The Real Deal New York

FBI coming for crooked brokers

Expected arrests may entangle several legitimate real estate firms

April 01, 2008
By Jennifer Gould Keil

Bona fide real estate companies may soon find themselves entangled
in massive mortgage fraud cases as more FBI arrests of corrupt brokers
are expected in the next few months, if not sooner.

Last year, the FBI
launched 1,210 mortgage fraud cases — up threefold from the 436 cases
launched in 2003. (The FBI only investigates mortgage fraud that is
worth $500,000 or more.) And for the past six months, the FBI has been
working with other federal, state and local agencies to further expand
its sting. In interviews with The Real Deal, FBI officials said
that more arrests will be announced soon and that crooked brokers
working for legitimate real estate companies are next on the list.

Crime networks from
Eurasia and the Middle East are running the biggest scams, said John F.
Campanella, the FBI’s supervisory special agent in New York.

“These are loosely knit
crime groups, and everybody disappears in the woodwork, including the
straw buyer and his counterfeit W-2 forms and worthless pay stubs,”
Campanella said.

But no matter how tight the crime networks are, they can’t succeed without help from legitimate real estate firms.

“We
arrest the street brokers at the first opportunity. But the street
brokers have to go to legitimate, licensed brokers to submit documents
to the banks. They process deals that they know are fraudulent: They
want a cut of the deal, and that’s where we have opportunity,”
Campanella said.

“The documents
presented by the banks at closings can help us see where the money
went,” he added. “That’s how we’ve arrested straw buyers and street
buyers.”

High up in a boardroom
at 26 Federal Plaza, a group of FBI agents and officials laid out the
mortgage scams in specific detail for a Real Deal reporter.

The
FBI employees are part of a mortgage fraud working group that also
includes members of the U.S. Secret Service, Housing and Urban
Development, the New York State Banking Department, the New York State
Department of Investigation, U.S. attorney offices and Veterans
Affairs.

“It grows each month. We are pooling our resources,” said special agent Kathleen M. Diskin.

About
90 percent of the mortgage fraud scams in the tri-state area occur in
Queens and Brooklyn, mainly because that’s where most of New York’s
single-family home units are, officials said.

As the price of homes
skyrocketed by the middle of this decade, so too did the number of
scams. According to the 2007 U.S. Foreclosure Market Report from
RealtyTrac, which tracks foreclosure properties, there were 2.2 million
foreclosure filings, default notices, auction sale notices and bank
repossessions reported nationwide on 1.285 million properties last
year.

That’s up a whopping 75 percent from 2006.

The report also shows
that more than 1 percent of all U.S. households were in some stage of
foreclosure during the year, up from 0.58 percent in 2006.

The rise in mortgage
defaults associated with subprime mortgage lending has created a group
of desperate homeowners who are so close to losing their homes that
they become perfect targets for mortgage fraud criminal networks.

Yet as big banks and
mortgage companies lose significant money in the frauds, they begin to
reach out to law enforcement with leads strong enough to launch
investigations. It’s then up to the prosecutor’s office to decide how
big a priority mortgage fraud should be, FBI officials said. Civil
litigation, officials said, is highly unlikely because the people
scammed out of their homes are left with nothing. They have no money
for shelter, let alone for lawyers to sue the scammers.

The homeless ex-homeowners have also possibly already been duped by lawyers paid for by the scammers.

Even
if those lawyers aren’t in on the scam, they are paid a quick buck
(usually $750) for their services, don’t ask questions and don’t take
the time to learn what the homeowners are signing away, let alone
explain the content of the papers to the homeowners themselves. While
the lawyers are often unethical, it has thus far been difficult to
prosecute them, as greedy incompetence does not automatically equate
with criminal intent to defraud homeowner clients, said the FBI field
agent.

The lawyers even have
the audacity to blame their clients. The agent said lawyers give
excuses like, “My clients didn’t ask questions. I was in a rush that
day.”

“They can deny knowledge of the fraud itself,” the agent said.

Law
enforcement officals also noted that lenders need to do a better job of
verifying potential homebuyers’ identities as well as credit ratings
and conduct their own property value appraisals instead of depending on
potentially criminally inflated prices.

In another type of
scam, ethnic crime networks buy and sell the same homes to each other,
raising the price per home each time in intricate pyramid schemes.
Homes valued at $300,000 in 2004 are flipped more than five times so
that their end price, when the scheme is busted out, is $800,000,
investigators said.

“And the straw buyer,” said an FBI
field agent, “pockets profit every step of the way.”

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