California Real Estate Fraud Report

Merced County District Attorney Larry Morse has been running a real estate fraud unit since 2009. They are also working with a joint team comprised of real estate fraud investigators from federal, state and local investigators that was also created in 2009 by the FBI to combat fraud in the Central Valley. Fraud cases that span multiple counties are prosecuted by the U.S. Attorney’s Office; those that are restricted to Merced County are prosecuted by Morse’s office.

DA Morse notes that “While our local economy wrestles with the financial fallout from a real estate depression and thousands of homeowners are wracked with worry about losing everything, others have seized on an opportunity. Those of us in law enforcement know all too well that in every tragedy there are criminal profiteers that will seek to exploit the misery of others.”

Merced, like the rest of the country, is battling crimes from the real estate fall-out ranging from vandalism, squatting, tagging and metal stripping/theft as well as ongoing loan modification fraud and scams.

Read the full article in the Merced Sun Star.

The Federal Financial Institutions Examination Council, aka FFIEC, is a federal interagency organization which is “empowered to prescribe uniform principles, standards, and report forms for the federal examination of financial institutions by the Board of Governors of the Federal Reserve System (FRB), the Federal Deposit Insurance Corporation (FDIC), the National Credit Union Administration (NCUA), the Office of the Comptroller of the Currency (OCC), and the Office of Thrift Supervision (OTS) and to make recommendations to promote uniformity in the supervision of financial institutions.”

The FFIEC has just updated its white paper on mortgage fraud and deterrence. Important topics for consumers and financial professions are its chapters on reverse mortgage fraud (a new addition), as well as property flipping fraud, short sale fraud, loan modification fraud and other schemes.

Read the FFIEC white paper on The Detection and Deterrence of Mortgage Fraud against Financial Institutions. There is also a link to the white paper on the blogroll to the right of this column.

To learn more about the FFIEC, click here.

The Orange County District Attorney’s Office reports that real estate losses reported to its special real estate fraud unit amount to $100 million, with over 1,000 victims. The unit, formed only last year, has had 346 referrals to it for mortgage fraud (and presumably, loan modification scams) and real estate fraud both from victims and real estate professionals.

The numbers so far:

Referrals to the DA of suspected real estate fraud: 346 +

Referrals from county Clerk-Recorder: 16

Investigations received from law enforcement agencies: 17

Filed criminal cases: 29

Cases rejected for filing: 30

Cases referred to other state or federal agencies: 12

Convictions: 14

Real estate crimes by white-collar criminals show no sign of abating. Please get multiple, independent references before giving your money to someone you do not know.

Read the full article in the Orange County Register, aka OC Register.

With the spotlight now shining brightly on crimes such as loan modification scams and mortgage modification fraud, the California Department of Real Estate (DRE) is taking action.

As of this writing, more than 775 licenses have either been revoked by the DRE or the licensees surrendered their licenses in the face of investigations. DRE Commissioner Jeff Davi notes that consumers who don’t check to see if their loan officer is licensed (just go to www.dre.ca.gov and do a license check) have less of a chance of receiving any restitution for loan modification fraud, since the criminal is unlikely to be carrying errors and omissions insurance.

Here are some quick statistics: in 2009, 672 licenses were revoked (up 50%) and 105 licenses were surrendered (up 80%). Over 180 Desist-and-Refrain order were issued by the DRE to almost 400 individuals or firms engaged in the loan modification business and they initiated over 2,000 investigations.

Read the Full Article in the Real Estate Channel and the message by Commissioner Jeff Davi on the DRE’s website. Also on the DRE’s website is a list of companies and individuals against which action has been taken.

Kahram Zamani, a licensed real estate broker and president of Infinity Group Services, was arraigned on January 28 for defrauding 165 distressed homeowners out of $177,000 by illegally charging them upfront fees to modify their home loans. Zamani is charged with 165 counts of grand theft with additional sentencing possible for aggravated white collar crime and could face up to 113 years in prison if he is convicted. The period for which he is charged was February 2008 through December 2009.

Zamani found his clients-victims by running radio ads to find homeowners in distress. In a ploy to convince homeowners his company had something to do with the Bush Administration’s “hope to Homeowners” program, Infinity Group Services was previously called “Hope to Homeowners”. Distressed homeowners were made false promises that Infinity Group Services could obtain loan modifications or even loan forgiveness for a fee of $995, paid upfront.

The investigation was a result of a collaboration between the Orange County District Attorney’s Office, the California Department of Real Estate (DRE) and the Federal Trade Commission (FTC). Although both the FTC and the DRE have filed actions against Zamani, the DRE’s website shows no action regarding Zamani’s real estate license as of today.

Zamani and Infinity Group Services have also been profiled in RipOffReport.

Read more at the website for the Orange County District Attorney’s Office.

Consumers: remember that upfront or advance fees for loan modification services are illegal in California.

In yet another case of ethnic-based crime, a former felon and two real esate brokers have been indicted and charged with 54 felony counts that include foreclosure consultant fraud, grand theft and securities fraud. The crimes were exposed in March 2009 by the San Diego Tribune.

Prosecutors from the San Diego District Attorney’s Office charge that Edmundo Rubi operated a  scheme while he was in prison, opening a bank account under Amerisian Trust. He, Joseph Encarnacion, and co-defendants Benjamin Hebron and Gloria Hebron set themselves up as consultants, using a sales pitch on their now-closed website that encouraged “American and Asian brothers and sisters” to “let your estate work for you”. Many of the victims were Filipinos struggling to pay their mortgages after the interest rates accelerated but none of them obtained loan modifications as a result of their working with the defendants.

It is illegal in California to charge upfront fees for loan modification consulting. Read here to be linked to the California Attorney General’s Office.

Read the Full Article in the San Diego Union Tribune.

Having the inglorious reputation for recording some of the highest foreclosures rates in the country is not the kind of honor that California welcomes. But on October 11, 2009 that all changed when Governor Schwarzenegger signed several new laws into effect with the purpose of clamping down on real estate fraud and especially mortgage fraud.

Note: SB - Senate Bill          AB - Assembly Bill

#1 SB 239 - mortgage fraud committed by mortgage brokers or even direct lender loan officers used to be . . . yawn . . . de rigeur in some circles. In the Golden Days of just a few years ago, Washington Mutual, aka WaMu, drank its own Kool-aid by pressuring independent home appraisers to pump up home valuations so that the bank could make more on loan origination fees and give more bonuses to its fat cats. Ever hear of any of those loan officers or fat cats being criminally prosecuted? That’s about to change with this new law, which punishes mortgage fraud with hard jail time. Borrowers: be on the look-out for an insert in your loan package that states the FBI investigates cases of suspected mortgage fraud.

#2 SB 94 - it’s about time the government jumped into the latest rainmaker: loan modifications. If you’re thinking of getting one, ask the person doing the loan modification for you what they did before. Many of these people once wrote subprime loans, meaning they were part of the original problem. Do you trust those same scoundrels to help you with your loan modification? Many victims of loan modification fraud found out that after they scraped together the several thousand dollars demanded by “mortgage rescue” firms, that the firms did little or nothing to help the borrower. This new bill forbids loan modification firms and attorneys from charging upfront fees. Some attorneys have made the career-ending mistake of renting out their licenses to these firms in exchange for a piece of the action. Many are now being investigated for misconduct and a few have either relinquished their licenses; others could have their licenses either suspended or even revoked. Under the new law, loan modification firms must also disclose to borrowers that they can receive the same or similar assistance from government-sponsored consumer counseling services.

#3 AB 260 - this new laws bans negative amortization loans. A not insignificant number of homeowners have gotten boiled in hot water by neg-am loans, which on their monthly mortgage statement gave borrowers the “option” (check this box to commit financial suicide) to pay less than a fully-amortized loan. The difference, of course, is added to the principle balance so that the borrower’s mortgage actually increased every month. The other part of this law requires loan offers to consider the borrower’s finances before setting high loan origination fees that are charged to originate the loan. What a novel concept: requiring loan officers to have a fiduciary duty to their borrowers.

#4 AB 329 - after the development of the reverse mortgage industry quickly came its dark cousin: reverse mortgage fraud. This new law mandates that lenders advise borrowers in writing to seek financial counseling before they sign a reverse mortgage contract. And the lender must state, again in writing, if the lender has an interest in the mortgage counseling service to which they refer the borrower.

#5 AB 957 - this new law prohibits a seller who purchases a property at a foreclosure sale, or the foreclosing bank that has regained title, from requiring that the new buyer of the property purchase escrow services and title insurance from firms chosen by the seller. Banks with REO properties often get volume discounts from providers of these services, which is why they have insisted on using their own services. The way banks are now getting around this is to allow the buyer to chose their own title and escrow - but the buyer has to pay for the services, which normally the seller picks up.

#5 SB 407 - this law requires the plumbing fixtures in property transfers to meet minium water conservation standards before the property transfers to the new owner. The City of Los Angeles already requires low-flow shower heads and toilets to be installed in the effort to preserve water. This new law is so important that it doesn’t go into effect for four (4) years . . .

In a story oft-repeated in the California Real Estate Fraud Report, a Pico Rivera-area firm is being investigated for loan modification fraud after targeting distressed homeowners for home modification loans and requiring upfront consulting fees.

Your Dreams Come True Inc., also known as Safe Haven and Proteccion Familiar, is being investigated for both rental fraud and home modification fraud. One of its employees, Frank Candelaria, 47, was arrested for theft when he allegedly took an advance fee. His boss, executive Director Alex Jurado, claims that Safe Haven is understaffed, which was why it was behind working on customers’ loan modifications.

To show how much of a problem home loan modification is, in 2007, the California State Attorney General’s Office took 27 complaints against real estate agents and brokers, loan modifications firms, foreclosure consultants and attorneys who had jumped into the easy-money loan modification business. So far in 2009, there are over 2,000 complaints.

To put a stop to loan modification fraud, the Attorney General’s office has required all foreclosure consultants to register with its office and post a $100,000 bond since last July 1. According to a spokesman for the Attorney General’s Office, few of the loan modification firms have posted the bond. And attorneys, who have either started doing loan modifications themselves or renting out their names to foreclosure consultants, are now the target of complaints - up to 250 of them currently. At least four of them have resigned from the Bar after facing disciplinary hearings: Mitchell Roth, Christian Dillon, Nabile Anz and Cameron Edwards.

Read the Full Article in the Whittier Daily News. This article has also been posted to Examiner.com by the L.A. Fraud Examiner.

Speaking at a foreclosure prevention workshop last week, Orange County District Attorney Tony Rackauckas and Assistant District Attorney Elizabeth Henderson, made it clear that their latest mission is to crack-down on real estate fraud.

Once the epicenter of of the subprime industry, Orange County is suffering record foreclosures like most regions of California. Says Henderson, “The only thing worse is being the epicenter of an earthquake”. She said that real estate fraud cases comprise 30% of the D.A.’s major fraud unit investigations, up from 10% before the collapse of the mortgage industry. The D.A. has two prosecutors and a paralegal devoted to real estate fraud now, and Henderson said bluntly “We want to send people to jail”.

Henderson and Rackauckas are also intensely focused on mortgage foreclosure rescue scams, aka loan modification scams. They have been co-participants in the investigations by Attorney General Edmund G. Brown’s office that have resulted in numerous arrests and  shut-downs of such businesses (see previous articles on the California Real Estate Fraud Report) and are warning scammers that they will even look to prosecute the smaller players that are scamming desperate homeowners.  Many of these people not only lose the $2,000 - $3,500 they pay the foreclosure rescue firms, they lose their house because these firms do little or nothing to keep the homeowner’s firm out of foreclosure.

Read the Full Article in the Orange County Register by Mathew Padilla.

Keeping his promise to deal harshly with those who operate loan modification scams, California Attorney General Edmund G. Brown announced that his office is taking legal action against 21 individuals and 14 companies who have victimized desperate homeowners who sought their existence.

If successful, Brown’s legal action will result in millions of dollars in civil penalties against the defendants, restitution to the victims, and permanent injunctions to prevent the defendants from returning to the mortgage “rescue” business.

Read the Full Article on the California Office of the Attorney General website or Examiner.com.