FBI Mortgage Fraud
Supervisory Special Agent for the FBI
This week Bruce is joined by Supervisory Special Agent Richard Ryan with the FBI. Ryan supervises a cadre of special agents and detectives from various law enforcement agencies throughout Southern California. Mr. Ryan oversees white collar crime in Los Angeles, which includes financial institution fraud, money laundering, and identity theft. During his career, he successfully worked major frauds, counter terrorism, gangs and criminal enterprises, and narcotics. In 2009, Ryan was deployed to Haiti for the search and rescue of U.S. citizens being held hostage for ransom.
Mortgage fraud is much more complex than a homeowner trying to get out from underneath their home, or someone looking to prey on another person’s equity.
There is a difference between fraud for ownership and fraud for profit. Mortgage and bank fraud involves profit. Homeownership or dehomeownership fraud often involves getting away from an underwater mortgage. Many people are trying to get away from their properties because of unemployment, having a bad loan, or having a fraudulently obtained loan. Many fraudulently obtained loans occurred while lenders were using no documentation loans.
Foreclosure rescue and loan modification schemes are a big problem right now. There are some companies honestly working with people to save their homes, but most of these companies are sponsored by the government. You should be cautious of foreclosure rescue companies that make you pay up front. Legitimate companies are more likely to bill you after they have completed their service.
Bruce heard a radio advertisement that said, “If you are trying to do a loan modification, without us assisting you in preparing your financial statement to look correct, you will probably not get your loan modification.” Ryan says that is completely false. That company is preying upon the emotions of people who are already desperate. They are pretending that their company is the only company that can help with loan modifications.
Many people are currently attempting to make their financial status look worse than it truly is to get a loan modification.
Fraudulently under-evaluating a property allows someone to flip it at a later point with a higher appraised value. This type of fraud involves a conspiracy of a homeowner and an appraiser. The appraiser gives an undervalued appraisal, and then encourages the bank to accept less than what it owed on the property. The property is then bought by the conspirators and sold for a price near market value.
There are many people who buy damaged properties with low values, fix them, and sell them at a higher value. The FBI encourages people to do this, because it is not manipulative, and not only does it provide a profit to the investor, but it helps raise the value of the entire neighborhood. There are perfectly legitimate reasons for buying a property at a low value and selling it at a higher one.
Sometimes there are conspirators in a short sale that are not going to receive any money. Occasionally, a homeowner will have a need to sell his home so he will personally ask a certain company to buy the property at a specific price. The conspiring homeowner will then have the opportunity to buy back the same property at a later date for a lower price. This is not considered a fair deal for the bank, and it is considered fraud.
Fraud occurs when skirting of reporting requirements occurs. Fraud occurs if you are not putting legitimate information on a loan application. It occurs if you are providing kick backs for a benefit to someone such as an appraiser or a notary.
Fraud evolves based on the conditions and environment of the day. We did not have short sales when people were making double digit profits every month in 2006. The banks were handing loans out prevalently. We are currently seeing a lot of foreclosures, short sales and vacancies. Ryan has also noticed a “squatting” trend developing in the world of fraud. Squatting is finding vacant properties, breaking into them, changing the locks, live in them without rent, and demanding the bank to give them $25,000 to leave.
Bruce says that owner occupants are not being punished when they allow their mortgage to become seriously delinquent and then destroy the property they are losing. Quite often, these people will dismantle things such as the cabinets, and decide that those cabinets should be theirs, even after they have lost the property. If someone is in bankruptcy and they strip the house for a profit they have committed fraud.
200 banks went into FDIC receivership last year. Many of these banks closed down because of their loan process. The FDIC is also a federal investigation agency that can detect loan fraud.
Insider fraud involves participants in the management of the bank who do perform certain actions to help themselves. Insider fraud can also involve a bank’s underwrite or loan processor.
The FBI has seen almost every kind of fraud. Bruce has people come to him with investment ideas, and their ideas sometimes involve fraud. Richard Ryan understands what a straw buyer is. There are some individuals who purchase homes but never make a payment. When the FBI interviews these people, the FBI discovers that these people had no idea that they were on title. They may have been told that they would receive $10,000 just to use their name to obtain a loan, and that their name would not be attached to the loan. Ryan has spoken to people who owned 30 properties without knowing it. These people are known as straw buyers.
Organized crime is very prevalent in mortgage fraud and bank fraud. Companies have purchased hundreds of homes underneath the names of the unknowing owners. Ryan met a person who owned his home outright, but had his home placed on the market without his knowledge, and had bids placed on the home. The real homeowner had no idea while the fraudulent homeowner was taking money from escrow and attempting to sell the house.
The FBI tries to conduct its investigations covertly. They do not want criminals to run and hide. The nice thing about mortgage fraud is that criminals cannot change their paper trail. You cannot unfile mortgage documents, and once those documents are filed there is a trail to follow.
The FBI has about 300 special agents dedicated to mortgage and bank fraud. Millions of schemes have been attempted, so the FBI is not well staffed to handle all these problems. However, if you do commit fraud, the FBI will come for you eventually.
There are currently around 3000 fraud investigations. California, Florida, Nevada and Arizona are the top places for mortgage fraud. The properties under investigation in California are typically much more valuable than the properties under investigation in Oklahoma.
For more information about The Norris Group’s California hard money loans or our California Trust Deed investments, visit the website or call our office at 951-780-5856 for more information. For upcoming California real estate investor training and events, visit The Norris Group website and our California investor calendar. You’ll also find our award-winning real estate radio show on KTIE 590am at 6pm on Saturdays or you can listen to over 170 podcasts in our free investor radio archive.