Mortgage Fraud - Chuck Gallagher Ethics Speaker Discusses FBI Report

In an effort to deter mortgage fraud the FBI has listed (from their investigations) typical fraud schemes. Some are listed below:

Backward Applications: After identifying a property to purchase, a borrower customizes his/her income to meet the loan criteria.

In effect the borrowers determine from the lender what the criteria should be to qualify for the mortgage loan. Then income is "customized" or fabricated to meet the criteria. This sort of fraud is usually a single loan fraud. The fraud can involve others - as mortgage professionals may coach the borrower thus participating in the fraud.

In many cases, as I've addressed mortgage industry professionals, we find that such frauds involve the mortgage broker knowing that they are paid based on production and production can't take place without sufficient income.

Air Loans: These are non-existent property loans where there is usually no collateral. An example would be where a broker invents borrowers and properties, establishes accounts for payments and maintains custodial accounts for escrows. They may set up an office with a bank of telephones, each one used as the employer, appraiser, credit agency, etc. for verification purposes.

These loans represent a clear intent to commit fraud. Many convictions this past year have involved the complete creation of fabricated documentation. Other than "money for nothing" these frauds when caught will result in prison time.

While presentations to industry professionals focus on various types of frauds and the consequences that follow...rarely have I seen this other than from experienced criminals.

The last fraud scheme identified by the FBI that will be reviewed in this blog is:

Silent Seconds: The buyer of a property borrows the down payment from the seller through the issuance of a non-disclosed second mortgage. The primary lender believes the borrower has invested his own money in the down payment, when in fact, it is borrowed. The second mortgage may not be recorded to further conceal its status from the primary lender.

This fraud is common especially with first time home buyers, low income buyers or those who are new at investing in real estate for profit. In some cases, borrowers don't see the fraud involved in this scheme. Based on experience there are two types of people involved: (1) folks who, as first time buyers, borrow the money from relatives and knowingly don't disclose to the lender (otherwise they wouldn't qualify) or (2) folks who clearly don't have the fund to purchase the real estate and use funds (401(k) loans, personal loans from relatives or friends. or personal loans from undisclosed lenders.

For information about presentations related to ethics choices and mortgage fraud contact Chuck Gallagher at http://www.chuckgallagher.com

Mortgage Fraud - Prison and 1.2 Million in Restitution - Ethics Speaker Chuck Gallagher Comments

Manager of Nations Title Agency of Florida, Robert W. Hulbert, Jr., age 46, was sentenced to three years in prison, 4 years supervised release upon release from prison, restitution of $1.2 million and forfeiture of more than $4 million of assets.

Not only was Hulbert manager of Nations Title where several mortgage frauds were obtained, but he was personally involved in obtaining fraudulent loans on two properties he acquired in his name.

According to the Mortgage Fraud Blog (an excellent source for up to date material on mortgage frauds):

According to court documents, the scheme operated this way: Conspirators negotiated to buy residential real estate at a given price. A conspirator who was a licensed real estate appraiser then fraudulently appraised the property for a substantially higher amount than the actual negotiated price. Documents reflecting the inflated appraisal price were submitted to a lender, along with other fraudulent documents, to obtain first and second mortgage loans on the property. The total amount of the loans was at or near the inflated price.

At the closing on the property, the difference between the actual sales price and the inflated appraisal price—the proceeds of the fraud—was disbursed to one or more of the conspirators as an “assignment fee” or “payoff of third mortgage” that did not exist. During the course of the scheme, the conspirators obtained a total of about $17.7 million in mortgage loans, which would not have been approved but for the fraudulent documents. The conspirators received approximately $4.024 million in proceeds from the fraudulent transactions.

As a business ethics speaker, I am finding that mortgage fraud (of one sort or another) is capturing the attention of law enforcement as the housing market declines. More and more institutions are finding it necessary to reinforce their ethical rules as it relates to this kind of business.

Every choice has a consequence. Having spent time in federal prison for unethical conduct, I understand how easy it is to become embroiled in unethical activity. Today I speak to groups about the Truth About Consequences.

As a result of unethical behavior Hulbert will find his life will dramatically change. He will get up early - go to work (in prison) - be back at 3:30 and be standing for one of the six or so times a day he will be counted. He will walk into prison a nobody and will be treated as such till he leaves. Once out, he will be branded a "convicted felon" and find it hard to regain a normal life. There will be times (many times in fact) while in prison he will wonder if the temporary enjoyment he received from his ill gotten gains was worth it. And, he will emerge a changed man.

Feel free to comment.

If you've been the victim of a mortgage fraud - fell free to share your experience.

If you've perpetrated a mortgage fraud, feel free to share your experience on the price you've had to pay.

Business Ethics Speaker - Chuck Gallagher signing off.

Texas Man Sentenced to 40 Years for Mortgage Fraud - Dude That's Over Half His Life!

There is a wonderful blog called the "Mortgage Fraud Blog" http://mortgagefraudblog.com that is a good resource for information on this specific type of fraud. On November 27, 2007 the following was reported as is quoted here:

Stevie L. Johnson, a former licensed Escrow Officer, was sentenced to 40 years in prison for his part in a multi-million dollar mortgage fraud scam in the Houston, Texas area. The case involved the fraudulent acquisition of mortgage loans associated with approximately 300 residential properties valued at nearly $40 million. The prosecution was the result of a long-term investigation by the Consumer Fraud Division of the Harris County District Attorney’s Office and the Texas Department of Insurance (TDI) Fraud Unit. TDI is the state regulatory agency responsible for licensing title insurance companies, title agents and escrow officers.

Two other defendants in the case were previously convicted for their part in the fraud scheme; Mark A. Jones was sentenced to 25 Years by the 232nd District Court and Reginald Washington was sentenced to 8 years by the 184th District Court.

Markay Stroud, the Assistant District Attorney in Harris County responsible for prosecuting Johnson‘s case, emphasized that the investigation is ongoing and additional indictments are expected.

Earlier this year, the 80th Texas Legislature took action to address mortgage fraud by creating the Texas Residential Mortgage Fraud Task Force under House Bill 716, authored by Rep. Burt Solomons (R-Carrollton) and Sen. Kip Averitt (R-Waco). The 2007 legislation was intended to reduce false or misleading information on residential home loan applications by increasing cooperation among regulators and requiring new disclosures at closing.

Now, I'll be the first to say, I don't know Mr. Johnson's age, but unless he started his mortgage/escrow career as a teenager, he'll likely either die in prison or exit as an old man. Neither is a fitting way to end one's life.

As a national business ethics speaker, I speak around the country about one primary topic: Ethics = Choices and Consequences. Every choice has a consequnce! No matter what we might think or how we might rationalize it - Every choice has a consequence.

Was Mr. Johnson just a bad, unethical man? Some, who are quick to judge might say yes - otherwise how could he have committed such a crime? My guess, however, is that he didn't start out unethical in his profession. Rather, the perfect storm existed for his crime to be committed.

The "perfect storm?" Yep...and here are the three components: Need, Opportunity and Rationalization. When those three are present, in many cases, an otherwise ethical person may make unethical decisions - under the illusion that it's really O.K.

Now, I can't speak for Mr. Johnson, but I can speak for myself. That was exactly the sequence in the fraud that sent me to Federal prison.

So how do we create a way to keep the storm from brewing? As I consult with companies I find three things to be true: (1) if you evalutate your employees for example, you can often see when the need issue arises (without a severe need there is no fuel for the fraud); (2) a good system of internal controls reduce the opportunity (and without opportunity one cannot perpetrate the fraud); and (3) keeping people focused on right behaviors - consistently - helps to eliminate or difuse "rationalization."

For information on programs that might help your organization on ethics and anti-fraud visit my web site at www.chuckgallagher.com

Comments are welcome...

Business Ethics Speaker - Chuck Gallagher signing off...

Multiple Guilty Pleas and 433 Months in Prison - And That's Just In Three Days!

Seems that it's been a busy week for guilty pleas and sentencing for Mortgage Fraud and related crimes.

Let's start from the beginning of the week. The multiple members of the Dorean Group were found guilty of multiple counts of various types of fraud in a scheme to eliminate client's debt. Their scheme involved creating mortgage and home equity fraud in order to obtain hundreds of thousands of dollars in home equity loans from unsuspecting lenders. The scheme covered investigations in California, North Carolina, South Carolina, Texas, Utah, Washington, Florida, Montana, Nevada, and Colorado. Their sentencing is set for March 18, 2008. Expect their sentence to be stiff - certainly not "Club Fed" for them.

Then theres Anthony Belletteiri, a real estate attorney, who was sentenced to 121 months in prison for his creative and elaborate scheme involving his law firms corporate and escrow bank accounts - using funds marked for real estate closings. Belletteiri also admitted that he stole approximately $2 million from a client, falsely telling the client that he had invested the client’s money in private mortgages. In order to conceal his theft, he created phoney mortgage documents, which he provided to the client, so that the client believed that his money was secured by mortgages, when it was not. This (former?) attorney was ordered to surrender to Federal prison on December 26, 2007 to begin serving his sentence. At least he got some grace in that he will be able to enjoy his last holiday season for a long while with his family - a small gift.

According to the Mortgage Fraud Blog (an excellent source for mortgage fraud information), Wesley Snyder, age 71, plead guilty to fraud for his mortgage scheme. The mortgage fraud blog reports, "Snyder defrauded more than 800 individuals throughout Central and Eastern Penn. via his “Wrap Around, Equity Slide Down Discount” Mortgage Program and his “Mortgage Participation” Investment Program. The charge carries a potential penalty of 30 years imprisonment and $1,000,000 fine." It would appear that once incarcerated he may never see freedom again in his lifetime. I am confident that once confined, he will have many nights sleeping on a thin prison mattress wondering if it was worth ending his life in confinement?

Bang the gavel drops and Matthew Bevan Cox, age 38, is sentenced to 26+ years. In the federal system, one must serve 85% of one's sentence...so Matthew will be a little over 60 years old when he's released. Every choice has a consequence! In this case Mr. Cox made choices that will mean that, what is typically some of the most enjoyable and productive years of one's life will be spent in prison - working for 12 cents per hour. He and his girl friend ran mortgage and real estate scams that spanned several south eastern states.

"Cox will now be serving the long prison sentence he deserves for his crimes,” said United States Attorney David E. Nahmias in Atlanta. “While the subject of a nationwide manhunt, Cox repeatedly used the stolen identities of minor children, the homeless and others to place multiple fraudulent loans on the same property without the knowledge or consent of the true owners. His crimes resulted in clouded property titles in several states with years of unresolved litigation, a trail of over 100 victims, and millions of dollars in losses that cannot be recovered.”

“The Secret Service has taken an aggressive stance in the prevention and investigation of mortgage fraud and other forms of identity theft”, said James Byers, Special Agent in Charge of the United States Secret Service Atlanta Field Office. “This case shows both the wide-reaching effects of identity crimes as well as the importance of cooperation among law enforcement to focus resources and respond effectively to uncover and prevent this type of financial fraud.”

Every choice has a consequence. On a personal level I feel for the people mentioned above. Not to be mistaken, I do not in any way condone their crimes or actions - I don't. I just know that since every choice has a consequence, the price paid will be significant. Perhaps they will find, like I, that they can make their time in prison useful - either for themselves or for others.

As a business ethics speaker, I know first hand the pain of incarceration, as I've been there. I also know that no matter what someone might believe, you cannot escape the consequences of your choices. Likewise, if you make positive ethical moral choices the results can be quite remarkable. I, too, am living remarkable results.

For more information on presentations I make...feel free to visit my web site: http://www.chuckgallagher.com

Any comments?

Texas Ethics Speaker - Chuck Gallagher - signing off...