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Author Topic: Mortgage Fraud- "The Million Dollar Dump"
I Am 6-Ironsman
Deck the Malls


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quote:
The million-dollar dump
A con artist looks for a low-end, rundown house for sale. He approaches the seller and says he's willing to pay the full asking price-but only if the seller will do him a small favor. See, the buyer needs a bigger mortgage than the house is worth. So if the owner agrees to relist the house at, say, triple the price, then the buyer can apply for a bigger mortgage.

The swindler often tells the homeowner not to worry-he wants to use the extra mortgage proceeds to fix up the house. The seller usually heartily agrees: He's getting the full price … and besides, wouldn't it be nice to have the place fixed up? The swindler, using a false identity, takes out the supersized mortgage, pays the seller, and pockets the remainder. The house usually ends up in foreclosure.

The Million Dollar Dump

Not sure how successful this supposed scam would be, because even if the seller agreed to inflate the price, what bank would actually grant a grossly overvalued mortgage? Wouldn't the lending bank's appraiser catch the scam and deny that amount? It is fairly common for the buyer's mortgage lender and the selling real estate agent to haggle on appraised value- and that is within a range that can be reasonably argued, not doube or triple the fair market value. I call BS on this, or the lender is a fiscally irresponsible idiot who should lose their mortgage broker license for lack of due dilligence.

Can anyone produce a story where this scam was initially successful up to the point where the buyer received the money and the lender was defrauded?

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Rhiandmoi
Ding Dong! Merrily on High Definition TV


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I have heard of it happening with about 150% of a reasonable mortgage, but I haven't heard of it happening double or triple the fair market value.

--------------------
I think that hyperbole is the single greatest factor contributing to the decline of society. - My friend Pat.

What is .02 worth?

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Rhiandmoi
Ding Dong! Merrily on High Definition TV


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http://www.fbi.gov/publications/financial/fcs_report052005/fcs_report052005.htm
Not a million dollars but:
quote:
COMMON MORTGAGE FRAUD SCHEMES

Property Flipping - Property is purchased, falsely appraised at a higher value, and then quickly sold. What makes property illegal is that the appraisal information is fraudulent. The schemes typically involve one or more of the following: fraudulent appraisals, doctored loan documentation, inflating buyer income, etc. Kickbacks to buyers, investors, property/loan brokers, appraisers, title company employees are common in this scheme. A home worth $20,000 may be appraised for $80,000 or higher in this type of scheme.

and
http://www.lasvegassun.com/sunbin/stories/business/2006/oct/21/566689768.html

quote:
In other cases, false appraisals were used to obtain loans for more than the properties are worth, setting up schemes with an orchestrated buyer and seller that allow the seller or a management company to pocket excess funds.
So I guess part of the scam is having an appraisor in your pocket.

--------------------
I think that hyperbole is the single greatest factor contributing to the decline of society. - My friend Pat.

What is .02 worth?

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I Am 6-Ironsman
Deck the Malls


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Thanks for the stories.

I can see how that could occur if the appraiser is in on it but the article doesn't say that, it makes it seem like someone can pull a one sided scam which as I suspect is VERY hard. Property flipping is another kind of fraud but again that requires multiple parties. Even a crooked appraiser can be checked by the lender doing their own appraisal as often happens.

I am still skeptical that one person could put one over on all the necessary parties as the author said. I'm not arguing with what Rhiandmoi or anyone else here said, but rather with the author of the piece, who I emailed.

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Mad Jay
Let There Be PCs on Earth


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Wouldn't a foreclosure hurt the buyer?

--------------------
Nico Sasha
In between my father's fields;And the citadels of the rule; Lies a no-man's land which I must cross; To find my stolen jewel.

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Rhiandmoi
Ding Dong! Merrily on High Definition TV


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Yes, but since the buyer is a con artist, probably using a stolen SSN s/he doesn't much care.

--------------------
I think that hyperbole is the single greatest factor contributing to the decline of society. - My friend Pat.

What is .02 worth?

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Gibbie
Angels Wii Have Heard on High


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But who is this a scam on? The bank? The original seller has his money and it's the bank's problem after that. I can list my house at anything I want, it's not illegal to ask too much money, just stupid. So if I'm selling I don't really care if the buyer takes fixes it up or not or takes out a mortgage larger than the value or not. I'm going to close, take my money and buy my next house.

Gibbie

--------------------
If you're not part of the solution, you're part of the precipitate.

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Keeper of the Mad Bunnies
Jingle Bell Hock


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quote:
Originally posted by I Am 6-Ironsman:
Thanks for the stories.

I can see how that could occur if the appraiser is in on it but the article doesn't say that, it makes it seem like someone can pull a one sided scam which as I suspect is VERY hard. Property flipping is another kind of fraud but again that requires multiple parties. Even a crooked appraiser can be checked by the lender doing their own appraisal as often happens.

I am still skeptical that one person could put one over on all the necessary parties as the author said. I'm not arguing with what Rhiandmoi or anyone else here said, but rather with the author of the piece, who I emailed.

If you read the full article, it outlines how this can be pulled off by one person. It is a lot more difficult, but possible. The con man forges the appraisal that is sent to the lender. As long as you can intercept and forge the necessary documents, one person can pull off the scam.

Also, the con man in the article seemed to specialize in forging mortgage satisfactions and then getting new financing using fraudulent documents. Easier to do, especially with a county recorder that is not current with recording documents.

Normally, the scams are run by a ring, because it is much easier that way. Working in an industry that is directly affected by these frauds, I am more aware of what is going on.

James 'one of the top ten states for fraud' Powell

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Keeper of the Mad Bunnies
Jingle Bell Hock


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quote:
Originally posted by Gibbie:
But who is this a scam on? The bank? The original seller has his money and it's the bank's problem after that. I can list my house at anything I want, it's not illegal to ask too much money, just stupid. So if I'm selling I don't really care if the buyer takes fixes it up or not or takes out a mortgage larger than the value or not. I'm going to close, take my money and buy my next house.

Gibbie

The scam is on the provider of the financing. In the story, it was a seller financed deal, so the seller was victimized. Usually, the person who gets stuck is the title company that underwrote the insurance policy and/or closed the deal.

Another set of victims are the neighbors. When a house goes into foreclosure, it can reduce the value of surrounding properties. In one case in Florida, the ring targetted a high-end neighborhood and had a number of properties in foreclosure.

I have not followed any cases to see if they have tried to indict the seller as a 'co-conspirator' for allowing the value of the home to be inflated. Since they do not normally profit from the deal, it would be hard to convict the seller of a crime. Where the seller could be considered a 'co-conspirator' is that they are selling for a higher price, but not receiving that extra money.

James Powell

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Horse Chestnut
Happy Holly Days


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There was a good article in last week's Columbus Dispatch regarding this type of scheme. It is happening not only in our older, urban neighborhoods, but in million dollar neighborhoods like Tartan Fields and Muirfield.

If fact, Columbus has one of the highest default rates in the nation because of these schemes and other shady lending practices.

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snapdragonfly
Happy Xmas (Warranty Is Over)


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quote:
Originally posted by Rhiandmoi:
http://www.fbi.gov/publications/financial/fcs_report052005/fcs_report052005.htm
Not a million dollars but:
quote:
COMMON MORTGAGE FRAUD SCHEMES

Property Flipping - Property is purchased, falsely appraised at a higher value, and then quickly sold. What makes property illegal is that the appraisal information is fraudulent. The schemes typically involve one or more of the following: fraudulent appraisals, doctored loan documentation, inflating buyer income, etc. Kickbacks to buyers, investors, property/loan brokers, appraisers, title company employees are common in this scheme. A home worth $20,000 may be appraised for $80,000 or higher in this type of scheme.

and
http://www.lasvegassun.com/sunbin/stories/business/2006/oct/21/566689768.html

quote:
In other cases, false appraisals were used to obtain loans for more than the properties are worth, setting up schemes with an orchestrated buyer and seller that allow the seller or a management company to pocket excess funds.
So I guess part of the scam is having an appraisor in your pocket.

Absolutely. As the daughter of two lifelong Realtors, my first thought was "ain't gonna happen without the appraisal in place."

No bank will knowingly give a mortgage for over the amount the house is worth. Banks are not in the business to lose money.

Something else. If there was an honest way to make big money instantly in real estate - without needing a lot of your own capital at risk in the first place - all the smart realtors (including my dad) would have figured it out already. He's done quite well, - QUITE well - and it only took him 30 years of busting his ass to acquire it. You get a windfall or come out really good on something once in a while but it's generally because the whims of the market worked out in your favor for once.

edited for typo

--------------------
"Wolves, dragons and vampires, man. Draw the nut-bars like big ol' nut-bar magnets." ~evilrabbit

(snurched because one of my nutbar family members is all about wolves and another one is all about dragons...)(with apologies to surfcitydogdad)

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Keeper of the Mad Bunnies
Jingle Bell Hock


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It is not necessary to have an appraiser in your pocket, only helpful.

Many schemes use appraisals that are forged onto legitimate letterhead.

The story in the OP pointed out one scam was discovered when a forged appraisal went to the company whose letterhead it was forged on.

James Powell

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snapdragonfly
Happy Xmas (Warranty Is Over)


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Good clarification. But either way, it can't happen with a *legitimate* appraisal.

People who try to swing real estate deals on their own, if they don't really know what they are doing - owner financing, for sale by owners, etc - can get into sooo much trouble. Have seen it many a time. The safeguards put in place by the mortgage companies to protect their own interests end up protecting the buyer as well.

And of course the old if it's too good to be true rule applies just as much in real estate, probably even more so.

--------------------
"Wolves, dragons and vampires, man. Draw the nut-bars like big ol' nut-bar magnets." ~evilrabbit

(snurched because one of my nutbar family members is all about wolves and another one is all about dragons...)(with apologies to surfcitydogdad)

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Keeper of the Mad Bunnies
Jingle Bell Hock


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Update on OP:

Rebecca Marie Hauck, 34, was sentenced by United States District Judge Timothy C. Batten Sr. to five years, 10 months in federal prison, followed by five years of supervised release.

She was ordered to pay restitution of $1,197,970, and ordered to forfeit to the government any profits from any book, television or any entertainment rights.

Hauck was indicted in Sept. 29, 2005, on 42 counts of bank fraud, wire fraud, interstate transportation of fraud proceeds, identity theft, money laundering and conspiracy.

Authorities are still looking for Matthew Bevan Cox, 36, who faces the same charges as Hauck. Authorities are asking anyone with information about Cox's whereabouts to contact the Secret Service toll-free, 24 hours a day at 1-877-242-3375.


James Powell

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Keeper of the Mad Bunnies
Jingle Bell Hock


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Additional update on OP.

quote:
Matthew Cox, 37, was captured by federal agents in Nashville, Tenn., last week after a 60-year-old Nashville babysitter read about him and tipped off U.S. Secret Service agents.

...

According to U.S. Attorney David E. Nahmias, {Rebecca Marie} Hauck and Cox rented properties, then fraudulently erased mortgage liens on the properties. They stole the owners' identities and fraudulently took out multiple new mortgage loans.

They also used stolen identities to obtain driver’s licenses, purchase vehicles, lease mail drops, rent apartments and open bank accounts to receive proceeds from their schemes in Georgia, Florida, Alabama, South Carolina and North Carolina, authorities said. Cox allegedly obtained some of the stolen identities from homeless people by posing as a Red Cross worker taking a survey.

Let's hear it for the babysitter!

James Powell

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Fowlplay
The First USA Noel


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quote:
It is not necessary to have an appraiser in your pocket, only helpful.

Many schemes use appraisals that are forged onto legitimate letterhead.

The story in the OP pointed out one scam was discovered when a forged appraisal went to the company whose letterhead it was forged on.

James Powell

This is a nightmare most appraisers (like myself) dread. Its just too easy to do.

There are a couple of appraisers here in Texas who have had their signatures forged on hundreds of appraisals over the last few years. The 'appraisals' were perfored in different cities than the real appraiser's worked in so they didn't gain knowled of it until TALCB notified them. The Texas Appraiser Licensing and Certifcation Board is working with them currently and trying to clear them while working with authorities to get those responsible.

--------------------
"Sometimes it will be fluffy bunnies and cotton candy. Sometimes it will be napalm and defoliants. Sometimes it is roasted bunnies." -Rhiandmoi

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scarbrow
I'm Dreaming of a White Sale


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Am I the only one who thought it was odd when my appraisal on the first house was somehow exactly equal to my offer? Even legitimate appraisals have a lot of leeway.

I'm learning this now selling my house, because the buyer is in a first time buyer program that appraised my house at 40% over the selling price. This allows the buyers money to look like it's less than 80% of the value, so they can get the loan easier. The appraiser had no problem finding comparable home sales within 5 miles in the last 6 months which justified the higher price.

My situation is legal because the loan underwriter was notified of the entire process. But it seems it would be easy to abuse.

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