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Fraudsters nationwide continue to try to deceive lenders to purchase homes and close sales on co-ops. Image: Fotolia
Fraudsters nationwide continue to try to deceive lenders to purchase homes and close sales on co-ops. Image: Fotolia

Fraud Rearing Its Ugly Head Again

MAR 14, 2013 3:05pm ET
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WE’RE HEARING about fraud again all over the USA. Actual indicted fraud in Las Vegas, alleged (but not indicted) mortgage fraud involving coop boards in Metro New York and Long Island and an attempt to avoid fraud altogether in good old North Dakota.

Last week a federal grand jury in Las Vegas indicted three people (a Mr. & Mrs. Phelps and one Ms. Mack) in an alleged $83 million mortgage fraud scheme. According to the eight-count indictment between 2003 and 2006, the defendants had used straw buyers to purchase over 200 homes at an inflated value and had provided false information on mortgage loan applications. Lenders lost over $30 million when the loans went into default and the properties were foreclosed.

As a reminder that crime does not pay each defendant faces 30 years in prison and a $1 million fine on each of the eight counts in the indictment. As a bonus prosecutors are also seeking $83 million in a forfeiture judgment against the defendants. Finally, if convicted, these folks will probably not be able to refi their own mortgage loan to a lower rate for a while.

In Metro New York and on Long Island where I lived for 40 years, there has been some attorney chatter that certain co-op boards are up to hanky panky in an effort to inflate the value of their units. A few co-op buyer attorneys have described the same situation involving several different co-op units. A contact of sale is received at an inflated price with a fictitious repair credit buried in the terms of the contract. Supposedly this attempt to increase the value of an individual unit is coming from individual co-op boards.

Typically the persons on the co-op board are owners within the co-op. What better way to recoup your losses on your own co-op unit than making them disappear on paper? Supposedly some buyers have been told that this fictitious credit is the only way that the co-op board will approve the sale of the unit. This scam will probably not get too far. Most attorneys will point out to their buyer clients that it is fraud. Also the lender will hopefully pick it up when they review the contract even though it may be buried on page 13 in paragraph 113.

Finally we turn to North Dakota. In case you have not heard there is an oil boom there. This state has the lowest unemployment rate. They cannot build fast enough out there to accommodate all the new people moving in. Even my hematologist moved there from the University of Michigan hospital. I told him it is even colder there than here in Michigan but he did not listen to me.

Anyway North Dakota enacted a law known as the “good funds statute” to accommodate real estate closings. The law was also probably enacted to deal with “bad funds” such as bounced checks and monopoly (counterfeit cash) money that some outsiders were bringing in. I actually watched a YouTube video a settlement agent and title company put together explaining the new law. Essentially even if you have a cashier’s check you need to deposit it with the title company three days prior to closing. These folks prefer collected funds from you before they write their own checks. Got cash? Well they might take it but only up to $3,000.

Based in Chelsea, Mich., John McDermott is a real estate and elder care attorney who represents both consumers and businesses. He can be emailed at jamcd@comcast.net.

Comments (4)
Where have you been? This hasn't stopped. Now private Hedge Funds that bought the fraudulent loans from the banks , are trying to foreclose with faulty documents , worst part is the courts are allowing it and their hitting the states , that had very little involvement .. like VT. Uneducated Judges and court systems in ways that securities worked are being preyed on now. Mers that was hidden, unsigned land records.. Fraud doesn't go away no matter how deep you try to bury it.
Posted by Deborah l | Friday, March 15 2013 at 8:18AM ET
Tony is right, fraud does not go away just because there is legislation against it. Only your momma (or papa) can fix that. If you are not trained at an early age to be honest, the government will not be able to do it.
Posted by | Friday, March 15 2013 at 11:55AM ET
Why don't we hear more about the fraud committed by TBTF recipients of public largess, namely... the f**kers that tanked our economy by selling private investors and GSE's interest in MBS trusts that were neither: a)properly registered and b) held any assets. Public records would easily reveal the chain of custody of the security instrument(s) right? Get real.
What prudent lender does not know "EXACTLY" what their collateral is worth?
Posted by | Monday, March 18 2013 at 5:17PM ET
Since when have laws against fraud ever prevented it? As long as our regulators rely on SARS from inside the industry, the entire reality of consumer fraud and it's affects will never become an issue. That is why it is business as usual with criminals and their insider assistants. There is not a single regulation that protects and assists the actual victims of fraud for money. There isn't one agency that the consumer can find useful legal help if they have questions about the documents in their hands and that which is recorded or NOT. If there was ever an interest in stabilizing the industry and regaining consumer confidence, that time has long passed as homeowners watch frauds that they themselves are experiencing go unpunished at the least. When the voices of homeowners are finally respected as more than golden goose honkings and rules continue to be written to injure them further, I personally think the entire market should crash and burn. Nobody will admit that I am correct in this rational but after all this time and money spent, we are discussing what exactly has recovered?
Posted by | Saturday, April 06 2013 at 3:10PM ET
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