Most mortgage fraud takes place in the short sales and REO space, according to Rob Hagberg, associate director of fraud investigations at Freddie Mac. “This area is ripe with fraud,” he said during a webinar hosted by CoreLogic.
While servicers and others in the industry have adapted to some fraud schemes and put measures in place to detect and prevent fraud, schemes continue to evolve as fraudsters find new ways to manipulate sales.
For example, many fraudulent REO and short sale transactions involved the use of a straw buyer who temporarily purchased a home at an undervalued price and then sold it to a third party at a higher price.
These transactions would be immediately suspicious to anyone reviewing property records, which would show a home was sold for one price one day and then almost immediately resold at a higher price. Savvy perpetrators are now eliminating the second buyer. Property records will not reveal a middle buyer, but they will reflect a higher price than the servicer agreed to.
Another growing trend in short sale fraud is what Hagberg calls the “short sale and stay.” This occurs when an underwater homeowner wishes to keep his or her home but wants to lower his or her loan amount.
The homeowner will recruit someone—often a friend or family member—to purchase the home through a short sale, and the original owner will remain in the home.
Sometimes, a wife will use her maiden name to purchase the home from her husband, and the couple will stay in their home.
Both short sale and REO fraud often require fraudsters to convince servicers a home is worth less than it actually is.
To accomplish this, fraudsters have attempted to bribe REO brokers, manipulate MLS data to lower the prices of comparable properties, and have engaged in reverse staging to make a property appear in worse condition than it is.
In cases of reverse staging, Hagberg has seen cabinet doors removed from kitchen cabinets, garbage left lying around the home, and sometimes old fish hidden behind refrigerators to create pungent scents.
Sometimes BPOs include false property stigmas such as high crime rates, and in a few instances Hagberg has seen properties undervalued by as much as $40,000 under inaccurate statements that the home had been a meth lab and would need to be entirely gutted.
A former Fannie Mae sales associate who allegedly promised to provide listings to a real estate broker from the mortgage giant’s REO inventory in exchange for kickbacks has been indicted on three counts of wire fraud.
Armando Granillo, 44, worked out of Fannie Mae’s Irvine, Calif. office as a real-estate owned (REO) specialist, reviewing applications submitted by real estate brokers seeking to list properties foreclosed on and repossessed by Fannie Mae.
Late last year, federal prosecutors said Granillo asked a Tucson-based real estate broker to pay him a percentage of the commissions — later pegged at 20 percent — that the broker earned for selling Fannie Mae properties.
The broker alerted federal law enforcement officials, and during a meeting in February, Granillo travelled to Phoenix to meet with the broker, prosecutors said.
At the meeting, which was recorded by investigators, Granillo allegedly said kickbacks were “a natural part of business,” and arranged to receive an $11,200 payment from the broker.
Granillo was arrested on March 5 after allegedly accepting the payment from the real estate broker, who was working with investigators from the Federal Housing Finance Agency’s Office of Inspector General.
Granillo was freed on $5,000 bond and is scheduled to be arraigned next month in U.S. District Court.
Each wire fraud count alleged in the indictment carries a statutory maximum penalty of 20 years in federal prison, prosecutors with the U.S. Attorney’s Office for the Central District of California said.
Why would anyone spread possum urine around a house, turn up the heat and close all the windows for a few days?
Because they’re flopping, of course.
Flopping is the latest in mortgage fraud, in which sellers actually want as low a price as possible.
The scheme works if they are underwater on their mortgage, and their lender agrees to a short-sale, forgiving the difference between the sale price and the amount owed.
The seller unloads the home for the sandbagged price to an accomplice, who can then clean it up and flip it for a quick gain.
Suspicious short sales, ones flipped the same day, accounted for just under 2% of all short-sale transactions in 2011, according to CoreLogic. Floppers averaged a 34% gain. The average profit: $55,000.
Fraudsters can get away with it because banks are swamped with short sale requests — they have more than tripled in the past three years.
The possum urine trick was an extreme example of the methods used to discourage homebuyers, said Ann Fulmer, a mortgage fraud specialist with Interthinx. “It smelled like a Hazmat site,” she said.
Other tactics: Floppers pull out appliances and take cupboard doors off their hinges. They leave dirty laundry lying around and paint what looks like water damage on the ceilings. They might also invent plumbing or electrical problems, and give appraisers fake repair estimates created by cooperating contractors.
The sellers point out the flaws to legitimate shoppers, and when no one buys, the sellers have a convincing argument to make to the bank, according to Tim Coyle, director in the Financial Services division of LexisNexis Risk Solutions.
They can say: “Look, I’ve tried to move this property for six months and haven’t been able to — we need to lower the price,” said Coyle. “They convince banks that the value of the property has deflated.”
It can be hard to refute bogus damage claims without full investigations, according to Rob Hagberg, associate director of fraud investigation for Freddie Mac.
One flopping scam that relied on heavy repair estimates was repeated several times in the Ogden, Utah area. A group kept claiming houses had been contaminated with residue from crystal meth labs.
“It was the same cast of characters on multiple properties,” said Hagberg.
Noticing the pattern, Freddie Mac investigated and broke up the ring.
The agency solicits help from the public to bust floppers and has a toll free number to report suspicious activity — 1-800-4fraud8.
The previous video acknowledged a good realtor doing it the right way, but unfortunately there are still plenty of bad apples – and they are allowed to run loose. What could happen?
The Attorney General could get involved, and convict some of the offenders of defrauding the banks. If we had just a couple of perp walks, it would go a long way to solving the problem, because realtors don’t even realize that it’s wrong when they see so many others doing the same thing.
Or banks could pull the plug on short sales, but they would have to believe that foreclosing was the preferred option. Foreclosures sell for what the open market will bear, whether at a trustee sale or REO listing. Short sales rarely do, because there are so many conflicting forces at work – sellers enjoying the free rent, and agents drooling at the thought of hoarding commissions.
In a rising market, banks would be better off foreclosing and holding properties for months or years, rather than having guys like this rob them today:
ALBUQUERQUE, N.M. — Wrapping up a criminal case that ruined lives from Washington state to New Jersey, a federal judge on Wednesday is scheduled to sentence a real estate executive who acknowledged running a Ponzi scheme that bilked 600 investors out of $75 million.
U.S. District Judge Bruce Black is expected to give Doug Vaughan no more than 12 years in custody under a plea agreement reached in December when Vaughan pleaded guilty to two felony charges.
It was unclear on Tuesday, however, if the Albuquerque man who turns 65 next month would be able to live out what could be his final years in a minimum-security federal prison camp for white-collar criminals or a traditional lockup with more hardened convicts.
Defense attorney Amy Sirignano said the U.S. attorney’s office reneged on a deal that would have landed him in the less-restrictive environment of a prison camp.
As part of the original plea agreement, prosecutors agreed to Vaughan’s request to voluntarily surrender and to be able to go to a prison treatment plan for alcohol issues, she said. Both actions would have reduced Vaughan’s score under the federal prison system that will determine which lockup he qualifies for.
LOS ANGELES, Aug 16 (Reuters) – In the age of Facebook and Twitter, a new crime has hit America: “Sharpie parties,” gatherings of party revelers armed with “Sharpie” magic markers and lured by social media invitations to wreak havoc on foreclosed homes.
Five years into the U.S. foreclosure crisis, Sharpie parties are a new form of blight on the landscape of boarded-up homes, brown lawns and abandoned streets. They are also the latest iteration of collective home-trashing spurred by social media.
At least six Sharpie parties were reported in one California county in recent months, where invitations posted online drew scores to foreclosed homes.
The partygoers are handed Sharpie pens on arrival by their hosts and urged to graffiti the walls – a destructive binge that often prompts other acts of vandalism including smashing holes in walls and doors, flooding bathrooms and ripping up floors.
Licensee representing Seller acknowledges and agrees that, in his or her professional opinion, Property has been listed on the appropriate local Multiple Listing Service at a listing price intended to generate open market competitive offers to purchase Property and not at an artificially low or high listing price. Licensee representing Seller further acknowledges and agrees that his or her marketing efforts were in fact and “in spirit” aimed toward maximizing the selling price of Property from a ready, willing and able buyer. Licensee has not engaged in any conduct that restricts or limits offers from buyers, including but not limited to requiring cash offers, using disparaging language regarding the property or tenants, or unreasonably restricting access.
Licensee representing Seller acknowledges that he or she has made Seller aware of all offers to purchase Property that Licensee received during the listing period and that he or she has not coerced, harassed or improperly influenced Seller in selecting a buyer for Property or in agreeing to the terms and conditions of the purchase contract.
Licensee acknowledges and agrees that Licensee is not engaging in appraisal fraud, flipping (a predatory lending practice whereby a recently acquired property is resold for a considerable profit with an artificially inflated value within a short period of time, as defined by the Federal Bureau of Investigation), identity theft and/or straw buying. Licensee has disclosed all agreements or understandings relating to the current sale or subsequent sale of Property of which Licensee is aware or should be aware. Licensee is not aware of any other agreements or understandings that call for the subsequent sale of the Property within 30 days of the current sale, the assignment of the property to the Seller or the option for the Seller to purchase.
NAR, CAR and local boards have yet to author anything similar to this.
Hat tip to daytrip for sending this in from the Downey Patriot:
DOWNEY – Two real estate agents, including one who lives in Downey, were arrested last week, accused of stealing $1.8 million from the real estate office that employed them. Elek Andrade, 27, of Downey, and John Wesley Martynec, 38, of Long Beach, each face 102 felony counts of grand theft and identity theft. Andrade is a licensed real estate agent while Martynec is a broker.
Between 2003-08, they worked for two real estate companies in Norwalk: JTR Real Estate and Results Mortgage. JTR often purchased residential homes which were occupied by renters. In order to avoid a lengthy eviction process, JTR offered cash payouts to residents to move out voluntarily. Authorities allege that Andrade and Martynec submitted phony “move out” notices to JTR and kept the cash payments for themselves. Andrade and Martynec are also accused of submitting fake contractor invoices to JTR. The money was allegedly embezzled through a company owned by Martynec.
Investigators say Martnec used the money to remodel his Long Beach home — adding a second floor, pool and outdoor BBQ area — and to take lavish vacations, including stays at a Maui resort that cost $3,000 per night. “Large sums” of money were also used to commit mortgage fraud, authorities claim. Andrade and Martynec were arrested at their respective homes and each are being held on more than $1.7 million bail.
The House Oversight and Government Reform Committee issued a report today on Countrywide Mortgage and its so-called VIP loan program which the committee said was “a tool used by Countrywide to build goodwill with lawmakers and other individuals positioned to benefit the company. In the years that led up to the 2007 housing market decline, Countrywide VIPs were positioned to affect dozens of pieces of legislation that would have reformed [Freddie Mac and Fannie Mae].” This is the second report the committee has issued on the VIP program.
Bank of America, which acquired the bankrupt Countrywide Mortgage in 2009, produced more than 120,000 pages of documents for the committee to enable it to enlarge on an earlier investigation conducted by Darrell Issa (R-Vista, CA) who was at the time the ranking member of the committee.
The VIP program, referred to internally as Branch 850, was established in 1991 to process loans for senior Countrywide officials and their friends. According to bank operating procedure information it had 13 full-time employees and the benefits available to its borrowers included program/underwriting and pricing exceptions.
Countrywide used the VIP unit to widely dispense discounted loans during the period of January 1996 and June 2008 when it processed a total of 17,979 loans.
Hundreds of these loans went to members of Congress, congressional staffers, staff of the executive branch, three top executives of Fannie Mae and Freddie Mac and many lower level employees of the two government sponsored enterprises, especially Fannie Mae which bought most of the loans originated by Countrywide. Many of the loans and discounts were personally approved by Countrywide CEO Angelo Mozilo and the recipients were known as “Friends of Angelo.”
These loans were not only aimed at gaining influence for the company, the report states, but to help Fannie Mae at a time it was under attack by legislators who were seeking to reform its mission and operation.
The names of prominent persons who received discounted loans have all been published earlier. They included six current and former members of Congress, former Senate Banking Committee Chairman Christopher Dodd (D-CT); Senate Budget Committee Chairman Kent Conrad (D-ND); Rep. Howard “Buck” McKeon (R-CA); Rep. Elton Gallegly (R-CA); Former Rep. Tom Campbell (R-CA) and Rep. Edolphus Towns (D-NY) former chairman of the Oversight Committee. Towns began the investigation into Countrywide but the report says that when he subpoenaed Bank of America for Countrywide documents the bank left out those related to Towns’ loan.
Other government recipients of Countrywide discounts were Former Housing and Urban Development Secretaries Alphonso Jackson and Henry Cisneros and former Health and Human Services Secretary Donna Shalala. Both Cisneros and Shalala had left government service before the loans were made.
The House committee’s report said documents and testimony show that Countrywide “may have skirted the federal bribery statute by keeping conversations about discounts and other forms of preferential treatment internal. Rather than making quid pro quo arrangements with lawmakers and staff, Countrywide used the VIP loan program to cast a wide net of influence.”
A reader sent this in – beware of vacant houses being re-occupied by the bad guys!
Hi Jim,
My Uncle retired this year and moved out of his house in Long Beach, California to live in Palm Desert.
He put his home up for sale a few months ago. My Father lives fairly close and checks on the home, along with the Realtor from time to time.
My Dad received a call this morning from the Realtor asking that they meet at the home. When they arrived they found the For Sale sign gone along with the lock box.
They also found about 10 people living in the home.
The Realtor called law enforcement and there began a huge discussion on the front lawn, where the husband produced a lease, mentioning that he gave $7500 cash for first, last, and security deposit, etc.
This isn’t the first time I’ve heard about something like this happening; either these people are scammers, or they were scammed by a 3rd party.
To make a long story short, the police did not kick out these breaking and entering trespassers, and have told my Uncle that he needs to move to eviction proceedings.
Evidentially scammers have rights!? It doesn’t sound right to me.
Any thoughts or guidance you can give Jim?
I don’t mind if you post this for others to learn from.
Thank you for the great blog,
-VirtualChris
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JtR response: The best thing to do is offer them cash-for-keys, and make it a large enough amount that they not only accept, but they leave immediately.
My free-renters in Oceanside that were suing Countrywide/BofA for the last four years just left with a $7,000 bounty.
In your case, if they have solid proof of handing over $7,500 to somebody posing as the landlord, then returning that, plus some extra, should be enough – maybe $9,000?
Why get them out immediately? Damages and theft could hit five figures over a weekend.
If that solution is unbearable, then hire a lawyer who specializes in eviction law. For those in the North SD County Court jurisdiction, call attorney Jim Burmeister, (760) 729-3052.
Most mortgage fraud takes place in the short sales and REO space, according to Rob Hagberg, associate director of fraud investigations at Freddie Mac. “This area is ripe with fraud,” he said during a webinar hosted by CoreLogic.
Why would anyone spread possum urine around a house, turn up the heat and close all the windows for a few days?
