The "Double Dirty Dozen" Predatory Mortgage Lending Practices

"Predatory and abusive practices by mortgage lenders and brokers, which impose excessive and unreasonable charges on homeowners, are pervasive and cause serious harm." So says an article appearing on the website of the National Association of Consumer Advocates (NACA).

The article identifies the typical victims of these practices and sets forth a list of over thirty predatory and abusive practices and insider tricks used to dupe homeowners.

To read more of this article written by NACA members, attorneys William Brennan and Patricia Sturdevant, see:

The Double Dirty Dozen Predatory Mortgage Lending Practices (HTML version).
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Ex-Haitian Death Squad Leader Pleads Guilty In NY Mortgage Scam

Emmanuel Constant, 49, pleaded guilty for his role in a "straw buyer" mortgage fraud scam in a Brooklyn, New York state court, according to a Press Release from New York State Attorney General's Office. The investigation was conducted by the office's Organized Crime Task Force.

In the 1990s, Constant was reportedly the head of a notorious Haitian death squad that was supported by Haiti's military dictatorship. For more, see Former Haitian Strongman Pleads Guilty In Massive Mortgage Fraud Scheme.

For an earlier story, see Haitian Death Squad Leader Arrested in US - For Mortgage Fraud.
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Ohio Land Flipper Pleads Guilty In Federal Court

Randall Aaron Davidson, the head of an illegal property flipping operation in Montgomery County, Ohio that involved 350 fraudulently obtained loans, pleaded guilty in Federal Court today to three charges in connection with the scam. The properties were located primarily in the city of Dayton and was called the largest mortgage fraud operation to be prosecuted in Montgomery County. For more, see Mortgage fraud 'ringleader' pleads guilty reported by the Dayton Daily News.

For prior stories on this case, see Dayton Federal Trial Of Property Flippers Postponed, Plea Deals Expected
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Equitable Mortgage Doctrine In Illinois

For those readers interested in information on the equitable mortgage doctrine as applied in Illinois, see Equitable Mortgage Doctrine In Illinois - Part 1. equitable mortgage zebra

Detroit Area Law Enforcement Targeting Deed Theft With Dedicated Units

The Wayne County Deed Fraud Unit has made arrests in two new cases involving a deed scam where homes are sold right out from under the real owners without them knowing about it. The announcement, made yesterday by Wayne County Prosecutor Kym Worthy, is reported by Click On Detroit at ClickOnDetroit.com.

Reportedly, over 100 homeowners in Wayne County have been targeted in this scam where forged documents purporting to transfer title from the true owner to a scammer are recorded with the county's office for recording land records since 2005. These forged records are then used to defraud mortgage lenders out of the loan proceeds from subsequent phony realty transactions. Typically, the true owners only become aware of the scam when they begin receiving collection and legal notices from the mortgage lenders who were duped into making the loans.

Wayne County Sheriffs Office currently has three full time deputies assigned to combat deed fraud, according to Sheriff Warren C. Evans. Victims (and those who know victims) of deed fraud are encouraged to report the incidents to the Wayne County Prosecutor's Office Deed Fraud Hotline at 313-224-5869. To read the article, see New Arrests Made In Deed Scam.

To read of deed theft by forgery problems in the Philadelphia, Pennsylvania area, see:

• PA. Gov, House Speaker, Philly Mayor Homes "Stolen" ? (link to TV News report),
• Family Friend Pleads Guilty to "Equity" Scamming Disabled Philadelphia Family,
• Pennsylvania Prosecutor's Office Obtains Guilty Plea Against Home Thief.

To read of a Boston area woman who almost had her home sold from underneath her, see: Boston Cops, Feds Sting Alleged Home Thieves.

Go here for other deed theft posts. deed theft zorro

The "Happy Greek" Restaurant - Home Of The $5.50 Gyro Sandwich (and "Cash Back" Mortgage Fraud Operation?)

A mortgage fraud investigation by the Columbus, Ohio Police Department's Economic Crimes Unit has led to a seizure last week of "computers, mortgage files, counterfeit cash, phony immigration documents and fake driver's licenses, according to affidavits and evidence logs filed in Franklin County Municipal Court." So says an article in The Columbus Dispatch, reported at columbusdispatch.com, which reports that simultaneous searches by investigators were made of the Happy Greek restaurant, a home the restaurant owners share and the apartment of a property appraiser that yielded all of the above listed evidence.

Authorities believe that the Happy Greek owners ran a multimillion dollar "cash back" mortgage fraud ring, involving foreigners buying houses in elite central Ohio neighborhoods, from the restaurant's basement office.

Arrests have yet to be made.

Highlights of the article include reports, claims, or allegations that:

• People were buying upscale homes for upwards of $250,000 more than the asking price,
• Home sellers were immediately refunding the extra money (giving the "cash back"),
• The "cash back" was earmarked on loan documents for home improvements that were never done,
• Weeks and months later, the newly purchased homes remain vacant,
• At least four remodeling companies, which existed only on paper to defraud lenders, were controlled by the co-owners of the Happy Greek,
• Eight deals handled by one title closing agent resulted in $1.4 million being funneled to the phony remodeling companies,
• The people under suspicion have been described as foreign nationals from the Middle East,
• A husband and wife, linked to the suspicious deals, reportedly have already fled the country,
• The Happy Greek owners have reportedly been "relieved of their passports" by authorities.

For the whole story, see Owners ran mortgage scam from Happy Greek, officials say
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Bank Violates Truth In Lending Law; Case To Go Forward As Class Action

A Milwaukee Federal Court judge ruled last month that Chevy Chase Bank violated the Federal Truth in Lending Act, which requires lenders to clearly explain loan terms to borrowers, according to an article in The Washington Post, reported at washingtonpost.com.

The case involved a husband and wife who were misled into refinancing their 5.75% fixed rate loan by signing for a high rate, deferred interest (negative amortization), adjustable rate mortgage that was represented to them as being a 1.95% fixed rate mortgage for the first five years. The 1.95% was merely a "teaser rate" subject to adjustment after one month. It wasn't until after the couple received their first payment coupon for the new loan in the mail that they initially became aware of what they had signed for. A $5,700 prepayment penalty in the mortgage kept them from refinancing into a different loan.

The judge will allow the case to be treated as a class action lawsuit. The bank has filed an appeal.

For the whole story, see: A Fight Over the Fine Print (Chevy Chase Bank Faces Suit Over Adjustable-Rate Mortgages).

See also, Milwaukee Journal Sentinel: Mortgage lawsuit may have big effect (Couple's low interest rate lasted a month).

Dayton Federal Trial Of Property Flippers Postponed, Plea Deals Expected

The federal court "property flipping" trial of four defendants scheduled to begin this past Tuesday in Dayton, Ohio has been postponed. Court officials have announced that the defendants are now expected to forego a trial and instead, agree to plead guilty to some of the charges. To read the article, reported by the Dayton Daily News, at daytondailynews.com, see:

Guilty pleas expected in mortgage fraud trial
(Four defendants are accused in a 14-count indictment involving 350 loans)

For background on this story, see my February 4th post, Dayton Area Task Force Fighting Flipping, and the two links to additional Dayton Daily News articles on this story.
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Missouri Feds Get Indictments Of Four In Property Flipping Operation

A Missouri U.S. Attorney announced yesterday the indictments of four St. Louis area individuals in an alleged property flipping scheme, according to a report in the St. Louis Business Journal, reported at bizjournals.com.

The mortgage fraud allegations against the four include wire fraud, mail fraud, and conspiracy to commit fraud. In addition, the indictment also hit the ringleader with four allegations of money laundering. To read more, see Four defendants indicted in 23-count fraud case.
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Chicago Prosecutor Sues "Rescue" Scammer; Fines, Restitution Ordered

In this April, 2006 story, a Cook County judge fined ($250,000) and ordered restitution from ($115,000 to 74 victims) an Illinois man and his company for their activities involving the solicitation of upfront fees from homeowners facing foreclosure in exchange for false promises of saving their homes from forced sale. The court order also permanently banned them from providng services related to residential mortgage loans in Illinois.

This court action resulted from a civil lawsuit brought by the Cook County State's Attorney's Office Consumer Fraud Division charging violations of the Illinois Consumer Fraud and Deceptive Business Practices Act.

(It appears that, for those local county prosecutors' offices that have a consumer fraud section, bringing a civil lawsuit against certain scam artists may be an effective alternative to bringing criminal charges against them. There is no possibility of criminal convictions and jail time in a civil lawsuit; however, fines, restitution, and shutting down the scam operation are still possible. Additionally, the prosecutor's burden of proving wrongdoing is significantly lessened in a civil case than what it would be in a criminal prosecution; a civil lawsuit may be a good route to go if there isn't enough evidence to prove "guilt beyond a reasonable doubt", but enough to prove "liability by a preponderance of the evidence.")

For the whole story, see this Cook County Prosecutor's Press Release, $250,000 Fine Levied Against Fraudulent Foreclosure "Rescue" Business.
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Equitable Mortgage Defense In A Homeowner - Tenant Eviction

The use of an "equitable mortgage" defense in an eviction where a party was being evicted from a property to which the party claimed ownership of pursuant to the equitable mortgage doctrine (the transaction was that of a purported "sale" of the property followed by a subsequent purported "leaseback" arrangement) was involved in two recent cases. To read more, see

• Equitable Mortgage Defense In Homeowner - Tenant Eviction - Part 2, involving a 2006 Minnesota court case, and

• Equitable Mortgage Defense In Homeowner - Tenant Eviction - Part 3, involving a 2006 California case. equitable mortgage zebra

Unwitting Homeowner Facing Foreclosure Signs Over Home

A recent news report on WRC-TV Channel 4 in Washington, D.C. warns of foreclosure rescue operators, and interviews one woman who fell prey to a local scammer. Click here to watch the news report, by NBC4 consumer reporter Liz Crenshaw.
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Appraiser 'Lands' 42 Month Sentence In Property Flipping Scam

An appraiser, part of a group of ten people initially hauled in by cops for their roles in a multimillion-dollar property flipping scam located primarily in Madison County, was sentenced in a Mississippi Federal Court to 42 months in prison yesterday. Five others were sentenced in December. For the whole report, found in The Clarion-Ledger, at clarionledger.com, see Man receives 42 months in prison in mortgage fraud scheme.

For another Mississippi "flipping crew" recently sentenced in Federal Court, see Five "Flippers" Sentenced For Fraud By Federal Judge.
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Alleged Funds Mismanagement Results In Sale Of Elderly Man's Homes

A son who, along with his wife, were trusted to care for his Alzheimers-stricken father, have been accused in a civil lawsuit of depleting the elder man's assets on spending for their own personal benefit. They have also been accused of attempting to place claims of lien on the elderly man's residence and vacation home after his funds were depleted. The total amount depleted is estimated at close to $200,000. A court-appointed guardian ultimately sold the residence and second home to cover the ill man's expenses. Reportedly, there is $12,000 left from the sale proceeds which, once depleted, will leave the elderly man dependent on the State of Washington for support. For the whole story, reported by The Daily News Online (Longview, Washington), see:

Did couple take advantage of father?
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"Cash Back" Mortgage Fraudsters Target Home Sellers In Weak Markets

Home sellers having a rough time in finding a buyer for their home are targets of unscrupulous loan originators for "cash back" scams, according to an article in New York House, reported at UpstateHouse.com.

The article speculates that mortgage lenders who originate these loans are co-perpetrators in the fraud, and because they don't hold the loans (the loans are sold to wholesale lenders, and then to the ultimate holders, who are likely to be investors in mortgage-backed securities), they don't take the risk of default and foreclosure.

While loan originators who sell loans in the secondary market can be required to repurchase loans that go into default within a certain time period after the loan closes, the article posits "[t]he ringleader protects the [originating] lender against buybacks by selecting borrowers who can carry the payment with the help of [a] supplement [a cash set-aside derived from the fraudulently obtained funds]. So long as the supplement lasts, which will be one to two years, the likelihood of default is low."

The expectation apparently is that by the time the cash set-aside is depleted, the loan originator's "buy back" period for the fraudulently procured loan will have expired.

To read more, see:

$750K mortgage fraud too sweet to pass up
(Sellers without any purchase offers are most likely to participate)

written by Jack Guttentag.
(revised 9:12 am)
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Appraiser Pressure Up To 90%

A key element in "property flipping" and "cash back" mortgage fraud scams is the use of artificially inflated appraisals. A recent article by Kenneth R. Harney (reported online at Realty Times) reports, among other things, that:

1. A recent national survey of real estate appraisers indicates that those who claim to have been pressured to raise property valuations by mortgage brokers, real estate agents, lenders and individual home sellers is up to about 90%,
2. In lining up an appraiser for a particular property valuation, some mortgage loan originators will pressure appraisers by engaging in a practice known as "pre-comping" (also known as "dialing for values"),
3. Some real estate agents respond to receiving unfavorable appraisals by letting lenders know that mortgage customer referrals to them (the lenders) may stop if they continue to use the appraisers that are "coming up short" on their property valuations.

To read more, see Appraisers Say Pressure on Them to Fudge Values is Up Sharply

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Using Equitable Mortgage Defense Against Eviction In A Foreclosure Rescue Situation

For those interested in how an equitable mortgage defense could possibly be used by a financially strapped homeowner in an eviction action by a foreclosure rescue operator, see Using Equitable Mortgage Defense Against Eviction In A Foreclosure Rescue Situation (Part 1 of a multi part post). equitable mortgage zebra

Predatory Mortgage Servicing

The following two posts from the website Mortgage Servicing Fraud, a site devoted to Predatory Mortgage Servicing, may contain items of interest to those concerned with this issue:

1) How they steal your home
2) The important difference between "loan servicing scams" and "predatory lending"

Go here , go here , and go here for posts on questionable mortgage servicing practices. questionable mortgage servicing practices tactics zebra

New York State Home Equity Theft Prevention Act Becomes Effective

(revised 8-11-07)
The New York State Home Equity Theft Prevention Act ("HETPA") became effective on February 1. The New York State Banking Department has posted on their website an HETPA information sheet with information for those seeking foreclosure advice and assistance, including links to consumer information (rights under the law, how foreclosure rescue scams work, sample ads by foreclosure rescue operators). Also available are the following links to information for industry professionals:

1. Text of the law (includes RPL Sec. 265-a; RPAPL Sec. 1303; Banking Law Sec 595-a (subdivision 1, paragraphs (e), (f), (g), and (h))
2. Help for Homeowners in Foreclosure Notice
3. Notice of Right to Cancel Contract
4. Notice of Contract Cancellation form
5. Form letter from Deputy Superintendent of Banks to the industry
6. Homeowner Payment Accounting Form
7. Homeowner Payment Accounting Form - Instructions

Links to online reference articles on the HETPA can be found in my January 22 HETPA post.

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Dayton Area Task Force Fighting Flipping

An assembled team of investigators in Montgomery County, Ohio that includes agents from the FBI, the IRS, the Ohio Attorney General's office, federal postal inspectors and others are fighting activities relating to mortgage fraud and property flipping, according to a report in the Dayton Daily News, reported at daytondailynews.com.

One conviction that's resulted from their efforts, where the alleged scammer opted for a guilty plea agreement with prosecutors in lieu of going to trial, related to allegations of involvement in 148 fraudulent loans.

In a pending case involving more than double the number of properties, four members of an alleged mortgage flipping ring are under indictment for their participation in an operation that, according to allegations, recruited many of the buyers from the Pittsburgh area, and promised:

1. 100 percent financed loans,
2. cash payments once the loan was closed,
3. that the properties would be fixed up,
4. that the properties would be fully rented before any mortgage payments were due, and
5. that the properties would generate a minimum of $100 a month in positive cash flow.

In addition, according to the indictment, the deals involved:

1. homes described as "low income, dilapidated and otherwise depressed,"
2. obtaining phony, inflated appraisals on these properties,
3. a group member acting either as a loan officer or title agent in the deals to falsify loan documents and handle loan payments,
4. a specific group member ending up with the bulk of the cash from the sale of the "flipped" homes, from which distributions were made to his "teammates" once all the dust settled.

In addition to these four members of the fraud ring currently under prosecution, three other members, who are named but not charged in the indictment, already pleaded guilty to related federal charges when the current charges were filed in September 2005 (presumably, they opted to "sing to the Feds" in exchange for possible leniency).

The trial in this case is set to start Tuesday in Federal Court before Judge Walter Rice.

In expressing the vigor in which the mortgage fraud task force is approaching their investigations in Montgomery County, a local police detective who helped organize the task force said of them,

• "I would not want to be making a living in criminal activities and be the focus of their investigation [...] Trust me. It may not be tomorrow, it may be next month or next year, but your day in court or prison is their passion."

For the entire story, see House Flipping Shell Game Special Report in the Dayton Daily News.

See also Mortgage scams built on promises leave nightmares in wake regarding the Federal case slated to start on Tuesday.

(Both articles contain a "Click-2-Listen" audio feature.)

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Problems With Stated Income (Liars') Loans???

To read the personal concerns expressed by one mortgage professional in his blog about the mortgage fraud problems in the mortgage lending industry being caused by the use of the popular mortgage loan program known as "Stated Income Loans" (referred to by some as "Liars' Loans"), see True Lies: Stated Income Loan Gets Originator Indicted.
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