bubbleinfo.com

From the latimes.com:

Remember the federal tax credit programs offering $7,500 and later $8,000 to first-time home buyers? The credits were designed to deliver a jolt to the reeling housing industry, and they did: More than 4 million people applied for and have received nearly $30 billion worth of credits.

Most went to people who legitimately qualified for the credits, according to the Internal Revenue Service, the federal agency that administers them. But a series of audits by the Treasury’s inspector general for tax administration has documented foul-ups by the IRS, including credits granted to prison inmates and dead people, fraud schemes involving claimants who never bought a house and even credits for alleged home purchases by teenagers and children as young as 3 years old.

But far more commonplace, according to auditors, were shortcomings by the IRS in distinguishing between taxpayers who were supposed to repay their credits over a 15-year period — as required under the original $7,500 program in 2008 — and people for whom there was no such requirement under later versions of the program allowing credits up to $8,000.

The IRS also had trouble determining whether recipients of the non-repayable credits might have violated rules by selling their homes before the three years of required residency and earning a profit on the sale.

Now a new audit has turned up still more home buyer tax credit problems. According to the inspector general, the IRS has been sending “incorrect” notices to thousands of taxpayers that either inform them that they owe no repayments on their credits when they actually do, or demand repayments from recipients who legally owe nothing.

The latest audit found that 61,427 homeowners were sent erroneous notices, including in part:

• 27,728 who bought homes in 2009 under the non-repayable program but were told to send in payments.
• 12,495 who received the 2008 version of the credit, which was essentially an interest-free loan, but were told no repayments are due.
• 832 dead people who were asked for repayments on their credits despite the fact that the law waives any repayment requirements for deceased taxpayers.

An additional 18,220 owners who were supposed to receive notices of repayments due on their credits never were sent them. The audit also found that an outside vendor hired by the IRS to help identify credit recipients who may have sold their homes early used faulty data that led to 53,558 taxpayers receiving notices erroneously demanding repayments.

A key contributor to the IRS’ early snafus was that the original version of the credit rules required essentially no documentation of home purchases. J. Russell George, Treasury’s inspector general for tax administration, told a congressional hearing this year that “we estimate that at least $485 million of the more than $513 million of potentially erroneous claims we identified were issued with no IRS scrutiny, such as an examination or steps to validate the claim. These erroneous credits might have been denied if documentation requirements were in place.”

IRS plans for the upcoming tax filing season include a shift to a Web-based tool that will help people determine whether they have a repayment requirement.

In the meantime, if you’re one of the estimated million-plus taxpayers in this category, watch for the revised IRS notification approach. And if you get an official demand for a credit repayment that you know is wrong, don’t sweat it. You are probably not alone. Talk to a tax advisor to get it straightened out.

From iwatchnews.org:

In the summer of 2007, a team of corporate investigators sifted through mounds of paper pulled from shred bins at Countrywide Financial Corp. mortgage shops in and around Boston.

By intercepting the documents before they were sliced by the shredder, the investigators were able to uncover what they believed was evidence that branch employees had used scissors, tape and Wite-Out to create fake bank statements, inflated property appraisals and other phony paperwork. Inside the heaps of paper, for example, they found mock-ups that indicated to investigators that workers had, as a matter of routine, literally cut and pasted the address for one home onto an appraisal for a completely different piece of property.

Eileen Foster, the company’s new fraud investigations chief, had seen a lot of slippery behavior in her two-plus decades in the banking business. But she’d never seen anything like this.

By early 2008, she claims, she’d concluded that many in Countrywide’s chain of command were working to cover up massive fraud within the company — outing and then firing whistleblowers who tried to report forgery and other misconduct. People who spoke up, she says, were “taken out.”

By the fall of 2008, she was out of a job too. Countrywide’s new owner, Bank of America Corp., told her it was firing her for “unprofessional conduct.”

Foster began a three-year battle to clear her name and establish that she and other employees had been punished for doing the right thing. Last week, the U.S. Department of Labor ruled that Bank of America had illegally fired her as payback for exposing fraud and retaliation against whistleblowers. It ordered the bank to reinstate her and pay her some $930,000.

When federal officials announced Foster’s victory last week, Bank of America dismissed the case as “an old matter dating from 2008.”

Read the rest of this entry »

From msnbc.com:

Bank of America has been ordered to pay a former employee $930,000 for violating federal whistleblower protection laws.

The Labor Department also ordered the bank to reinstate the worker.

The Los Angeles-area employee led internal investigations that revealed widespread and pervasive wire, mail and bank fraud involving Countrywide employees, according to a Labor Department statement Wednesday.

The payment will cover back wages, interest, compensatory damages and attorney fees.

“It’s clear from our investigation that Bank of America used illegal retaliatory tactics against this employee,” said David Michaels, assistant secretary of the Department of Labor’s Occupational Safety and Health Administration. “This employee showed great courage reporting potential fraud and standing up for the rights of other employees to do the same.”

The employee said those who attempted to report fraud to Countrywide’s Employee Relations Department suffered persistent retaliation.

Bank of America said it plans to challenge the order. The Charlotte, N.C. bank said it dismissed the employee because of issues related to management style rather than the complaints. The bank said it takes allegations of fraud seriously and that the employees allegations were investigated and appropriate actions were taken.

Bank of America’s ill-fated acquisition of Countrywide has led to heavy financial losses, lawsuits and regulatory probes. The bank’s stock lost 48 percent this year, largely because of problems related to poorly-written mortgages at Countrywide. In the first half of the year the bank paid out $12.7 billion to settle claims from investors that it sold them securities backed by faulty mortgages.

The employee, who worked for Countrywide Financial Corp., was fired shortly after the mortgage lender was bought by Bank of America Corp. in 2008.

Thanks to those who commented on the last post about text vs. videos!

It feels like working in a vaccum at times, because not that many people leave comments (which is fine).  If you have thoughts on the blog material or direction, feel free to comment – I think there are only 50-100 commenters, yet there were over 14,000 unique visitors in the last month!

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

Thanks to JP for sending this along:

To help make appraisals more consistent and accurate, the Federal Housing Finance Agency has directed Fannie Mae and Freddie Mac to develop the Uniform Appraisal Dataset (UAD). The UAD will (1) define what fields are required for an appraisal submission and (2) standardize both responses and definitions for certain fields.

Here are just a few of the items impacted by the new appraisal standards:

1. Days on the Market: Days on market is now defined as the total number of continuous days. If a property is taken off the market and then relisted, the appraiser will have to count all of the days it has been listed.
2. Offering Price: The original offering price and history of all price changes must be reported.
3. Property Style: Appraisers must use appropriate architectural design indicators such as “Colonial,” “Farmhouse,” etc. Descriptions such as 1 story, 2 stories, etc are no longer acceptable.
4. Condition of the Subject Property: An overall condition rating must be assigned from the predefined condition categories provided.
5. Quality of Construction: The appraiser must rate the quality of construction of the subject property and all comps using a list of 6 predefined quality levels.

The UAD appraisal standards are required for all appraisals conducted on or after September 1, 2011 for conventional loans sold to Fannie Mae and Freddie Mac.

To read FAQs about the UAD appraisal standards, visit:

https://www.efanniemae.com/sf/lqi/umdp/pdf/uadfaqs.pdf.

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

Hopefully the appraisers will be diligent enough to catch the short-sale listing agents who never expose their listings to the open market – because the Sandicor MLS is still complicit in the fraud.  The typical fraud is for the listing agent to immediately mark the property ‘contingent’ in the MLS upon input – but Sandicor’s MLS doesn’t stop the count of days on market until it’s marked pending.  The date the listing is marked contingent is mentioned in the listing history – but will casual appraisers look there?  Or just take the DOM count which is calculated from listing input to pending?  A typical short sale isn’t marked pending until the short sale is approved, which is 1-6 months after listing input.

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

Here is how B of A is trying to fight short-sale fraud:

BofA short-sale add and broker cert

It’s a general form that has all parties sign that they aren’t committing fraud, which may not stop them but at least make them think about it before doing so.  The listing agent also has to certify that:

“the subject property has been listed on the local multiple listing service at fair market value to provide open market competitive bids to present to the seller as per the terms of the seller/agent listing agreement, and that the marketing is in fact and ‘in spirit’ seeking to maximize the selling price of the property.”

There will be some agents getting out of the short-sale business if they can’t commit fraud, so I hope more banks crack down like this.

I still see 1-3 of these per day, with no end in sight.  Excerpts from this article at msn.com:

Real-estate agent Lynne Wright thought she had found the perfect home for her clients. The quiet house on a cul-de-sac in one of the most prestigious gated communities in Bakersfield, Calif., was offered in a short sale for $40,000 less than similar homes on the market.

Wright and the couple moved quickly and made an offer higher than the asking price, but were outmaneuvered by a husband-and-wife real-estate team in Wright’s brokerage office who wanted to buy it for their own use. She didn’t think much of it, until she saw that the property sold for $40,000 less than the $342,000 her clients had offered.

When she asked the listing agent why, she was told to “leave it alone.”

Wright says she is still not sure if the servicer or owner of the property ever saw her clients’ much higher offer. All she knows is that two agents picked up a luxury property for $80,000 less than market value, the banks took a big loss and the listing agent got both sides of the commission, representing his colleagues.

“It’s just robbery,” she says. “And I don’t know how to stop the robbery.”

Read the rest of this entry »

From sddt.com:

There is one part of the real estate market that is booming: mortgage fraud.

A new report issued this week from the Federal Bureau of Investigation finds the annual loss from devious activities in the mortgage market totals between $4 billion and $6 billion.

“Mortgage fraud ruins lives, destroys families and devastates whole communities, so attacking the problem from every possible direction is vital,” said U.S. Attorney Joseph Russoniello.

Last year the Department of Justice, the FBI and other government agencies launched Operation Stolen Dreams to target mortgage fraudsters across the country. The project led to 485 arrests of people associated with more than $2.3 billion in losses.

Read the rest of this entry »

Thanks to the several people who sent in this article, from CNNMoney.com:

In this latest twist on short sale fraud, scammers have found a way to rip off mortgage lenders by tens of thousands of dollars — sometimes in a matter of hours.

The scam artists, usually real estate agents, will secure a legitimate bid on a home, one where the borrower owes far more on the mortgage than the home is worth. Then they arrange for an accomplice investor to make a lower offer on the home.

The agent then presents the lower bid to the lender and asks them to forgive any remaining balance owed — without disclosing that there was a higher bid made on the home. Once the short sale is approved, the scammer then sells the home to the higher bidder, often on the same day.

“These same-day resales are on average nearly $50,000 greater than the lender agreed upon short-sale price,” said Tim Grace, senior vice president of product management and analytics at CoreLogic, a financial analytics company based in Santa Ana, Calif.

Such transactions are expected to cost lenders more than $375 million this year, up more than 20% from last year, according to CoreLogic

The anatomy of a scam

Most of the time, pulling off one of these scams involves a real estate agent and an investor acting as a “straw buyer.” Sometimes, the owner of the home is involved as well, but not often, said Robert Hagberg, an investigator for the mortgage giant Freddie Mac.

“In most instances, the sellers are apathetic; they’ve, basically, already lost their homes,” he said. With nothing to gain or lose, they allow agents to handle the entire deal.

To get the banks to approve low bids, appraisals or broker price opinions are manipulated. Home prices have plummeted in many housing markets and the house may be worth far less than what the seller paid.

Sometimes, said Hagberg, fraudsters bribe appraisers or brokers to get the prices they want but they can employ sneakier methods as well. One method: Misstating the home’s location so it’s compared with much cheaper places.

One case in California last year involved an expensive Malibu property that the agent said was in Riverside, Calif.

“It didn’t cause any alarm bells to go off at the bank,” said Grace. “The short sale went through at $200,000, which was a fifth of its value. It was turned around for $1 million.”

Sometimes an agent will point out every defect in the home to get appraisers to reduce their values, according to Hagberg. In Wisconsin, an agent left the windows open during spring rains and flooded the basement. He told the appraiser the plumbing burst and would need expensive repairs. All it really needed was a pump.

“When the flippers say there’s something wrong with the electricity, the plumbing or the roof, the appraiser can’t tell whether they’re being deceived or not,” said Hagberg.

Fraud ultimately hurts homeowners

Five years ago, when the housing market was thriving, lenders rarely heard of a short sale fraud. But as the housing market crumbled and beleaguered homeowners increasingly turned to short sales to get out of their underwater mortgages, the frauds increased as well.

Now, 13% of all existing homes sales are short sales, according to the National Association of Realtors. And last year, frauds associated with short sales comprised half of all fraud investigations for mortgage companies like Freddie Mac, according to Hagberg.

The impact of short sale fraud goes well beyond the direct losses to banks. These frauds have become so common, it has become more difficult for legitimate short-sale transactions to go through.

That hurts sellers because it forces more of them into foreclosure. It hurts banks by adding to their costs and it can make all the parties more cautious.

The frauds “defeat why we do short sales in the first place,” said Hagberg.

In the Bridgeport, Conn. scam, two real estate agents were arrested. It was just one of four similar frauds that were listed in their indictment, which netted them a total of more than $180,000. They pled guilty and are awaiting sentence.

They may be out of business but with home prices off about a third from their peak nationwide and down 50% or more in many post-bubble communities, there are opportunities for other short-sale fraud artists to take their place.

Hat tip to Kelly Bennett, who has been following this swindler’s story – another going to jail!

James McConville, the man at the center of our 2009 investigation into a massive real estate scam in San Diego County, is expected to appear in court next week and plead guilty to federal fraud charges. The plea comes three years after he orchestrated the purchase of scores of North County condos and nearly immediately let them fall into foreclosure, pocketing close to $13 million in the meantime.

The Department of Justice’s Victim Notification System sent a notice of the expected guilty plea this month. Andy Narraway, an investor who claimed he lost his life savings to McConville, forwarded us the notice.

Federal prosecutors charged McConville with money laundering and wire fraud last May. The charges related to a scheme that stretched across California, involving hundreds of condos bought with the help of so-called straw buyers who rented the man their identities so he could get more mortgages from banks.

In the case of the more than 80 condos we looked at in Escondido and San Marcos, McConville’s team obtained mortgages for far more than the units would have sold for otherwise and pocketed more than $100,000 per condo under the guise of “marketing fees” before letting them fall into foreclosure.

The feds found the fugitive McConville last June hiding in Bakersfield with three large rolls of cash in his pockets.

Several other defendants in the scheme have pleaded guilty, including the escrow officer who admitted she created two versions of the official transaction papers, one the banks would see that didn’t show McConville’s take, and one that he and the sellers saw.

By last March, we estimated the federal government’s mortgage companies, which had purchased these shaky loans, had already lost upwards of $7.8 million. McConville’s operation had been going for several years by the time he bought the San Diego County units, but these deals were especially egregious because they slipped through the cracks in 2008, when banks and governments had decried the excesses of the housing boom and vowed to strengthen their oversight.

The straw buyers’ credit scores were ruined when McConville stopped paying the mortgages on the units in their name, and the ones involved in the San Diego deal said they were never paid the $10,000 per unit he promised them in exchange for their signatures.

McConville is expected to appear July 20, about 1:30 p.m. in Oakland to enter his guilty plea.

The owners of the L.A. Dodgers have just settled their nasty divorce, which divulged the four expensive L.A. homes they bought during their tenure.  Here is one, from businessinsider.com:

Hat tip to BM for sending this along – for more on this story, go to the victim’s blog linked here.