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
