U.S. Attorney’s Office sees new threat: short sale fraud
Silverstein was named chief of the Economic and Environmental Crimes unit last month
Joan Silverstein was named last month chief of the Economic and Environmental Crimes unit at the U.S. Attorney’s Office for the Southern District of Florida under Wifredo Ferrer. Silverstein graduated from Georgetown Law School in 1992 and clerked for federal Judge Louis Pollak in the Eastern District of Pennsylvania. The Miami native returned to South Florida to join the U.S. Attorney’s office in 1996, and has worked in several departments, serving for the last five years as the deputy in charge of economic crimes. Silverstein spoke to The Real Deal about the office’s success in fighting mortgage fraud and a new kind of real estate crime: short sale fraud.
How widespread is mortgage fraud in South Florida?
Not surprisingly, Florida leads the country in mortgage fraud. Within the state of Florida it’s not a surprise to know that South Florida leads the state in terms of the fraud. We have been focusing on mortgage fraud for several years now, knowing that it was obviously coming down the pipe, and we wanted to get ahead of it. … Since the announcement of the initiative in 2007, we have already prosecuted over 330 defendants, representing approximately $420 million worth of fraudulent loans that were issued just in the Southern District. So it’s significant.
What does mortgage fraud entail?
It depends on how you define mortgage fraud. Most of our cases have in fact been residential mortgages. We’ve begun to see quite a bit of commercial loan fraud as well, and what we expect to be the fraud of the future is in the reverse mortgages, or fraud with respect to loan modifications or refinancing of properties. … We try very hard to investigate and prosecute individuals at every level of the process, from the straw buyers — hundreds upon hundreds, if not thousands of people in South Florida have been straw buyers and make the engine run. It goes all the way to the top, throughout the industry: mortgage brokers, loan originators, bankers, title attorneys, title agents, and those who call themselves investors but really are the leaders and organizers of the scheme. In that are the appraisers, who have also contributed significantly to real estate fraud. The fact of the matter is, unless there was the participation and collusion at every level then the fraud couldn’t have happened.
What specific approaches are you taking?
There’s been a tremendous commitment of resources by this office and by the Justice Department as a whole to combating mortgage fraud. With the strike force, we have monthly meetings, with an average attendance of probably 50 people, including our four attorneys and others working on related cases. …You have the Metro Dade Police Department, you have the State of Florida Office of Financial Regulation, you have the FBI, Secret Service, the FDIC, HUD.
What other kinds of real estate-related fraud are you seeing?
Banks rely on realtors to share with them the bids that are made on the properties. If there is any sort of collusion, which we have seen, between the realtor and the seller, then what we’re seeing is that the actual offers that are being made on the properties — sometimes cash offers, for the asking price — are not being reported to the bank. The bank never learns of these offers, but instead they’re told about are much lower offers where they go through the process of agreeing to the short sale, having no idea that they could have recovered more on these loans. It is a new and emerging type of fraud that we’re seeing out there, and in the end, what you have is a situation where the houses are bought for very low price once again. Our concern and fear is that we’re back where we started, where we have a property at a low value that is subject to flipping, and false appraisals again, and we start the process all over again.