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Thursday, July 22, 2010

Real Estate Scams, don't be fooled

Being in the real estate business, we should always be aware of real estate scams. I thought that this article may refresh your memory and maybe save someone you know of being scammed in a Real Estate transaction. This has always been an issue, especially in poor economic conditions. Once "honest investors" can become corrupt and begin feeding on the less educated homeowners in this bottom feeding real estate market. Let's keep these illegal companies and individuals from scamming someone you know!

Mortgage fraud: An estimated $4 billion to $6 billion in annual losses result from mortgage fraud, according to FBI reports. “An entire community can be damaged by mortgage fraud,” says Rachel Dollar, a lawyer from Santa Rosa, Calif., and editor of the Mortgage Fraud Blog. Mortgage fraud can lead to a spike in foreclosures, home values plummeting, and lenders raising their rates and fees to recover losses.
The crimes are often complex, involving several parties. Here's some of the most common ones:

1. The Foreclosure Rescue Scheme:

The Scam: “Rescuers” promise the defaulted borrower that they can prevent a foreclosure. The scammer wants to ultimately obtain ownership of the home and receive rent from the homeowner. There will also be the payment of upfront fees, which begins to solidify the relationship. There could be a new loan on behalf of the owner or by having the owner sign over the Grant Deed. Eventually, the home owner loses the home, either to foreclosure or the rescue company. What makes matters emotionally worse for the once homeowner, is the fact that rent was paid for many many months to the scammer rescue company.

Red Flags: When asked sign any Grant Deed or Quitclaim Deed, if you hear the words "do not contact your lender", or "please send mortgage payments to ______ (not the lender)"

2. Loan Documentation Fraud:

The Scam: Having a lender willing to blindly loan money and/or having a borrower willing to provide inaccurate financial information — such as about their income, assets, and liabilities — or employment status, as well as occupancy fraud.

Red Flags: There could be a faulty employer’s address, or the accumulation of assets compared to the person’s income. It could be a simple as the new house is too small to accommodate occupants.

3. Appraisal Fraud:

The Scam: It entails manipulating or overstating comparables, market values, or property characteristics in order to obtain a higher appraisal.

Red Flags: Be skeptical of appraisals. Study the list comparable sales to make sure of similarities to the property and are not outside the neighborhood. The owner is not the seller listed on the contract or the title, or a third party participating in the transaction orders the appraisal. Also, the purchase agreement may have language that ties the sales price to a higher amount, upon receipt of the appraisal.

4. Illegal Property Flipping:

The Scam: This entails purchasing properties and reselling them at inflated prices. These scams usually involve faulty appraisals and inaccurate loan documents. Many times a very high transfer tax is placed on the Flipper's Grant Deed, which is totally accepted at the County Recorder's Office. The property is then refinanced or resold immediately after purchase for an inflated value. The home is purchased at a higher price, often by straw buyers working with the “flipper,” and eventually falls into foreclosure.

Red Flags: Some key things to look for are rapid refinancing of a property; the seller recently having acquired the title or acquiring the title concurrent with the transaction; an appraisal that comes in too high; a property that was recently in foreclosure being purchased at a much lower price than its sales price; or the owner listed on the appraisal and title not matching the seller on the sales contract, according to Fannie Mae.

5. Short Sales Schemes

The Scam: Borrowers fake financial hardship and no longer make their mortgage payments. Someone that the borrower knows submits a low offer to purchase the property in a short sale agreement. The lender agrees to the short sale, unaware that it was premeditated. The property, after being purchased at the reduced price, is then often resold at the home’s actual value for profit.

Red Flags: The borrower defaults on the mortgage without any attempted negociations or discussions with the lender. A quick offer is made and sent to the lender at a low short sale price. Also, another warning is cash back being offered at closing to the delinquent borrower. This could be for repairs or other payouts, which is not disclosed to the lender.

6. The Beneficiary and Borrower gets Scammed:

The scam: It's not just about homeowners getting scammed. Innocent individual lenders can be scammed as well. Does the name Paul Boileau ring a bell? Well, he was a loan servicer back in the 80's that basically over many years was given Power of Attorney to handle the investments for my hundreds of individual beneficiaries. Over time, the loan servicer discovers it could be very lucrative to commit fraud. By misappropriating funds in handling the mortgage payment from the borrower and passing along lies to many hundreds of individual beneficiaries. Here's an interesting portion of the Bankruptcy chapter 7, later chapter 11 proceeedings in which Bouleau attempts to use the bankruptcy court to retain many illegal assets.

This is really a great read about Boileau for the property attorneys.

Here's some more Loan Servicing companies names to remember. I know I left out so many, but here's a few:

Fairbanks Capital: In 2003-2004, many borrowers making payments have to file bankruptcy just to stop the fraudulent and direct action of the loan servicer. Basically, the loan servicer created fradulent defaults and foreclosure actions. Visit and review

Litton Loan Servicing: Handled unlawful foreclosures, holding payments, charging late fees, doubling impound charges. Visit and review

Laconia Loan Services: Internet Loan Scam. Borrowers send money to Spain, via Western Union or similar wire for loan fees, appraisal, and payoff of credit cards, upon the guarantee of being approved for a new loan. Visit and review

Ocwen Loan Servicing: This one has managed to survive the complaints and lawsuits from borrowers. I am uncertain of the current status and I will not comment further. Please check out Moody's Investor Guide for Ocwen financials at:

You can report instances of suspected mortgage fraud to

Southern Pacific Title Services is here to assist with any title information. If you or someone you know needs title information, be sure to give us a call, or visit our website for more information.

It's up to us to stop the scammers and protect our industry. Forward this to a relative or friend. Have them click on the website links above so they can be educated as well.

Thanks for your support and God Bless!

Lee Stegall
Southern Pacific Title Services
4655 Cass Street
Suite 204
San Diego, CA 92109
W: 858-246-7893
M: 619-669-8543

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