Reader tips for the FBI on spotting mortgage fraud

Responding to reports of the FBI's "crackdown" on mortgage fraud -- 144 cases nationwide in recent months -- readers here were unimpressed. Bill commented, "Heck, I could find 144 cases within a 10-minute walk of my house."

Laker adds, "Funny, you don't need FBI investigators spending months researching ... just check sales of houses in 2006, 2007 that got foreclosed within 12 months."

In the spirit of public service, a couple of readers have pointed out a pattern they believe might indicate mortgage fraud.

I'll go slowly: Readers of this blog believe a tell-tale sign of mortgage fraud is when a house sells at what appears to be a wildly inflated price. Then the house goes into foreclosure, or comes back on the market rather quickly, at a much lower price. These would be hints that the high sales price may have been fraudulent, creating a nice windfall of profit for the seller and the "buyer" (who had no intention of paying for the house) to split when they walk away from said house. A ding to the "buyer's" credit score, but a nice windfall.

Here's an example:
House sells in October 2004 for $800,000.
Same house sells again in August 2006 for $1.8 million.
House now for sale, listed at $1.1 millon.

Or:
House sells in February 2007 for $510,000.
House goes into foreclosure and is listed for sale at $279,000.

Your thoughts? Comments? E-mail story tips to peter.viles@latimes.com.

Comments

[TakeFive]

"In the spirit of public service, a couple of readers have pointed out a pattern they believe might indicate mortgage fraud."

And this one: signs posted on telephone polls seeking a "Real Estate Apprentice. Earn up to $100k per year. No experience necessary".

My guess - bait for straw buyers.

[Westside Bubble]

You wrote about this one.

It sold 9/06 for $1,390K, but is now down to $699,900 as REO. That's 50% off, where nearby prices have been pretty stable.

http://westside-bubble.blogspot.com/2008/03/
freeway-foreclosure.html

[TakeFive]

According to this web site, those Real Estate Apprentice signs are an MLM operation (e.g., Amway) for, get this, "Nouveau Riche University"

http://www.cockeyed.com/citizen/nouveauriche/
nouveau_riche_toc.shtml

Buy-in is in the thousands for their "classes".

[Laker]

Thanks Peter for spending a minute on this.
I need to be honest. I'm jealous. Why? Coz just last week i was sitting in a birthday party. When one guy that i do not know is leaving US to mexico in couple of weeks. He told me that he just got $900,000 out of a "sale" of two houses that he sold/bought using a jumbo mortgages. He is retiring in Mexico and assured me he can live for the rest of his life there. (He is 35 years old)
I asked him don't you worry that your credit is done? He said:nahhhh. Who cares. He asked me whether i will be willing to forgive my 800 FICO for $800,000 cash....that is why I'm jealous. He basically was a straw buyer on one house back in early 2007. He "received" a cash back from the seller....to the tunes of $500,000 after getting a mortgage for $1.6M 80/20 zero down....He also made about $400,000 on another house being the seller.
Guy is a crook, his credit is toasted, but he has almost 1 Mill...
While my daily/weekly searching of houses might sound cherry picking by shockgs, it is reality and i was amazed to actually meet in person such a guy that I've been talking about in many of these "nice" sales...

[mrincomestream]

Granted you have some instances where the buyer and seller are complicit in the scheme...but for the most part it's industry folks taking advantage of the uninformed, first time buyers, and unsuspecting illegals or foreigners...

The bigger question is how far are prices going to fall when you when you elimate the fraud in the market prices and revert back to fundamentals...in your examples above you show at least 50% of the value is fraudalent compound that wit ha downpant requirement and documenting income and the coming rise in interest rates....and L.A. has a problem that hasn't even begun...
even with the example above of a 279k that's just a wishing price for all anyone knows in the coming days it may only be worth 150k if that...it'll be interesting to see what the new year brings after the elections...I predict the banks will have a whole lot more inventory...anybody buying now is a fool...

[tew]

This is almost as good as a few years ago when they did a nationwide investigation of Wal*Mart and found a couple dozen illegal immigrants among its janitorial contractors. Wow! Were we supposed to be impressed?

[Uncle Billy Pulls A Fast One]

Can we get 30% of all recovered assets from the scamsters if we help bust them?

The guy who sold the germans info on the tax friendly lichtenstein bank accounts already made millions from the sale. He is also allowed to collect 30% of whatever the United States govt. collects as well. There was easily a billion american dollars in those accounts. That is one wealthy protection program rat-fink.

[MyLessThanPrimeBeef]

What's a little dinge in your credit score if you took the loot, coverted it into the local currency while the dollar was strong and now you are able to live comfortably in Levant, Sahel, Europe, Asia, Maghrib, Africa or Latin America?

It's time for Bank of George Bailey again. People should know where to send their checks, who their bankers are and who the borrowers are. Stone Age, you say? Well, you never have to worry about eating bad tomatoes then.

[Steve]

What a joke, address the root cause. Eleminate the commission model and make it law salary only for mortgage brokers. Stop using appraisers, it is a wasted cost and technology is now more objective and cost effective. Until they address the root causes nothing will change.

[Lou]

I worked for a major subprime lender here in SoCal after I graduated from college in 02. I wish I recorded the names of all the shady brokers I dealt with because they were all dirty. Also, the lender itself is also dirty. A lot of former workers could drop a lot of dirt of these companies. If the FBI ever investigated my former company, I would gladly drop the dime in 2 seconds. I'm actually thinking about contacting the FBI.

(For those who want to know, I quit that job in disgust after my superiors found nothing wrong with a 100% cash out refi in an 80/20 ARM for a retiree who owned her home free and clear.)

[Nelcisco]

mrincomestream,you answered your question in the same sentence:"how far are prices going to fall? when
we revert back to fundamentals" is the answer. Real income, down payment, acceptable debt-to-income ratio.
Data back in January a study on yahoo suggested that only 3% of angelenos can afford a house . If the average income across the board can only support 150k then housing will drop that low, but I don't think it'll ever get that low again. I can see 279k. But who knows?,
long way still yet to go.

[caliguy2699]

This is possibly an example of fraud in Orange County (at least it's suspicious).

House sold for more than $100k over the asking price in 2007, went to foreclosure before too long and is now REO, 42% off the peak sales price.

http://www.southoctracker.com/2008/06/
jump-on-inwaters-fine.html

[michael]

Heck I could give them 1000 people to arrest, just read the local papers and get everyone who admits in the article they falsified their income and the broker who got them to do it...

[Nelcisco]

primebeef, if you think about it was the George Bailey
generousity that created this mess, Potter banking is what we need to go back to

[cass]

Peter: You clearly missed your true calling, you are meant to be a G-Man!!!

I had some clients who were scammed by a dirty builder, mortgage broker, and appraiser back toward the beginning of this whole run up. My clients were totally wiped out while the builder, broker, and appraiser laughed all the way to the bank. I spent 2 years trying (in vain) to find anyone at either the state or federal level to go after the bad guys--no luck. There just does not seem to be any will to actually do anything more than put on a good press conference.

[MyLessThanPrimeBeef]

Nelsico, it's all absentminded Uncle Billy's fault.

He must have been daydreaming about mountain climbing when he forgot the money.

[Uncle Billy Bails On Mt. Pelerin]

Sorry. Uncle Billy had to go out and see what the world was like for himself today.

Yes I forgot the money. If Potter was willing to play by the rules, and be a good person, he could have made pots of money without losing his soul, and the whole community would have been better off. But he didn't and he doesn't, and here I am, talking to myself and barking like a dog.

Nel, read about the bank runs in the early part of the previous century... these were not caused by George Bailey.

[Ace]

Laker 'When one guy that i do not know is leaving US to mexico in couple of weeks. He told me that he just got $900,000 out of a "sale" of two houses that he sold/bought using a jumbo mortgages.'

Laker, you seem to know a lot of shady people. What gives?

[Housing Bull Chorus]

Easy.

Just create a database of Stated Income loans and cross reference it to the "staters" IRS returns. If the loan stinks and a particular realtor or mortgage broker shows up on more than 2 loans (3 strikes and your out!)...bust 'em and banish 'em.

Papillon Style!

However, this probably wouldn't be the most cost effective way as you would need a fairly large island to house all of these people. And most likely...everyone will "play dumb.

Should the "participants" (buyer/banker/realtor) choose to "play dumb" and yammer on about how they didn't understand the terms of the loan, the fine print, option-ARM toxicity...whatever, this is what we need to do...

Sterilize them, Tattoo both cheeks with an "S" for "stoo-pid" and then let them go.

At least they won't be able to reproduce, and the S's on their cheeks help smart people to avoid doing business with them in the future as they will be easy to spot.

[Uncle Billy Theorizes]

Check this out. Someone at the Santa Fe Institute had a great idea and it got publicized! The academic world might be on to the fact that sometimes we behave like George Bailey simply because we're good people and we care about one another.

"The Economics of Nice Folks"
http://tinyurl.com/3zwzkh
(courtesy economistsview.typepad.com)

[Uncle Billy Mines Mt. Pelerin For Guano]

I have a feeling that the fbi will never investigate The Donald's real estate dealings.

He just made $60M (or his "investors" did) flipping the mother of all mcmansions.

http://tinyurl.com/63bmld

Russian fertilizer king is buying it. roflmaobagaflog

All cash, or $90,000,000 loan secured by piles of russian poop?

Wonder if this was the mysterious russian rumored to have expressed an interest in buying the Riordan place Malibu.

[Nelcisco]

LOL, I'm tell you primebeef, you need an agent

[Jet]

http://www.stock-market-crash.net/coming-crash.htm

This shows chart 100 years of total debt to GDP ratio. It peaked at 270% during 30's depression. Seems to run around 120% during "normal" times and is about 300% now. US GDP is $15 Trillion so I guess total debt is around $45Trillion. Mortgage debt in US is about $10Trillion, National debt is another $10 Trillion, $25 Trillion Credit Cards and misc. The world is heading for Greater Depression just based on this one ratio. Are there any adults running things???? Is everyone running things stupid or are they just in on it??? Mortgage Fraud 400 cases - are you kidding the entire world economy and everyone in is part of this. Put one in jail might as well put everyone in jail - its a witch hunt.

The only solution is some sort of economic reset. Cancel all debts - possession 9/10 the law. Then start the music again different tune.

Much of the debt is circular - we owe it to ourselves. Pension Funds "gave" money to Hedge Funds who "invested" it in Mortgages. The same people who take out mortgages also own pensions.

The Banks thought they owned the world. They can create money out of nothing in the form of debt. All money in circulation started off as debt. Somehow Pension Funds showed up at the party and created the shadow banking system. Pension Money sloshing around combined with Federal Reserve and Banking debt are about to collapse the world financial system we all count on for our survival.

Well that whole system is not reliable enough to bet your life on. Lets make a new system.

[JBA12621]

I also worked for a now gone mortgage company here and lost my job last year. I worked as a "quality underwriter" (pretend fraud underwriter) for this company. It made me so mad that I would find such obvious fraud and they would look the other way. If I had any of the names or information, I would call the FBI and turn them in...but since I don't its nice to see that karmas coming back to some of them...hopefully all of them in time.....

[Tokyo Temp- Ex LA Renter]

How the hell does one make 12.8 Billion USD in fertilizer? OK legally? Probably not the case in Dmitry's case?

[Laker]

Ace,
There were 70-100 people at that party, i was just talking to one guy, i really don't know him. I did see the car he drives...AMG 600 something.
Also, while back i mentioned here that i have a friend that was renting a house from probably a fraudsters. But that's about it, i don't personally know/met other fraudsters... I do find ton of fraud while searching for a house.
So Ace, nothing gives.

mrincomestream points out a good question about where prices will go once everything is settled down.
mrincomestream, the combination of NO Stated income loans and down payment requirement is a death sentence to the so cal RE. Let's thing about it, most 2004-2007 did not have/use down payment. If you remove people like this from the qualified buyers, you roll back pricing to at least 2002-3 prices. The huge amount of foreclosures will skew the inventory and will create a fake added supply of houses. That fact will roll back prices to 2001-2002 prices.
The big one however, is the stated income. We all know that there is some percentage of people that make money and do not report it/can't document it for whatever reason. There people can afford certain houses/mortgages but will NOT get the loans for these houses that they actually can afford. So we get here a problem that afford ability will not match pricing as these buyers would not get financing to buy them. If you think about it, it will skew the prices again and LOWER than mean prices for the neighborhoods. We could get 1998-1999 prices as a result of this. And since the lack of stated income is mainly applicable to product higher than $417,000 - that means....high end of LA will crash as a result of this.

[Guano Miner]

Retraction: the russian fortune mentioned above is not built on poop. It's built on mined potash. Isn't this worse though? Does most of this go for agriculture, or does it go to making bombs?

Here's some info on slavic success stories:

http://www.kommersant.com/t-9836/r_4/n_463/

The Prince of Potash, our happy homeowner, is listed there, about 1/3 of the way down the page.

[some investor guy]

Some people who have a case where they know the details and are having difficulty getting federal, state, or local prosecution, should consider civil RICO charges if the perpetrators have money, committed a series of similar offenses, and can still be found.

"Every RICO claim must be based on a criminal violation or, as the statute states, an "act of racketeering." "Acts of racketeering" are all serious crimes and are listed in section 1961(1) of the RICO Act. A civil plaintiff must not only prove that the defendant engaged in acts if racketeering, but must also prove that these acts constituted a "pattern" and must prove all of the other elements of a civil RICO claim. The burden of proof that must be sustained by a civil plaintiff is, however, less onerous than the burden imposed upon criminal prosecutors. A civil plaintiff need only convince a jury by a preponderance of evidence that the defendant committed the acts of racketeering; whereas, a criminal prosecutor must establish the acts of racketeering beyond the reasonable doubt of the jury. The other difference between a civil and criminal RICO claim is the resulting penalties. If a plaintiff succeeds in establishing a civil RICO claim, he or she will be awarded monetary damages, in particular three times the actual damages established at trial plus the plaintiff's attorneys' fees and costs. If a prosecutor establishes a criminal RICO claim, the defendant goes to jail. The greater burden of proof imposed upon a prosecutor arises from the fact that the end result of a successful criminal prosecution is the loss of the defendant's liberty, not just his money. " http://www.ricoact.com/ricoact/faq.asp#remedies

One of the likely RICO sections to be violated is 18 USC 1344: "Whoever knowingly executes, or attempts to execute, a scheme or artifice—
(1) to defraud a financial institution; or
(2) to obtain any of the moneys, funds, credits, assets, securities, or other property owned by, or under the custody or control of, a financial institution, by means of false or fraudulent pretenses, representations, or promises;
shall be fined not more than $1,000,000 or imprisoned not more than 30 years, or both." That section is also available for civil RICO charges in civil court, and does not require that the person was prosecuted criminally.

[dilbert dogbert]

Uncle Billy,
Don't swallow all of Mt. Pelerin. Take small bites infreqently with lots of booze. Swallowing the whole mountain will cause a tummy ache.

[A Scanner Darkly]

The condition of the Real Estate/Mortgage Lending industry can be explained mememically: Poisonous Imbedded Kleptocratic Thought Viruses.

[Don't Say Uncle]

dilbert: I was working under the assumption that if you just keep whacking away at it, it'll break into smaller more easily edible pieces. Tummy is made of iron. Plus there are so many out there to share with.

Here's a little present: Items 1 and 3 on Lansner's blog today:

http://lansner.freedomblogging.com/

[robert tapia]

here is a blatant example from the Antelope Valley: http://avenue-s.us/flashfraudalert.html