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Mortgage Fraud
Old 05-13-2009, 12:03 AM   #1
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Mortgage Fraud

We have been looking into buying bank owned/distressed assets/foreclosure properties, and recently ran into an interesting situation that I thought Iíd post here since there are a lot of folks here with a wealth of RE knowledge.
There has been a lot of press recently about homeowners falling victim to foreclosure scams. I believe we stumbled into the reverse of this, where a homeowner was scamming his lender.

Situation is this:
High-end home, appraised at 1.3 million. The owner has lived in it for 30+ years, owned it outright in 2004, when he suddenly began using it as an ATM machine. Borrowed 1.2 million against the property- 5 different loans; 2 lenders.

Bottom fell out of the market, home is now only worth ~1.00 million
Owner stops in middle of a minor interior remodel and quits paying his mortgage.

House lists for 1.3 million. Of course, no offers. After 90 days, gets relisted it, but drops price to 1.2 million. Still no offers. Another 90 days, gets re-listed as a short sale at 730K... We get real interested, submit an offer the next AM at 93% of asking price- MLS average sale price for the area. Listing agent is very vague, does not even respond to offer before expiry. Our agent follows up, is told there is another offer at "close to full price". We counter at 6K over asking price, no contingencies, and offer the 6K as non-refundable earnest money. The agents response was "oh, no..." In the middle of our negotiations, the MLS listing price suddenly drops to 710K (never mentioned by the seller during negotiations) and suddenly the house is under contract with another buyer. Our offer was rejected because " we were from out of town" and we are told not to bother documenting our higher offer.

What really makes this interesting is that the owner of record is a Real Estate Broker. (This little fact was not disclosed in the listing or by the listing agent who happens to work for him...DW did some online sleuthing on the assessorís website and then googled the owners name...) We subsequently discover the house is actually being sold to a "professional loss mitigation firm" who is going to negotiate a short sale with the lenders, with a back to back close to the contracted buyer.

Looking at the house, it was apparent that the owners, having lived there for over 30 years and facing foreclosure in less than 30 days have not packed a thing; in fact it appears they have no intention of leaving. The house had unfinished remodeling, was poorly presented (only the listing agent could show it; no lockbox; any potential buyer had to be pre-approved by a specific lender; appointments were difficult to schedule; uncooperative agent- remember, the owner is a RE Broker who presumably knows how to sell homes...everything that could possibly be implemented to queer a deal was used.

It appears to us that the MLS listings were put up to create an unsuccessful sales history that their short-sale specialists can take to the lenders with a tale of woe... The lenders, anxious to unload toxic assets, are pressured to short sell this "unsellable" house to the "loss mitigation specialist" for ~650K: the owner buys his $1.3million house back for ~700K (or probably has a trust, llc, friend, or family member buy it for him) and the lenders/taxpayers eat his inflated equity losses. And, to make the deal even sweeter, the owner/broker collects a 6% commission on the sale!

Questions:
  1. Does this constitute mortgage fraud?
  2. What laws has the owner broken?
  3. What RE code of ethics has he violated?
  4. Who do we share this info with? Iím mad as hell and would like nothing better than to see this scumbag go to jail for, not back to his house with 500K of my hard-earned taxes in his pocket.
Sorry for the long-winded post, but this really is quite a mess we stepped in...
Look forward to hearing what others think of it.
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Old 05-13-2009, 12:26 AM   #2
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1. Sure sounds like it.
2. Fraud
3. Fiduciary
4. AG's office would be a good start as wsould the RE Commissioner's office

Keep me looped in on this one!
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Old 05-13-2009, 10:16 AM   #3
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Originally Posted by crazy connie View Post
1. Sure sounds like it.
2. Fraud
3. Fiduciary
4. AG's office would be a good start as wsould the RE Commissioner's office

Keep me looped in on this one!
+1 Let's hear the outcome of this one.
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Old 05-13-2009, 10:51 AM   #4
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I agree with the others, you need to pursue this. It probably won't come to anything, but if you did it would be nice to stop one scumbucket getting away with fraud that the rest of us have to pay for.
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Old 05-13-2009, 10:53 AM   #5
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Eeee-yuck. I suspect there are investigative reporters out there who would love to jump all over stories like this one and expose the fraud and abuse of the system.
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Old 05-13-2009, 11:04 AM   #6
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Dang - makes me want to stand up and applaud the homeowner! Putting together a scheme like that, dependent on all the parties working toward a common goal - impressive!
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Old 05-13-2009, 12:48 PM   #7
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Dang - makes me want to stand up and applaud the homeowner! Putting together a scheme like that, dependent on all the parties working toward a common goal - impressive!
It appears that he has friends/ family members who work in RE helping him create the listing trail. A family member with her own agency listed it the first time, her business partner the second time, an agent in his own office the third time - three different MLS listings, three different RE offices. Foolproof, right?
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Old 05-13-2009, 01:00 PM   #8
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Originally Posted by Westernskies View Post
It appears that he has friends/ family members who work in RE helping him create the listing trail. A family member with her own agency listed it the first time, her business partner the second time, an agent in his own office the third time - three different MLS listings, three different RE offices. Foolproof, right?
Then these other people:
"
The lenders, anxious to unload toxic assets, are pressured to short sell this "unsellable" house to the "loss mitigation specialist"
Quite a crew. Lots of places for the ball to get dropped.
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Old 05-13-2009, 01:06 PM   #9
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Then these other people:
"The lenders, anxious to unload toxic assets, are pressured to short sell this "unsellable" house to the "loss mitigation specialist"
Quite a crew. Lots of places for the ball to get dropped.
Understand, but with $500K + at stake, a working relationship with the loss mitigation firm, and a lender who doesn't know the owner is a RE Broker, what could go wrong?
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Old 05-13-2009, 04:30 PM   #10
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Hmmmm, might be bank fraud, which is a federal crime, under this language (18 USC 1344):

"Whoever knowingly executes, or attempts to execute, a scheme or artificeó
(1) to defraud a financial institution; or
(2) to obtain any of the moneys, funds, credits, assets, securities, or other property owned by, or under the custody or control of, a financial institution, by means of false or fraudulent pretenses, representations, or promises;

shall be fined not more than $1,000,000 or imprisoned not more than 30 years, or both."

Might also be a conspiracy count in the facts, too, with all these playa, playas. Consult your local FBI.
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Old 05-13-2009, 05:06 PM   #11
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Why not go to the lender and make your offer?

I am sure they are willing to sell to you for the higher price.. which of course will show what the guy is doing..

This probably will be done and work... there are not enough resources to snoop this out and prosecute...
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Old 05-13-2009, 05:17 PM   #12
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Why not go to the lender and make your offer?...
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Old 05-14-2009, 08:04 AM   #13
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The lender needs to hear your offer ... call them and ask for the REO Manager. You'll have to be persistent; getting to him is hard and he won't want to talk. But he should LISTEN.

Another scheme being used by upside down home owners is "buy and dump". Home owners with good credit are buying distressed REOs at a bargin then abandoning the upside down home letting it go to foreclosure. If you can sit tight for 7 years, you'll recover. Sooo banks are now requiring 30% equity in the first home before the second is financed.
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Old 05-14-2009, 12:59 PM   #14
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The lender needs to hear your offer ... call them and ask for the REO Manager. You'll have to be persistent; getting to him is hard and he won't want to talk. But he should LISTEN.

Another scheme being used by upside down home owners is "buy and dump". Home owners with good credit are buying distressed REOs at a bargin then abandoning the upside down home letting it go to foreclosure. If you can sit tight for 7 years, you'll recover. Sooo banks are now requiring 30% equity in the first home before the second is financed.
Problem is there are two banks involved. I have spoken to one, the other appears to be brain-dead, but still breathing.

The walk-away scenario you described is exactly what happened to the home across the street from me- X2...

I previously posted a thread about this home; it sold new in 2000 for $200K and was purchased at the height of the market for $400K by a couple who just walked away when their D/E ratio went upside down on it. Bank foreclosed; it was just purchased for $210K by a young couple who are downsizing from a $1.3M home they are walking away from...Good news is that in talking with these folks, it appears that our neighborhood has been targeted "re-trenchment" for members of their church (which shall remain nameless, but are based in the only State that starts with "U" - we are apparently in a "good ward" -sounds like a substantial number of their members are in similar predicaments,and need to downsize.) so our home should sell fairly quickly when we sell it. Which begs the obvious question-what the heck a young working couple with 4 kids under 6 years old is doing with a $1.2M mortgage.....


And so the cycle begins anew...
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Old 05-15-2009, 10:51 AM   #15
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. Which begs the obvious question-what the heck a young working couple with 4 kids under 6 years old is doing with a $1.2M mortgage.....
They work for Fannie Mae, of course.......
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Old 05-15-2009, 01:51 PM   #16
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I have a lot of experience with these. I had a lawyer partner who worked as a loss mitigation specialist only. The business is changing weekly as the lenders have figured out the scams. It is becoming more difficult to purchase these short-sales even for cash. I was presented a property "wholesale" from an unlicensed loss mitigation specialist at a price that was 50 cents on the dollar. I bought it and he used my cash to close his side first, netting him $8k, but I went in with my eyes wide open. I found out later from Realtors that they had offers in at a higher price that were never presented to the lender. No one works with this guy any more. Seems the lawyers are taking over the business as lenders will speak with them.

I have not given up on short sales but it has suddenly become more attractive to look at property that has already completed the foreclosure process. Sweet deals but you need to have a cash position or an unsecured commercial line of credit out there because these usually need work. Conventional/FHA lenders won't touch fixer-uppers any longer. Very little 203k money out there.
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Old 06-04-2009, 03:45 PM   #17
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UPDATE 1

Just received notice from the State Board of Realtors that the Disciplinary Committe reviewed our documented concerns and has charged the owner and the listing agent with (4) specific ethics violations each. The Professional Standards Council, composed of Realtors from around the State will decide how to deal with them.

UPDATE 2

The lender received a detailed package from the short sale company outlining the reasons why the house should sell to them for <$600K- exactly as we figured. The lender asked to see the listing and offer history, gave them numerous opportunities to present our offer, but they certified (in writing) that there had been no offers, not knowing that the lender had a certified signed copy of our offer in their hands... or that they knew the owner was a RE broker... who they suspected had an equity interest in the loss mitigation firm.. and stood to collect a commission from the lender for short-selling his own home...

Long story short, the lender let them hang themselves, rejected the short sale, referred the mortgage fraud conspiracy for prosecution and is foreclosing on the house in two weeks... The owners will have to come up with 1.2 million+ to keep it. (Never considering they might lose it to foreclosure, they paid $12K+ in back taxes last week to avoid anyone filing a tax lien)

DW isn't interested in buying it any more; the owner is a prominent resident of a small town and there is too much bad karma.

But at least they are throwing the thieving bast*rd out.
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Old 06-04-2009, 06:26 PM   #18
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You now, I am pretty dang honest. But sometimes I want to get in on all the action! How much of this stuff really goes on?

This sort of thing isn't criminal?
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Old 06-04-2009, 08:09 PM   #19
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Best example of karma I have seen for a long time.

Glad that you took the time to pursue this issue. Oh well, guess the owner will lose that $12k he just paid in back taxes as well as the house unless he coughs up a lot of dough.
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Old 06-04-2009, 09:23 PM   #20
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HIP HIP HOORAY

Great news! Hope this one gets a write up in the local press. Oh, that's right the local press is also under the influence!
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