California Real Estate Fraud Report

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.

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 . . .

Bad news for those who commit real estate fraud and mortgage fraud in Ventura County: the Ventura County District Attorney’s Office has just received almost $1.7 million in federal stimulus money to fight real estate crimes.

As a result of this good use of taxpayers’ dollars, the D.A.’s office will add one prosecutor, two investigators and an assistant to its team assigned to fighting real estate fraud according to Ventura County District Attorney Greg Totten.

If you live in Ventura County and believe you are the victim of a real estate fraud, click here for the Ventura County District Attorney’s Office to find complaint forms.

Read the Full Article in the Ventura County Star. This article is also reprinted in Examiner.com by the L.A. Fraud Examiner.

Both the FBI and the U.S. Office of Inspector General for the Housing and Urban Department (HUD-OIG) are alerting senior citizens to be on the look-out for scams when they are acquiring reverse mortgages. Reverse mortgages began to gain popularity between 1999 and 2008, opening up a potential new “market” for purveyors of fraud.

Read the Full Article about the scams and how you can protect yourself and your loved ones.

Fireman’s Fund is the target of a $30 million lawsuit as a result of damages being claimed by 46 current and former employees in an investment fraud case that could exceed $200 million. It has also caught the attention of California Attorney General Edmund G. Brown, who is investigating it as a possible Ponzi scheme.

The basis for the lawsuit is that Fireman’s Fund encourage its employees to attend seminars put on by Gary T. Armitage and James Stanley Koenig. Firemen’s Fund, which was acquired by Allianz SE of Munich, Germany, began downsizing in the mid-1990s, and retained investment advisors such as Armitage and Koenig, to promote their products as part of the Fund’s push to get employees to retire early.

Attorney General Brown arrested both Armitage and Koenig last week and both remain in jail on $5 million bail. Koenig has a prior conviction for mail fraud and served more than two years in a federal prison.

Read the Full Article in the Contra Costa Times.

A loan agent and her friend have been charged by prosecutors in Stanislaus County with defrauding the friend’s elderly mother-in-law out of her home’s equity and thousands of dollars in annuities, resulting in her home being foreclosed. Between the two of them, Susan Faustino, 49, and Diolinda M. Machado, 50, are scheduled to be arraigned April 11 in Stanislaus County Superior Court facing a combined more than 40 charges, including grand theft, obtaining property under false pretenses, forgery and making false financial statements.

Using her mother-in-law Mary Machado’s home as collateral, Diolinda began taking out loans in January 2003 using her mother-in-law’s home as collateral; the loans were in Mary Machado’s name. The home had originally been paid off in 1996. Diolinda Machado refinanced the home three times between 2004 and 2006 and then obtained a reverse mortgage in April 2007. The prosecutor’s affidavit states that Mary Machado’s signature was on the original loan documents and were notarized by Susan Theresa Van Nieuwe, a name Faustino used. However, Faustino acted as the loan officer for one of the refinances and allowed Diolinda to falsely state her mother-in-law’s income  as $3,875.

Read the Full Article