California Real Estate Fraud Report

Kyle Grasso, a central figure in the Beverly Hills real estate fraud and mortgage fraud conspiracy that captured headlines and temporarily resulted in his enrichment at the expense of Westside property owners as well as contributing to the fall of Lehman Brothers Bank, received a sentence of only a year and a day in jail. Grasso was also ordered to repay a portion of the $13 million restitution that was determined to be the losses for the crimes he and his co-conspirators committed. Grasso was convicted of conspiracy, bank fraud, loan fraud and money laundering.

U.S. District Judge Dean D. Pregerson imposed the sentence. Inexplicable to me is how Judge Pregerson could refer to the sentencing as “difficult” because “Mr. Grasso is fundamentally a decent person. Sometimes people make stupid decisions.” Yes, Judge, but fundamentally decent persons don’t conspire to steal $13 million. It is only logical to assume that Grasso and his mortgage fraud gang would have stolen more if they hadn’t gotten caught.

No wonder there is so much real estate fraud and mortgage fraud: judges feel badly about sentencing criminals but not for the havoc their crimes wreaked on the local real estate market.

** Now for a truly macabre twist: Syd Leibovitch, owner of Los Angeles-based Rodeo Realty, sent out an announcement to Realtors two days ago that he has hired Joseph Babajian, the former partner and real estate agent who was also charged in the Beverly Hills mortgage fraud but was the only one who was acquitted of the approximately dozen charged. Why anyone would want to brag about hiring Babajian or even think it is a good idea has many of us who have remained scandal-free scratching our heads.

Read the full article on CBS News.

Talk about dancing on somebody’s grave or fiddling while Rome burns.

Americans are sick to death of reading news articles about banking executives who are still receiving huge bonuses after running their businesses into the ground and being bailed-out by taxpayers. That’s why it was nice to finally read an article about boorish, callous behavior by a highly-paid banker that was dealt with swiftly, correctly and without excuse by one of the largest banks in the U.S.

The story was about how now-former Wells Fargo Senior Vice-President Cheronda Guyton drank her own poison, embarrassed her employer and outraged a neighborhood. Ms. Guyton’s profile on LinkedIn as of September 14 self-describes her as being the “Head of Commercial ORE” - commercial foreclosed properties at Wells Fargo. This is how she apparently gained access to the property, which the former owners lost as a result of having invested heavily with Ponzi-king and master swindler Bernard Madoff.

According to a story published in the Los Angeles Times‘ Business Section on September 12, Guyton used her position at Wells Fargo to help herself to the spoils of war - a $12 million Malibu Colony beachfront home. She apparently spent time there with her family this summer, perhaps even lived there, and threw lavish parties, by accounts given by the neighbors.

Before going further, this author acknowledges that she has a business relationship with Wells Fargo’s residential REO division, Premiere Asset Services (PAS) and that she is one of their active REO agents. That said, this author is also aware that Wells Fargo is quick to fire any REO agent they feel has engaged in unethical or questionable conduct in the selling of its properties.

It’s refreshing to read that one of the largest banking institutions in this country has the same rules for its executives as for its line-level employees, vendors and Realtors. Although at least one Realtor interviewed for the L.A. Times article thought it was fine for Wells Fargo to use the foreclosed property as it wanted, he misses the point, which is that perception is important too. The perception in this case is that Wells Fargo, in the guise of its employee Cheronda Guyton, couldn’t care less about people who have lost their homes - let’s dance on their graves, as it were.

For once, this author is happy to report in the California Real Estate Fraud Report that a big bank did the right thing without hesitation: it didn’t make excuses, didn’t cover-up the story and didn’t give Ms. Guyton a promotion and a bonus. She got exactly what she earned for her behavior - a well-deserved termination. Perhaps with some of her free time, she can review her MBA courses at USC for a lesson in ethics.

This editorial is also published in Examiner.com under the L.A. Fraud Examiner.

In an article published today on its website, the Association of Certified Fraud Examiners’ chairman questions what the best way to prevent fraud is, and whether our society can do more to prevent fraud than it is doing currently.

Joseph T. Wells is a former FBI agent and CPA who specialized in fraud cases before he founded the Association of Fraud Examiners (ACFE) and developed the rigorous training program that can result in professionals earning the CFE - Certified Fraud Examiner certification.

Published on the ACFE’s website today, Wells’ article first reviews how Bernard Madoff created the largest Ponzi scheme ever recorded, then describes the mathematical impossibility of Madoff’s scheme and that it was bound to unravel. All Ponzi schemes depend on earlier groups of investors being paid off by later, larger groups. Eventually it becomes exhausting for the person operating the Ponzi scheme to keep the fraud going; we all know the rest.

All that being the case, what is most surprising is that ten years ago, a CFE named Harry Markopolos, hired by a Madoff rival to reverse-engineer Madoff’s successful strategy, determined that Madoff was most likely operating a Ponzi scheme, yet Markopolos’ verbal and written reports to authorities such as the SEC (Securities and Exchange Commission) were rebuffed. All those early investors were laughing all the way to the bank and future wannabe investors plus Madoff’s many friends in the federal government, had their collective ears and eyes wide shut.

Joseph Wells argues that in addition to the prison sentence handed out to Bernard Madoff, Madoff also should be required to educate consumers from the confines of his prison cell about how he conceived and carried out his Ponzi scheme for so long. This, argues Wells, is one of the best ways to prevent fraud: by educating and deterring.

But in the case of Bernard Madoff, it is not clear whether the public being educated would have had much, if any, impact or a deterrence effect upon Madoff. As noted, Madoff never advertised his services or successes, so there was essentially a wall of ignorance separating each investor group from the other. It was this inability to see the forest through the trees, as well as most investors trusting their investment managers to have knowledge of the true abilities of the world’s Madoffs, that allowed Madoff to operate freely and without concern of being detected for so long.

Click here to read the editorial by Joseph Wells on the ACFE website.

Here’s a scheme that has sprouted from the increase in bank-owned, aka REO (real estate owned) market. It should outrage every honest, hard-working person who plays by the rules and doesn’t want to subsidize those who don’t.

Read my article on my channel as the L.A. Fraud Examiner on Examiner.com

That’s strong language. Unfortunately, many real estate agents and their buyers, after being shut out of numerous purchases of homes, are concluding just that.

In a conventional sale of a residential property (but this applies to commercial and industrial too), the buyer’s agent, also known as the “selling agent”, presents a written offer to purchase to the listing agent. The listing agent then presents that offer to the seller(s), who can accept the offer, make a counter-offer, or reject the offer outright.

Conventional sales are a rare beast these days, replaced in disproprtionate quantities by short sales and REOs, both of which present opportunities for less-than-ethical behavior by some listing agents, along with their sellers. In some neighborhoods in the San Fernando Valley, I’ve calculated that 93% of the properties currently listed, are foreclosure properties, either short sales, or REOs.

In contrast to the above description of a conventional sale, both the short sale and REO (Real Estate Owned, bank-owned properties) involve negotiation with a bank, lender or servicing firm that represents an investment bank, e.g., Deutsche Bank. Under such circumstances, neither the buyer nor his/her agent has the ability to meet the seller/bank. They therefore have no assurance that their offer was actually transmitted to the lending institution for consideration.

Why, do you ask, wouldn’t the listing agent transmit all offers - especially when there is multiple bidding for a property - to the seller/bank? There is only one reason: the listing agent has his/her own buyer and wants to “double pop”, or collect both commissions. If the listing agent’s own buyer does not have the highest offer, s/he moves their buyer to the top of the pile by not transmitting all the offers. The bank doesn’t know, and the other buyers and their agents don’t know either. They’re just told their own offer was rejectd. Only after escrow closes, when they see that the selling (buyer’s) agent was also the listing agent, and the sale price was lower, do they realize what happened.

What next? What can buyers who have been defrauded out of a purchase do? Very little, for the most part. Most banks hide their asset management (REO) and short sale departments because they don’t want contact with the public. Even their fraud departments show little interest in following up on complaints by jilted buyers or their agents. And the listing agent, who was the doorkeeper to the entire transaction, certainly won’t confess to his/her tactic.

For another story on buyer frustration with short sales, see this in the San Bernardino County Sun. There is a brief paragraph with me at the end of the article. The newspapers’ editors apparently didn’t want to touch the topic of real estate fraud.

Any Californian who does not want to see more mortgage fraud in the state of California needs to write, email or call their state legislators to vote against two bills our legislature is considering. Click here to find out who your representatives are.

Senate Bill 461 (introduced by Senator Lou Correa / Santa Ana ) and Assembly Bill 442 (introduced by Assembly Member Juan Arambula / Fresno County) both seek to amend the California Civil Code Section 1185 by requiring Notaries Public to accept the Matricula Concular card of Mexico as legal proof of a signer’s identity.

Never mind that the FBI has referred to the Matricula Consular card as “unreliable due to the non-existence of any means of verifying the true identity of the card holder” - our two legislators are more interested in establishing new “rights” for foreign nationals than they are in protecting the rights of California citizens and legal residents against mortgage fraud.

According to the California-based National Notary Association, which vigorously opposes the proposed legislation because it mandates that Notaries accept a document that both the U.S. Department of Justice and the FBI consider untrustworthy:

“Allowing acceptance of the Matricula Consular will compromise the safety and security of California consumers and undermine the credibility of the state’s Notaries Public.”

Timothy S. Reiniger, Executive Director of the National Notary Association further adds:

“In this era of rampant document fraud and identity theft, requirements for establishing proof of identification should be tightened rather than compromised. Senate Bill 461 and Assembly Bill 442 will not accomplish this, and more importantly, will undermine our state’s efforts and recent successes in fighting mortgage fraud.”

and

“The enactment of the legislation requires Notaries to recognize a card of proven unreliability, weakening the California notarial system that protects the public from forged real property deeds and other important documentary transactions and identity crimes. Notaries in this state must not be forced to accept a card that the U.S. Department of Justice and the Federal Bureau of Investigation declare is not a trustworthy identifier.”

Here is what the U.S. Department of Justice and the FBI say about the Matricular Consular card issued by the government of Mexico:

1. The government of Mexico does not have a centralized database to coordinate the issuance of consular ID cards. So multiple cards can be issued under the same name, the same address, or with the same photograph.

2. The government of Mexico issues the card to anyone who can produce a Mexican birth certificate and one other form of identity. Mexican birth certificates have been listed as a large part of the fraudulent foreign document trade and they are easy to forge.

3. If an individual applying for a Matricula Consular cannot produce the above documents, he or she can still be issued a Matricula Consular card by the Mexican consular official if a questionnaire is completed and the individual satisfies the official that the person of his/her identity. [Note: I feel safe already]

4. 90 percent of the estimated 2 million Mexican Matricular Consular cards in circulation are merely laminated cards with no security features.

This legislation could result in more: identity theft, escrow fraud, title fraud, mortgage fraud, loan fraud, real estate fraud - all because real estate transactions rely upon the authenticity of documents attesting to the identity of the individuals who are signing those documents.

Read the Original Article on Virtualization

Now that the ferocious and inevitable finger-pointing has begun as to who is to blame for the $700 billion corporate welfare bail-out, it’s time for those with cool heads and common sense to review the simple laws of nature in business - who controls the purse strings - to see how predictable the mortgage crisis was.

Fact: as home prices kept rising and banks and other lenders had lent to everyone who was credit-worthy, the quest began to write loans to anybody with a verifiable pulse. Centuries of underwriting standards were thrown out in the race to write loans. Hence the birth of the NINJA loan: No Income No Jobs or Assets.

Fact: borrower stupidity (and investor greed) aside, it was and still is the lending institution that decides whether the loan should be written or not. These decisions directly led to, and are therefore responsible for, the massive real estate fraud, mortgage fraud, appraisal fraud and other real estate crime such as foreclosure fraud that occurred and are which now occurring in new forms to take advantage of both real estate market chaos and the lack of sufficient law enforcement capabilities to respond.

Fact: Former Fed Chairman Alan Greenspan lied when he stated that he had no idea that large-scale defaults and price re-setting to numbers roughly equivalent to the days leading up to the lending splurge. So did Secretary of the Treasury Henry Paulson of Goldman Sachs. They both knew this was a great opportunity to make a lot of money for their industry, they knew the inevitable fall-out, and they knew that Congress - which had eagerly accepted industry largess for their own campaign coffers - would ride to the rescue with the taxpayer skewered at the end of its lance.

Fact: Congress willingly put no conditions on the bail-out: not on golden parachutes, not on year-end bonuses - some amounting to $600,000 EACH to managers and executives in “failed” lending institutions receiving bail-out money, not on corporate pork. Both political parties are as guilty as Greenspan and the Fed, Paulson and his Treasury (it’s apparently not yours and mine) and the lenders, who have not let up a bit on rewarding themselves for a combination of incompetence and fraud. See the many articles below on WaMu / Washington Mutual in the California Real Estate Fraud Report.

Fact: did you - or Congress - ever ask how Henry Paulson came up with the $700 billion figure for the bail-out? As opposed to $600 billion or $800 billion? This is just the start - there will be more bail-out money demanded by continuing to manipulate public fear and the markets.

Fact: this further leap into enormous deficit spending by the federal government is inevitably leading to the bankruptcy and selling off of the United States. Treasury bills and bonds are being sold to foreign interests because America has not lived within its means and there are few American takers for those financial instruments. Bulk sales of banks’ REOs are also finding primarily foreign purchasers as investors’ confidence in the dollar’s value continues to erode. Don’t be surprised if the next “tsunami” is uncontrolled inflation.

This is the biggest con of the 21st century.

For an excellent write-up on the man-made mortgage crisis, read this article by real estate broker Madeline Zook.

Finally, somebody with common sense is speaking and acting.

Rewarding executives for exceptional performance has been replaced with shoveling obscene amounts of cash into their bank accounts no matter how poorly their companies performed under their leadership. Angelo Mozilo of Countrywide Home Loans is a perfect example of someone who has been overly rewarded for greedy and inept management at the costs of thousands of homes and jobs.

News that former CEOs Daniel Mudd (Fannie Mae) and Richard Syron (Freddie Mac) would be receiving multi-millions of dollars for guiding the financial giants has been greeted with outrage by taxpayers.

On September 14, the conservator appointed to administer the affairs of Freddie and Fannie Mae press release summarizing the FHFA’s (Federal Housing and Finance Authority) decision that “‘golden parachute‘ payments contemplated under (the executive’s) contracts would not be paid. The Agency, serving as conservator, determined that under applicable statute and regulation, the Enterprises should not make such payments to these individuals and directed the Enterprises accordingly.”

Read the Full Article in Mortgage News Daily.

Note: the letter is in response to the December 31, 2007 article in the Los Angeles Times regarding the Beverly Hills real estate fraud ring. See the abstract of that article in my blog below.

Victims or accomplices? Re: “How a bank fell victim to loan fraud,” Dec. 31.

This fraud would not have been possible had Lehman Bros. Bank observed proper checks and balances and hired its own appraisers before funding loans for the properties. According to the article, Lehman Bros. also was contacted by two local real estate agents reporting questionable valuations of area homes, yet it chose to ignore the concerns raised.

Ditto for the straw buyer, Kathy Moore of Utah. She sold the use of her identity and credit to help make one of the deals happen; she was no more a victim than Lehman Bros. and was just as greedy as the other players.

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