Located on a busy section of South Santa Fe Avenue in Vista, Aguilera’s Bookkeeping & Income Tax isn’t the kind of business that draws much attention. It sits next to a hair salon and supply business, and across from an auto shop. The red paint on the three steps leading to the small office is chipped and flaking.
But federal prosecutors say the business was the center of a mortgage fraud scheme that churned out scores of bogus W-2 forms, fake pay stubs and false tax records for a network of almost two dozen real estate agents and loan officers.
The documents helped secure about $55 million in fraudulent loans from banks and mortgage companies between 2002 and 2008 to purchase homes in San Diego County and the San Francisco Bay Area, court records show.
This kind of fraud was rampant during the real estate boom days of a few years ago and peaked in San Diego County in 2006. But new government regulations and greater vigilance by burned lenders are helping to ease mortgage fraud schemes.
“In 2011 and 2012, we expect to see reports of fraud come down because a lot of the policies lenders have put in place are starting to work,” said Frank McKenna, vice president for fraud strategy at CoreLogic, a Santa Ana-based research firm that tracks fraud reported by lenders.
The ignorance prevails – I talked to the clerk at the association of realtors today, who said he has only heard of one case of short sale fraud. I see at least one case every day!
From the sddt.com:
Short sale fraud is costing lenders hundreds of millions of dollars as short sales increasingly take the place of foreclosures as a solution for distressed mortgages. Among properties involved short sales, four percent are resold within the following 18 months, and 1.87 percent are part of an “egregious flip,” according to a short sale research study released Aug. 10 by CoreLogic (NYSE: CLGX).
The study assesses the risk for lenders of short sale fraud. CoreLogic defines such fraud as “a transaction where parties involved in the process manipulate the short sale transaction and/or subsequent transaction for profit.”
As a clear-cut example, imagine an agent hired on behalf of a lender to make a sale, where the lender is open to a short sale. After receiving an offer from a would-be buyer, the agent then contacts a third-party investor to make a lower offer than that of the would-be buyer. The agent then submits only the lower offer to the lender. After negotiating the short sale at the lower price, the agent then negotiates a subsequent sale at the higher price between the third-party investor and the initial potential buyer. The agent and the investor share the difference in the price.
“The fraud I guess is when there’s collusion when going into a short sale,” said Mark Riedy of The University of San Diego’s Burnham-Moores Center for Real Estate. Freddie Mac defines the practices as “any misrepresentation or deliberate omission of fact that would induce the lender, investor, or insurer to agree to the terms of a short payoff that it would not approve had all facts been known.”
Of all short sales nationwide, 55.8 percent took place in California, Arizona, Florida, and Texas. California alone accounts for 16.75 percent.
CoreLogic’s report defines a lender’s “unnecessary loss” on a short sale by the short-sale-to-resale percentage gain in price compared to the period between the two sales. But Riedy says that’s too simplistic a qualification. “If I go through short sale as an owner and told you what’s happening and this is the price, and you come in right behind it, it still might take six months to turn it because lenders take so long to agree to a short sale by going through committee,” he said. Riedy also notes that a longer delay could work in the fraudulent party’s favor, as rising home prices might produce a stronger return six months from now.
Hat tip to shadash for sending this along, a story about the Mark condo overlooking Petco Park:
Developer Norman Radow expected some thanks in April when he offered to repay a $35 million defaulted loan on a 32-story San Diego condominium project he had taken over, originally financed by failed Corus Bank.
Instead, his new lender urged him to keep the money.
Even more striking to Radow was that the lender was a company majority-owned by the Federal Deposit Insurance Corp., an arm of the government swamped with bad debts, whose partners were private investors led by Starwood Capital Group LLC.
“They said they wanted to keep the principal outstanding longer because they had a zero-percent loan from the government, and it was worth more for them to keep our loan out,” said Radow, 52, chief executive officer of Radco Companies, an Atlanta-based distressed-property firm that has sold 85 percent of the 244 units in the Mark, overlooking San Diego’s Petco Park stadium. “The sooner you repay us, the worse it is for us.”
While Radow repaid the loan anyway, his experience shows how a new FDIC strategy for managing assets seized from failed banks has turned the agency into a long-term investor, making a multibillion-dollar bet on the recovery of some of the most distressed condominium markets in the country, from Miami to Las Vegas. Instead of selling the assets to maximize cash in hand, the agency is offering its private-sector partners zero-percent financing, management fees and new loans to complete construction of projects it can hold until markets recover.
While the strategy entails greater risk if real estate prices fall or don’t rise as much as hoped, agency officials say it offers a better chance to replenish their deposit insurance fund — which was overdrawn by almost $21 billion as of the end of the first quarter — than sales for cash. More than 260 banks have failed since 2007.
“While using LLCs to sell loans is not risk-free by any means, it is a calculated risk well worth taking,” said David Barr, a spokesman for the FDIC. “Alternatives would be either to hold the loans and work them out ourselves or sell them outright for cash, both of which have their own risks associated with them, as well.”
An LLC is a limited liability company. In the case of the Corus loans — $4.5 billion in financing for 102 real estate developments across the U.S., including 79 condominium buildings — the FDIC transferred the assets to an LLC in which it retained a 60 percent stake. It sold the remaining 40 percent to the Starwood-led group of private investors, offering it an interest-free loan for half of the purchase price.
U.S. senators or Senate employees received 30 loans—far more than had previously been known—under a controversial lending program at Countrywide Financial Corp. that provided cut-rate terms to favored borrowers.
The information is contained in a letter sent to the Senate Select Committee on Ethics by Rep. Darrell Issa (R., Calif.), who has been spearheading the House Oversight and Government Reform Committee’s investigation into Countrywide’s so-called VIP mortgage program.
No specific loan recipients were named in the letter. But Mr. Issa’s letter said borrowers on a dozen loans listed their place of employment as the office of “Senator Robert Bennett.” Available public records don’t indicate that Sen. Bennett, a Utah Republican and member of the Senate Banking Committee, received a Countrywide home loan.
Sens. Christopher Dodd (D., Conn.) and Kent Conrad (D., N.D.), have previously been identified among the high-profile individuals who received such loans. Both senators have denied wrongdoing. Until the Issa letter, no other senators or their staff members had been linked to the VIP loan program.
The VIP program operated during the housing boom earlier this decade, often writing mortgages with terms more favorable than those available to the general public. An estimated 28,000 loans were made, mostly to private parties such as Countrywide employees or their friends and relatives.
The House Oversight panel, where Mr. Issa is the ranking Republican member, is probing whether such loans were issued to public officials in an attempt to influence them. Last year, the committee subpoenaed VIP loan records from Bank of America.
In his letter dated July 13, Mr. Issa wrote that on seven loans not tied to Mr. Bennett’s office, the borrowers listed their place of employment as “U.S. Senator.” Another 11 listed the “U.S. Senate.” In response to questions, a spokesman for Mr. Issa said the House committee didn’t receive the names of the borrowers from Bank of America.
More than one loan could have gone to the same person, such as a mortgage and a separate home-equity line of credit. Mr. Conrad received four Countrywide loans, a spokesman for the senator said. Mr. Dodd reportedly received at least two. Their loans were presumably included in the 30.
Mr. Issa’s efforts to investigate the VIP loan program were stymied for a time by the unwillingness of the House oversight panel’s chairman, New York Democrat Edolphus Towns, to issue a subpoena to Bank of America for the VIP program records.
The Securities and Exchange Commission has a pending civil fraud suit against three former top company executives, including longtime Chief Executive Angelo Mozilo. The three have denied wrongdoing, and a trial is scheduled for October in a Los Angeles federal court.
Fortuno, a company that bills itself as the “Costco of real estate,” has been sued by investors in Los Angeles Superior Court for allegedly duping them into buying what were essentially worthless REO properties.
The unrelated plaintiffs claim they were mislead into investing in an REO property flipping scheme that left them with virtually worthless properties, while Lodi, Calif.-based Fortuno made money off the deals, according to the suit, filed by the Law Offices of Andrew M. Wyatt of Los Angeles.
The suit claims Fortuno and four executives — CEO William Yotty, CFO Harry Martin, Senior Vice President of Operations Barbara Thomas and President of Customer Service and Sales Bruce Grogg — misrepresented to plaintiffs that it would sell the investors homes at low-price mark-ups and that it could then help them re-sell the houses to third parties at substantially higher prices. The 24 plaintiffs in the suit bought a combined 41 REO properties in Ohio and Michigan for prices ranging from $25,000 to $31,995 each.
“Through the use of other independent real estate marketing sources, the Fortuno Enterprise sells dilapidated condemnable homes for $10,000 to $20,000 more than they paid for and were not ‘fixer uppers,’ ” the suit claims. “After relying on these representations, Plaintiffs purchased the homes to find that they were not inhabitable and required extensive repairs.”
“The Fortuno Enterprise also promised to find a buyer for the properties at a substantial profit to plaintiffs. The so-called buyers were unqualified and often failed to make payments thereby creating a hold-over tenant requiring eviction,” the allegations continue. “For other plaintiffs, no purchasers could be found and the houses were unmarketable in their current conditions.”
The plaintiffs claim they were told Fortuno would “do everything for them” to facilitate the sale, and once the investor took ownership, the company could help the investor either make repairs necessary to sell it as a nondistressed home or ready it as a rental property, at substantial profit to the investor.
Instead, the suit claims Fortuno sold the plaintiffs homes in poor, unmarketable condition with high-price mark-ups, while also failing to find qualified buyers. After the purchase, the plaintiffs allegedly unforeseeably encountered significant “fix-up” costs; threats of condemnation by local government officials for safety violations; an inability to sell the houses due to their dilapidated condition and lack of qualified buyers; negative cash-flow; high property taxes; and eviction legal costs when the buyers defaulted on payments.
NEW YORK (CNNMoney.com) — More than 1,200 prison inmates, including 241 serving life sentences, defrauded the government of $9.1 million in tax credits reserved for first-time homebuyers, according to a Treasury Department report released Wednesday.
Treasury’s inspector general also found that thousands of people filed multiple claims or made claims outside the allotted time period. In all, more than $28 million was improperly doled out. The Internal Revenue Service program at issue is meant to stimulate the housing market by giving tax credits of as much as $8,000 to qualifying first-time home buyers.
“Additional controls are necessary to address erroneous claims for the credit,” the report stated. “Further, fraudulent and questionable claims processed prior to implementation of controls will need follow-up action by the IRS.”
According to the report, 4,608 state and federal inmates filed for these tax credits, and that fraudulent refunds were doled out to 1,295 of them. The inspector general’s report said the most “egregious” fraudsters were 715 prison lifers, including 174 who filed with the help of paid preparers. From this group, 241 lifers were awarded $1.7 million. The problem was particularly bad in Florida: 61% of the lifers who got credits were incarcerated in the Sunshine State.
The homebuyer tax credit program was very specific about the time period in which homebuyers were allowed to participate, though this rule seems to be the most widely violated. The credit was for home purchases that happened after April 8, 2008, with a cut-off date that was eventually extended to May 1, 2010.
The report found that the IRS awarded $17.6 million to 2,555 filers who had bought their homes before the credit program kicked in.
The inspector general also identified 206 filers who claimed the credit for multiple addresses; these fraudulent filers were awarded a total of $1.4 million.
The report also found that improper filers included 34 employees of the IRS. This is in addition to 53 IRS employees that the inspector general identified last year as improper filers.
The woman who was hauled away for squatting in a $3.3 million house? She has no intention of backing down. She’s going to keep staking her claim to a house she insists nobody actually owns.
Plus she is staking claims to 10 other houses in the Seattle area that have gone into foreclosure and been passed from bank to bank.
She’s doing it all, she insists, not to make money. But to stick it to the banks. “Banks do whatever they want and nobody holds them accountable,” Jill Lane said by phone from Disneyland, where she was vacationing after being released by Kirkland police.
“It makes me ill to see what the banks are doing. They aren’t using their bailout money to help anyone. So I’m standing up for the people who are being brutalized by banks every day.”
“This is a national movement,” seconded Jim McClung, a former Bothell real-estate agent and owner of NW Note Elimination, a company he runs with Lane that counsels people in how to “eliminate mortgages” as well as take over empty, foreclosed houses.
“What happened in Kirkland is just the tip of the iceberg.”
It sure is, suggests the FBI. Last week the feds released a report saying housing-related schemes are soaring, including what the agency called “property theft targeting bank-owned properties.”
The government announced a massive indictment Wednesday against the former head of Taylor, Bean & Whitaker, alleging a widespread fraud of nearly $2 billion that, officials said, helped trigger the biggest bank failure of 2009.
In a 16-count indictment, the Justice Department alleged Lee Bentley Farkas, the mortgage lender’s founder and former chairman, abused Taylor Bean’s business relationship with the $25-billion-asset Colonial Bank Group, faked loans to help mask problems at both companies and attempted to help Colonial dupe the Troubled Asset Relief Program.
If found guilty of all counts, Farkas, who was arrested Monday, could face a maximum prison term of more than 400 years. The government said it was seeking $22 million in forfeiture.
“The fraud alleged here is truly stunning in its scale and complexity,” Assistant Attorney General Lanny Breuer said at a press conference announcing the charges, which were accompanied by a civil complaint against Farkas by the Securities and Exchange Commission.
Colonial and Taylor Bean had an extensive warehouse credit relationship, in which the bank provided Taylor Bean with continuous liquidity to make loans. That relationship began to go awry in 2002, the government said, as Taylor Bean began having cash problems. According to court filings, Farkas and others ran overdrafts on Taylor Bean’s accounts at Colonial, compelled the bank to buy over $400 million in fake loans from Taylor Bean and hid distressed Taylor Bean loans that the lender could not sell. Under the arrangement, Colonial, which failed in August 2009, held loans on its books at face value when in reality they were worthless.
The alleged fraud was detected as a result of Colonial’s Tarp application, in which it sought $570 million from the Treasury Department. Regulators agreed to give it the money, but only if raised $300 million in private capital.
The agent first inputted this listing onto the MLS on October 29th, noting that the list date was 6/30/09 – why do you wait four months to get it on the MLS?
It was immediately marked pending, then withdrawn all within a few minutes. A couple of weeks ago she changes it from withdrawn to sold in the MLS, noting that it was a short sale that needed work, the contract date was 7/18/09, and that the buyer’s agent was an anonymous out-of-towner:
There are so many of these happening, the banking industry should put a cap on commissions to reduce the temptation – or pay a reward for reporting them.
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