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| Builder Bailout Scam Make no mistake about it. Builder bailout is a fraud, and if you participate in such a scheme and if you are caught, you will go to jail. There is no other way of putting it. Creative financing is what practitioners of this fraud prefer to call it. It is complex and takes a team to pull it off. You have the builder. He has trouble selling all his houses, and he has already received all the funds he is obligated to get from the bank. Next you have the realtor, and then there is the loan originator or mortgage broker. The builder is selling the house for $200,000. The realtor brings a buyer and no downpayment is required. The builder inflates the price of the house to $240,000, then sends the buyer to his favorite loan orginator who does creative financing. The originator packages the deal showing a downpayment of $40,000. The lender likes the deal and approves the loan. The buyer gets his $200,000 mortgage. The builder sells the house and forgives the $40,000 downpayment which he told the bank he received. The realtor gets a commission on the sale. The loan originator is paid by the builder. And the buyer, after living in the house for 8 months defaults. The bank forecloses on the house and discovers the scam. They funded the deal 100%. The costs of the foreclosure could cost the bank about $45,000 plus they could lose an additional $20,000 if they have to sell at 90% of market value. Recall the house was $200,000. So in this make believe scenario, the bank took a hit for $65,000. There are warning signs around everywhere. However, when a banker sees a mortgage application with a sizable downpayment, common sense flies out the window. Red flags to look for.
Detecting mortgage fraud is difficult and many lenders do not have a department that specializes in fraud prevention. prev: next: Home: |
| Short Sale Scam With the housing crisis still limping along, scam artists are coming out of the woodwork. The short sale market is not exempt from scams. Mr. Con finds a house selling for $250,000. He locates a straw buyer and makes a deal. Mr. Con knows his way around the mortgage business so he gets 100% mortgage financing for Mr. Buyer, plus two or three thousand dollars extra to do some minor repairs. One or two months later Mr. Buyer stops making payments. By month three he declares that he can not afford the house and that a short sale will be the best solution for all parties involved. He demonstrates his serious intentions by finding a buyer, Mr. Con. The house is sold to Mr. Con in a short sale for $175,000. He makes a quick profit of $75,000 and moves on. This kind of operator usually works in several cities and is hard to catch. The lender agreed to the transaction and it could be several months before anyone from the lender's office realize what really happened. |
| House Flipping Scam Not all house flipping is a scam. There are many investors that buy houses, rehab the houses and resell at a good profit. There are four basic features when a flip fraud is involved.
The scam is very straight forward. The con artist buys a house say for $300,000, resells to accomplice number one for $400,000, who resells to accomplice number two for $500,000, who then resells to an unsuspecting buyer for $600,000. This is the "multiple investor" flip. In this example a profit of $300,000 is realized. The time frame could be two years, one year or even shorter. In some flips the scam stops at accomplice number two. If the group can not find a buyer at $600,000, the payments are stopped and the house goes into foreclosure. The profit is $200,000 and the bank is left holding the bag. Another variation of the scam sees the "investor" buy a house in a poor neighborhood, dirt cheap, replace some windows or put up some vinyl siding, then quickly resell to a first time home buyer. The selling price could be 5 or 6 times what was paid for the house. The "investor" would even pay the closing costs. There has been a lot written about mortgage fraud. We would recommend the feature in The Herald- Tribune, "The King of the Sarasota Flip". It tells the story of Craig Adams, a real estate agent and his team of flippers. The piece was co-authored by Michael Braga, Chris Davis and Matthew Doig. The results of these fraudulent transactions were $100 million in mortgage defaults, spanning 100 deals. prev: next: Home: |
| Related Articles ... How To Spot Foreclosure Rescue Scams How To Avoid Foreclosure Banks To Buy Back Bad Loans Good-Bank Bad-Bank Mortgage Tips To Save You Money Buying A Home |
| Mortgage Fraud - Definition The FBI defines mortgage fraud as "any material misstatement, misrepresentation, or omission relied upon by an underwriter or lender to fund, purchase or insure a loan." |
| Buy And Bail Scams Buy and bail occurs when a homeowner buys another house and abandons or walks away from second or third house, but if you intentionally neglect the mortgage obligation on the first house, there is a problem. It is mortgage fraud because the homeowner lied on the loan application when he applied for the mortgage on his old house. The lie was planned and executed. The homeowner looks for a new home to buy before defaulting on the old. He is fully aware that if he defaults and the old house goes into foreclosure, he would have to wait 5 to 7 years before he can get a mortgage. When he finds a house he makes an offer and once the offer is accepted he applies to the bank for financing. The bank knows that he has the old house, so they ask about the house. Can he still make the mortgage payments. He says yes. And he provides the loan officer with a signed rental agreement. The rental agreement is probably from a friend or relative. The bank crunches the numbers and all is fine, the mortgage loan is approved. After the homeowner gets the loan and moves into his new house he stops making payments on the old house. He defaults on the mortgage and the house goes into foreclosure. This doesn't bother the homeowner because he is in his new house. He knows that his credit is ruined because of the foreclosure, but there is nothing the bank can do about the new house. If the bank is short $60,000 after the foreclose house is sold, it can not add this amount onto his mortgage on the new house. The worse that could happen is that he would never get refinanced. The foreclosure would be on his record. The U.S. Department of Housing and Urban Development sees "buy and bail" as a major problem. In the Mortgage Letter 2008-25, dated September 19, 2008, Brian D. Montgomery, Assistant Secretary for Housing-Federal Housing Commissioner, outlined underwriting guidance to make sure that the homeowner will be able to make the payments on both mortgages. The rental income will be excluded in the analysis. This mandate is temporary while FHA further analyzes the situation. The FHA also recommends that the underwriters obtain evidence of the security deposit and evidence that the first month's rent was paid. The profile of a homeowner who buys and bails.
Many homeowners that engage in buy and bail frauds think that they have been wronged by the bank or by the realtor. And this is one way of getting even. prev: next: Home: |
| Beware Foreclosure Scams These are desperate times. To make things worse scam artists are coming out of the wood work to take whatever is left. Do not sign any document or pay any company an upfront fee. There will be promises to help you save your house. Don't believe it. Watch the above video. |
| Report Scams 877-FTC-HELP Here are real people with the problems of foreclosure scams. If you think you are being scammed call the Federal Trade Commission. Watch the above video. |
| Fighting Foreclosure Fraud The problem of fraud is understated and under-reported. Watch the above video. |
| All 50 States Must Attack Foreclosure Fraud As One The Attorneys General in 50 states have one objective in common. They all want to see a solution to the foreclosure mess. However, they do not want a quick fix or they do not want to be seen as divided in their quest. All 50 states working together will definitely give them some leverage over the banks. The investigation could lead to civil charges against the financial institutions. Whether any executives will be charged is another chapter in this book of tragedies. We will have to wait and see. Tom Miller, Iowa Attorney General, is the leader of the 50 state investigation. He is hoping to have the mess cleaned up in less than a year. This will bring much needed confidence back to the housing market. One fly in the ointment is the fact that 10 of the 12 members on the foreclosure executive committee are running for re-election or will be leaving office in November. Failure to get re-elected could stall the push for a settlement. Some of the members will be running for the governor's office. Arizona Attorney General Terry Goddard, California Attorney General Jerry Brown and New York Attorney General Andrew Cuomo, all Democrats, are in election races for governor Tuesday. Iowa hasn't been as hard-hit by foreclosures as Florida, Ohio and some other U.S. states that are involved in the investigation. Mr. Miller, an Iowa native who attended Harvard Law School, became the point man partly because he had tracked mortgage-industry practices for years. Iowa has used a hotline for foreclosed borrowers to monitor the difficulties borrowers encounter when they attempt to restructure mortgage terms. Since 2007, the Iowa attorney general has headed a multistate working group of state attorneys general and banking regulators who have pressed banks to rework troubled loans, without filing lawsuits against them. Tom Miller has done a great job as Iowa Attorney General, and was the obvious choice for point man in the foreclosure investigation. But Mr. Miller is in a close fight for re-election. Now we learn that Mr. Miller was given loans totalling $95,000 to help fund his campaign. The banks are loving this. Do I smell a compromise? |
| Congressman Alan Grayson On Foreclosure Fiasco There is one set of rules for the banks and another set for distressed homeowners. Watch the above video. |
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| Mortgage fraud continues to climb. The crooks are getting a slap on the wrist. Watch the slideshow |
