Miami-Dade County Implements Mortgage Fraud Task Force
November 2, 2007 by Lucas Lechuga
Miami-Dade County implemented a Mortgage Fraud Task Force division to combat the high number of mortgage fraud cases in Miami-Dade County. The Mortgage Fraud Task Force website reveals that the division will be comprised of the following five committees:
- Law Enforcement Committee - responsible for the detection, investigation, apprehension and prosecution of the mortgage fraud subjects and enterprises.
- Legislative Committee - responsible for enhancing current laws, and creating new laws and ordinances.
- Regulatory Committee - responsible for enhancing and enforcing regulations of all parties involved in the mortgage transaction.
- Business Partnership Committee - responsible for creating and transmitting effective business practices to enhance cooperation with law enforcement and between different professions involved in the mortgage transaction.
- Education Committee - responsible for creating public awareness through printed literature, newspaper articles and television reports.
It's about time something like this was enacted. Maybe now I won't need to worry about finding new fraudulent transactions in the MLS anymore when compiling my monthly indices, in particular the Brickell Condo Index. Hopefully, this action will put a stop to this type of activity.
Some arrests have been made recently. Take a look at Case #1 and Case #2 to view a nice illustration of how the fraudulent activity took place.
crack crack...That's the sound of the whip on the hind side of those who partook in fraudulent mortgage activity. These people participated in inflating the real estate bubble well beyond the point of insanity. It'll be nice once mortgage fraud becomes less commonplace. Now, we'll finally be able to get an accurate picture of the market.
Has it been anyone ‘s observation that in the Brickell buildings suffering allegations of mortgage fraud, and lots of foreclosures, was their common preferred lenders, brokers, etc.
I guess I’m asking are these isolated transactions that can occur anywhere, or have the fraudsters systematically worked specific condos?
horse. stable door. bolt.
The links aren’t working just now, possibly due to the number of hits by worried fraudsters.
Seems to me you could provide the enforcement committee with a few leads – I hope you plan to, even anonymously. (Don’t need to comment on that!)
It would be fabulous to see several high-profile cases prosecuted with severe penalties.
Lucas,
Please clarify for me; is the mortgage fraud wholly composed of inflating the sales price in
order for the buyer to receive “cash back” at
closing? Therefore, potential fraudulent parties involved are the appraiser, real estate firm, seller, buyer, etc (if they all knowingly participated in this scheme)?
Thanks!
David,
The list price would be adjusted upwards so the buyer can receive cash back at closing.
Hi,
I can understand why that can happen nw, but back int he go-go years where a house would sell in a day why an owner will agree to be part of such a scheme?
There are a number of scams. The basic premise relies on a bank lending a significantly higher proportion of the value of the securing property than it is led to believe. This usually involves a fraudulent appraisal. It should be noted that there were so many sham deals in the past few years that an inflated appraisal can be easily produced by using the sham transactions as a basis for comparable sales.
1. The fake deposit: Person A wants to sell for $100,000. A potential buyer, Person B, does not qualify for 100% financing. Person A raises his selling price to $120,000 and gives B the $20,000 to put down. At closing A receives his $20,000 back and the $100,000 from the bank; B receives the property. The bank finances 100% when it thinks it is financing 80%. This is the most benign form of mortgage fraud and will likely never be prosecuted. (BTW, if the escrow agent is complicit the $20K never has to change hands.)
2. Basic cash back at closing: Person A sells a $100,000 apartment to Person B. They obtain a fraudulent appraisal for $200,000. They share the extra $100,000. In this case the bank believes it has financed 100% of the property’s value. It has actually financed 200%.
3. Flipping: Person A acquires a property for $100,000. Using a fraudulent appraisal (and usually doctored loan applications, dirty title companies, etc.) immediately sells the property to B for $200,000. A few months later, B sells to C for $300,000. C will then sell to D for $400,000. D will eventually stop making payments and the property forecloses. The bank which financed the last sale has financed 400% of the property’s value. It was likely led to believe that it financed 80% to 100%. It now has a bad $400,000 loan and a $100,000 piece of property (ouch).
In this case Person A is usually the mastermind and B, C, and D are dupes who receive a quick $10,000 to 15,000. You may have noticed that B and C suffer no consequences. Only D is faced with foreclosure and ruined credit. D may receive a bigger cut for that. This scam is also run using stolen identities.
4. Shell companies: In effect the same flipping scam as number 3, only instead of B, C, and D, Person A flips the property from B LLC to C Inc. to D Ltd. (all entities controlled by A) Each time the property flips the profit is ratcheted up significantly. Payments on the properties can be maintained for some time from the proceeds of each sale. This is facilitated by using nontraditional financing such as balloon mortgages.
There are a ton of permutations. Any party in the transaction (the title/escrow agent, mortgage broker, seller, buyer) can be the driving force behind the scam, but the buyer usually needs to be involved. The inflated mortgage which brings the cash to the table is in the buyer’s name.
Sorry to hijack your blog. Hope it was informative.
Great comment Tom. Much appreciated!
Tom, I would like permission from you to include your comment as an article in my blog.
Please email me… [email protected] so I can give you proper credit.
Thanks.
Chris,
go to town.
Tom- outstanding post
I’ve heard that there was a ring of fraudsters who systematically worked certain buildings but I’m sure there could have been isolated occurrences in other neighborhoods or buildings.
perez,
These guys can– and have– worked everywhere. It is pervasive. The reason we end up speaking of certain buildings is because the fraud becomes more obvious.
In a condo with 300 units, an apartment becomes somewhat of a commodity– the basis of all the wonderful research Lucas puts out. And just like in commodities trading, off-market transactions stand out… and all of these transactions have been recorded in public documents.
Yes, you see the same title companies, the same buyers, the same sellers, sometimes the same lenders. The difficulty in making the cases against these guys is the sheer volume of paperwork that needs to be reviewed, copied, linked, cross-referenced… and there is no clear-cut victim.
Often, the loan has been syndicated off and its potential foreclosure considered as part of the risk premium in some exotic derivative. The bank that wrote the loan no longer holds the risk; they just collect money for the doodoo “CDO” that Citi or Merrill just had to write down. Citi and Merrill deal in billions; they are not going after the street level guys.
Investigating this type of thing is man-hour intensive and was just not on law enforcement’s radar until recently. It can be especially tedious in a market like Miami where individuals may have three middle names and sometimes the third middle name is actually part of the last name. And they use a different combination every time they file something with the county.
As Lucas reported last week, it appears the mayor is taking this seriously and is devoting resources to getting it reeled in. But it will take time. (And when it does get reeled in, what the heck happens to prices?)
Again, sorry to hijack your blog…
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