FBI Article on Real Estate Fraud
This article is taken from "Dialog", the periodic bulletin from the Arizona Department of Real Estate. Volume 2011- Issue 3. Here are the ways folks are doing bad things in my industry:
"Drawing from a broad array of governmental and private sector resources, the U.S. Federal Bureau of Investigation (FBI) recently released its 2010 Mortgage Fraud Report. The latest version of the annual report examines the continuing prevalence of mortgage fraud in U.S. real estate transactions, a trend that is unlikely to wane in the near future. The report highlights current mortgage fraud schemes and "hot spots", and also indicates that organized crime groups are becoming increasingly involved in mortgage fraud.
According to the report, mortgage fraud continued at elevated levels in 2010, consistent with the results of the 2009 report. The FBI says that the schemes are readily adapted to changes in mortgage lending that are being driven by the economy, new legislation and developing practices. The FBI also says that there have been numerous instances in which various organized criminal groups have been involved in mortgage fraud activity. Asian, Balkan, Armenian, La Cosa Nostra, Russian and Eurasian organized crime groups have been linked to various mortgage fraud schemes, such as short sale fraud and loan origination schemes.
The FBI says that perpetrators use their experience in banking and mortgage-related businesses to exploit vulnerabilities and often have a high level of access to the financial documents, systems and professional licensure information that provide means for committing mortgage fraud. Perpetrators also recruit people who have access to tools that enable them to falsify income and asset levels, engage in the illegal transfer of property, produce fraudulent tax return documents and accomplish other tasks in furtherance of the schemes.
The FBI’s analysis of available data indicates that the top states for known or suspected mortgage fraud activity during 2010 were California, Florida, New York, Illinois, Nevada, Arizona, Michigan, Texas, Georgia, Maryland, and New Jersey.
According to the FBI, the most prevalent mortgage fraud schemes identified in FY 2010 involved loan origination, foreclosure rescue, real estate investment, equity skimming, short sales, illegal property flipping, title/escrow/settlement, commercial loans and builder bailouts. Home equity line of credit (HELOC), reverse mortgage fraud, and fraud involving loan modifications are still a concern for law enforcement and industry.
Here are some examples of some of the reported fraud variations that are examined in the 2010 report:
Loan Origination
Loan origination schemes have remained a constant problem over the last several years and usually involve falsifying a borrower's financial information or identity. This category includes the growth of schemes that are used to qualify for the numerous government- and industry-sponsored loan modification, forbearance and other relief programs that have been developed to reduce foreclosures. Common devices include falsified income and asset, hardship, property value and other qualifying information.
Title/Escrow/Settlement Fraud
These scams involve the diversion or embezzlement of closing proceeds and commonly include the failure to pay off mortgage loans after refinance closings; reconveyance or transfer of property without the homeowner's knowledge; failure to record closing documents; recording deeds without obtaining title insurance for which homeowners have been charged; and filing fraudulent liens, among others.
Real Estate Investment
Fraudsters continue to use various methods to persuade investors or borrowers to purchase rental properties or land at fraudulently inflated values under the guise of quick appreciation.
Short Sales
Given the prevalence of short sale transactions in the current U.S. real estate market, it is no surprise that short sale scams are a major problem. A common form of short sale fraud involves purchasing foreclosed properties via short sale, but not submitting the “best offer” to the lender and subsequently selling the property within a short period of time for a significant profit.
Among other reported devices, fraudsters manipulate broker price opinions (BPOs) and MLS data, fail to record short sale deeds of trust, provide false information to appraisers and engage in “reverse staging”, such as taking unflattering photographs of the property to manipulate valuation.
Commercial Real Estate Loans
Commercial real estate loan fraud schemes continue to mirror residential loan fraud, including same-day property flips; false financial documents, performance data, in-voices, tax returns and zoning letters; diversion of loans proceeds; misrepresentation of assets and employment; inflated appraisals; and money laundering. The FBI says that commercial real estate-driven bank failures may ex-pose related insider and accounting fraud.
Foreclosure Rescue
Foreclosure rescue schemes continue to proliferate, often in association with advance fee/loan modification schemes. Perpetrators convince homeowners that they can save their homes from foreclosure through deed trans-fers and the payment of up-front fees. The “rescue” often involves a manipulated process involving forged deeds and other documents. In extreme instances, perpetrators may sell the home or secure a second loan without the home-owners’ knowledge.
Builder Bailouts
Builders continue to employ schemes to offset losses, cir-cumvent debt and avoid bankruptcy as home sales suffer from escalating foreclosures, rising inventory and declining demand. These typically consist of builders offering exces-sive buyer incentives that are not disclosed on mortgage loan documents.
Debt Elimination/Reduction
The FBI reports a continued effort by “sovereign citi-zen” domestic extremists throughout the U.S. to per-petuate and train other in the use of debt elimination schemes. Victims pay advance fees to for informa-tion on how to file fraudulent liens, proof of claims, entitlement orders and other documents to prevent foreclosures.
The Outlook
The FBI says that mortgage fraud is still attractive to criminals because it enables high profits with a relative low risk of discovery. Depressed U.S. housing markets create attractive environments for perpetrators who will continue to seek new methods that take advantage of loopholes in mortgage lending practices. The FBI says that, “These methods will likely remain effective in the near term, as the housing market is anticipated to remain stagnant through at least 2011.”
"Drawing from a broad array of governmental and private sector resources, the U.S. Federal Bureau of Investigation (FBI) recently released its 2010 Mortgage Fraud Report. The latest version of the annual report examines the continuing prevalence of mortgage fraud in U.S. real estate transactions, a trend that is unlikely to wane in the near future. The report highlights current mortgage fraud schemes and "hot spots", and also indicates that organized crime groups are becoming increasingly involved in mortgage fraud.
According to the report, mortgage fraud continued at elevated levels in 2010, consistent with the results of the 2009 report. The FBI says that the schemes are readily adapted to changes in mortgage lending that are being driven by the economy, new legislation and developing practices. The FBI also says that there have been numerous instances in which various organized criminal groups have been involved in mortgage fraud activity. Asian, Balkan, Armenian, La Cosa Nostra, Russian and Eurasian organized crime groups have been linked to various mortgage fraud schemes, such as short sale fraud and loan origination schemes.
The FBI says that perpetrators use their experience in banking and mortgage-related businesses to exploit vulnerabilities and often have a high level of access to the financial documents, systems and professional licensure information that provide means for committing mortgage fraud. Perpetrators also recruit people who have access to tools that enable them to falsify income and asset levels, engage in the illegal transfer of property, produce fraudulent tax return documents and accomplish other tasks in furtherance of the schemes.
The FBI’s analysis of available data indicates that the top states for known or suspected mortgage fraud activity during 2010 were California, Florida, New York, Illinois, Nevada, Arizona, Michigan, Texas, Georgia, Maryland, and New Jersey.
According to the FBI, the most prevalent mortgage fraud schemes identified in FY 2010 involved loan origination, foreclosure rescue, real estate investment, equity skimming, short sales, illegal property flipping, title/escrow/settlement, commercial loans and builder bailouts. Home equity line of credit (HELOC), reverse mortgage fraud, and fraud involving loan modifications are still a concern for law enforcement and industry.
Here are some examples of some of the reported fraud variations that are examined in the 2010 report:
Loan Origination
Loan origination schemes have remained a constant problem over the last several years and usually involve falsifying a borrower's financial information or identity. This category includes the growth of schemes that are used to qualify for the numerous government- and industry-sponsored loan modification, forbearance and other relief programs that have been developed to reduce foreclosures. Common devices include falsified income and asset, hardship, property value and other qualifying information.
Title/Escrow/Settlement Fraud
These scams involve the diversion or embezzlement of closing proceeds and commonly include the failure to pay off mortgage loans after refinance closings; reconveyance or transfer of property without the homeowner's knowledge; failure to record closing documents; recording deeds without obtaining title insurance for which homeowners have been charged; and filing fraudulent liens, among others.
Real Estate Investment
Fraudsters continue to use various methods to persuade investors or borrowers to purchase rental properties or land at fraudulently inflated values under the guise of quick appreciation.
Short Sales
Given the prevalence of short sale transactions in the current U.S. real estate market, it is no surprise that short sale scams are a major problem. A common form of short sale fraud involves purchasing foreclosed properties via short sale, but not submitting the “best offer” to the lender and subsequently selling the property within a short period of time for a significant profit.
Among other reported devices, fraudsters manipulate broker price opinions (BPOs) and MLS data, fail to record short sale deeds of trust, provide false information to appraisers and engage in “reverse staging”, such as taking unflattering photographs of the property to manipulate valuation.
Commercial Real Estate Loans
Commercial real estate loan fraud schemes continue to mirror residential loan fraud, including same-day property flips; false financial documents, performance data, in-voices, tax returns and zoning letters; diversion of loans proceeds; misrepresentation of assets and employment; inflated appraisals; and money laundering. The FBI says that commercial real estate-driven bank failures may ex-pose related insider and accounting fraud.
Foreclosure Rescue
Foreclosure rescue schemes continue to proliferate, often in association with advance fee/loan modification schemes. Perpetrators convince homeowners that they can save their homes from foreclosure through deed trans-fers and the payment of up-front fees. The “rescue” often involves a manipulated process involving forged deeds and other documents. In extreme instances, perpetrators may sell the home or secure a second loan without the home-owners’ knowledge.
Builder Bailouts
Builders continue to employ schemes to offset losses, cir-cumvent debt and avoid bankruptcy as home sales suffer from escalating foreclosures, rising inventory and declining demand. These typically consist of builders offering exces-sive buyer incentives that are not disclosed on mortgage loan documents.
Debt Elimination/Reduction
The FBI reports a continued effort by “sovereign citi-zen” domestic extremists throughout the U.S. to per-petuate and train other in the use of debt elimination schemes. Victims pay advance fees to for informa-tion on how to file fraudulent liens, proof of claims, entitlement orders and other documents to prevent foreclosures.
The Outlook
The FBI says that mortgage fraud is still attractive to criminals because it enables high profits with a relative low risk of discovery. Depressed U.S. housing markets create attractive environments for perpetrators who will continue to seek new methods that take advantage of loopholes in mortgage lending practices. The FBI says that, “These methods will likely remain effective in the near term, as the housing market is anticipated to remain stagnant through at least 2011.”
