Mortgage Fraud, a Natural Byproduct of the Housing Boom.

January 22, 2007 – Stories are surfacing about a mortgage fraud boom, not just in Florida but in all states. Mortgage fraud occurs when somebody lies or misrepresents a fact on a statement that a lender uses to make a loan. Banks and mortgage lenders generally are the prime victims when loans are not repaid, but the fallout from a large-scale scam also can devastate individual investors, who sometimes must file for bankruptcy. The problem appears most often in areas that experienced the largest run-up in home values over the past three years. Buyers who paid too much or over-extended themselves are pressured to sell quickly. More than one investigation is currently underway in Flagler County.

 

A broad scale investigation is underway in the Tampa, FL area exposing a practice of sales contracts for purchase at prices well above the advertised selling price. Investigators have found a pattern of inflated appraisals and cozy relationships with certain title/closing companies. Sellers were approached with offers at or below the advertised selling price but told that the transaction would be at a higher price. Sellers are told that the new owner needed to raise more cash for planned improvements. The difference between the seller’s proceeds and the contract price were recorded in the HUD statement as payout. This money actually goes to the perpetrators and is split between the shill buyer, the buyer agent, the appraiser, and the title company. The lender is left holding the bag for a mortgage that is not supported by the true underlying value of the property.

 

Identity theft is the prime vehicle in another form of fraud. Satisfaction of Lien documents are forged and filed at the county courthouse. This means the records would show that the mortgage on the unsuspecting victim’s home had been paid. The bad guys then forge identity documents in the owner’s name to obtain new mortgage loans, often several. The real owners don’t find out until they are contacted by the lender with late payment or foreclosure notices. But this process is usually delayed for months because the fraud artist uses another mailing address when applying for the loan. One variation of this scam uses an accomplice to rent the victim’s property prior to the fraud, making timely rent payments to the owners, lulling them into a feeling that everything is OK. Suddenly, the renter vanishes and three or four banks are claiming title to the home.

 

Last year marked the arrest of the most infamous mortgage fraud artist, 37 year old Matthew Cox, also known as Maxwell Price, David Richard Freeman, Gerald Scott Cugno, Michael Shawn Shanan, Gary Lee Sullivan, Michael John Eckert, Michael White, Kevin White, David White, James Redd. Listed on the Secret Services most wanted list, Cox was captured in Nashville, TN on November 16, 2006 after an alert babysitter called authorities (but not before checking to see if there was a reward).

 

Cox had his first brush with the law in Tampa in 2002. He was doing small-time mortgage frauds obtaining small mortgages designed to keep him under the radar. But he inadvertently sent a forged appraisal to the very appraiser whose name he forged. He was arrested, convicted, and sentenced to parole. After his conviction, Cox grew bolder. Once he obtained six loans totaling nearly $1 million on two separate properties within a four-day period. Another victim reports that Cox pocketed around $800,000 from five loans scored against her home. Another victim hesitated to report his suspicions because when he went by the home he had sold to Cox by giving owner financing, he saw several moving boxes and even a large screen TV box – signs that Cox was actually moving in. But later, the victim learned that the boxes were filled with trash and Cox was long gone. Meanwhile, Cox had floated more loans using the property as collateral.

 

Who is most susceptible to mortgage fraud? Those who really need to sell to avoid credit problems or foreclosure are most at risk. If a deal sounds too good to be true…. The more a deal seems to be out of the norm, the more you should research the other party and the more cautious you should be before signing anything.