The Real Deal Miami

Region still ripe for fraud, U.S. Attorney says

By Sally Apgar | February 16, 2009 11:49AM

Whether it’s a housing boom or a bust, Florida remains a paradise for scam artists.

“Dramatic changes in housing values — either up or down — create the opportunity for fraud,” U.S. Attorney R. Alexander Acosta said. Many factors make South Florida a haven for mortgage fraud, and the region should soon earn the dubious distinction of being the national leader in the crime.

According to the Mortgage Fraud Research Institute, Florida was the capital of mortgage fraud in 2006, 2007 and for the first quarter of 2008. MortgageDaily.com announced last week that California and New York edged out Florida in 2008. California had more than $1 billion in mortgage fraud, and New York had more than $374.3 million. Florida had $345 million in mortgage fraud last year.

During the housing boom, Florida property values spiked exponentially. Acosta said that as long as home prices increased, con artists could conceal schemes from banks and the government. When prices peaked, then fell in 2005, their cover was blown.

In September 2007, Acosta announced a Federal-State Mortgage Fraud Initiative to combat the fraud epidemic. Last June, Acosta formed a Mortgage Fraud Strike Force to attack the increasing case load of ever more complicated schemes.

To date, at least 139 individuals in 36 cases have been prosecuted in South Florida for schemes meant to result in the approval and issuance of more than $224 million in fraudulent mortgage loans.

The fraudsters, who depend on professional insiders at all levels, from appraisers to loan officers, were brazen. In some cases, they have bought and sold homes with stolen identities, straw buyers who were willing to loan their identities and fake employment records and different lenders. Some managed these crimes while the true homeowners continued to pay their monthly mortgages to yet another lender, oblivious that speculators were flipping their homes.

Acosta also said that escalating prices enabled some fraudsters to flip the same house several times. He explained that some would use a straw buyer with one bank and then, as housing prices spiked, flip the house a year later at a much higher selling price with a different straw buyer and a different lender.

“The banks just figured housing values were increasing,” said Acosta, and these rising values “just hid the fraud” from banks.
 
One defendant, Maggie Cruz, who was sentenced to 10 years in prison last month for her role in a $24 million mortgage fraud scheme, fraudulently obtained multiple loans from different lenders for the same property, simultaneously and without the lenders’ knowledge, according to prosecutors. She also procured fraudulent loans for properties for which there was no true sale by stealing the identity of the seller and fabricating a transaction with a straw buyer.

Prosecutors said that Cruz and other scammers would keep up mortgage payments until they flipped the property in another bogus deal at a higher price.

Acosta said Cruz and other groups like hers are self-contained and not part of some large network.

“This isn’t organized like a cocaine cartel,” said Acosta. “These are small groups who need to work with professionals (in the business). They need to find bank officers and appraisers who look the other way to make things happen.”

In one recent case, a mortgage broker, a real estate attorney and a Wachovia Bank loan officer were accused of conspiring to obtain $42 million in bogus loans used to buy 17 South Beach condos. Prosecutors have found professionals involved in almost every stage of the loan process.

Acosta now expects to see a rash of scam artists filing fake foreclosures and liens on homes that are not in foreclosure and then buying the homes at foreclosure sale. The actual owner of the house is not aware of the foreclosure activity until the new buyer demands the home.

In a report last August, the Mortgage Asset Research Institute wrote that in down markets “mortgage fraud will not disappear — in fact, it is expected to significantly grow, evolve and penetrate new areas within the industry.”

The FBI agrees. In a recent report, the FBI wrote “the downward trend in the housing market provides an ideal climate for mortgage fraud perpetrators to employ a myriad of schemes suitable to a down market.”