Robert Shumake Questions Motives Behind Mortgage Fraud

There is plenty of opportunity to make money investing in real estate today, legally. I'll never understand why people spend so much time and energy developing scams and schemes when they can just follow the rules and make an honest living. Here's a article about a guy who gets to live in the "Big House" for a while, and I don't mean a "Large Home."

Broker Gets 3½ Years Prison Time for $3.7M Mortgage Fraud; Another Arrested in $500,000 Ponzi Scheme

Posted by Alex Finkelstein 12/07/09 2:39 PM EST
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(PORTLAND, OR) -- Lee Howlett, a 46-year-old former broker at Portland, OR-based Taylor Made Mortgage, has been sentenced to 41 months in prison, to be followed by three years of supervised release, after he was found guilty in a $3.7 million loan application scam.

Acting U.S. Attorney Kent S. Robinson said Howlett used $1.3 million of the $3.7 million for personal uses. Robinson says Howlett submitted 14 false loan applications purportedly to refinance or purchase seven properties during a 2½ -year period between 2003 and 2005.

The applications contained false information about Howlett's employment income, the sources of down payments and the identities of the true borrowers and buyers, Robinson said.

Fraudulent appraisals of the properties by non-existent appraisers were attached to each application, according to the U.S. Attorney.

Robinson described Howlett as "a serial, unrepentant con artist." He said the broker's conduct was "typical of the fraudulent practices which have produced the mortgage and financial crisis of the past two years."

In a separate unrelated case, Rita Gosselin of Grosse Ile, MI was arrested in an alleged $500,000 real estate investment Ponzi scheme. Twenty investors lost their money in the scam.
Michigan Attorney General Mike Cox said Gosselin was charged with racketeering, multiple counts of obtaining money under false pretenses and stealing "hundreds of thousands of dollars" from Michigan families.

Cox said Gosselin orchestrated the scheme between April 2007 and September 2008 in metro Detroit. She allegedly told investors she could purchase foreclosed and distressed properties in bulk and then renovate them to sell at a profit.

Cox said Gosselin provided investors with promissory notes as security for the alleged investments. She promised monthly payments on the notes.

"Taking advantage of Michigan families, especially in today's economy will not be tolerated," Cox said.

Gosselin was arraigned in the 33rd district Court in Woodhaven, MI. Judge Michael McNally scheduled a preliminary hearing Dec. 15 and released Gosselin on a $300,000 cash bail bond.

Robert Shumake Revals Mortgage Fraud Schemes

Here is an article about a system to help protect property owners from mortgage fraud and real estate scams involving false documents. Do you know how many properties you own and how many mortgages are on each one? Read on...you might be surprised.

Ottawa County launches new program for property owners; electronic recording system one of three operating in Michigan counties

By Jeffrey Cunningham | Muskegon Chronicle

December 19, 2009, 6:36AM

GRAND HAVEN — The Ottawa County Register of Deeds office is encouraging everyone in the county who owns land to sign up for a simple program that might save property owners thousands of dollars and years of aggravation.

The program, Property Fraud Alert, allows those registered to be notified every time a property with their name on it is registered with the county.

NOW/Jeffrey CunninghamOttawa County Register of Deeds Gary Scholten points to a sign in his office announcing the Property Fraud Alert program now availabe to county property owners.“Most people don’t realize that property and mortgage fraud is the fastest growing white-collar crime in the country according to statistics provided by the FBI,” said Ottawa County Register of Deeds Gary Scholten.

The program is part of the new electronic recording system the Ottawa County Board of Commissioners approved for several departments earlier this year. The system, from Fidlar Technologies, Inc. of Rockford, Ill., cost $368,000.

“It’s like a smoke detector for your property,” Scholten said.

Scammers usually record a fraudulent quit-claim deed with a county register of deeds office, complete with the all of the legal transaction information and forged signatures and then let it sit for several weeks unbeknownst to the property owner.
“Then, the scammers go to a local bank and apply for a mortgage for upgrades to the home and often walk away with $100,000 or more,” said Ernest Riggen, chief executive officer of the Fidlar Technologies.

“While the real owner of the property does not owe the money, the bank or mortgage company often comes after the homeowner and tries to collect the money the bank has now lost. It can cost the homeowner thousands of dollars to get the matter resolved. It is a lot like identity theft.”

Often, Fidlar said, scammers hit the homes of “snowbirds” who are gone for months at a time and don’t know there is a problem until it is too late.

Scholten said that he is unaware of any similar incidents occurring in Ottawa County so far, but scammers tend to move across the country, and he has heard about such scams occurring on the east side of the state.

“Our job is not to tell whether or not a document is valid or not, we just have to register documents, so this type of program is invaluable so that people know that someone isn’t out there trying to mortgage their property without their permission,” Scholten said. The Property Fraud Alert program, he noted, is free.

The alerts can come by e-mail, text message or by phone anytime a property is recorded by the register of deeds office, Fidlar said. “And for those who are concerned that their elderly parents may be scammed, the children can have their e-mail or phone number put in so that they are contacted in case something happens to their parents’ property.”

Ottawa County is the third county in the state, behind Grand Traverse and Ingam counties, to use the Fraud Alert system.

Those interested in signing up can go to www.propertyfraudalert.com/ottawami or call (800) 728-3858.

Robert Shumake Mortgage Fraud Report: Michigan is among the Top 10 States

Robert Shumake Mortgage Fraud Report: Michigan is among the Top 10 States

Mortgage fraud is defined as the intentional misrepresentation of information, by applicants, loan officers or other parties, which is relied on by an underwriter to provide funding for a mortgage loan.

Mortgage fraud is divided into two categories: fraud for property and fraud for profit. Fraud for property or housing involves misrepresentations by the applicant for the purpose of purchasing a primary residence. Although applicants may claim more income and less for expenses in order to qualify for the loan, they usually do intend to repay the debt.

Fraud for profit often involves multiple loans and elaborate schemes generated to gain commissions or proceeds from property sales. This is the category that is of the most concern to law enforcement within the mortgage industry. Inflated appraisals and misrepresentations on loan documents are common in fraud for profit schemes and participants are frequently paid for their participation.

Many reports on real estate and mortgage fraud have been released in the last few years. The downward trend in the housing market will continue to provide further incentive for shady real estate deals and dishonest practices for earning a profit. Michigan is among the top 10 states for mortgage fraud with the largest share of fraud being in the north-central region of the United States.

The subprime lending practice is a major contributing factor to real estate and mortgage fraud. Subprime loans were designed for people with poor credit or limited credit histories. These high-risk loans have contributed to well over 2 million foreclosures filed during 2007. The increasing real estate values lead to relaxed lending practices in the industry and created more opportunities for scam artists to prey on vulnerable homeowners.

Some of the latest mortgage scams include builder-bailout schemes where developers unload excess inventory through financial trickery and foreclosure help scams where distressed homeowners are tricked into signing over the deed to their home. Others include seller-assistance with the use of false appraisals to sell homes and identity theft leading to home equity credit lines being opened and drained.

Mortgage Fraud in a Depressed Market

The increasing interest rates and the declining housing market have contributed to the high foreclosure rate. As homes depreciate and the demand for housing decreased, distressed homeowners are unable to sell their homes for what is owed on them. During declining markets, mortgage lenders are likely to commit mortgage fraud to earn commissions.

The housing market is expected to continue to decline; therefore, reducing the amount of mortgage loan originations in 2009. As values decline and mortgage guidelines get tougher, fraudsters will devise new and improved schemes to exploit the weaknesses in the market.

Robert Shumake "Mortgage and Real Estate Scams in Michigan"

The downward trend in the real estate market has encouraged mortgage fraud perpetrators to develop and utilize many schemes. The recent rise in foreclosures along with a depressed market, declining values and decreased demand has placed pressure on lenders, builders and home sellers. Fewer loans will be originated as lending practices tighten in response to the subprime lending crisis. Identity theft is a popular tool for use in mortgage fraud. With higher lending standards being enforced, individuals with good credit are valuable to perpetrators; therefore, at risk for identity theft and mortgage fraud schemes.

Illegal Property Flipping

Illegal flipping is a popular scam; here’s an example: An investor purchases a property for $20,000 and has the property fraudulently appraised for $80,000. The flipper then sells the house for $80,000 to a straw buyer who is able to get an 80% loan of $64,000. The flipper makes a $44,000 profit, while the home goes into foreclosure. The bank is left with a $64,000 mortgage owed on a home that is worth only $20,000. If the mortgage is FHA insured, the government absorbs the loss.

Builder-Bailout Schemes

Builder-bailout schemes occur when a builder or developer has difficulty selling their inventory, so they use fraudulent methods to sell the homes. This is most common in a depressed market and typically involves builders offering incentives to buyers which are not disclosed on the mortgage loan documents. For example, a builder wants to sell a house for $200,000. He begins by getting an inflated appraisal for $240,000 and finds a buyer. The lender funds the mortgage, believing that the buyer already paid the builder a 20% down payment of $40,000. The builder gets his $200,000 at closing and forgives the down payment; the lender has funded 100% of the home’s value. If the home should foreclose, the lender has no equity.

Seller Assistance Scams

Mortgage fraud perpetrators exploit the depreciating real estate market by assisting sellers when they provide buyers to conduct sales that are based on inflated appraisals. In a typical scam, the perpetrator determines the amount the seller is willing to accept and then hires an appraiser to inflate the value. He then finds a buyer who will obtain a mortgage for the inflated amount so the seller gets his asking price and the perpetrator gets the difference between the market value and the inflated value. If the mortgage should default, the lender forecloses, but is not able to sell the house for what is owed on loan because of the inflated appraised value.

Short Sale Scams

With the increase in foreclosures, short sales are a way out for many distressed homeowners. Lenders cut their losses by agreeing to accept less than what is owed to them on the mortgage rather than waiting out the foreclosure process while property values continue to decline. Here is an example of a pre-meditated short sale scam:

The perpetrator finds a straw buyer to purchase a property, providing fraudulent information about the buyer and the value of the house. He may even get the straw buyer to refinance the home to borrow money for repairs; he pockets the money and repairs are not made. He defaults on the payments and the home goes into foreclosure. When the straw buyer shows hardship and informs the lender that he cannot make the payments, he recommends the perpetrator as a buyer who will purchase the home on a short sale. The perpetrator gets the lender to accept less that he would receive in a foreclosure sale, and then sells the property for its actual value, or gets an inflated appraisal to conduct an illegal flip.

Foreclosure Rescue Scams

Escalating foreclosures have provided the opportunity for scammers who claim to be foreclosure help consultants who convince homeowners that they can help them save their homes from foreclosure. Some will agree to take over the mortgage payments while the homeowner rents their own home. Of course, they keep the rent payments but do not pay the mortgage payments. If the home has a lot of equity, the scammer may forge a deed, or trick the homeowner into signing a deed so they can secure a second loan without the homeowner’s knowledge, thus stripping the property’s equity. Many of these types of scams also involve an upfront consulting fee which adds to the scammer’s profit.

Read 10 Tips to Protect Yourself from Mortgage Fraud

Robert Shumake’s 10 Tips to Protect yourself from Mortgage Fraud

10 Tips to Protect yourself from Mortgage Fraud

Mortgage fraud is one of the fastest growing white-collar crimes in the country with Michigan being one of the top 10 locations for real estate scams. The downward trend in the real estate market has encouraged mortgage fraud perpetrators to develop and utilize many schemes. The recent rise in foreclosures along with a depressed market, declining values and decreased demand has placed pressure on lenders, builders and home sellers. Fewer loans will be originated as lending practices tighten in response to the subprime lending crisis. Identity theft is a popular tool for use in mortgage fraud. With higher lending standards being enforced, individuals with good credit are valuable to perpetrators; therefore, at risk for identity theft and mortgage fraud schemes.

How it Works

Mortgage fraud is divided into two major categories; fraud for profit and fraud for housing. Fraud for housing involves misrepresenting income/expense and assets/liabilities information on an application in order to obtain funding to buy a home. Fraud for profit involves industry professionals including mortgage brokers, property appraisers and real estate agents who over state a buyer’s income, assets, property value and other information to trick lenders into approving mortgages.

Sometimes people commit identity theft to obtain housing loans, sell someone else’s home or take over other’s property. Here are some tips to protect yourself from becoming the victim of mortgage fraud:

• Never sign blank or incomplete documents
• Never purchase property that you have not seen and personally inspected
• Use only licensed mortgage bankers or lenders; find a broker through the National Association of Mortgage Brokers (http://www.namb.org)
• Have a local, licensed real estate agent do a BPO (Broker’s Price Opinion) to determine value
• Don’t be pressured into using a particular lender, real estate agent or appraiser
• Know your rights as a mortgage borrower
• Don’t buy into get-rich-quick schemes of instant equity or investment property using your own name – investment property should be owned by an LLC to protect you from liability exposure
• Do not work with someone who suggest that you lie on your mortgage application
• Beware of predatory lenders who charge excessive fees and prepayment penalties
• Most importantly, be sure to look over and understand your truth in lending disclosure documents which spell out the terms of your mortgage, before signing a contract with a mortgage company

If you are in doubt, have an attorney look over your documents and advise you. The fee for this service is little compared to the tens of thousands you can be charged for dealing with problems caused by mortgage fraud later.

Mortgage Fraud Alert: Predatory Lenders in Michigan

Predatory lenders are lenders who commit mortgage fraud to help homeowners get a higher loan. They may obtain inflated appraisals, falsify income information or do whatever it takes to qualify the borrower for a mortgage. In many cases, the borrower cannot afford the terms of the mortgage.

Predatory lenders are not out to help the borrower at all; they are only in it for themselves. They are often using their clients in order to gain commissions. A predatory lender looks for clients who have little knowledge and prior experience with mortgages. They will take their application, check their credit, and do whatever it takes to get them approved for the American Dream of homeownership, very often, in a home that they cannot afford.

In many cases, the client gets an adjustable rate mortgage (ARM), where the interest rate is fixed for 2 or 3 years, and then it increases, causing their monthly payment to increase substantially. People find themselves paying on an interest only loan, where nothing is applied to the principal. The lender promises to help the client refinance with a fixed loan before the ARM is reset. Legally, no one can make this type of promise.

A loan officer might have the client sign blank forms, telling their client that they have to see what they can do for them before filling in the blanks at a later time. This is known as ‘backing into the documents.’ When a loan officer has sign forms with blank fields, they are able to manipulate the borrower’s loan documents to fit their commission needs.


Predatory Lending Habits

There are several things predatory lenders commonly do to benefit themselves while seriously hurting their unsuspecting clients. Here are some examples of predatory lending practices:

Falsifying documents to show the client’s income as being higher than it actually is in order to qualify them for the mortgage; this is illegal.

Obtaining inflated appraisals to get a higher mortgage; therefore, a higher commission. In this case, the lender and the appraiser are both breaking the law.

Encouraging clients to borrow assets from family; this is not the way to show financial worth.

‘Bait and Switch’ is where the client is presented with specific terms that are changed just before closing.

Refinancing the mortgage and charging a higher than normal origination fee.

Selling a high-cost, high-interest loan to a borrower who would qualify for a loan with more favorable terms which the lender also offers

Convincing applicants to borrow more than they can afford to pay back

Pressuring applicants to accept high-risk terms like interest only mortgages with high prepayment penalties.

Loan officers are paid on commission; the more loans they sell, the more money they make. The commission earned for selling high-cost loans and additional products and services often encourages a loan officer to bend or break the rules in order to benefit himself.

There are certain rules and parameters used for approving and underwriting a home loan. Though these stipulations may seem overly restrictive, they are in place to protect borrowers from getting into a mortgage that they cannot afford to repay.