Real Estate Fraud: Why Is It Becoming More Common?
Why is there now so much corruption in the mortgage industry? It's an issue that Congress is looking into. The federal government currently is expanding its oversight of the banking system and financial markets, the entities that helped cause the recession.
Here are three of the more prominent recent examples:
1. Mortgage fraud alleged
Last week a federal grand jury indicted the head of what was once among the largest privately held mortgage lending companies for allegedly scheming to steal over half a billion dollars from the government's Troubled Assets Relief Program.
The indictment alleges that Lee Bentley Farkas and his co-conspirators carried out the scheme at their company. The attempt to get TARP funds was just one part of a scheme that was "truly stunning in its scale and complexity" and that resulted in losses of more than $1.9 billion, Lanny Breuer, the Justice Department's assistant attorney general for the criminal division, told a news conference.
2. Real estate fraud
A real estate broker from Chico, Calif., lost her license and was sentenced to 30 days in jail for illegally diverting home construction funds after helping an unlicensed building contractor get $625,000 in construction loans. The felony charge against Linda Elaine Myers was reduced to a misdemeanor after she repaid $5,285 to the main victim, according to a story in the Chico Enterprise Record.
3. More mortgage fraud
Ten people were indicted last week by a federal grand jury in California and charged with conspiracy to commit mortgage fraud, mail fraud and providing false statements in mortgage applications to federally backed banks. They were involved in companies in which mortgage lenders were given inaccurate information about the income of homebuyers or the value of homes, resulting in more than $5.5 million in losses to lenders and the foreclosure of at least 28 properties. In New Jersey, a woman is accused of running a $45 million Ponzi scheme, allegedl raising millions of dollars for real estate investments which she then gambled away.
Why are these cases cropping up now?
The collapse of the housing bubble, which led to the recession, can partly be blamed on the mortgage industry getting too greedy. Crooks, just like businesspeople, go where the money is, and with millions of dollars going into and out of homes, the chance was there for fraud to develop.
Much of the federal crackdown on mortgage fraud comes from the U.S. Department of Justice, which recently announced it arrested 500 people for mortgage fraud.
Some of the cases across the country affect individual homeowners. The newspaper account of the Chico case reports that Damon Fadale, an unlicensed building contractor who retained Myers to oversee home construction loans, previously was sentenced to 180 days in jail in the same case. Fadale allegedly obtained construction loans for $300,000 and $325,000 from two individuals to build separate homes for them. Both of the transactions were brokered through Myers, who received fees totaling about $13,000 to administer the loans.
After the two lots were purchased, Myers wrote additional checks to Fadale to obtain building and septic permits, and to cover foundation work and other facets of the ridge developments, But, according to the prosecutor, she didn't verify that building permits had been issued or that the work actually was actually being done.
The real estate broker admitted paying a relative, who owed her back rent, about $3,500 to perform some work on one of the lots, receiving more than $2,900 from him to cover the rental debt.
Myers' attorney, Philip Heithecker, told the paper that she previously had never administered a construction loan and was "clearly over her head."
Heithecker added a court motion to reduce the charge against Myers, explaining: "Fadale ripped everyone off; my client was scrambling to protect the properties and wind things up."
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