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Source of Title Blog : Mortgage Fraud

$5 Million in Mortgages On $49,000 A Year
by Robert Franco | 2008/05/16

Poor Ms. Webster owns three homes worth over $5 million and she only makes $49,000 annually.  She never lived in any of the homes and she can't afford to pay the mortgages.  She has received at least one foreclosure notice and is now suing Eric Duke, the man who orchestrated the deals and lives in one of the multi-million dollar homes.  Worse yet, one of the homes sold on land contract for over $2.5 million and she never saw a dime! 

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Categories: Mortgage Fraud

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Mortgage Fraud Cops
by Robert Franco | 2008/05/14

Whose job is it to stop mortgage fraud?  Should the title companies be responsible for detecting mortgage fraud? And, what if they fail to do so... do they become criminal co-conspirators?  A Boca Raton title agency, Fortune Title Services, has found itself at the center of a an alleged mortgage fraud scheme that has led to several indictments.  The fraud apparently involved at least two dozen homes and more than $6.5 million in kickbacks described on the mortgage applications as "assignment fees," according to an article in Palm Beach Post.  The attorney for Marni Belkin, the attorney-owner of Fortune Title, claims that she was duped by the fraudsters.  As criminals get more sophisticated, it becomes more difficult for title agents to detect fraud.  Still, that doesn't prevent them from being drawn into an FBI investigation.

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Categories: Mortgage Fraud, Title Industry

Source of Title Blog :: 5 comments ::

Fannie Mae Loses $1.39 Billion In 3rd Quarter
by Robert Franco | 2007/11/12

Fannie Mae owns or guarantees about 20 percent, or $2.7 Trillion, of the U.S. home mortgage market. RealtyTrac reported that foreclosures in the third-quarter doubled to a record and the problem is expected to worsen. The chief executive of Fannie Mae, Daniel Mudd, expects to see the average price of a home fall 2 percent this year and 4 percent in 2008.

This news comes just days after New York Attorney General Andrew Cuomo announced that he sent subpoenas to Fannie Mae and Freddie Mac as a part of his investigation of mortgage fraud. Cuomo is seeking information on the mortgage loans Fannie Mae and Freddie Mac purchased from banks, including Washington Mutual, the nation’s largest savings and loan. The subpoenas also seek information on the due diligence practices of Fannie Mae and Freddie Mac, and their valuations of appraisals.

“In order to fulfill their duty to consumers and investors, Fannie Mae and Freddie Mac must ensure that Washington Mutual’s mortgages have not been corrupted by inflated appraisals,” said Attorney General Cuomo. “Our expanding investigation into the mortgage industry has uncovered that Washington Mutual improperly pressured appraisers to provide inflated values that best served the lender’s interest. Knowing this, Fannie Mae and Freddie Mac cannot afford to continue buying Washington Mutual mortgages unless they are sure these loans are based on reliable and independent appraisals.

In a letter to Daniel Mudd, Attorney General Cuomo succinctly explained the problems created by collusion between lenders and appraisers.

As you no doubt are aware, lenders now regularly sell the mortgage loans they make into the financial markets, either directly or to investment banks or Government Sponsored Enterprises ("GSEs"), such as Federal National Mortgage Association ("Fannie Mae") or the Federal Home Loan Mortgage Corporation ("Freddie Mac"). The loans are then pooled together, securitized, and sold to the general public as mortgage backed securities.

This configuration has the effect of making the lender less vigilant against risky loans since any risk is quickly transferred to the purchasers of the loans. Moreover, as the lender does not hold many of its loans in its portfolio, the lender's interest in ensuring the accuracy of the appraisal backing the loan is severely diminished. Even worse, because lender's profits are determined by the quantity of loans they successfully close, and not the quality of those loans, there is an incentive for a lender to pressure appraisers to reach values that will allow the loan to close, whether or not the appraisal accurately reflects the home value.

Further jeopardizing the process, mortgage brokers and the lenders' loan production staff are almost always paid on commission. Thus, the income of these individuals depends on whether a loan closes and on the size of the loan. Accordingly, brokers and loan production staff have strong personal incentives to pressure appraisers to value a home at the maximum possible amount, so that loans will close and generate maximum commissions. For these reasons, mortgage brokers and lenders frequently subject real estate appraisers to intense pressure to change values in appraisal reports.

The investment banks and GSEs may also have an interest in inflating (or at least in not questioning) the value of the pooled loans. The values of these loans serve as a basis for the value of their securities. As such, the higher the value of the loans closed, the greater the value for which the securities are sold on the secondary market.

The attorney general's office held a press conference where they fully explained the reason for the investigation and effects of "conflicts of interest and really outright fraud" in the appraisal process. When homes are artificially valued, borrowers are enticed to spend money (equity) that they don't have, and investors are misled into buying securities that aren't worth the amount at which they are valued.

The independence of the appraisers is sacrosanct and an accurate independent appraisal is the the cornerstone of the mortgage and housing industry. The nation is now paying the price for violating sound practices and the mortgage crisis is really a crisis stemming from a valuation crisis.

The Martin Act subpoenas sent out by the attorney general's office could result in a criminal action, a civil action, or a finding of no wrongdoing. No matter what the outcome of the investigation into Fannie Mae and Freddie Mac, we will likely see the issue of appraisal fraud get a lot more attention in the media. Ultimately, the effects of appraisal fraud, and the corrective measures taken by Congress, will have a profound impact on the mortgage and housing industries.

Robert A. Franco

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Categories: Mortgage Fraud, Mortgage Industry

Source of Title Blog :: 1 comments ::

Mr. Smith Gets A Home
by Robert Franco | 2007/10/30

Let's take a walk through a fictional home purchase scenario and see if we can spot all the problems with the process. Mr. Smith, our fictional buyer, wants a to buy his first home so he calls Ricky, the Realtor. Ricky shows Mr. Smith a few homes until he finds one he wants to make an offer on. The listing price is $150,000. Mr. Smith then calls his local bank and is told that he will need at least 3% down, or $4,500, which Mr. Smith doesn't have. Ricky explains to Mr. Smith that he can still buy the home, but he needs to call Max, the mortgage broker.

Max, tells him that he can get him approved, but the 30-year fixed rate will be higher. "But, don't worry," explains Max. "Your payment won't go up because we will get you a variable rate." Because Mr. Smith doesn't have enough money for closing costs, Max and Ricky devise a plan to allow Mr. Smith to borrow more money than the actual purchase price.

Ricky talks Sam, the seller, into increasing the purchase price to $155,000 and paying up to $5,000 of Mr. Smith's closing costs. "But, don't worry Sam," explains Ricky. "We will still base your commission on the $150,000 so it won't really cost you anything."

Max calls his friend Andy, the appraiser, and tells him that they need the appraisal to come back at $170,000. That way, Mr. Smith will have some equity in the home and the down-payment can be avoided by running it through as a refinance. How does that work? Max and Ricky get Sam and Mr. Smith to back-date a phony land contract. Now instead of a purchase, this transaction has been miraculously transformed into a refinance of a land contract.

Tammy, the title agent, gets ready for the closing. She notices the land contract was never recorded, but doesn't say anything to the lender. At the closing, the interest rate and Mr. Smith's payment are a little higher than he expected. Fortunately, Max is there to help explain that. "I know it's a little higher than you expected Mr. Smith, but that is because you are buying this house with no money down and we couldn't verify enough income for the program we wanted to put you in." Rather than verify Mr. Smith's actual income, which was insufficient, Max put him in a stated-income program. "But, don't worry about it - you make your payments on-time for a year and we will refinance you into a lower fixed-rate mortgage."

"But, what about the prepayment penalty?" Asked Mr. Smith. The loan has a three year prepayment penalty. "Yes, but it's only 1%. It will be worth paying for the savings we are going to get you," says Max.

Then Mr. Smith notices another "funny" fee on the settlement statement. A "yield spread premium" of $2,325 to the broker marked as "POC" on the HUD-1. "The little 'l' after the amount indicates that the lender is paying that fee. You aren't paying it, so you don't have to worry about it." Nobody explains to Mr. Smith that the lender is willing to pay Max more than $2,000 because he sold Mr. Smith a loan with a higher rate than he could have gotten. This, of course, is in addition to the 1% Max had already charged him.

By this time, Mr. Smith is thinking he may be in over his head. Who is supposed to be looking out for his best interest? His Realtor, his mortgage broker, the title agent? Nope. Mr. Smith is realizing that he is unrepresented.

Tammy, in an effort to get Mr. Smith to close the loan, explains to him that because of the land contract, this is technically a refinance. "In a refinance transaction, you have a three day rescission period to think about the terms. And, if you don't like any of them, you can cancel the loan." But, nobody mentions to him that if he cancels the transaction he may be in breach of the sales contract. "You can even have your attorney review the documents during the next three days if you like," says Tammy.

Mr. Smith reluctantly signs and Ricky, Max and Tammy all cross their fingers and hope that the loan doesn't rescind so they can get their checks in three days. Ricky will get $9,000, Max will get about $4,000, and Tammy will make about $1,000 and has the potential of getting more business from Ricky and Max, who are impressed that she was able to convince Mr. Smith to close.

Fast forward one year... Mr. Smith's loan adjusts upward by 2% and his payment went from $1,031.22 to $1,247.17. Unfortunately, he cannot refinance into a lower fixed rate because he wasn't able to make all of his payments on-time and he still cannot verify enough income to qualify for a traditional mortgage.

Now that Mr. Smith's payments are even higher, he will be seeing an attorney about bankruptcy and foreclosure. Like millions of other homeowners who thought that their Realtor, mortgage broker, and title agent were looking out for them, Mr. Smith has learned a lesson the hard way. And, that is how Mr. Smith gets... and loses... his home.

Robert A. Franco

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Categories: Appraisals, Escrow/Funding, Ethics, Foreclosures, Mortgage Fraud, Title Industry

Source of Title Blog :: 8 comments ::

This One Is A Doozie!
by Robert Franco | 2007/08/09

According to an article in the Columbus Dispatch, Illinois Pair Accused of Scamming 5 Area Lenders:

An Illinois couple were accused yesterday of mortgage fraud in a 2005 scam that caused losses of nearly $1 million to five area financial institutions in one day.

Albert and Janna Pliner of Cook County, Ill., were indicted in Franklin County Common Pleas Court and accused of money laundering, theft and securing false documents after an investigation by the Central Ohio Mortgage Fraud Task Force, county Prosecutor Ron O'Brien said.

Arrest warrants have been issued for the couple.

Authorities said the Pliners purchased a home in 2005 near Canal Winchester. Two months later, prosecutors say, they went to five different lenders on the same day and obtained second mortgages and home-equity lines of credit, getting up to $280,000 on each loan.

I have heard about stories that involved two loans in the same day, and those of us in the industry know how possible that would be to do. There is that time between application and recording the mortgage documents that anything could happen. But FIVE in one day? That must have been a pretty busy day for the Pliners, but $1 Million, or there about, is worth one day of hard work... isn't it?

The Dispatch didn't have much information, not even the names of the lenders that were scammed, but thanks to a Source of Title member in the area we have more information for you. The scheme was a little more complicated than a first glance would indicate and may have involved some prior planning.

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Categories: Escrow/Funding, Mortgage Fraud

Source of Title Blog :: 10 comments ::

If You Are Going To Steal, Steal Big!
by Robert Franco | 2007/05/08

I was a bit surprised to read Former Title Employee Admits to Theft. Melissa Williamson, a former employee of Title Service Corporation of Waterloo, Iowa pled guilty to stealing more than $600,000 from the company. In an agreement with prosecutors, she will serve at least 20 years for her crime. Though she will be permitted to ask for a reevaluation of her sentence after serving 180 days, it must have been one heck of a tough prosecutor for her to agree to such a harsh sentence for three counts of theft and one count of money laundering.

While I certainly don't think they should go lightly on those up violate such laws, it seems a bit out of step with other sentences. For example, Tony Daniloo, the former executive of DreamLife Financial who defrauded his "customers" out of $8 Million, pled guilty to 120 counts of money laundering and was ordered to pay restitution and serve 90 months in prison. Many of Daniloo's victims were infirm, elderly, and minorities with poor credit histories; some of whom lost their homes in the scheme.

Exactly what kind of message are trying to send with these divergent results? If you are going to steal, steal big? And... steal from the poor and down trodden?

I'm all for stiff penalties for crime, but these sentences seem to be backwards - Daniloo got off way too lightly in my opinion. As for Williamson, I hope she does get her sentence reduced, though she still needs to be held accountable. Violent criminals often receive much lighter sentences.

Robert A. Franco

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Categories: Crime, Mortgage Fraud

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Thief Of Hearts
by Robert Franco | 2007/04/02

Once again, Dateline NBC has earned two thumbs up for an excellent expose on Matthew Cox, a con man who ripped off homeowners, mortgage lenders, and title companies. His mortgage fraud allegedly netted him about $5 million. See Fraud by the Book for the full story.

Source of Title covered this case as arrests were being made last year. See Woman Admits to Role in Mortgage Fraud Scheme, Woman Sentenced for Mortgage Fraud, and Secret Service Nabs Suspected Felon. It was interesting to see some of what went on behind the scenes in the Dateline report.

Cox started as a mortgage broker, though a crooked one. It was well known in the Tampa mortgage industry that Cox was up to something. "You just knew because other people in the business would talk how Matt’s office is," one bank rep told Dateline. “If you need a W-2, he’ll make it always appear. If you need someone’s Social Security card, he’ll make it appear.”

After using a stolen identity to get an $80,000 mortgage, he was caught. He pleaded guilty to conspiracy and grand theft. He was sentenced to three years on probation and ordered to stay out of the mortgage business. But that didn't keep him from committing more mortgage fraud.

He was able to fake good credit to buy literally dozens of Tampa properties, including an apartment building... And then secretly, leaving almost no mark at all, according to investigators, he used his building like a burglar’s tool. Again, using a false name, he filed fake documents to make it appear it was paid off... It’s reported Cox took out mortgages on this building worth nearly a $1 million, five times what it was worth.

Cox then began using women, single moms, he met on the Internet. He got them to commit mortgage fraud for him. For this, Dateline dubbed him the "Thief of Hearts."
They were more like Robin Hood, Cox told her—the big fat insurance companies would cover the losses, nobody would actually get hurt.

And so she was willingly sucked in.

Alison rented a home, forged a deed, and then just as Cox told her he’d done again and again, filed phony paperwork to get three real mortgage loans borrowing nearly $400,000 against a property she didn’t even own.

Then, she bought a house under a fake name and incredibly, the Social Security number of her own young son... She filed false paperwork to make it appear a mortgage was paid off, then pulled out hundreds of thousands of dollars and leaving lenders holding the bag.

He went on to involve other women in similar schemes. From Florida, to Georgia, to Tennessee, Cox and his gullible accomplices continued to buy properties with stolen identities, file phony releases, and take out more mortgages.

Atlanta-area lenders who’d been stiffed began alerting authorities about Cox’s schemes.

"The number of victims, the number of stolen identities used, the number of prior mortgages that are erased—all of that makes this case very unique, said Gale McKenzie, assistant U.S. attorney, Atlanta."

Oh... and Dateline also reported that Cox had written a novel several years prior about a con man committing mortgage fraud all across the country. The passages from the book paralleled his crime spree. I suppose that the way he preyed on single moms and followed his own script for the crimes is what made this story exciting enough for Dateline to cover. However, its not what I find most fascinating.

It is incredible how much damage one person can do with a little bit of knowledge about our real estate records. Imagine what a criminal could do if he could figure out how to leverage that knowledge with anonymous online access to the public records and e-recording. Cox had inside information. No doubt he learned much of what he needed to know as a mortgage broker and his position gave him access to much of the information he needed to perpetrate his fraud. But, any savvy con man could most likely figure out how to do the same thing with the information we are putting online.

It we want to make mortgage fraud tougher to get away with, we need to protect the information fraudsters use. Yeah, its public record, but we don't need to serve it up to them on a silver platter.

Robert A. Franco

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Categories: Fraudulent Transfers, Mortgage Fraud

Source of Title Blog :: 1 comments ::

A Playground For Criminals
by Robert Franco | 2007/02/14

Sadly, there seems to be no end to the crime spree in the title industry. Unscrupulous employees embezzling funds from title companies, rogue escrow agents falsifying documents, dishonest agents stealing from their escrow accounts, and the list goes on. What is it that has created this playground for criminals?

Here are a few recent headlines:

  • State and federal officials are examining the actions of Barbara Haywood, a former employee of First American Title, whom they believe may have stolen at least $50,000 from her former employer.

  • A grand jury in Seattle, Washington indicted six people after they were linked to a massive identity theft scheme that used personal identifying information provided by employees of a mortgage company and escrow firm.

  • Norvel Brown, the former president of Mississippi Valley Title Company of St. Louis, Missouri, pled guilty on February 6, 2007 after admitting that he stole more than $3.2 million from his commercial escrow accounts and the Department of Housing and Urban Development (HUD).

  • Officials arrested Nina Rogers, a title company employee, for allegedly stealing more than $30,000 from ERA First Advantage of Newburgh, Indiana.

When I became a title agent, I was given instructions by my underwriter to take steps to help protect them, as well as myself, from some of these risks. Simple things like have 2 people review the disbursements, keep unused checks locked up, balance the escrow account every month, etc. Furthermore, I was told that my underwriter would audit my records every year. Perhaps once a year is not very often, but it serves as a warning that if you try to fudge your books, you will get caught.

I operate a very small office with only a few employees and I handle most of the escrow work myself. Still, I try to follow those procedures. I heard a story once about a title agent that kept the unused checks in her desk draw and one of her employees stole a few out of the middle of the stack. It went unnoticed for several months because (1) she didn't keep the checks locks up, and (2) she didn't balance her account regularly. You just can't be too careful when you are responsible for handling large amounts of other people's money.

Perhaps it is time to see more safety procedures put in place and more monitoring by the underwriters. It seems that most underwriters have a small staff that actually conducts audits and they are already overburdened trying to manage one audit per year for all of their agents. Isn't that something that could be easily outsourced? It seems that there would be plenty of work for a firm that specializes in conducting quarterly audits for the underwriters. With the amount of money we are talking about, it would be well worth the expense if it prevented just one theft.

But audits alone are not sufficient. Agents need more training on proper procedures so that they can implement better safety standards to protect the information they collect. Theft of information from escrow files can be just as damaging to customers and the title companies' reputation.

More training could also help escrow officers detect fraud in real estate transactions. Even if its not the title agent, or their employees, perpetrating the fraud, they are the best line of defense to protect the public from fraudulent transfers and mortgage fraud. With the high turn-over at a lot of title companies, fraud prevention and awareness training should be an ongoing process in every office.

It is time to re-evaluate the title industry's practices. The status quo is not working. Crime continues to run rampant in the industry and we need to devise new standards to protect ourselves, our customers, the public at large, and the integrity of the industry.

Robert A. Franco

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Categories: Fraudulent Transfers, Mortgage Fraud, Title Industry

Source of Title Blog :: 0 comments ::

Source of Title Blog

Robert A. FrancoThe focus of this blog will be on sharing my thoughts and concerns related to the small title agents and abstractors. The industry has changed dramatically over the past ten years and I believe that we are just seeing the beginning. As the evolution continues, what will become of the many small independent title professionals who have long been the cornerstone of the industry?

Robert A. Franco



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