Vol. 2, No. 22
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September 15, 2005
Nevada's Online State News Journal
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CRIMINAL DEFENSE |
COPYWRITING
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Feature Story:
Beware The Mortgage Fraud Game: Predators Lurk Around Every Loan
First-Time Purchasers And Senior Citizens Prime Meat For The Degenerates
by Johnny Gunn
According to figures released by the Department of Human Resources and Urban Development (HUD) about 15 percent of the FBI's caseload is mortgage fraud with many of the victims either first-time home purchasers or seniors looking to cash in a little on the current increase in home valuation. In Nevada there have been at least 33 cases of disciplinary action taken against mortgage companies since January 1, 2005. Mortgage companies are regulated by the Mortgage Lending Division of the Department of Business Industry (DBI). Their web site is http://www.dbi.state.nv.us.
Predators
There are two types of mortgage fraud, that committed by the lender and that committed by the borrower, and they are both prevalent in today's marketplace. Among the lenders is a group known within the industry as predators. Among other frauds they sell properties for much more than they are worth using false appraisals according to HUD.
Predators will encourage borrowers to lie about their income, expenses, or cash available for down payments in order to get a loan. According to DBI Commissioner Scott Bice, one company in Nevada is currently under investigation for just such activity. In a recent press release Bice warned that an alert has been "issued to consumers and the real estate and mortgage industries regarding fraudulent and deceptive verifications of assets and employment for credit."
Bice was referring to a company (unnamed) that provides employment verifications and asset rentals for a fee. He says, "The service allows a person or company to rent assets that can be verified to increase the success of obtaining credit that would otherwise be denied."
It works this way, according to Bice: The company offers to set up a bank account or brokerage account in the applicant's name so credit companies can verify ownership of those accounts. The money or other assets are rented via a sub-account of the company's master account at five percent of the value of the assets. The applicant cannot otherwise use or draw from the funds.
This is one of the well-known deceptions used by predators in their search for that quick but illegal dollar. Often these same types will knowingly attempt to get a client to borrow more that he or she can afford to pay. Then of course take the property in default.
High interest rates to borrowers are often based on race or national origin and not on actual credit history. Just as payday loan type companies set themselves up in business near low-income areas of an urban setting, fraudulent mortgage companies will do the same. Some seniors have discovered that a home that is completely paid for has increased in value by hundreds of thousands of dollars.
Seniors with fixed incomes are convinced to borrow, and then find the payments are actually far more than they were told, and inside of less than a year, they no longer own their property. High interest rates, often hidden in the bookwork literally strip the homeowners of their property. Stripping within the mortgage industry occurs when a loan is made based on the equity in a property rather than on a borrower's ability to repay the loan.
According to the FTC, "As a general rule, loans made to individuals who do not have the income to repay such loans are designed to fail. They frequently result in the lender acquiring the borrower's home and any equity the borrower had in the home."
According to the Federal Trade Commission (FTC) if a consumer is applying for a personal loan using their home to guarantee repayment, they have three days to reconsider their decision and to cancel the deal. Often fraudulent lenders will not advise lenders of this law. The FTC has a booklet available called "Home Equity Loans: The Three-Day Cancellation Rule." Go to http://www.ftc.gov for all the information on this and other rules that affect lending. The three-day rule comes from the Truth in Lending Act. In Nevada complaints can be made to DBI through the Mortgage Lending Division.
According to an organization known as Fraud Watch International (FWI), a scam known as the Advance Loan Scam is designed to strip money from you and you get nothing in return. Through e-mail, snail mail, or advertising, a consumer might respond for a pre-approved loan. According to FWI the poor or those with poor credit histories are most likely the target of the scam. You've probably seen the claims that are made. "You can receive a loan no matter your credit history." Then when you inquire you are told that yes, you can get that loan, all you have to do is pay an advance fee.
FWI says "Legitimate credit lenders will never guarantee credit to a consumer before they apply, especially if they are dealing with consumers with bad credit histories. There should be no pay involved either. Paying for a credit report is one thing, paying for guaranteed credit doesn't exist in law.
Another fraud to watch for is called flipping. That occurs when a lender induces a borrower to repeatedly refinance a loan, over and over within a short time frame, charging high points and fees each time.
According to the state mortgage division, in May of this year an individual known as Kyle Pulisipher was given a cease and desist order and a heavy fine. "Pulisipher conducted mortgage activity while unlicensed and omitted statutory and regulatory violations by filing at least ten loan applications on behalf of himself and family members and failed to disclose to lenders material information that had it been presented, the lender may have denied the loan." The fine was $110,000 and loss of agent license. A rehearing has been scheduled.
Another serious complaint brought about an order denying mortgage broker license to Americawide, Inc. of Nevada. The license application used false and misleading information. According to the report, Americawide failed to disclose an affiliation with Pacific Bancorp, which had been fined $199,000 before the action, and that fine has yet to be paid.
Another disastrous loan that borrowers must be aware of is called The Balloon Payment. According to the FTC it works this way. You've fallen behind in your mortgage payments and may face foreclosure. Another lender offers to save you from foreclosure by refinancing your mortgage and lowering your monthly payments. Look carefully, the FTC warns. The payments may be lower because the lender is offering a loan on which you pay only the interest each month. At the end of the loan term, the principal -- this is, the entire amount that you borrowed -- is due in one lump sum called a balloon payment. If you can't make the balloon payment or refinance, you face foreclosure and loss of your home.
Never sign over the deed to your property, no matter how sweet the deal sounds. If you are having trouble paying your mortgage and the lender has threatened to foreclose and take your home, you probably feel desperate. That is natural and leads you into a trap if you aren't very cautious and aware.
Another lender may contact you with an offer to help you find new financing. Before he can help you, he asks you to deed your property to him, claiming that it's a temporary measure to prevent foreclosure. The promised refinancing that would let you save your home never comes through.
Once the lender has the deed to your property, he starts to treat it as his own. You are out.
Borrower Fraud
All mortgage fraud is not committed by lenders, and those that attempt to get loans on property by not telling the truth are fined or jailed the same as those committing lending frauds. Knowingly misrepresenting facts as they relate to your specific and personal information supplied during the loan process is a criminal activity.
For instance if you tell the lender you intend to make the purchased home owner occupied but actually plan to use it as a rental, that is fraud. Why? Owner-occupied dwellings often receive lower interest rates than commercial buildings.
Falsifying employment information including dates, salary, position held is fraud. If you are trying to make yourself look better in the eyes of the lender, lying to him, to get that loan, you can be charged with a crime.
Another borrower fraud is falsifying your marital status. When you are married or separated, your spouse is required to sign certain legal documents. According to HUD, typically leaving out information about your marital status can bring disaster at the time the loan is processed. At closing by the title company. Even if you could still get approved, after your deception about your marital situation, the lender will most likely not complete the deal. You've already shown you would knowingly commit fraud on the application, why would they allow you to modify the application and lend you hundreds of thousands of dollars at the further risk to more damaging fraud?
Falsifying your income and asset resources is one that is tried too often. Legitimate loan companies check on these things. Don't make yourself look like a fraudulent opportunist.
According to most of the agencies we have used for this report, one thing seems to stand out: loan fraud is typically committed with intent, either by way of the lender or the borrower. Loan fraud is rarely institution based, that is by way of the mortgage company. Typically those in the business to catch fraudulent deals say, loan fraud involves individuals, whether one or several working together. Rarely will it involve an organization.
Watch out for deals such as this. They won't always be fraudulent, but too often they are. Your real estate sales person aims you specifically to a lender "because we work together all the time." Some states have laws against this sort of situation, others don't. In Nevada it isn't against the law, but there are those that want to bring the situation before the next legislative session. These are called in-house relationships and can cost the borrower big bucks by way of legalized kick backs, vacation packages that you end up paying for, gift certificates, and other responses for "our preferred partners."
Obviously all lenders are not scam artists nor are all borrowers. It's just that there are many on both sides of the fence and that means those who don't commit fraud must keep their eyes and ears open at all times for possible fraud.
Tips from HUD on being a Smart Consumer
• 1. Before you buy a home, attend a homeownership education course offered by the U.S. Department of Housing and Urban Development-approved, non-profit counseling agencies.
• 2. Interview several real estate professionals and ask for and check references before you select one.
• 3. Get information about the prices of other homes in the neighborhood.
• 4. Hire a properly qualified and licensed home inspector to carefully inspect the property before you are obligated to buy. Determine whether you or the seller is going to be responsible for paying for the repairs.
• 5. Shop for a lender and compare costs. Be suspicious if anyone tries to steer you to just one lender.
• 6. Do not let anyone persuade you to make a false statement on your loan applications, such as overstating your income, the source of your down payment, failing to disclose the nature and amount of your debts, or even how long you have been employed. When you apply for a mortgage loan, every piece of information that you submit must be accurate and complete. Lying on a mortgage application is fraud and may result in criminal penalties.
• 7. Don not let anyone convince you to borrow more money than you know you can afford to repay. If you get behind on your payments, you risk losing your house and all of the money you put into your property.
• 8. Never sign a blank document or a document containing blanks. If information is inserted by someone else after you have signed, you may still be bound to the terms of the contract. Cross through any blanks so information cannot be added.
• 9. Don't sign anything you don't understand. Ask questions, see your attorney, consult with a trusted real estate professional, or go to a HUD-approved Housing Counseling Agency near you.
• 10. Be suspicious when the cost of a home improvement goes up if you don't accept the contractor's financing.
• 11. Be honest about your intention to occupy the house. It is against federal law to lie on this one.
All of the above sounds like common sense, obvious, but the obvious part is this. A scammer talks someone out of his or her life savings hourly in this country. As mentioned, 15 percent of the FBI workload is mortgage fraud. People are ripped off by way of mortgage fraud daily. In Nevada alone, just since January the state has filed 33 cases of mortgage fraud.
They are out there and they want your money and your property. Be aware.
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