Real Estate Fraud

Introduction

Real estate schemes, scams, and fraud all constitute a form of theft which criminals use to steal your home or real property. Adhering to the principle that a person’s home is their castle, this is possibly the most devastating form of victimization. The Los Angeles Police Department will investigate complaints of real estate fraud and the Los Angeles County District Attorney will prosecute these offenders to the fullest extent of the law.

Real estate fraud can take many forms. The information provided in this circular will hopefully serve as an educational tool to help you become more aware of the various forms of real estate fraud and how you can avoid becoming a victim.

Con artists may use several methods to swindle you in a real estate fraud scheme. Foreclosure bailout, home equity fraud, home renovation scams, rental fraud, and deceptive timeshare scams, are just a few types of real estate fraud which may be performed. Below is a description of these forms of fraud:

Victims of this form of real estate fraud are generally homeowners who have negative equity, also known as being "upside-down" and/or owe more money on their home’s mortgage than the home is worth. They are caught in dire straits due to the need to sell their home, and must do so at a loss or let their mortgage company foreclose on their home. At this point a so called "bailout specialist" will offer the victim the opportunity to arrange for a short sale of their home. In this form of fraud, the homeowner usually will be told that for a fee of $1,000 to $2,500, the homeowner can deed their home to the bailout specialist and then rent it back. The bailout specialist takes the money, does not arrange for the short sale, and does not make any payments on the mortgage. The end results are that the home loan payments are not made and the mortgage goes into foreclosure, without the victim being aware of any fraud. Ultimately, the home is foreclosed upon; the victim is evicted, and loses both his home and the $1,000 to $2,500 fee charged by the so-called specialist.

According to the Council of Better Business Bureaus, home-remodeling contractors ranked slightly behind car salespersons and auto mechanics in generating the most consumer complaints. Be very careful when using your home or your home equity as security for a home improvement loan. Fast talking salespersons will offer to refinance your home at a lower interest rate to provide cash to the homeowner, the cash can be used to pay for home improvements or to pay off bills. Victims are frequently asked to sign blank contracts or contracts that they were not allowed to read before signing. Later, the homeowner discovers that they signed a contract that contains terms in contrast to the originally promised terms. This results in the loss of equity in the victims home, and also they have signed a mortgage in which they have incurred considerably higher interest rates. The homeowner is now faced with a higher mortgage payment, one that they may not be able to afford.

Frequently, con artists will rent out a home they do not own. They will locate a vacant or abandoned home, enter the home, change the locks, and then advertise the property as available for rent. The unsuspecting victim rents the property from the con artist, who collects a security deposit and rent from the victim, and then disappears. The victim, who rented the property, is then evicted by the lawful owner and subsequently loses their place to live along with the money they paid for the security deposit and rent.

Timeshares may offer to sell membership vacation accommodations. Con artists may make oral promises that are omitted from the written contract. They may also fail to mention fees and obligations that are in the written contract, which are never mentioned orally. These misrepresentations will likely be discovered while signing the contract and are downplayed by the salesperson as only "legal jargon". Victims are not told the extent to which the annual maintenance fee will increase over time, they will be forced to pay special assessment fees, or the difficulty to resale a timeshare.

Effects of Fraud
 

TRAINING

Association of Certified Fraud Examiners

17th Annual ACFE Fraud Conference and Exhibition

CPE Credits: 44
7/9/2006 - 7/14/2006

The Venetian
3355 Las Vegas Blvd.
Las Vegas, NV  89109
(877) 283-6423
(702) 414-1000 (Fax)
Room Rate: $169.00 - subject to availability

Tampa Bay Chapter

Dinner Meetings

March 14, 2006
"Real Estate Fraud"

April 11, 2006
"Health Care Fraud, Waste and Abuse""

7th Annual Fraud & Computer Crimes Seminar

May 9 - 10, 2006
Ruth Eckerd Hall
1111 McMullen Booth Road
Clearwater, FL 33759

2005 - 2006
OFFICERS & DIRECTORS

PRESIDENT
Steve Hooper, CIA, CFE, CCSA
Clerk of the Circuit Court Hillsborough County, FL
(813) 276-2029 x3703

VICE PRESIDENT
Christine Dever, CPA, CFE
 

SECRETARY
Kara Preston, CFE
Polk County Sheriff's Office
(863) 499-2400

TREASURER
Laura Krueger Brock, CFE, CPA
Cherry, Bekaert, Holland, LLP
(727) 822-8811

DIRECTOR
Mark Dubina, CFE
Florida Department of Law Enforcement
(813) 878-7366

DIRECTOR
Ellen Wilcox, CFE
Florida Department of Law Enforcement
(727) 298-2482

DIRECTOR
Penny Borjas, CFE, CIA
ACL Certified Trainer

CHAPTER TRAINING
Wayne Boytim, CFE
City of Tampa, Internal Audit
(813) 274-7167

The crime of fraud is a personal violation. Although there is no serious physical injury, many victims of con artists suffer emotional harm by losing the following:

• Financial security

• Family home

• Business

• Inheritance

• Retirement savings or children’s educational funds

• Professional or personal credibility

Victims of fraud come from a variety of racial, religious, socioeconomic, educational backgrounds, age, and gender. Some swindlers deliberately seek out families that may have limited means or financial difficulties, figuring such persons may be particularly receptive to a proposal that offers fast and large profits. Your first step as a victim should be to report the incident to your local police department. If you believe that you have become the victim of real estate fraud, please contact your local law enforcement agency.

Source: http://www.lapdonline.org/bldg_safer_comms/prevention/real_estate_fraud.htm

COMMON MORTGAGE FRAUD SCHEMES

Property Flipping - Property is purchased, falsely appraised at a higher value, and then quickly sold. What makes property illegal is that the appraisal information is fraudulent. The schemes typically involve one or more of the following: fraudulent appraisals, doctored loan documentation, inflating buyer income, etc. Kickbacks to buyers, investors, property/loan brokers, appraisers, title company employees are common in this scheme. A home worth $20,000 may be appraised for $80,000 or higher in this type of scheme.

Silent Second - The buyer of a property borrows the down payment from the seller through the issuance of a non-disclosed second mortgage. The primary lender believes the borrower has invested his own money in the down payment, when in fact, it is borrowed. The second mortgage may not be recorded to further conceal its status from the primary lender.

Nominee Loans/Straw Buyers - The identity of the borrower is concealed through the use of a nominee who allows the borrower to use the nominee's name and credit history to apply for a loan.

Fictitious/Stolen Identity - A fictitious/stolen identity may be used on the loan application. The applicant may be involved in an identity theft scheme: the applicant's name, personal identifying information and credit history are used without the true person's knowledge.

Inflated Appraisals - An appraiser acts in collusion with a borrower and provides a misleading appraisal report to the lender. The report inaccurately states an inflated property value.

Foreclosure Schemes - The perpetrator identifies homeowners who are at risk of defaulting on loans or whose houses are already in foreclosure. Perpetrators mislead the homeowners into believing that they can save their homes in exchange for a transfer of the deed and up-front fees. The perpetrator profits from these schemes by remortgaging the property or pocketing fees paid by the homeowner.

Equity Skimming - An investor may use a straw buyer, false income documents, and false credit reports, to obtain a mortgage loan in the straw buyer's name. Subsequent to closing, the straw buyer signs the property over to the investor in a quit claim deed which relinquishes all rights to the property and provides no guaranty to title. The investor does not make any mortgage payments and rents the property until foreclosure takes place several months later.

Air Loans - This is a non-existent property loan where there is usually no collateral. An example of an air loan would be where a broker invents borrowers and properties, establishes accounts for payments, and maintains custodial accounts for escrows. They may set up an office with a bank of telephones, each one used as the employer, appraiser, credit agency, etc., for verification purposes.

Source: http://www.fbi.gov/publications/financial/fcs_report052005/fcs_report052005.htm

News from the ACFE

2006-2007 Board of Regents Elected
Congratulations to Angela Henschel, Don Mullinax, and James Whitaker who were recently elected as the newest ACFE Regents. Ms. Henschel, Mr. Mullinax and Mr. Whitaker will replace Bruce Dean, Mary-Jo Kranacher, and Joe Spinelli as they are sworn in at the Board of Regents meeting in Austin later this month.

CFE Lends Expertise to Katrina Recovery Effort (.pdf)
With federal relief funding estimated in the billions, the demand for anti-fraud experts is on the rise in Louisiana to combat potential post-Katrina corruption. Louisiana native Allen Brown has dedicated his career to catching fraudsters, including three sheriffs who ended up behind bars. Today, Brown, CFE, CPA, is training others to fight fraud in the aftermath of Katrina.

Ben Stein, Frank Abagnale Head List of Fraud Conference Speakers
Get the latest updates on the 17th Annual Fraud Conference, July 9-14, in Las Vegas. Ben Stein, actor, author, economist and lawyer will join keynote speakers Frank Abagnale, Melvynn Wiess, Timo Laine and Jerome Maine. Visit www.FraudConference.com to register and read more about the largest and most important fraud conference in the world.
 

NEW!
Executive Roadmap to Fraud Prevention and Control: Creating a Culture of Compliance
By Martin T. Biegelman & Joel T. Bartow

Whether you’re a CEO, CFO, manager, auditor, controller, risk management professional, or a student, Executive Roadmap to Fraud Prevention and Internal Control is your best route to understanding all the complex issues and responsibilities associated with fraud and compliance.

US $29.00 Member / US $39.00 Non-Member . Visit www.ACFE.com/shop.

Chapter News

7th Annual Fraud & Computer Crimes Seminar

The Tampa Bay Chapter's 7th Annual Fraud & Computer Crimes Seminar promises to be a good one. The location (Ruth Eckerd Hall) is booked; the food and beverages are ordered; the speakers have committed; and their topics are being confirmed. Preliminary information is now available on our web site at: http://tampabaycfe.org/seminar.htm.

Another New CFE

Marjorie N. Rainey has earned the designation of CFE by the Association of Certified Fraud Examiners. She is an associate with Simmons, LaPlant & Associates, CPA, PA, specializing in accounting and accounting services for not-for-profit organizations and closely held businesses. Marjorie joined the Tampa Bay Chapter in 2006. Congratulations, Marjorie.

Hillsborough County Police Explorers

Special Agent Supervisor Mark Dubina and Special Agent Ellen Wilcox, both with the Florida Department of Law Enforcement, presented a $500.00 check to the Hillsborough County Police Explorers earlier this year. The Hillsborough County Explorer Post #238 began in 1966 as a way to provide the youth of our community the opportunity to experience the inner workings of a law enforcement agency.  Since their beginning Post #238 has always strived to set the standard of Law Enforcement Exploring.  While striving to achieve this goal, their high integrity and moral ethics have proven the post as a leader among all others.

Dinner Meeting News

Our next Dinner Meeting is scheduled for March 14

Silvio is the President and CEO of Grasil, Inc, a Fraud Detection Company based in Orlando, Florida, USA with operations in Argentina, Brazil, Peru, Puerto Rico, Venezuela, Germany and the United Kingdom. Grasil is an Insurance Administrator licensed by the Department of Insurance of the States of Florida, Georgia, Indiana, Maryland, Michigan Ohio, and Texas. Silvio is a Certified Fraud Examiner and a Certified Internal Auditor and has held a license to practice Public Accounting and a license to practice Business Administration with the Argentina Federal District Board of Economic Sciences for over 30 years.

Mr. Cherjovsky is also the Chief Technology Officer for The Fraud Institute. He is frequent speaker and has lectured about Fraud Prevention and Detection for many organizations in the USA, Canada and Latin America including among others the Association of Certified Fraud Examiners, the Institute of Management Accountants, the Florida Institute of Certified Public Accountants, the Institute of Internal Auditors, the Division of Continuing Education of the University of Central Florida, Harris Corporation, Lorman Education Services and the University of South Florida Department of Forensic Accounting.

REAL ESTATE FRAUD PRESENTATION

1. The Parties In A Real Estate Transaction

2. The Professionals In A Real Estate Transaction

3. Whose Interests Are Represented By Each Professional?

4. Real Estate Fraud: Fraud for Housing and Fraud for Profit

5. You Could Be Charged With A Federal Crime: The IRS Perspective,  The FBI Perspective, Some Actual Cases, Real Estate Fraud Stats, and Real Estate Fraud red flags.

6. Anti Terrorism Regulations: Executive Order 13224 and the OFAC, The Money Laundering Control Act, The Patriot Act, Obligations For Real Estate Professionals, and Penalties.

The dinner meeting will be held at the Clarion Hotel Tampa Westshore, located at 5303 West Kennedy Blvd., 11th floor. The hotel is just west of Westshore Plaza on the north side of Kennedy Blvd. Evenings will begin with a social at 6:00 P.M., followed by a buffet dinner at 6:30 and a presentation at 7:00. The cost remains only $15.

To make your reservation, please use the following link Chapter Meeting Reservation and complete the form at the bottom of the page.  You can also make your reservation by emailing Wayne Boytim or calling him at (813) 274-7167 by the Friday before the meeting date. Reservations will be accepted after that date and walk-ups are always welcome. Please remember that cancellations are accepted up to the afternoon of the meeting. No shows will be billed after the second missed meeting. Please help us keep our costs down by letting us know if you are unable to attend.

February 7th Dinner Meeting

If you missed February’s dinner meeting, you missed a good one. Polk Co. Sheriff’s Office Senior Analyst, Bill Thomas, gave an informative and interesting presentation on latent print and document examination. For the most part, the concept of Forensic Science is based on the Lowcard Exchange Principle. When any two objects come into contact with one another, they leave evidence of that contact on each other. Example: you sit in a fabric-covered chair. You will leave fibers from your clothing on the chair and fibers from the chair will leave with you. The key is finding the evidence.

Due to the popularity of so many crime scene shows like CSI, NCIS, and Criminal Minds, many are aware of the impact of DNA on criminal cases. However despite the awareness, many anti-fraud professionals do not always utilize the tools of Forensic Science. Latent prints and document examination are probably the most useful tools in the fraud field.

Understanding the basics is a good start. Fingerprints that are gathered are kept in latent print databases. They are housed in IAFIS and AFIS. For those in Polk County, AFIX is also available. IAFIS is an integrated automatic fingerprint identification system, which houses international prints. The AFIS system is a national database. Mr. Thomas created Polk County’s AFIX system. It currently has approximately 100,000 prints from Polk County inmates in the system. Mr. Thomas explained that none of these systems pinpoints a positive match to one person’s prints recovered from a scene. Instead, the computer generates possibilities. So he explained that if Polk County investigators were to receive 10 possible suspects from the AFIS system, those matches wouldn’t be as accurate as 10 possible suspects from the Polk Co. system.

As Mr. Thomas explained, fraud is a deliberate deception practice to secure financial gain. We all know that fraud is a broad crime and it crosses all socio-economic lines. This was reiterated when Mr. Thomas explained that he has seen fraud cases involving everything from butchers altering cuts of beef to drivers weighing down trucks of gasoline with cinder blocks to make it look like more gasoline was in the truck.

There are many private labs out there that can be contracted out for investigations. Just like knowing the different fraud schemes out there, it is a good idea to research the different technology a forensic scientist or crime scene technician could use. Knowing the tools available can strengthen one’s case so that evidence is not contaminated or overlooked. Even better though is that it’s interesting, especially hearing from such an experienced person like Mr. Thomas.

What Else Did You Miss?

Submitted by: Kara Preston, Chapter Secretary

New Web Site

The Center for the Study of Economic Crimes (http://fraudupdate.com) is a collaborative project of Florida State University College of Criminology in Tallahassee, Florida, and St. Thomas University School of Law in Miami Gardens, Florida. The Center was created in 2004 through the support of Florida Attorney General Charlie Crist. The Center's purpose is to assist policymakers, enforcers and the public in defining fraudulent and other activities victimizing consumers, business and government agencies. It seeks to produce reliable research and information on trends, cross-jurisdictional comparisons, and victim and offender characteristics.

The Center serves as a resource to law enforcement agencies and the general public in order to improve investigative and victim services. The Center's Fraud Update resource serves as an early warning system for both consumers and consumer fraud enforcers and litigators. For the first time, Fraud Update consolidates, in near real-time, fraud-related information from across the nation, transcending jurisdictional and geographic barriers. Periodically the Center conducts seminars and workshops regarding its research, trends in economic crimes and victim service information.

MORTGAGE FRAUD INDICATORS

Inflated Appraisals
• Exclusive use of one appraiser

Increased Commissions/Bonuses - Brokers and Appraisers
• Bonuses paid (outside or at settlement) for fee-based services
• Higher than customary fees

Falsifications on Loan Applications
• Buyers told/explained how to falsify the mortgage application
• Requested to sign blank application

Fake Supporting Loan Documentation
• Requested to sign blank employee or bank forms
• Requested to sign other types of blank forms

Purchase Loans Disguised as Refinance
• Purchase loans that are disguised as refinances requires less documentation/lender scrutiny

Investors-Short Term Investments with Guaranteed Re-Purchase
• Investors used to flip property prices for fixed percentage
• Multiple "Holding Companies" utilized to increase property values

Source: http://www.fbi.gov/publications/financial/fcs_report052005/fcs_report052005.htm

What is a Predatory Appraisal?

A predatory appraisal occurs when the value of a property is falsely overstated during a new purchase or during the refinancing process. While appraisers are the ones inflating the figures, lenders, brokers and other members of the mortgage industry are the ones pressuring appraisers to provide their desired valuation so that they can close the deal. In fact, criminal investigations by the FBI have revealed that “industry insiders” were involved in 80% of reported fraud cases. This should not be surprising as lenders and other industry players have an increased incentive to inflate property values. Lenders, brokers, real estate developers and real estate agents are paid commission based on the value of the loans they secure.

In October 2003, the federal regulators jointly issued guidelines stating that “an institution’s lending functions should not have undue influence that might compromise the [appraisal] program’s independence,” and even specified that “individuals independent from the loan production area should oversee the selection of appraisers.” However, this was not clear enough for lenders. In March 2005, the regulators had to release a supplemental statement to address this issue and again reiterated that loan production staff is not to select appraisers.

Predatory Appraisal Tactics

In order to get an inflated valuation, lenders and brokers use a number of tactics. Some apply pressure by withholding their payment, threatening to not to do business with the appraiser, or even blacklisting him or her altogether unless the appraiser meets the lender’s requested value. They may demand that appraisers guarantee a predetermined value, ignore deficiencies in the property or simply increase the appraisal if the lender is unsatisfied with it. Lenders also “shop around” by contracting several appraisers to evaluate one property and then use the highest valuation they find.

Regardless of their methods, unscrupulous lenders and appraisers are ultimately capitalizing on trusting consumers by selling them inflated equity and a false sense of security. This growing trend of overvaluation occurs at a critical time when American consumers are already riddled with mounting personal debt and bombarded by abusive predatory lenders.

Why is there a Surge in Predatory Appraisals Now?

While appraisal fraud is not a new predatory practice, the refinance boom of the past five years has helped it to flourish into a more common one. A recent study showed that the average household credit card debt has increased by 53% from 1989 to 2001, while credit card debt for lower income households has increased by even more. Given these growing figures of personal debt and the low interest rates of the past few years, it is no wonder that consumers are turning to home equity loans to help make ends meet. However, with millions of homeowners looking to trade high credit card debt for a lower home equity, more and more lenders are willing to pressure appraisers to inflate the property value and fabricate equity when it is not really there.

Source: National Community Reinvestment Coalition

President's Message

I guess the big bad bear story will remain untold. Fortunately, I have a lot of other stuff to tell you about.

Again, an outstanding dinner meeting was held on February 7th. Approximately 50 were in attendance. Two chapter members brought guests. I sponsored Stacie Gettle of Badcock Industries, and Sharelle Turner sponsored Nikkia Thomas, Kerkering, Barberio & Co., P.A. A special welcome goes to Liz Mulig’s class from USF at Saint Petersburg who brought nine students with her and to Lynn Clements’ Class from Florida Southern College in Lakeland who brought two students. We also welcomed five, first time attendees. Valerie Alvarez, Bureau of Investigation, Florida Department of Financial Services; Marjorie Rainey and Robert LaPlant, Simmons, LaPlant & Associates; Melissa Grant, Sanderford & Associates; and Debbie Venanzio, Branch Banking & Trust. A special note about Marjorie Rainey. Not only was she a first time attendee, she also has been awarded the Certified Fraud Examiner designation. Congratulations Marjorie!

On behalf of the chapter, I extend an invitation for all of our new attendees to join us again.

I awarded one of the Chapter’s $500 academic scholarships to Valerie Kimball, a USF MBA Candidate. Good luck to Valerie as she continues to achieve her academic goals. I also announced that the Board has decided to extend the scholarship program through February and March. If you know of anyone who qualifies and is interested, the information can be found on our website www.tampabaycfe.org .

I want to thank our speaker, William “Bill” Thomas from the Polk County Sheriff’s Office who provided an interesting look into forensic science.

I have seen the speakers list for our two-day “7th Annual Fraud and Computer Crime Seminar” that is coming May 9th and 10th and I can tell you it will be both informational and entertaining. Details of the seminar will be posted shortly on our website.

One final note. Nominations are being accepted for Chapter Officers who will guide us through the 2006 – 2007 year. I have appointed Wayne Boytim to Chair the Nomination Committee. If you are interested in serving as an officer, submit your nomination to him at nomination@tampabaycfe.org.

Don’t forget. Our next dinner meeting is March 14th. So make your reservations early.

Steve Hooper, CFE, CIA, CCSA