Cheated Out of House and Home
Don't let these scams happen to you!
BY MAX ALEXANDER
"They Seemed Very Nice"
Mark and Karen Cissel were afraid they were going to lose their Wheaton, Maryland, home after Karen lost her job. The couple missed four or five mortgage payments in late 2003, and their bank had started foreclosure proceedings, a legal process that is public to anyone who cares to look up the records.
Soon, according to a civil complaint, two employees from Fresh Start Solutions, a Baltimore-based mortgage company, contacted the Cissels: They offered to help refinance their home, settle the back payments and even throw in a $5,000 bonus check. "They seemed very nice," says Karen.
The Cissels signed all of the documents, and the men promised they'd mail their copies to them later. The Cissels never got those copies. Instead, they allegedly received a batch of very different legal documents -- this time listing them as tenants in the home they thought they still owned.
The "landlord" was Vincent Abell, the leader of the real estate scheme, says the complaint, and he was seeking to evict the Cissels and their three children for nonpayment of rent. The Cissels are suing Abell and others, claiming the documents were forged, but a resolution could be a year away.
"We were devastated," says Karen. "We had over $80,000 equity in the house, and this guy took it away."
Profile of an Epidemic
The term mortgage fraud encompasses a grab bag of cons and tricks, perpetrated on victims ranging from average homeowners to novice real estate investors to savvy bankers and the banks they represent. It is, according to FBI Special Agent Ronda Heilig, "one of the fastest-growing white-collar crimes in the United States."
The scams are often complicated, but in essence, mortgage fraud involves deception to obtain either real estate loan money or the real estate itself, which is then typically sold quickly, or "flipped," at substantial profit. Often the con artists are mortgage brokers, with title companies and appraisers in on the scam.
Crooked real estate deals have forced homeowners into bankruptcy and foreclosure. And lenders have lost billions, costs they pass on to law-abiding customers. A study estimated that mortgage fraud in Utah accounts for a quarter-point increase in mortgage rates across the board.
Scams Made Easy
Mortgage fraud has been around as long as home loans, but recent trends have made it easier -- and far more lucrative -- to game the system. Here's what's driving the crime spree:
Money. Inflated housing prices are luring the bad guys.
Technological advances. Inexpensive scanners and color printers make forgery and identity theft a cinch.
A depersonalized application process. Time was when mortgages were approved by a local bank officer who met with homeowners in person, applying common sense and professional judgment to loan decisions. Crooks stood out like a purple house. Today, lending companies approve loans using computer systems; as long as the paperwork seems in order, it's hard to notice the bad apples.
Inundated loan officers. Mortgage applications have surged in recent years, forcing lending institutions to hire hordes of new loan officers to handle the workload. Consumer advocates charge that some lenders have cut corners on due diligence to hasten approvals.
How does it work?
In a typical scenario, a scammer -- let's call him Joe -- assumes a false or stolen identity to buy a $100,000 property. He puts 20 percent down and assumes an $80,000 mortgage. Joe then forges documents to make it look as though he's taken out a building loan for $50,000 to make renovations. Next, his appraiser, also a crook, values the property at $200,000, pointing to "comparable" sales in a nicer neighborhood just up the road. Now Joe can use the home as collateral for a $150,000 consolidation loan; he pays off the original $80,000 mortgage, keeps the remaining $70,000 and skips town -- defaulting on the loan and abandoning the house.
Though mortgage-fraud abuses are countless in variety, experts cite a few basic versions:
The Rescue You Don't Need
As alleged by the Cissels' attorney in court papers, Vincent Abell, a convicted con artist, and his associates were operating a "foreclosure rescue" scam. (Abell declined comment.) In rescue scams, crooks prey on vulnerable homeowners facing foreclosure. They are usually longtime residents who have built up substantial home equity, but who now can't make their mortgage payment.
"People facing foreclosure are desperate for any way to avoid being kicked out of their home," says Manuel Duran, a Los Angeles attorney who has represented 25 rescue fraud victims. Rescue scammers promise a way to avoid foreclosure and never pack a moving box. Some say they'll help the homeowners catch up on their mortgage by refinancing. Others offer to pay off the mortgage and take possession of the house until the original owners can buy it back. But those promises are a house of cards.
The scammers convince the desperate homeowners to sign documents that look like refinancing applications or lease-to-buy agreements. But the forms actually grant the crooks title to the house. (The criminals may also forge deeds to seize the title.) The scammers, who now own the property, sell it and pocket the original homeowners' equity.
Rescue fraud is on the rise. In Minnesota, Assistant Attorney General Prentiss Cox says about one-fourth of the state's 2,500 foreclosed households every year are victimized by rescue scammers. Some offer seminars in the technique -- often pitched as get-rich-quick schemes, or no-money-down investment strategies. Two Nevada seminars didn't mince words, advertising "everything you need to know to rip off homeowners."
A Deal You Can Refuse
Charlotte Hutchens, a Kansas City, Missouri, widow, and her daughter, Jamie, wanted to earn extra income to supplement Charlotte's Social Security payments and Jamie's modest salary as an airport bus driver. A friend introduced them to Jim Coleman, a CPA, who seemed eminently respectable: He handled accounting for the public school system and a church ministered by his friend, Kansas City's ex-mayor.
According to a federal indictment, Coleman told the women they could make money investing in low-income, government-subsidized Section 8 properties. For a small fee, he would manage and maintain the properties; the rent checks would cover the monthly mortgage payments plus a small profit. Rent was dependable, he said, because the government provided the approved tenants and covered most of the rent.
Without advice of counsel (Missouri law doesn't require it), Charlotte and Jamie bought 11 properties -- all with no money down -- totaling over $770,000 in loans. Their mortgage payments at their peak were about $10,000 a month.
But the properties soon began failing inspections, which meant they could no longer be rented to Section 8 recipients. For a while, Coleman convinced the women that the city's nitpicking inspectors were to blame.
Then the Hutchenses got a call from FBI Agent Julia Jensen, who was investigating a mortgage-fraud ring in Kansas City. Jensen explained that the Hutchenses had apparently bought the properties at inflated prices that were based on fraudulent appraisals. She showed the women their mortgage applications. They were shocked to see documents that blatantly misrepresented their finances. Charlotte recalled signing mortgage papers with a number of blanks; according to the indictment, Coleman and his accomplice had falsified those documents, as well as W-2 forms, and profited to the tune of $178,000.
One by one, the homes went into foreclosure. "I can't even begin to describe the emotions, the stress," says Jamie. "The mortgage companies were calling us six or eight times a day trying to collect."
Most of the properties were sold on the courthouse steps for much less than the value of the mortgages. As a result, the mortgage companies may file suit against the women to recoup the difference.
The pair sued Coleman in civil court and, on the advice of an attorney, reached an out-of-court settlement for $25,000; Coleman pays them $500 a month. Though indicted in criminal court in April 2006, Coleman denies any culpability. Says Charlotte, "My husband worked forty years to save for retirement, and now I'm on the verge of bankruptcy. It makes me angry that I let myself be duped."
Your Neighborhood Goes Bust
Cathy Makley and her family were delighted with a new home they bought in 2003 in the Wolf Creek development, a middle-class suburb near Atlanta. But Makley soon noticed that something strange was happening. For-sale signs came and went, but the homes remained vacant or occupied by a series of unfriendly transients.
Fed up, Makley and her neighbors organized a homeowners' meeting in May 2004. The night before, she received an anonymous phone call; the caller explained mortgage fraudsters had targeted Wolf Creek. "I didn't know what mortgage fraud was," she says. "But as the caller explained it to me, I started to feel nauseated."
Makley checked the sale prices of the 30 or so homes in question. Each had sold for far more than her own -- in some cases as much as $100,000 more. "I started to understand why our property tax valuations had shot up even as our neighborhood had deteriorated," she says.
The scam was simple: Home sellers would get a visit from a "real estate broker." He'd tell them he had a buyer ready to pay more than their asking price, on the condition that they return the extra money at the closing.
The inflated sales prices pumped up the "comps" throughout Wolf Creek. This created a snowball effect that allowed scammers to borrow more than $300,000 on houses worth little more than $200,000. The crooks fled with the profits, and the bank foreclosed on the abandoned properties.
Fighting Back
Victims usually have little legal recourse. States have limited resources to prosecute complicated, white-collar crime that is hard to prove. Many cases are too small for the FBI but too intricate and costly to be worth a private lawyer's time. "One of the worst things as a law enforcement official," says Jensen of the FBI, "is to sit in people's homes and see that they're definitely the victims of fraud and tell them that the odds of the bad guy being held accountable are slim."
Cathy Makley was shocked by law enforcement's ho-hum response to the fraud that was ruining her neighborhood. So she and two neighbors investigated the scam on their own. Their search led to attorney Ann Fulmer and her neighbor Alicia Sheppard, former mortgage-fraud victims and co-founders of GREFPAC, the Georgia Real Estate Fraud Prevention & Awareness Coalition (grefpac.org). They have helped arrest more than 150 mortgage-fraud perpetrators.
Fulmer worked with Makley to compile evidence against the Wolf Creek con artists. In June 2005, state and local authorities stormed 14 houses in Wolf Creek and arrested two men, Anthony Flood and Hardy Chukwu, on rack-eteering charges. Both deny any guilt, but indictments are pending.
The grass-roots antifraud effort is gaining momentum, notching victories around the country and persuading lawmakers and law-enforcement agencies to join the fight. GREFPAC led the battle for Georgia's anti-mortgage-fraud law. With that law's passage in May 2005, the state became the first to make any misrepresentation on a mortgage application a prosecutable crime. Congress is considering a federal anti-mortgage-fraud measure.
Advocates applaud those steps, but say much more needs to be done. "And it's going to take everybody," says Fulmer, "from lenders to law enforcement to consumers, doing everything they can to attack this problem. There's no magic bullet, but we're moving in the right direction."
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CRC staff, 1.16.2007 |
