In 2011, the estimated annual losses for mortgage fraud were well over $10 billion. More than 93,000 suspicious mortgage fraud activities were reported to authorities. The FBI had 2,590 pending investigations. The FBI reported this year their mortgage fraud cases have more than tripled and continues to grow rapidly. As you can see by the numbers above, it’s impossible to investigate all complaints and scammers are well aware of the FBI’s limitations.
The states with the most significant mortgage fraud problems were: Florida, New York, California, New Jersey, Colorado, Maryland, Michigan, Virginia, Ohio and Illinois. (Colorado was added to the FBI’s list in 2011.)
What, exactly is mortgage fraud? Mortgage fraud is a material misstatement, misrepresentation, or omission relied on by an underwriter or lender to fund, purchase, or insure a loan. This type of fraud is
usually defined as loan origination fraud. Mortgage fraud also includes schemes targeting consumers, such as foreclosure rescue, short sale and loan modification.
The housing market is still in distress providing ample opportunities for fraud. Unemployment remains high and is expected to remain high through at least the end of this year. Almost 60% of homeowners in foreclosure counseling list unemployment as the reason they’re in distress.
Mortgage fraud perpetrators earn high profits with a relative low risk for discovery and prey upon vulnerable at-risk homeowners. Experts say the 93,000 reported mortgage fraud incidents last year is just a fraction of the actual fraud committed. Mortgage loan originators made $1.2 trillion last year. That huge amount of money only entices scammers to create new and more elaborate schemes to dupe the homeowner.
Loan Modification scams are also on the rise. There are phony counseling and foreclosure rescue scams where a counselor tells you he can negotiate a deal with your lender – once you pay him a fee. The fee may be called a processing or administrative fee. Some counselors will tell you they’ll handle everything – sometimes even taking a few mortgage payments directly (which they pocket).
Scammers have set up fake ‘government’ modification programs. These scammers claim to be affiliated with or approved by the government. Their websites will end with a .com or .net. When dealing with government programs (HAMP, MHA, HARP) the website will end with a “.gov”. There are websites using the above HAMP, MHA, HARP with something other than “.gov” and are not the real programs.
Scam artists set up new programs everyday making it impossible to keep up with these new schemes. Just this morning, I received a special message from a real estate appraiser saying they’ve discovered a loophole in the $787 billion stimulus package that allows him to buy and sell 20+ houses a month and make over $100,000 every 30 days. You have to click on the information button right away because “he can’t post this page for long as he doesn’t want the government coming after him”. Really?
Unfortunately, hundreds of people, especially those who are desperate, will pay the money to find out how they can get a free home. The scam artist will run this ad for a day or two and then disappear pocketing the fee and leaving the homeowner even more desperate.
Some of the other con games these people use are:
Forensic Loan Audits. An offer (for a price) to review your mortgage loan documents to determine whether your lender complied with state and federal mortgage lending laws. These people will say you can use their audit report to stop foreclosure giving false hope to the vulnerable homeowner.
Mass Joinder Lawsuits. Normally headed up by a bogus or psuedo -lawyer or lawyer promising they can force your lender to modify your loan. They’ll tell you by joining other homeowners in a mass joinder lawsuit against a particular lender you’ll be able to stop a foreclosure, reduce your loan balance or interest rate, receive monetary damages or even receive your home free. Again, a fee paid to them is necessary.
Bait and Switch. You sign documents for a new loan modification that will make your mortgage current. You actually signed documents that surrender the title or deed of your house to the scam artist.
Rent-to-Own or Leaseback. You surrender the title or deed of your home as part of a deal that will let you stay in your home as a renter and then buy it back in a few years. In reality the scammer has no intention of ever selling the home back to you.
We’re hearing variations on the Rent-to-Own and Leaseback schemes. The con may tell you by surrendering your title, it will permit the borrower (who has a better credit rating) to get new financing and keep you from losing your home. Two things can happen 1) he raises your rent over time so you can’t afford it and evicts you, leaving him free to sell your house 2) he offers to find a buyer for your home, tells you to move out and simply rents the home to someone else. In this case, he can pocket the new renter’s monthly
payments until the lender forecloses, or sell the house.
Short Sale. The homeowner is promised a short sale very quickly. You pay the scammer a fee, which often includes hidden fees and surcharges. The ‘short sale’ deal falls through at the last-minute, the con keeps your fee and moves on.
Bankruptcy to Avoid Foreclosure. The scam artist promises to negotiate with your lender, or get you refinancing on your behalf for an upfront fee. He pockets the fee and files a bankruptcy case in your name (many times without your knowledge). A bankruptcy filing often stops a home foreclosure but only temporarily.
If thinking bankruptcy, you should always contact a licensed, experienced, attorney and preferably an attorney who is also a foreclosure defense attorney.
There are also schemes of Equity Skimming, Air Loans, Silent Seconds – too many to write about in one blog entry. The sad ending is the homeowner is the one who is hurt the most while the perpetrator gets away free with thousands of dollars.
Keith A. Gantenbein, Jr. is a Colorado foreclosure defense attorney located in Denver and servicing all of Colorado. He also handles bankruptcies, mortgage negotiations, lender liability, real estate, civil litigation, contracts and landlord/tenant. If you think you will be facing foreclosure, or are in the foreclosure process, or have had a wrongful foreclosure, contact Keith Gantenbein at (303) 618-2122 for a one-hour consultation where he will discuss your situation and go over all your options with you.