Alleged mortgage-fraud scheme cost victims $100 million
A 10-month investigation of sham property deals in New York leads to charges against 25 people.
Just a day after the FBI announced that mortgage fraud is "rampant" and escalating nationwide, the Manhattan district attorney on Wednesday indicted 13 people and a mortgage company in an alleged $100 million mortgage fraud scheme said to have taken place over four years.
A news release from the district attorney says the defendants, accused of stealing millions of dollars from banks to finance sham property deals, are charged with enterprise corruption, grand larceny, scheming to defraud and conspiracy involving 19 fraudulent mortgage transactions.
It's shocking to me that something like this could go on for so long, with people allegedly involved from every part of the transaction: bank employees, appraisers, people at the mortgage company, attorneys. And 12 people already waived indictment and pleaded guilty to felonies, which brings the total suspects to 25.
Honestly, I don't know how so many people can keep a secret for that long. Maybe somebody couldn't, though, since it's been under investigation for 10 months.
The D.A.'s news release says the mortgage company, AFG Financial Group, and its alleged co-conspirators and accomplices looked for properties in financial distress in the New York metropolitan area, then found people with good credit ratings but little cash to buy the properties. These "straw buyers" were told these were risk-free transactions that would help the people in the distressed properties keep their homes, and make the buyers some dough through the transaction.
But the straw buyers ended up with nothing but bad credit:
Because the defendants failed to make any mortgage payments after the first few months, the mortgage loans went quickly into default and the straw buyers’ credit ratings were ruined. And the sellers’ homes went into foreclosure.
The district attorney says AFG employees falsified the straw buyers' records so they could borrow more money, then falsified the loan packages and laundered the money, and the trail goes on and on.
This excerpt from the CNN article shows you just how bold these alleged fraudsters could be:
The D.A.'s office described a "particularly brazen sham transaction" where one of the suspects, Stephen Martini, allegedly wrote up a bogus appraisal of $500,000 for a two-family home, but "in reality, the location was a vacant lot."
Countless people are hurt in this kind of mortgage fraud. The sellers and straw buyers are the obvious victims, but then there are the banks, which include Countrywide, New Century Bank, Saxon Bank, Greenpoint Bank, ABC Bank, Bank of America, Wells Fargo and SunTrust, according to the D.A. And it all trickles down to us.
A Reuters.com story says mortgage fraud rose 36% last year, and suspicious activity rose to 63,713 in fiscal year 2008 from 46,717 the year earlier.
So please keep this alleged scheme as well as my post about loan rescue scams in mind the next time you're offered a deal that seems too good to be true.
About Teresa Mears
Teresa Mears is a veteran journalist who has been interested in houses since her father took her to tax auctions to carry the cash at age 10. A former editor of The Miami Herald's Home & Design section, she lives in South Florida where, in addition to writing about real estate, she publishes Miami on the Cheap to help her neighbors adjust to the loss of 60% of their property value.