paper credit, she targeted consumers who were turned down by lenders and created two sets of loan documents.  She submitted the credit history and identity of her prime, A paper clients to the lender funding the loan.  When it was time to sign papers, she forged her A paper client’s names on the loan documents and sent everything in for funding.  For the poor credit clients, she hand carried a second set of documents to be signed and then made a special offer to personally hand carry their mortgage payment to the lender each month.  (Note to consumers, don’t ever agree to this.) Of course, the payments never made it to the bank. Liza kept the money and subsequently, the lender started to foreclose on the A-paper owners, whose name appeared on title as the owners of record. When the A-paper clients were finally contacted by the lender and claimed they did not own said house, Liza started running out of places to hide.  The poor credit clients who were thrilled to be homeowners were obviously upset that their name were not on the title to the home and they were evicted after foreclosure.

From King 5 News:

Eliza Bautista landed herself in handcuffs…four years after the KING 5 Investigators exposed a scheme she orchestrated where she sold homes, loans and promises that were bogus to naïve home buyers.
Mary Pelayo of Bellevue was one of Bautista’s victims in 2006. She was astounded when KING 5 told her that her former mortgage broker had been arrested by federal agents.

“I’m shocked. I would never have thought this day would come. We gave up hope. We thought she got away with it,” said Pelayo.  “I hope she goes away for a long time and has a long time to think about all the hurt that she put our families through. Not just mine but all the other families involved in this.”

Four years ago, Pelayo was featured in a KING 5 News story which showed that the home she thought she and her family had purchased in Shoreline actually wasn’t theirs at all. Three months after moving in, the Pelayos had to move out. “We lived in this house for over three months. We thought this was our home. We started fixing it up. We put a lot of money into it (and) a lot of work. And then to find out it’s not ours!” Pelayo told us.

Unbeknownst to them, their mortgage broker, a polished Eliza Bautista, had secretly stolen another client’s social security number and good credit scores. Bautista used that information to buy a home for the Pelayos, who had shaky credit.

KING 5 found Bautista had done this several times with other unsuspecting clients. After the KING 5 Investigation aired, the FBI and the U.S. Attorney’s office took on the case.

Liza Bautista faces a maximum of 20 years in prison if convicted of the mail and wire fraud charges. Her trial is scheduled to begin in October.

“Feds to local mortgage originator Shawn Portmann: We want our money”

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From the Seattle PI:

Alleging a long-running fraud involving a cash-packed safe and a garbage bag stuffed with money, federal prosecutors have asked that a mortgage broker be forced to hand over $102,000 to the government…
Since June 2009, Lord argued, investigators came to believe “that Portmann and two other principals at (Pierce Commercial Bank) Home Loans had devised a scheme involving … materially false representations to induce financial institutions to fund and/or purchase loans.”

Portmann was the loan officer on 5,253 loans, amounting to nearly $1 billion in lent money and about 46 percent of the home loans issued by the bank, the federal prosecutor told the court. Federal investigators contend about half of those loans were obtained through fraud.

In addition allegations that he falsified application information, Portmann is accused of drawing cashier’s checks from his personal bank accounts to show that would-be loan recipients could pay their debts. The checks were printed, but the funds were quickly returned to Portmann’s accounts, Lord told the court.

Federal investigators claim 85 checks totaling about $899,000 were cut from the account between 2006 and 2009, according to the July 30 court filing. For securing the loans, Portmann was paid at least $813,000 in premiums from 2006 to 2008.

Speaking with IRS and FBI agents earlier this year, Portmann’s personal assistant said she withdrew about $500,000 from Portmann’s savings account and deposited the cash in a safe at his home, according to the civil complaint. Another person allegedly involved in the scheme turned over a large garbage bag filled with $102,000 in cash, telling investigators that Portmann had given him a backpack in late January or early February containing $100,000 in bundled $100 bills.”

An avid Rain City Guide reader tipped me off to this story. Thanks also to the PI for the update. My students in the south end ask me about this case every week.

Everybody LOVES bank fraud!

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Is it just me, or do loan orginators routinely encourage bank fraud? First, the background: There are a variety of federal and state laws that make it a VERY serious crime to mislead a lender for purposes of getting a mortgage. At the federal level, 18 USC sec 1014 makes it a crime to “knowingly make any false statement or report . . . for the purpose of influencing in any way the action of” a commercial lender. (Emphasis added). The penalty? A cool million dollar fine and/or 30 years in federal prison. Yup, not a misprint: 30 years in Club Fed. On the state level, RCW 19.44.080 makes it a crime to “knowingly make any misstatement, misrepresentation, or omission during the mortgage lending process knowing that it may be relied on by a mortgage lender.” (Emphasis added). The penalty? Its a class B felony, so 10 years in the joint and/or $20 grand.

As indicated by these laws, as a society we cherish honesty to lenders and believe very strongly that anyone who is dishonest AT ALL in order to secure a loan has committed a very serious crime. The problem, of course, appears to be that nobody in the RE industry agrees. Rather, it appears that the RE industry treats this type of bank fraud (misleading a lender in order to facilitate getting a loan) to be something akin to taking a second serving of dessert: bad form, sure, but if nobody knows…

You may be thinking: “What on earth is Craig talking about? Everyone I know is honest and abides by the law!” Well, think further, and in particular think about a buyer’s inspection contingency response. The NWMLS provides a Form 35R specifically for resolution of the inspection contingency. By its terms, the 35R and any other notices or addenda relating to any modifications or repairs becomes a part of the contract, and of course the lender has the right to receive (and buyer has the obligation to provide to the lender) the entire contract.

How many agents out there have used the Form 35R to request repairs and/or price reductions? And have you gotten any feedback from the loan originator once he or she receives a copy of the signed form? I have. The 35R had the fourth box checked (buyer proposes modifications) and the text below, “Sale price reduced to $440k.” About as simple as can be — but apparently still likely to arouse the suspicions of the underwriters, thus complicating the process. The loan originator’s request? “Toss” the 35R and instead use a Form 34 for a simple price reduction.

The problem? That clearly violates the state law above, and probably the federal law too (at least it will when the buyer signs at escrow a statement indicating that he has provided the lender with all requested information, including a complete copy of the PSA). In other words, even LENDERS encourage violation of the laws designed entirely to protect lenders.

And one wonders how we inflated the housing bubble…..

Predatory Short Sale Negotiators

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I received a call the other day from a consumer who was in the process of purchasing a short sale home.  The homeowner has defaulted on her mortgage and the trustee sale auction has been postponed a few times now that this buyer’s firm offer has finally reached the lender’s loss mitigation decision-maker.  Once the offer was accepted by the seller, the homebuyer was surprised to learn that there’s a third party involved, a “Short Sale Negotiator” who is charging an additional $9,000 fee on top of the real estate commissions paid to both the agent for the seller and the agent for the buyer. The Short Sale Negotiator is demanding that the homebuyer sign an agreement that the homebuyer will be responsible for paying the $9,000 fee.  The homebuyer emailed me asking what I thought of this additional fee and could I offer some advice. 

The first thing I did was to find out the name of the Short Sale Negotiator company, the owner of the company, and the person who is doing the short sale negotiating. I discovered that the negotiation company is owned by the same person who also owns the real estate firm where the listing agent works.  I also ran the name of the short sale negotiator and discovered that this person IS a licensed real estate agent. 

Readers please note that WA State’s regulators recently changed the real estate licensing laws and there’s a great FAQ section here that answers the question: Does a Short Sale Negotiator have to be a licensed real estate agent? The answer is yes, or a licensed loan originator or otherwise exempt from licensing such as an attorney. (Clicking through from the link, scroll down to “doing business” and see the second question.)

So we have a licensed real estate agent who is earning money as a short sale negotiator who works for a company owned by the same person who owns the listing agent’s real estate company.

There are a couple of things that come to mind here. First of all, isn’t there a bit of a conflict of interest for the real estate broker/owner of that company?  Where are your duties? To the home seller, whose listing you’re charged with overseeing, or are your duties to the buyer, a client who signs the agreement to pay your other company $9K?  What are the duties of disclosure to BOTH the seller and the buyer?

For example, if I’m the seller in this transaction, charging a buyer an extra $9,000 out of pocket might preclude a number of qualified buyers to make an offer….unless I hold back this information until after the buyer has emotionally fallen in love with the home and is already arranging the furniture in his/her mind.  That seems manipulative.  Why not tell all possible prospects up front what the short sale negotiator’s fee is: Make it mandatory to display this extra fee in the PUBLIC comment section of the multiple listing service. 

You might be thinking: “Yes we could disclose this god-awful fee to the public this but that’s not in the best interest of the home seller.”  Well, okay but what happens if you end up attracting a lot of buyers but they all walk when told of this high third party fee? Now the listing agent has wasted everyone’s time.  It’s like if someone asks me out on a date and then later he tells me he’s married.  Come on! Hey, some women might say yes and it’s nice to know up front how big of an a-hole a guy is.   I say the listing agent would actually be attracting the right kind of buyer if they disclosed that their Short Sale Listing comes with baggage.  It seems to work fine for the married guys who post personal ads on craigslist day after day.

More: If there is an affiliated business arrangement going on between the two companies that are owned by the same person/people, then a RESPA-required Affiliated Business Arrangement disclosure form should ALSO be required so that the home seller and home buyer are aware of the dual company ownership. Part of that AFBA disclosure form should state that the homebuyer understands that buying this home means he/she does NOT have to use this particular short sale negotiation firm and is free to select another short sale negotiation company to do the same or similar work.  However, since a ‘short sale negotiator fee’ might not necessarily be classified as a “settlement service” then this rule might not apply. HUD are you listening? It’s highly possible that the next time a federal regulator makes it out to Washington State, the Seahawks will have won the Superbowl. Knowig this, we should look to the state regulators for assistance.

For a home buyer, a big red flag would be if the listing agent demands that you use this affiliated short sale negotiator. Demanding that a buyer use a real estate broker’s affiliated company is a licensing law violation as well as a violation of federal law when those companies are a title, escrow, appraisal company, and so forth. So why not a short sale negotiations company also?

Even more: Is the listing agent receiving part of that $9,000 fee? One way of structuring this is for the owner of both companies to promise the listing agent something like this: “if the lender cuts your commission, don’t worry, I’ll give you a portion of that $9,000 negotiator fee.”  Unearned fees are not allowed under RESPA.

Even worse: Is the short sale negotiator splitting the $9,000 with the home seller?  How fast can you say “Mortgage Fraud is now a Class B Felony in Washington State?”

The other logical problem that comes up for me when I see an additional fee of $9,000 is this: what work is being done for NINE THOUSAND DOLLARS?  That’s an awful lot of money. I could install all new vinyl windows in my 1959 house with that kind of money. I could put this in my teenager’s college fund. I could accomplish a lot with $9,000 so why would I want to pay that kind of money to a short sale negotiator?  Is this like extortion/payola in order to get that particular house for that price? 

Maybe not.  What is this third party negotiations company doing for their $9,000?  Wait, let me go find out. I’ll read their website.  Gee, there’s nothing on the website telling a consumer what their company actually does for that fee but the pictures of their team tell me they’re all good looking guys under 30. Not that there’s anything wrong with doing business with good looking guys under 30 but it should make us wonder how much experience the negotiator has at short sale negotiating.  In 2009 I believe we added ten million “short sale experts” in the real estate industry.

My advice to the consumer: Negotiate that fee down to somewhere around $1,000 to $2,000.  If the home is that close to the auction date, tell your real estate agent that you’re going to buy the home at the auction if the lender won’t approve the short sale and if the negotiators won’t go for a reduced fee.  Most of the third party short sale negotiators out there are paid much less than $9,000. 

Here’s some help with the math:  I asked the consumer to ask the short sale negotiator how many hours he’s spending on this file v. how many hours he’s working on those biceps. Consumer says the SSN said he’s spent 10 hours so far on this transation! !! !!! Wow! Well! Okay then, let’s divide $9,000 by 10 hours.  That’s a going rate of $900 per hour. That’s probably close to the hourly rate charged by the Johnnie Cochran law firm for litigation cases and I’m fairly certain that this licensed real estate agent negotiator doesn’t have as much experience or education as the JC legal team.  Counter back with $100/hour and settle around $200/hour max.

I am betting they’ll take the $2k.

Ask for the negotiator’s $2K to be put on the HUD I Settlement Statement as a seller’s closing cost.  There’s a chance the lender will pay it.  If not, the buyer needs to as himself: Is this house worth $2k out of pocket at closing?  It’s also important for the buyer’s new lender to know about this additional fee. Insist that it’s paid out through escrow and shows on the buyer’s side of the HUD I Settlement Statement if the lender refuses to pay it as a seller’s cost.

Buyers: do not agree to pay any money after closing, on the side, without disclosing this additional amount to all parties including the lender. 

Predatory Short Sale Negotiators: The world is watching you.  I wonder if your dreams are haunted the way I was haunted after watching The Hurt Locker.  Soon your predatory fees are going to explode in your face. Oh, and loan mod salesmen thinking that being a short sale negotiator is the next big way to “make six figures with no experience,” please go back to the used car lots. I’m sure there are some openings at the Toyota dealerships.

Foreclosure Rescue Scammer or AG Victim: You be the Judge

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In order to go into the foreclosure rescue business, foreclosure rescuers must make themselves believe that they are helping the homeowner. This is done in a cognitive way, by attending many foreclosure seminars, reading lots of books and memorizing scripts that can be played back inside the foreclosure rescuer’s head over and over again until it becomes real and true to them.

Similar to how we fool ourselves over and over again when we say to ourselves “it’s only one drink,” “it’s only a cookie” and “it’s not really sex.”  Self deception is very powerful and it appears to be working well with foreclosure rescuers.  I hear many phrases over and over again such as, “it’s perfectly legal,” “homeowners want to stay in their homes,” and “if it wasn’t for me, then….”  With the case of Joe Kaiser, we are starting to hear a different song. It’s the whine of the victim.  You know the type of person I’m talking about who constantly complains about being victimized to the point where they transform into victim.

Joe Kaiser (doing business as PreFlop, LLC, G. Hobus Investments, LLC, Bobo Buys Real Estate, and Unclaimed Funds, Inc.) makes money selling foreclosure rescue sales courses and books (examples: ‘The Subterranean Marketplace in 2009″ for $997. “Learn How to Day Trade in Real Estate Online Using Craigslist for $667.) though not everyone has been a satisfied customer.  Joe buys and sells homes in foreclosure but not just any kind of foreclosure: tax foreclosure.  Some of you will remember fine movie, “The House of Sand and Fog” very well acted by Sir Ben Kingsley, Jennifer Connelly, and the beautiful Shohreh Aghdashloo. I assign this movie as extra credit for my college students because of all the possible title insurance issues surrounding the tax foreclosure plot.  This movie should be required viewing for anyone thinking about entering the world of tax foreclosures.

In a very methodical way, described in his books, Joe locates homeowners who are delinquent on their real property taxes, and also have equity in their home.  This is a bit like a needle in the haystack kind of work today but during the bubble run-up, as others swarmed the trustee sales, Joe focused on tax foreclosures. Interestingly, several of his victims have Hispanic surnames but I digress. Le’ts read the public records documents:

The Court found that Mr. Kaiser violated the Consumer Protection Act by soliciting homeowners with false promises to help them keep or save their home when partial interest deals do not actually result in the homeowner keeping or saving their home.  The Court also found that, in the course of creating partial interest deals, Mr. Kaiser violated the Consumer Protection Act by falsifying real property excise tax affidavits and by acting as both trustee and co-beneficiary seeking a profit from the trust.

Kaiser solicits homeowners facing tax foreclosure and induces them to place their home in a trust, with Kaiser, through his business entities, as trustee and co-beneficiary.  Mr. Kaiser does not pay the homeowner for their homes. Once title to the home is in Kaiser’s control, he pays the delinquent property taxes and stops the sale of the home.

The land trust…that Kaiser created give him complete title and control over the homes and leave the former owners with only two tenuous rights: 1) the right to some percentage of the sales proceeds if Mr. Kaiser chooses to sell the property, and 2) the right to occupy the property for one to three years, provided the former owner pays rent. These two rights are tenuous because the documents contain hair-trigger default provisions which void these rights if the former homeowner is even five days late on a rental payment or violates any of the other terms contained in the numerous documents Mr. Kaiser has them sign.

Mr. Kaiser testified that every partial interest deal he has created is actually in default…therefore, none of the former homeowners maintains their right to possession of the property or a percentage of the proceeds if Kaiser chooses to sell it.  By virtue of the lease provisions and other contractual provisions for reimbursement of all of Mr. Kaisers expenses, his terms entitle him to receive either the entire home vacant or his share of the home’s equity without having ultimately paid any money….Homeowners who enter the transactions believing they are saving their homes are actually stripped of any ownership interest and are not even given a right of first refusal to buy back their home.  No fully informed person, not acting under compulsion would enter a transaction with such onerous terms.

There is much more in the Findings of Fact and Conclusions of Law and if you want to learn how to “Negotiate Foreclosures Like a SWAT Team Leader” then by all means, meet Joe here.

There are some investors who feel sorry for Joe.  Joe feels like he has been attacked by the AG’s office and is blogging about his new role as a victim. Let’s see if this logically works.

In the F&G M. transaction, Mr. Kaiser claimed he saved F&G’s home…What Kaiser actually did was purchase the home at the foreclosure sale and then had Mr. M. sign over his rights to the overage money from the foreclosure sale. As a result, Kaiser obtained both the house and the $45,428.47 in overage money he had paid at the auction. Kaiser never sold the house back to Mr. M. even when Mr. M. obtained a Realtor and made an offer. Kaiser then sent Mr. M. an eviction notice demanding Mr. M. immediately pay $2700 in rent or vacate the property.

I’m trying to work up some tears but they’re just not coming.  Now it’s your turn: is Joe Kaiser a posterboy foreclosure rescue scammer, a victim, a sociopath, a combination thereof, or am I too  justice oriented to become a real estate investor guru?  I just can’t look at someone, flat-out lie to them, and steal their house and money.  If that’s what it takes to be a real estate investor guru, count me out.

New Form to Prevent Mortgage Fraud

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This morning I received an email from one of the major banks we work with recommending the use of a “FBI fraudOccupancy Cert”.   They are recommending the use of this form on any loans we sell to their bank, including owner occupied, investment or second homes.    The form, which must be acknowledged by the borrower, states:

“Mortgage Fraud is investigated by the Federal Bureau of Investigation and is punishable by up to 30  years in federal prison or $1,000,000 fine, or both.  It is illegal for a person to make any false statement regarding income, assets, debt, or matters of identification, or to willfully overvalue any land or property, in a loan and credit application for the purpose of influencing in any way the action of a financial institution.”

The borrower must then select the occupancy for the specific property that is being financed:

  • Primary Residence – Occupied by Borrower(s) within sixty (60) days of closing as stated in the Security Instrument I/we excuted.
  • Second Home – To be occupied by the Borrower(s) as a second home (vacation, etc) while maintaining principal residence elsewhere.
  • Investment Property – Not occupied by Borrower.   Purchased as an investment to be held or rented.

Directly above the signature line, the form states:

“I/we acknowledge it is illegal for a person(s) to make a false statement regarding occupancy of property being financed in a loan and credit application and that we are subject to prosecution under Section 1001, 1010 and 1014 under Title 18 of the United States Code”

This document seems to make it crystal clear what occupancy is and the potential risk of trying to finance an investment property as owner occupied or as a second home.   Can something so direct make a difference and curb mortgage fraud?

Naughty Mortgage Fraud Mom Gets Life Sentence Instead of a Time Out

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From North Texas:

A Henderson County woman was today sentenced to 99 years in prison for her role in a mortgage fraud scheme. On Tuesday, a Navarro County jury found the defendant, Kandace Yancy Marriott, 52, of Gun Barrel City, guilty of engaging in organized criminal activity. According to prosecutors, evidence presented at the punishment stage showed Marriott received monthly mortgage payments from her clients, failed to remit those payments to the mortgage lender, embezzled the homeowners’ funds, and therefore caused her clients to default on their home loans. Marriott’s conviction stems from her involvement in a complex mortgage fraud scheme that defrauded the federal government. The scheme’s principal operators were the defendant and her husband, Darrell L. Marriott, 54, who sold manufactured homes through their company, One Way Home & Land. However, the defendants’ daughter, Kally Marriott, and Kandace Marriott’s sister, Karen Hayes, have also been indicted for their role in the scheme. All four defendants face separate charges for related criminal conduct in Kaufman County.

According to state investigators, the defendants illegally forged home buyers’ signatures, inaccurately completed loan applications, and falsified supporting documents, including the buyers’ rent payment verification statements, proof of employment, and Social Security Administration benefits data, among other items. Court documents filed by the state indicate that the defendants conduct was intended to ensure that unqualified home buyers loans were approved by mortgage lenders. The scheme involved predominantly low-income purchasers whose residential loans were guaranteed by the U.S. Department of Housing and Urban Development. As a result, when the unqualified buyers defaulted on their home loans, their mortgage lenders did not suffer financial losses. Instead, HUD – and therefore the taxpayers – had to cover the default costs. Investigators believe the defendants’ scheme cost the taxpayers more than $3 million.

Is 99 years too tough? Some argue about the unfairness of the folks from Enron receiving a lighter sentence for stealing billions while this mom gets 99 years for stealing 3 million. Well, some of those Enron defendants decided to become a witness against others in order to receive a lighter sentence. But we can’t quite compare Mortgage Fraud Mom with Andrew Fastow because I believe a person cannot testify against a relative. Perhaps the horrifying lesson is to always commit fraud with a non-relative.

There will be no public sympathy for what this family has done as long as the economy resembles a slow moving train wreck.  It may take years for some humans to ever begin to trust mortgage lenders (banker, broker, or consumer loan company) again. 

This is just one case of a mortgage fraud family. How many more are out there that we haven’t even begun to prosecute or may never find? 

On the bright side, perhaps she will still be able to see her sister and daughter when they join her in the same prison. 

Even better, maybe 99 year sentences would have the effect of actually deterring mortgage fraud.  The existing set of consequences were clearly not enough.

ING Bank suing under RICO statutes to recover losses by alleged local real estate fraud ring.

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Here is the article from the Seattle Times.

Excerpt:

In one deal, the bank loaned a borrower $935,000 to buy a Tacoma house for $1.35 million — a house that, according to the real-estate Web site Zillow, is valued higher than 99 percent of homes in its ZIP code. Nationwide Home Lending was paid nearly $30,000 in fees on that loan.

I’ve just dropped an entire commentary I wrote within this post regarding the fantasy idea some people believe that our local area is somewhat insulated from the garbage and degenerates destroying our markets and economy due to greed and fraud.

In essence, my post can be wrapped up in these questions:

  1. Ethically, is this industry too far gone to recover any resemblance of credibility, trust and moral foundation?
  2. How will the real estate brokers weed out the bad actors? We know DFI is going after loan officers and others.

Fortunately, I know and work with quite a few agents and loan officers who genuinely try to do their very best for their customers. Unfortunately, many of them and others who work in real estate are caught in the enormous wake of the problems the fraudsters have created.