Recognizing Real Estate Fraud – Day 2

I’ve gotta say right up front, I’m not used to attending seminars where other attendees are packing heat. While it might come in handy at some of the real estate conferences I’ve been to (especially when what’s his name heads for the microphone yet again), we’re a pretty tame bunch considering our reputation. However, as I mentioned yesterday, at Rachel Dollar’s MortgageFraudBlog.com Conference, the audience is heavy with law enforcement and a few heaters are much in evidence. It does make you a little wary and you don’t nod off as much when the guy next to you is sporting a small canon on his hip and pepper spray.

However, thankfully Day 2 was lacking in events that might lead to gunplay and the agenda was more slanted toward the schemes and trends rather than the enforcement strategies of yesterday. Many of us have been exposed to one or more of these schemes but I’ll do a quick run-down for those of you who may have been blessed to live in an area that has thus far been spared the fraudsters arrows.

First you need to understand there are only two kinds of markets in the U.S. – those that have already experienced real estate fraud and those that will. Breaking that down further, there are two main categories of real estate fraud:

  • Fraud for Property – by far the most prevalent and previously unprosecuted. This category includes all the little ‘fibs’ buyers tell to qualify for a house. Mis-statements of income or employment, work history, whether they plan to reside in the property of not – things like that. Everybody knew it went on, frequently with the encouragement of an agent or a lender to ‘help’  somebody get that loan. As long as the market was on high-speed cruise everything was capacetic and nobody got hurt but, as the saying goes, the minute the tide started going out it exposed all the people who weren’t wearing their bathing suits. As these people increasingly default on their loans, lenders and prosecutors are increasingly likely to go after them to recover the damages from the fraud. If the lender or an agent was culpable, they’ll be brought into the mix as well.
  • Fraud for Profit – this has been the most pervasive and damaging on a large scale. This category encompasses the major scams and network operations resulting in 1000’s of homes lost and billions of dollars in damages. This is where the pro’s play and the serious money changes hands. This is why some of the attendees wear guns. I’m going to cover only the first 3 or 4 of these schemes tonight in  the interest of space and because I just flew into Orlando from Miami and I’m dog tired. These scams include:
    • The Classic – where a home is listed for sale for $300,000 and a ‘Buyer’ comes in offering $450,000 with the overage being returned to some 3rd party at close of escrow. This was extremely popular during the big price run-up prior to 2006 and typically involved the collaboration of lenders, appraisers, agents and escrow/closing agents to perpetrate. While still out there, it is becoming much more difficult to pull these inflated sales prices in our deflating markets although I just had a Realtor send me 14 recent cases of this occurring in her market within the past 90 days. In addition to the others involved, the success of this scam often includes a – 
    • Straw Buyer – typically someone who does not exist at all but has been created from whole cloth by the ringleader to act as a buyer. That’s why you rarely ever meet the ‘buyer’ in these transactions, their signatures may not match from one document to the next and they never move into their new home. More often a straw buyer is someone the ringleader has hired to play the part. They may even lend their true identity including their good credit for fees ranging as high as $10,000 to enable a ringleader to purchase one or more properties using their identity. Initially viewed as another victim in the scheme, law enforcement is increasingly prosecuting these individuals either as co-participants to the fraud or to leverage their testimony to bring down the ringleaders.
    • Air Loans – are becoming more prevalent right now. An air loan involves a lender industry insider making a loan typically to a straw buyer for a non-existent property. This type of scam is usually initiated as a short-term cash flow fix by a lender to cover another bad debt or non-performing asset. The revenue generated from this loan covers the deficit in the first loan in hopes that the first loan will start performing again in the next month or two. Of course we know in this market they rarely do so a couple months later the fraudster has to float another air loan to cover that 2nd loan, leading to another and another and… In addition to paying off part of the prior loans, there’s usually a little bit that sticks to the fraudsters fingers on the way past. If this sounds sounds like a classic Ponzi it’s only because it is except it’s usually just one inside guy at a bank generating loans on forged documents to someone who doesn’t exist for a property that isn’t there.
    • Double Sales – is pretty much what it sounds like. A lender will sell a loan twice – say once to a Countrywide and a second time to a Fannie Mae, for example. This actually happens by accident more often that you might expect but it’s usually noticed within a couple days and the lender calls one party or the other and cancels one of the transactions. But sometimes it isn’t an accident and the lender simply pockets the proceeds from one of the transactions. That might net you a few hundred thousand and may go undiscovered until the buyer starts getting mortgage bills from 2 different companies in 7 or 8 weeks. Now imagine you’re a lender that pulls that trick on a few loans a day for 3 or 4 weeks until you pack up one afternoon with the little redhead from HR and head off to a small beach house in Belize. Or maybe the blond from accounting to Costa Brava? Heck, why not both?  

Well, there’s more but that’s all I’m going to talk about today. There’s easily another half dozen or more major categories that we know about today. By tomorrow there’ll be more. Because unfortunately as soon as we – Realtors, Lenders & law enforcement – figure out what they’re up to and how to crack one scam, the perpetrators have moved on to another, and another. Right now there are people out there working out the details of how to lay their clammy little hands on as much of that $1 trillion bail-out money as they can.

And Realtors are on the front lines of this battle. Law enforcement only learns about it after the fact – usually after it’s been done several times and they can pick up a pattern and follow the paper trail. Lenders usually come to the party late too. Oh, they’re out in fron on some of the deals like the air loans and double sales, but as with The Classic, Realtors knew something was amiss years before the lenders suffered their first loss.

 

Realtors are part of the solution – not part of the problem. Make it so.

Visit the Mortgage Fraud Group and post your experiences. We learn from one another.

 

‘Recognizing Mortgage Fraud – Day 2’

The opinions in this commentary are strictly Gene Wunderlich’s personal opinions. While any reasonable and/or rational indivdual should agree wholeheartedly, the opinons reflected herein may not necessarily be those of SRCAR/GADBLOG, ActiveRain, The Valley Business Journal or any local or state government or other mental institution. 


Mortgage Fraud Blog Conference Day 1

 

Ahhhh, Miami. You know you’re in a different world when the muzak in the hotels is Caribbean and you can get a good pressed Cuban sandwich anywhere. It’s a long slog here from SoCal – even longer when you get to spend an extra 2 1/2 hours sitting on the runway in Dallas while they put new brakes on your airplane. Back in the day they’d roll out the drink cart for that little ‘inconvenience’, nowadays they just drop the price of their snacks from $4 to $3 for a ‘huge’ chocolate chip cookie and thank you for your patience (like we had a choice). Oh well. They did let us see some crappy movie for free and they did keep the A/C on so be thankful for small things.MFB Conference Schedule

Rachel Dollar is holding her MortgageFraudBlog Conference here prior to NAR. I figured that at least a few Realtors might take the opportunity to come down a couple days early and bone up on the latest in fraudulent activities. I was wrong. Out of a couple hundred attendees, I am the only Realtor here surrounded by a number of appraisers, a whole bunch of lenders and a virtual plethora of law enforcement types. We have attendees from the Secret Service, the Department of Justice, the U.S. Attorneys Office,  the Department of Treasury, the Bureau of Financial Investigations and the Florida Department of Law Enforcement. And one lonely little real estate guy. For a peek at the full schedule visit:

Day One was pretty well packed. The conference is well done and nicely presented, not too slick but with a lot of good information. Seminars today included ‘What Goes Down Must Come Up: Lessons for the Coming Boom.’ I like that. A good positive message to interject a note of optimism in these glum times. A central point to this presentation reminded us that real estate is cyclical – since 1795 real estate has operated on roughly 18 1/3 year cycles. Regardless of which party is in power, what fiscal policy is, who the Fed Chairman is and amazingly enough, even prior to George W Bush’s Presidency, there has been a cyclical ebb & flow to the economy. This one is right on schedule.

The second seminar was entitled ‘Regulators, Guns & Money’ and was paneled by a regulator, Robert Russell a counselor from the Office of Thrift Supervision; a gun, John Arteberry executive deputy chief for the DOJ; and money, played by John  Davidovich, supervisory counsel to the FDIC. Some of their observations: a definition of FRAUD as ‘the creation of trust followed by the betrayal of that trust – a parable for the problems in todays financial markets now that trust has been betrayed amongst financial institutions and with the public. A further observation that todays financial problems spread so quickly and so unpredictably that the response from the government and financial institutions was like watching a game of ‘Whack-a-Mole’. Also that while the FDIC has seized far fewer banks than it did back in the 90’s (only 17 so far this year), the seized banks have been far larger, the assets are riddled with fraudulent mortgage paper and several seizures have been of atypical on-line banks, no brick or mortar assets except for some computers.

Session three was ‘The Collaborative Process: Working Together to Stop the Tide’. This section was paneled by an attorney, an appraiser, a risk manager and a special investigator and focused on pulling together diverse industries and factions to address the fraud problem. The issue is bigger than any one industry and will require a concerted and collaborative effort to control it. ‘Operation Malicious Mortgage’, an ongoing and thus far successful nationwide effort headed up by the FBI was held up as a model for interagency cooperation. Between March and June of this year there were 287 arrests nationwide as a result of this program resulting in 406 defendants being charged with 173 convictions to date. Also noted is the fact that sentences are getting longer – averaging a little over 20 years now compared to a few months to a few years average just 2 years ago.

Todays final session ‘Battle of the Experts: Is that a Predatory Lender or a Predatory Borrower?’ featured a prosecutor from the US District Attorneys Office, the senior litigation counsel for the Federal Defenders Office and a mediating attorney discussing the pro’s and con’s of several case studies. It was noted that we cannot litigate ourselves out of this mess – although aggressive litigation is certainly a much needed component of the battle. We must also focus on prevention through education of the industries involved as well as members of the general public. One panelist noted that people who may have previously turned a blind eye to these shenanigans have now been awakened by the ‘Magic of 13 zero’s’. That means, people weren’t too concerned when only a few hundred people were doing it and a few thousand fraudulent loans went bad and a few million dollars were lost – but once it hit that magic 13 – a TRILLION dollars, everybody seemed to sit up and take notice.

I’ll be back tomorrow with the final day’s sessions, lessons learned and cautions offered. Then I’m off to Orlando for the ActiveRain gathering, oh, and to attend some NAR committees and seminars too. See you there.

 

fraudRemember… Realtors are part of the solution – not part of the problem.

Visit the Mortgage Fraud Group and post your warning. 


Temecula Five Year Housing Summary: # Sales / Median $

A copy of this report was recently provided to our local officials for the City of Temecula. We hope this information may prove helpful in determining city budget forecasts for the coming year as they evaluate the impact the downturn in our housing market has had on their revenue stream. 

Of course property tax revenue is just one source of income for the city but a major one. As the state continues to wrestle with a budget that may or may not include some trade-off between property taxes and vehicle license fees, a city like Temecula that is approaching residential build-out needs to know where current property values are. 

As you look at the attached chart and graphs, you will notice that the number of sales has declined steadily through 2007 while median values continued to grow through 2006. Total home sales value peaked in 2004 at more than $863 million dollars with 1,975 homes sold, a number that fell to just $382 million in 2007 with just 805 homes changing hands. 

Spurred by declining values, a surplus of inventory to choose from and attractive interest rates, sales rebounded in 2008 to post a volume nearly double the number sold in 2007. But the decline in the median price of a home will leave the city nearly 40% off the peak revenue pace of 2004, nearly $375 MILLION. Couple that decline with the reduced revenue from Proposition 8 mandated property tax reductions for existing homeowners and you understand why Temecula is looking at alternative revenue sources and holding the line on expenses for 2009.

By tracking these numbers an investor or prospective homebuyer can determine where they think the market is. As I pointed our last August, one month of sales increase doesn’t mark a trend. But as sales volumes continue to grow that will lead to the continued absorption of our excess inventory, the return to a more stable market and the end of the rampant price declines – 35% in just the past year. I am expecting to start seeing that stability develop by late 2nd to early 3rd qyarter this year in our local market, possibly sooner depending on mortgage interest rates and federal stimulus incentives.

Please feel free to add your own comments and outlook to this post.

Remember…

If you’re not at the table, you’ll probably be on the menu

‘ Five Year Housing Chart for Temecula, California’

The opinons in this commentary are strictly Gene Wunderlich’s personal opinions. While any reasonable and/or rational person should agree, these views may not reflect those of SRCAR, ActiveRain or any local or state government or other mental institution.


Murrieta Five Year Housing Summary: # Sales / Median$

A copy of this report was recently provided to our local officials for the City of Murrieta. We hope this information may prove helpful in determining city budget forecasts for the coming year as they evaluate the impact the downturn in our housing market has had on their revenue stream. 

Of course property tax revenue is just one source of income for the city but a major one. As the state continues to wrestle with a budget that may or may not include some trade-off between property taxes and vehicle license fees, a city like Murrieta that is approaching residential build-out needs to know where current property values are. 

As you look at the attached chart and graphs, you will notice that the number of sales has declined steadily through 2007 while median values continued to grow through 2006. Total home sales value peaked in 2004 at more than $812 million dollars with 1,661 homes sold, a number that fell to just $325 million in 2007 with just 687 homes changing hands. 

Spurred by declining values, a surplus of inventory to choose from and attractive interest rates, sales rebounded in 2008 to post a higher sales volume than ANY year during the previous five years. But the decline in the median price of a home will leave the city nearly 30% off the peak revenue pace of 2005, nearly $200 MILLION. Couple that decline with the reduced revenue from Proposition 8 mandated property tax reductions for existing homeowners and you understand why Murrieta is looking at alternative revenue sources and holding the line on expenses for 2009.

By tracking these numbers an investor or prospective homebuyer can determine where they think the market is. As I pointed our last August, one month of sales increase doesn’t mark a trend. But as sales volumes continue to grow that will lead to the continued absorption of our excess inventory, the return to a more stable market and the end of the rampant price declines – 35% in just the past year. I am expecting to start seeing that stability develop by late 2nd to early 3rd quarter this year in our local market, possibly sooner depending on mortgage interest rates and federal stimulus incentives.

Please feel free to add your own comments and outlook to this post.

Remember…

If you’re not at the table, you’ll probably be on the menu

‘ Five Year Housing Chart for Murrieta, California’

The opinons in this commentary are strictly Gene Wunderlich’s personal opinions. While any reasonable and/or rational person should agree, these views may not reflect those of SRCAR, ActiveRain or any local or state government or other mental institution.


Wildomar Five Year Housing Summary: # Sales / Median $

A copy of this report was recently provided to our local officials for the City of Wildomar. We hope this information may prove helpful in determining city budget forecasts for the coming year as they evaluate the impact the downturn in our housing market has had on their revenue stream. 

Of course property tax revenue is just one source of income for the city but a major one. As the state continues to wrestle with a budget that may or may not include some trade-off between property taxes and vehicle license fees, a city like Wildomar, California‘s 2nd newest city, needs to know where current property values are. 

As you look at the attached chart and graphs, you will notice that the number of sales has declined steadily through 2007 while median values continued to grow through 2006. Total home sales value peaked in 2005 at more than $147 million dollars with 317 homes sold, a number that fell to just $95 million in 2007 with just 218 homes changing hands. 

Spurred by declining values, a surplus of inventory to choose from and attractive interest rates, sales rebounded in 2008 to post a higher sales volume than ANY year during the previous five years. Even considering the impact of 35% decrease in median price since the 2006 peak, the city will still end this year with total sales revenue nearly equalling it’s 2005 volume of $147 million. That this volume of sales continue is vitally important to this new city as is addresses the impact of Prop. 8 on future property tax revenues. 

By tracking these numbers an investor or prospective homebuyer can determine where they think the market is. As I pointed our last August, one month of sales increase doesn’t mark a trend. But as sales volumes continue to grow that will lead to the continued absorption of our excess inventory, the return to a more stable market and the end of the rampant price declines – 30% in just the past year. I am expecting to start seeing that stability develop by late 2nd to early 3rd quarter this year in our local market, possibly sooner depending on mortgage interest rates and federal stimulus incentives.

 

 

Please feel free to add your own comments and outlook on this information.

Remember…

If you’re not at the table, you’ll probably be on the menu

‘ Five Year Housing Chart for Wildomar, California’

The opinons in this commentary are strictly Gene Wunderlich’s personal opinions. While any reasonable and/or rational person should agree, these views may not reflect those of SRCAR, ActiveRain or any local or state government or other mental institution.


Lake Elsinore Five Year Housing Summary : # Sales / Median $

A copy of this report was recently provided to our local officials for the City of Lake Elsinore. We hope this information may prove helpful in determining city budget forecasts for the coming year as they evaluate the impact the downturn in our housing market has had on their revenue stream. 

Of course property tax revenue is just one source of income for the city but a major one. As the state continues to wrestle with a budget that may or may not include some trade-off between property taxes and vehicle license fees, a city like Lake Elsinore that is in the midst of a housing resurgence needs to know where current property values are.

As you look at the attached chart and graphs, you will notice that the number of sales has declined steadily through 2007 while median values continued to grow through 2006. Total home sales value peaked in 2005 at more than $383 million dollars with 1,054 homes sold, a number that fell to just $122 million in 2007 with just 335 homes changing hands.

Spurred by declining values, a surplus of inventory to choose from and attractive interest rates, sales rebounded in 2008 to post a near five year record high. But the decline in the median price of a home will leave the city nearly 40% off the peak revenue pace of 2005, nearly $260 MILLION. Couple that decline with the reduced revenue from Proposition 8 mandated property tax reductions for existing homeowners and you understand why Lake Elsinore is looking at alternative revenue sources and holding the line on expenses for 2009.

By tracking these numbers an investor or prospective homebuyer can determine where they think the market is. As I pointed our last August, one month of sales increase doesn’t mark a trend. But as sales volumes continue to grow that will lead to the continued absorption of our excess inventory, the return to a more stable market and the end of the rampant price declines – 45% in just the past year. I am expecting to start seeing that stability develop by late 2nd to early 3rd qyarter this year in our local market, possibly sooner depending on mortgage interest rates and federal stimulus incentives. Subscribe for your own market updates by clicking the link at the bottom of this page and let me know what you think is happening.

 

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Remember…

If you’re not at the table, you’ll probably be on the menu

‘ Five Year Housing Chart for Lake Elsinore, California’

The opinons in this commentary are strictly Gene Wunderlich’s personal opinions. While any reasonable and/or rational person should agree, these views may not reflect those of SRCAR, ActiveRain or any local or state government or other mental institution.


Menifee Five Year Housing Summary: # Sales / Median $

A copy of this report was recently provided to our local officials for the City of Menifee. We hope this information may prove helpful in determining city budget forecasts for the coming year as they evaluate the impact the downturn in our housing market has had on their revenue stream.

Of course property tax revenue is just one source of income for the city but a major one. As the state continues to wrestle with a budget that may or may not include some trade-off between property taxes and vehicle license fees, a city like Menifee, California‘s newest city, needs to know where current property values are.

As you look at the attached charts, you will notice that the number of sales has decreased steadily through 2007 even while median values continued to increase through 2006. Total home sales value peaked in 2005 at more than $278 million dollars with 763 homes sold, a number that fell to just $134 million in 2007 with just 498 homes changing hands.

Spurred by declining values, a surplus of inventory to choose from and attractive interest rates, sales rebounded in 2008 to post a higher sales volume than ANY year during the previous five years. Even considering the impact of 35% decrease in median price since the 2006 peak, the city will still end this year with total sales revenue very near to, if not exceeding, it’s 2005 volume of $278 million. That this volume of sales continue is vitally important to this new city as is addresses the impact of Prop. 8 on future property tax revenues.

By tracking these numbers an investor or prospective homebuyer can determine where they think the market is. As I pointed our last August, one month of sales increase doesn’t mark a trend. But as sales volumes continue to grow that will lead to the continued absorption of our excess inventory, the return to a more stable market and the end of the rampant price declines – 30% in just the past year. I am expecting to start seeing that stability develop by late 2nd to early 3rd quarter this year in our local market, possibly sooner depending on mortgage interest rates and federal stimulus incentives.

Please feel free to add your own comments and outlook to this post.


Remember…

If you’re not at the table, you’ll probably be on the menu

‘ Five Year Housing Chart for Menifee California’

The opinions ikn this commentary are strictly Gene Wunderlich’s personal opinions and while any reasonable and/or rational person should agree, these views may not reflect those of SRCAR, ActiveRain or any local or state government or other mental institution..