New law puts bite into mortgage fraud
BY JEFF CULL jcull@florida-weekly.com

Consumers and prosecutors got a gift from the Florida Legislature in the justcompleted session: the state's first mortgage fraud law.

It's hard to believe, but Florida, with its rich history of property scams and boomor bust real estate markets, has never made mortgage fraud a criminal offense. Prosecutors were forced to resort to theft, wire fraud or organized crime laws to arrest mortgage frauders.

If signed by Gov. Charlie Crist, the new law will take effect on Oct. 1 and make mortgage fraud a third-degree felony punishable by up to five years in state prison.

And mortgage fraud - usually inflated appraisals, kickbacks or falsified loan applications - is on the rise. The FBI reported that the number of fraud cases in 2006 jumped nearly 64 percent from 2005. And, in more than half of those cases, fraud losses exceeded $1 million. Florida and Utah lead the nation in mortgage fraud cases.

Florida's new law defines mortgage fraud as an attempt to defraud by:

Making false or misleading statements on loan applications, such as overstating income.

Filing false documents with the Clerk of Courts. In Florida, the Clerk is the official record keeper for such instruments as deeds and mortgages. Many county clerk's have Web sites with the information readily available to the public.

Filing false deeds, often quit claim deeds, has been a problem in Florida. Mike Hoyem, a reporter at The News-Press, uncovered a number of those cases in 2005 where people had forged deeds, of mostly dead people, in order to steal their property in the hot real estate market.

That crime is now a felony under the new mortgage fraud law.

Identical house and Senate bills worked their way through their respective chambers but ultimately the mortgage fraud bill was added to another bill that deals with mortgage broker licensing, consumer notification of fees and the loan process. Protect yourself
COMMON MORTGAGE FRAUD SCHEMES
>>Property Flipping - Property is purchased,
falsely appraised at a higher value, and then
quickly sold. What makes property illegal is
that the appraisal information is fraudulent. The
schemes typically involve one or more of the
following: fraudulent appraisals, doctored loan
documentation, infl ating buyer income, etc.
Kickbacks to buyers, investors, property/loan
brokers, appraisers, and title company employees
    are common in this scheme. A home worth
$20,000 may be appraised for $80,000 or
higher in this type of scheme.
>> Silent Second - The buyer of a property
borrows the down payment from the seller
through the issuance of a non-disclosed second
mortgage. The primary lender believes the
borrower has invested his own money in the
down payment, when in fact, it is borrowed. The
second mortgage may not be recorded to further
conceal its status from the primary lender.
>> Nominee Loans/Straw Buyers - The
identity of the borrower is concealed through
the use of a nominee who allows the borrower
to use the nominee's name and credit history to
apply for a loan.
>> Fictitious/Stolen Identity - A fictitious/
stolen identity may be used on the loan application.
    The applicant may be involved in an identity
theft scheme: the applicant's name, personal
identifying information, and credit history are
used without the true person's knowledge.
>> Infl ated Appraisals - An appraiser acts
in collusion with a borrower and provides a misleading
        appraisal report to the lender. The report
inaccurately states an infl ated property value.
>> Foreclosure Schemes - The perpetrator
    identifi es homeowners who are at risk of
defaulting on loans or whose houses are already
in foreclosure. Perpetrators mislead the homeowners
          into believing that they can save their

homes in exchange for a transfer of the deed
and up-front fees. The perpetrator profi ts from
these schemes by remortgaging the property or
pocketing fees paid by the homeowner.
>> Equity Skimming - An investor may use
a straw buyer, false income documents, and
false credit reports, to obtain a mortgage loan in
the straw buyer's name. Subsequent to closing,
the straw buyer signs the property over to the
investor in a quit claim deed which relinquishes
all rights to the property and provides no guaranty
    to title. The investor does not make any
mortgage payments and rents the property until
foreclosure takes place several months later.
>> Air Loans - This is a non-existent property
loan where there is usually no collateral. An
example of an air loan would be where a broker
invents borrowers and properties, establishes
accounts for payments, and maintains custodial
accounts for escrows. They may set up an offi ce
with a bank of telephones, each one used as
the employer, appraiser, credit agency, etc., for
verifi cation purposes.
MORTGAGE FRAUD PREVENTION TIPS
>> Get referrals for real estate and mortgage
professionals. Check the licenses of the industry
professionals with state, county, or city regulatory
agencies.
>> If it sounds too good to be true, it
probably is. An outrageous promise of extraordinary
        profi t in a short period of time signals a
problem.
>> Be wary of strangers and unsolicited
      contacts, as well as high-pressure sales
techniques.
>> Look at written information to include
recent comparable sales in the area, and other
documents such as tax assessments to verify the
value of the property.
>> Understand what you are signing and

agreeing to--If you do not understand,
>> Re-read the documents, or seek assistance
          from an attorney.
>> Make sure the name on your application
        matches the name on your identifi cation.
>> Review the title history to determine if
the property has been sold multiple times within
a short period--It could mean that this property
has been "flipped" and the value falsely infl ated.
>> Know and understand the terms of
your mortgage--Check your information
against the information in the loan documents to
ensure they are accurate and complete.
>> Never sign any loan documents that
contain blanks--This leaves you vulnerable
to fraud.
>> Check out the tips on the Mortgage
Bankers Association's (MBA) website at
www.mortgagebankers.org for additional advice
on avoiding Mortgage Fraud.
MORTGAGE DEBT ELIMINATION
SCHEMES
>> Be aware of e-mails or web-based
advertisements that promote the elimination
        of mortgage loans, credit card,
and other debts while requesting an up-front
fee to prepare documents to satisfy the debt.
The documents are typically entitled Declaration
of Voidance, Bond for Discharge of Debt, Bill of
Exchange, Due Bill, Redemption Certifi cate, or
other similar variations. These documents do not
achieve what they purport.
>> There is no magic cure-all to relieve
you of debts you incurred.
>> Borrowers may end up paying thousands
        of dollars in fees without the elimination
or reduction of any debt.
Source: Federal Bureau of Investigation