Anyone can be a victim of home mortgage fraud Posted On: Sunday, Nov. 9 2008 07:21 AM By Victor O'Brien
Killeen Daily Herald

Temple Police Department Sgt. John Palamara is one of the last people you might think would be a crime victim.

He became a victim when he tried to get out from under his Federal House Administration mortgage in the late 1980s.

The housing market took a bad turn in the late 1980s, and homes were foreclosing across the nation. Palamara sold his home to a woman from Austin offering to take over his FHA note. However, he did not know that under FHA regulations, he was still responsible if his note was transferred and not paid. After several months of nonpayments, FBI officials knocked on Palamara's door and he learned he was the victim of a scam. Palamara said the woman was convicted on mail fraud charges, but the money was not found.

In the wake of the recent housing market collapse and amid a foreclosure frenzy across the nation, mortgage fraud is again on the rise.

According to the FBI's 2007 Mortgage Fraud Report, the housing collapse and massive foreclosures have produced a ripe environment for scammers seeking to take advantage of builders, sellers and homeowners caught in a crunch.

Reports of mortgage fraud rose 31 percent in 2007 with a conservative estimate of $813 million in losses.

Texas ranked among the top 10 states in mortgage fraud during 2007, but the state has dropped out of the top 10 so far this year.

As of August, the FBI had 1,569 open mortgage fraud investigations nationwide. However, most of the FBI's investigations involve knowledgeable people within the mortgage industry or people who lie on mortgage applications.

Mortgage fraud scammers have arrived in Killeen in recent months, said Deborah Huddleston of Cornerstone Mortgage in Killeen.

The scammers prey on people looking to refinance their homes. They offer adjustable rates to refinance, but with high upfront fees, Huddleston said. The scam ends up costing unsuspecting homeowners more than if they had just handled the situation through their mortgage companies.

In some instances, a home will get refinanced for more than it is worth, which means the homeowner can't sell the property and it still gets foreclosed on because the owner can't make the mortgage payments.

An increasingly common type of scam is a foreclosure rescue scam. A person offers to "save" a homeowner by taking on the deed in exchange for fees paid upfront, but then either refinances the home through a forged deed or sells the home.

The FBI reports a similar type of mortgage fraud scheme called "equity skimming." In the scam, an "investor" uses false methods to obtain a mortgage loan in the name of another person, who then gives the property over to the investor, who does not make mortgage payments, rents the property until it is foreclosed on after several months and walks away with the money.

Another type of equity skimming involves people approaching troubled property owners and offering to repair their credit and save them from foreclosure.

The person agrees to make mortgage payments by renting or selling the property and then the owner receives part of the profits. The person gets control of the property through a deed transfer, rents the property, receives a deposit from renters, does not pay the mortgage, and the home goes into foreclosure.

The consequences of having a late mortgage payment or, even worse, a foreclosure can be horrible for a person trying to secure a loan.

"If you have a late payment on a house loan, it doesn't matter if all the rest of your credit is perfect; that will be held against you for years down the road," Huddleston said. "That will hurt your credit worse than everything, to be late on your home loan."

Huddleston said the scam is common with property managers who prey on people with bad credit desperate to see their homeownership dreams fulfilled or people who do not speak English well and are easily befuddled by the legalese in real estate contracts.

Huddleston said a person should always consult with a Texas licensed real estate agent in good standing with the local board of Realtors before entering into a real estate agreement.

Palamara's situation is a cautionary story, Huddleston said. It demonstrates that even people who wouldn't typically be scam victims can fall prey to a crafty scammer and an easy fix.

Contact Victor O'Brien at vobrien@kdhnews.com or (254) 501-7468.

Mortgage Fraud Quick Stats

Fraud losses are estimated at between $4 million and $6 million.

31 percent more reports of mortgage fraud were filed in 2007 than 2006.

1,569 pending FBI mortgage fraud investigations as of August 2008.

At least 2.2 million foreclosure filings were reported in the U.S. on 1.29 million properties in 2007, a 75 percent increase from 2006.

Top 10 States for Mortgage Fraud in 2007

1. Florida

2. Georgia

3. Michigan

4. California

5. Illinois

6. Ohio

7. Texas

8. New York

9. Colorado

10. Minnesota

Common Types of Scams

A homebuilder needs to sell a home to cover building expenses so they acquire an inflated appraisal greater than the home's value. Someone agrees to buy the home for that price. The lender funds a loan for the cost of the building expenses thinking the buyer already paid the difference to the builder. The builder forgives the difference between the home's value and the actual loan, pays off the building expenses and keeps

any profit. When the home forecloses, the home does not have the value the lender thought and the lender loses money on foreclosure expenses.

A person contacts a person ready to sell and offers to find a home buyer. The person hires an appraiser to inflate the home's value. The person convinces a buyer to get a mortgage for the inflated amount. The seller receives the asking price and the original person makes money on a service fee based on the difference between the actual value and the inflated value. The home forecloses and the lender can't sell the home to cover the loan's cost.

A homeowner facing foreclosure is contacted by a person who offers to take on the deed if they pay upfront fees. The person sometimes sell the home or acquires another loan, causing the home to lose value and making the homeowner responsible for more debt and a home that can't be sold.

Tips from the FBI

Get referrals from real estate and mortgage professionals.

Check licenses with state, county or city agencies.

Beware of strangers and people who contact you.

Be skeptical of loans that promise no down payments.

Never make false statements on loan applications, especially about income or down payments.

Never sign blank documents or documents with blank lines.

Review title histories for properties considering buying.

Source: FBI's Mortgage Fraud Report, 2007

Tips for renting or buying a property

Contact the Better Business Bureau.

Contact the Fort Hood Board of Realtors.

Always ask for references.

Consider using a lawyer or title company.

Always read paperwork fully before you sign.

To rent a property

Lease through a property management agency.

Do not hand over a lump sum of money upfront without consulting an attorney.

Mortgage Tips

Always deal with your mortgage company first before paying someone to help.

Refinancing from a fixed-rate mortgage and an adjustable rate is almost never a good idea. Payments may decrease in the short term, but payments can become unmanageable when the rate rises and long-term interest will be greater.

Beware when a lender says no closing costs. Closing costs are always there but sometimes hidden in increased loan amounts.

Refinancing can cause a home to cost more than it is worth, making it difficult to sell the home or move without losing money.

Be skeptical of out-of-town or door-to-door lenders.

Lenders are required to give a good faith estimate or a truth in lending form within three business days of approaching you about a settlement. The form allows you to compare costs with other lenders.

Avoid upfront application fees costing hundreds of dollars from out-of-town mortgage companies. Most local lenders do not charge upfront fees.

Ask a mortgage professional or real estate agent if they can refer you to a good lender.

When to refinance

If you can decrease your interest rate.

Move from an adjustable rate to fixed-rate loan.

When the length of the loan is shortened.

Source: Cornerstone Mortgage Company

Where to get help

Texas Real Estate Commission in Austin

www.trec.state.tx.us/ or (512) 459-6544

Better Business Bureau Central Texas, 445 Central Texas Expressway No. 1, Harker Heights, TX 76548. Call (254) 699-0694

To report a potential scam

Office of the Attorney General, Consumer Protection Division. Call (800) 621-0508 or (512) 463-2100 or go to www.oag.state.tx.us/consumer/complain.shtml

FBI Mortgage Fraud Offices, white collar crime supervisor in San Antonio. Call (210) 225-6741

Texas Office of Consumer Credit in Austin. Call (800) 538-1579 or (512) 936-7600