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IRS Doubles Fraud Effort

Guess who's going after the property flippers and crooked mortgage brokers?

None other than the Internal Revenue Service.

The number of real estate fraud investigations conducted by the IRS criminal unit has doubled in the past two years, according to the tax collection agency.

IRS agents initiated 215 investigations in fiscal year 2003 that resulted in 81 convictions. The average sentence handed down in these cases is 46 months in prison. Jail time also has doubled in the past two years.

"In recent years, the booming real estate market has helped increase mortgage fraud and other phony real estate-related schemes," the IRS said in a two-page report on its real estate fraud investigations.

Revenue agents are currently auditing 4,000 tax returns of individuals and entities associated with the real estate business.

The agents are looking for property flipping where the buyer pays a low price for a property and quickly sells it at a much higher price. It's not illegal to make a quick buck. But it is illegal when individuals make false statements to the lender.

Another common scheme involves transactions where there are two sets of settlement sheets. One sheet is provided to the seller, which accurately reflects the selling price. "A second fraudulent sheet is given to the lender showing a highly inflated purported selling price. The lender provides a loan in excess of the property value, and after the loans are settled, the proceeds are divided among the conspirators," the IRS said.

IRS investigators also get involved in cases where real estate agents fabricate the employment and credit records of unqualified homebuyers.

Last spring, the IRS succeeded in putting mortgage broker Paul A. Dailey behind bars for a property-flipping scheme that used straw buyers to bilk lenders out of $8 million.

As the owner of Platinum Mortgage Brokerage Firm of Indianapolis, Dailey and his conspirators made more than 100 mortgages with grossly inflated appraisals.

When lenders stopped funding Platinum's loans, Dailey moved to Detroit and opened Monumental Mortgage to continue his scheme.

Dailey pleaded guilty to conspiracy to commit mail fraud and money laundering. He was sentenced to 105 months in prison and ordered to pay $3.7 million in restitution. The investigation also resulted in the conviction of 13 other conspirators.

"Through federal tax fraud investigations and money-laundering charges, the IRS is playing a key role in the fight against real estate fraud," the IRS said.

Copyright 2004 Thomson Media Inc. All Rights Reserved. http://www.thomsonmedia.com http://www.mortgageservicingnews.com

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