Any mortgage fraud that is being reported today might not get dealt with until at least two years from now because federal agents are still dealing with cases from 2005 through 2008, a pair of Federal Bureau of Investigation agents told attendees at the Northeast Conference of Mortgage Brokers here.
Approximately 60% to 70% of all foreclosures include cases of mortgage fraud. “Things that are going into foreclosure now that we will have to deal with down the road,” said Michael Costanzi, supervisory senior resident agent in the FBI’s Atlantic City office.
The largest concentration of fraud in New Jersey is in the Wildwoods area of South Jersey, especially with new condominiums.
Title agents are one area of concern for the FBI, Costanzi and special agent Derek Altieri noted. While the northern part of New Jersey uses lawyers to close loans, in the southern part, title agents are used.
Many of them are not highly paid and they also are undertrained. AltIeri noted that usually the title clerk is a co-conspirator in the fraud scheme. Also, some title company owners believe their license covers all employees in the company, which is not true.
In one case, where the clerk admitted to participating in a $1.5 million fraud involving seven properties, the clerk received just $10,000. For that, the clerk is getting seven years in a federal penitentiary, and will have to serve almost all of that time because there is no early release for good behavior.
Costanzi added that at some of the fraudulent closings, there have been as few as two people present.
Altieri said the title clerks are supposed to be the eyes and ears of the lender bank. However, if the banks did their due diligence on these transactions, they should have seen the red flags.
One participant in a fraud scheme, who was just 18, was recruited by her pastor, who promised to buy her a new car.
In another case, the participant told the agents that because the bank and title agent signed off on the transaction, nothing was wrong.
Appraisal fraud is more difficult to spot, the agents said, because an appraisal is an opinion of value. But those appraisers who commit fraud lie in their report about the condition of the property, they fudge the value of the property or they use improper comps.
As part of his presentation, Costanzi showed handwritten notes agents seized during the course of some investigations. In a couple of the cases, the notes called on the money to be wired to a foreign country and then sent back to the U.S.
Another note had as one of the scheme’s objective for the participants to stay out of jail.
Due diligence is a must in preventing fraud, he said, asking rhetorically whose responsibility is it to make sure the HUD-1 is legit?
