Celia Watson Seupel, Special to CNBC |
“When real estate agent John Lebron opened EZ Investments in Tampa, Fla., he may have already been planning fraud.
His very first EZ Investments transaction involved selling a distressed property to his sister, then to his brother-in-law, the kind of “non-arms-length” flopping that tips authorities to collusion. Lebron lost his real estate license and his liberty in April, when he was sentenced to 26 years in prison for a string of foreclosure and short-sale frauds.
Mortgage fraud is rampant in the U.S., with distressed homeowners offering a whole new market to criminals. The recent trend in rising foreclosures led to soaring rates of foreclosure fraud. Financial Crimes Enforcement Network (FinCEN) reports a 58 percent rise in 2012’s foreclosure-rescue fraud schemes, a rate possibly spurred by the “opportunity” created by government assistance programs.
Florida continues its run as the country’s top state for mortgage fraud investigations, coming in number one on the Lexis-Nexis Mortgage Fraud Index for the fifth year. With a Mortgage Fraud Index of 805, Florida had eight times the expected number of fraud investigations in 2012. It’s closest second, Nevada, had only a little over 2½ times the expected rate. Plus, for the second year running, Florida came in first with the record number of defaults.
A newcomer to the Mortgage Fraud Top 10 also bears close watching: Ohio. Of mortgage frauds under investigation that originated only in 2012, Ohio ranks number one—indicating a recent fraud upswing in that state.
The last several years have also seen an uptick in collusion of industry professionals, resulting in an entire new index focused on collusion indicators alone. Collusion indicators, which are derived from public records, are based on factors like cohabitation, shared assets, family and business connections and other criteria, particularly relevant when a property has been transferred at a loss. Vermont ranks number one in collusion indicators, with almost five times the expected number of incidents for 2012.
While FinCEN reports a 25 percent decline in Suspicious Activity Reports (SARs) filed nationally in 2012, some analysts think the decline may be due, at least in part, to an overall decline in the housing market. According to National Association of Realtors spokesman Walter Molony, 2013 will see an estimated 11 percent increase in the housing market, creating all kinds of new opportunity for scammers.
Mortgage fraud is especially tricky, according the FBI, because scams morph with the market, always adapting to the latest trends. And although financial institutions file SARs by the thousands every month (there were 93,508 in FY 2011), it can take years after the fraud occurs before it is even discovered.
There are over a dozen common mortgage fraud schemes—application falsification, illegal flipping and flopping, short sales, equity skimming and more. The FBI and CoreLogic report that in 2010 more than $10 billion in loans originated with fraudulent application data, the most common kind of mortgage crime.”