There are a couple of stories in the last few days that have hit the same sour note. And, if you are selling your home (with or without representation), you need to be aware of this situation.
Loan fraud is still rearing its ugly head. Speaking at the Mortgage Brokers Association fraud conference:
Merle D. Sharick, vice president of sales for MARI, stated that Suspicious Activity Reports received by the Federal Bureau of Investigation and the Financial Crimes Enforcement Network from federally regulated banks jumped 139 percent between 2006 and 2007. The jump in fraud will spell record losses for lenders, easily topping $1 billion, says the report.
Georgia ranked 6th in mortgage fraud last year. Most common types of fraud are still generally on the buyer side, things like mis-stated income, assets or debts. However, that isn’t all. The FBI is looking at mortgage fraud on several levels.
The FBI has assigned 100 agents to investigate corporate fraud aspects of the housing crisis, including subprime lending and insider trading. Another 150 are looking at related securities fraud, and 153 are looking at loan originations, says Neil Power, economic crimes unit chief of the FBI’s financial crimes section.
To break it right down to an individual level:
A Las Vegas couple is accused of orchestrating more than 400 sham real estate deals and cashing in on millions of dollars through a mortgage fraud scheme that involved inflated house values and straw buyers.
Eve Mazzarella, ABR®, GRI, broker and owner of Distinctive Real Estate & Investments in Las Vegas, and her husband, Steven Grimm, were indicted last Wednesday and charged with bank fraud, money laundering, and aiding and abetting, according to the U.S. Attorney for the District of Nevada.
If convicted, they could face up to 30 years in prison and a $1 million fine on each of the six bank fraud charges. They could also face up to 10 years in prison and a $250,000 fine on the money laundering charge, according to the U.S. Attorney.
The couple operated numerous limited-liability companies and allegedly used them to engage in 432 straw buyer transactions and obtain control over about 227 properties at inflated values. The total purchase price of the properties was more than $100 million.
The couple defaulted on mortgage payments on many of the loans, which caused at least half of the properties to go into foreclosure, according to officials. The foreclosed properties have caused losses to the banks of more than $15 million.
This is a little different from the buyer overstating their qualifications on a mortgage application. It is also the type of fraud that sellers need to be tuned in to.
One more than a couple of listings I have had offers presented that could be fraud. Often, the other agent didn’t know that what they were asking for was fraud. The offer would typically look like this:
- List price of $300,000
- Offer of $375,000
- Seller to rebate the buyer $60,000
- Preparation of two contracts
- First contract to govern the deal between buyer and seller
- Second contract to be submitted to the mortgage lender
- In some cases instead of a rebate, the seller would pay a large amount to a contractor for renovation. The contractor would be involved with the buyer.
As a seller, being involved in this type of transaction can land you in deep water. Just as with the agents, appraiser and buyer (possibly the mortgage broker and closing attorney as well) there is a possibility of criminal charges for the seller. Jail time.
So, the bottom line is that sellers need to make sure that they don’t fall into one of these schemes. The offer might start out sounding normal, and then there is a call to change some of the terms. Obviously, I would say that having a good agent is one way to stay out of this type of trouble. You need to know and trust the person you are working with. If in doubt, contact an outside party to see what they think.
(ok, ok, this is an industry event… but I have some local industry readers…)