REAL ESTATE FRAUD

Stanislaus County District Attorney

W.R. McKenzie, Deputy District AttorneyGlenn Gulley, Criminal InvestigatorMark Smith, Criminal Investigator

A LITTLE ABOUT US:

June 2005…SB 537 passed (Govt. Code 27388)

$3.00 every Recorded Real Estate Document to go to Trust Fund for Fraud

Stanislaus County began January 2006Full Time DDATwo Criminal Investigators

What do we Do:

Focus on investigation and prosecution of Real Estate Fraud

Emphasis on Crimes that impact Vulnerable Victims:

Elderly, Disabled, Unsophisticated, Foreclosure victims

Educational programs in the CommunityTo help reduce the number of victims

More Specifically,What do we Do:

Investigate Frauds and ForgeriesForeclosure FraudTitle FraudFiling False Financial Statements in relation

to Mortgage FraudEmbezzlement & Misappropriation of

FundsConstruction Fraud

What is fraud?

Theft…Stealing someone’s money or property

False pretenses…criminal lies and induces someone to part with their money or property

Who are Perpetrators?

IndividualsNotariesLendersBrokers/AgentsConstruction ContractorsFamily

Common crimes:Forged Title TransfersForeclosure FraudEmbezzlementsMortgage FraudPredatory LendingRental Schemes/Rent SkimmingReal Estate Investment SchemesIdentity Theft

Forged Documents/Fraudulent Conveyances:

Steal the Equity in the Home Loan taken on Property or sell Property Victim/Homeowner has no knowledge Achieved by forged Grant Deed and Recording

Title Transfer Sometimes Accomplished through forged Power

of Attorney Result: Conversion of Victim’s property to cash

What kind of fraud do we see in your industry?

Foreclosure Fraud:

Desperate Homeowner in ForeclosureMay offer to take title to cure defaultMay offer to rent back houseOften tells homeowner saving their creditSteals Equity…Sells House…Evicts VictimOften Foreclosure sale will give distressed

homeowner the equity after debt is paid!!

EQUITY SKIMMING

Straw Buyer UsedForged or False Loan Documents submitted

to the LenderFalse Credit ReportsStraw Buyer Quit Claims to InvestorInvestor Fails to make Mortgage PaymentsRents Property Until Foreclosure

Mortgage Elimination Scams:

Dorian GroupSeminars all over the countryOver-inflated appraisalsMultiple Loans on property w/Gift-back

programsLender never sees last minute addendumsMillions of dollars on a single piece of

property

Predatory Lending:

Loans with Exorbitant Fees and PointsNever explained to VictimElderly and Disabled are targeted by

unscrupulous LendersVictim is unable to make monthly payments

and Lender makes the loan anyway

Reverse Mortgages:

Targets Elderly SB 1609/Civil Code 1923.2 Prohibits lender from Requiring Victim to

Purchase or offer an Annuity to the victim Requires Lender to refer borrower to counseling…

5 approved by HUD Borrower must have a certificate of completion of

counseling services before completion of loan

How does this crisis affect us?

Hundreds of Subprime lenders have gone out of business.

Billions of dollars were lost in city taxes from foreclosed/abandoned properties

Confidence in the American Marketplace is at an all time low

Confidence in the government and the industry is at an all time low.

What is happening now?

Buy and Bail

Borrower purchases a new home and then allows their previously owner-occupied home to go into foreclosure.

Borrower tells new lender that they intend to sell or rent out the old house. • Old home upside down• Inflated rental income• No intent to sell or rent but states otherwise to new lender• Falsified rental agreements• Other false statements regarding the old home

Short Sale Fraud

Property appraised below FMV. Sold to “new purchaser” who then re-sells it for FMV Pockets the money or Resells to original owner for far less than they

originally owed.

Both the current and new lender are victims in this crime.

Equity Stripping

Foreclosure specialist assists homeowner– Homeowner told to make payments to rescuer– Deed transfer may be hidden in the paperwork– Rescuer pockets the money

Fraud Enforcement and Recovery Act (FERA)

May 20, 2009– Expands federal jurisdiction

Federally related mortgage loan– Secured by residential property– Occupied by 1 to 4 families– Proceeds used to pay of an existing loan secured by

property– And which

• Involves FDIC or HUD or Fannie, Ginnie etc…• Or creditor invests more than $1m per year in

residential

18 U.S.C. 1014

Whoever knowingly makes any false statement or report, or willfully overvalues any land, property or security for the purpose of influencing in any way any business or person that makes federally related mortgage loan.– Statute of Limitation is 10 years.– Maximum punishment $1m fine and 30 years

Signed by Governor in 2009

SB 36

Requires a license endorsement for real estate brokers who solicit or negotiate mortgages

Business and Professions Code §10166Fines, License consequences

SB 94

Loan Modification NO ADVANCE FEES … PERIODMisdemeanor $10,000 or $50,000 fine. Also Requires translation

SB 237

Appraisal ChangesB&P 11302Creates registration program for appraisal

management companiesRequires licensing and background for all

SB 239

Real Estate Fraud PC 532f – FelonyLies or omits on a mortgage applicationAllows the above lie to take placeReceives ANY compensation knowing

either of the aboveRecords any documents knowing any of the

above

AB 260 Predatory Lending Civil Code 4995 Defines “higher priced mortgage loan” Limits prepayment penalties to 2% 1st year 1%

second year Prohibits negative amortization Limits total amount of compensation Requires a Fiduciary duty on part of broker Restricts “steering” $10,000 fine plus loss of license

AB 329

Reverse Mortgage Civil Code section 1932.2 Seller cannot be associated with other financial or

insurance entities No referals to other products Give list of at least 10 HUD approved counsellors Must give Checklist of questions for counsellor Loan Cannot be approved until signed checklist returned to

lender

AB 957

Seller CANNOT require a specific escrow agent or title insurance

3 times total costCivil Code Section 1103.20

AB 1160

Mortgages must now include a summary of terms in whatever language is used to negotiate it

Prior to execution and no less than 3 days after release of application

Spanish, Chinese, Tagalog, Vietnamese or Korean.

$10,000 fine.

Other Crimes

Filing False Statements (PC 115.5)Forgery (PC 470)Obtaining $ or Property by False Pretenses

(PC 532)False Financial Statements Credit/Loan

Applications (PC 532a)Unlawful Notarial Acts (GC 8227.2)Elder Financial Abuse (PC 368)

REAL ESTATE AGENTS Business & Professions 10176

Applies to AgentsCovers Misrepresentations & False Loan DocumentsCan subject you to investigation by the

DRE; which may then be referred to us.

REPORTING A CRIME:

Immigration status of the victim is not relevant

Contracts for the sale of real property should be in your first language

Don’t be embarrassed to report the crimeFraudsters prey on people who will trust

them…Don’t trust them!!!!!

HOW ARE YOU A PERPETRATOR…?

“BY AIDING & ABETTING…”

PRINCIPALS

DIRECTLY & ACTIVELY COMMIT THE ACT CONSTITUTING THE CRIME; (E.G. “THE FORGER”)

AIDERS/ABETTERSEQUALLY GUILTY

AIDERS & ABETTERS A Person Person aids and abets when: (1) with knowledge of the unlawful purpose of

the perpetrator and; (2) with the intent or purpose of

committing/encouraging or facilitating the commission of a crime

(3) by act or advice aids, promotes, encourages, or instigates the commission of a crime

You know a statement is false and submit the loan anyway…

WHAT ABOUT DUTY OF CONFIDENTIALITY…?

Government Code Section 7470 provides in relevant part:

“This section shall not preclude a financial institution , in its discretion from initiating contact with, and disclosing customer financial records to, appropriate state agencies concerning suspect violations of any law…”

Red Flags in Real Estate Transactions:

Power of Attorney used without Explanation

No property inspection Seller procures AppraiserRequest to Avoid EscrowRequest to Avoid Title InsuranceCash Payments made outside Escrow

More Red Flags…

Disparity in Document DatesRecent LiensPost Office Box Listed for Borrower or

EmployerSudden Changes to EscrowEscrow Instructions & Addendums not sent

to Lender

WHAT CAN YOU DO…?

Pay attention to the Red FlagsIf you see a Red Flag ask questionsConduct a limited inquiry and /or

investigationContact you attorney ask for adviceIf it doesn’t sound right it probably isn’tIf you suspect FRAUD...Call our office!

WHAT TO REMEMBER?

DISCLOSURE!

DISCLOSURE!

DISCLOSURE!

OFFICE OF THE DISTRICT ATTORNEY

(209) 525-5550

10 tips for Avoiding Fraud:

What are you signing…Get an attorney Check References of Industry Professionals Beware of Promises of Outrageous Profits Always conduct business in Office or Bank Beware of Telephone solicitations Check Comparable sales in area Check Documents carefully…Avoid pressure to

sign

10 Tips to Avoid Fraud (cont.)

Review History of propertyMake sure you understand the terms of your

mortgage then check against actual documents

Beware of Alleged Business people who are “Mobile”…

Never sign Blank DocumentsIf it sounds to good to be true…. IT IS!!!!!