illegal Quick Flips ( FBI )

Published by: Luis Roque on 9th Nov 2009 | View all blogs by Luis Roque

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OPERATION QUICK FLIP

  • Operation Quick Flip is designed to show that federal law enforcement recognizes the mortgage fraud threat. The Federal Bureau of Investigation Criminal Investigative Division (CID), the Department of Housing and Urban Development (HUD) Office of the Inspector General (OIG), the United States Postal Inspection Service (USPS), the Internal Revenue Service (IRS), and the Department of Justice (DOJ) have participated in this case round-up to provide information to the public regarding the federal government's efforts to combat mortgage fraud. The federal agencies involved are targeting mortgage fraud groups in order to disrupt and dismantle them permanently.
  • Mortgage Fraud is one of the fastest growing white collar crimes in the United States. Mortgage Fraud is defined as a material misstatement, misrepresentation, or omission relied upon by an underwriter or lender to fund, purchase, or insure a loan.
  • There are two types of Mortgage Fraud: fraud for property and fraud for profit. Fraud for Property, also known as Fraud for Housing, usually involves the borrower as the perpetrator on a single loan. The borrower makes a few misrepresentations, usually regarding income, personal debt, and property value or there are down payment problems. The borrower wants the property and intends to repay the loan. Sometimes industry professionals are involved in coaching the borrower so that they qualify. Fraud for Property/Housing accounts for 20 percent of all fraud.
  • Fraud for Profit involves industry professionals. There are generally multiple loan transactions with several financial institutions involved. These frauds include numerous gross misrepresentations including: income is overstated, assets are overstated, collateral is overstated, the length of employment is overstated or fictitious employment is reported, and employment is backstopped by co-conspirators. The borrower's debts are not fully disclosed, nor is the borrower's credit history, which is often altered. Often, the borrower assumes the identity of another person (straw buyer). The borrower states he intends to use the property for occupancy when he/she intends to use the property for rental income, or is purchasing the property for another party (nominee). Appraisals almost always list the property as owner-occupied. Down payments do not exist or are borrowed and disguised with a fraudulent gift letter. The property value is inflated (faulty appraisal) to increase the sales value to make up for no down payment and to generate cash proceeds in fraud for profit.
  • Typical fraud schemes:
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    • Backward Applications: After identifying a property to purchase, a borrower customizes his/her income to meet the loan criteria.
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    • 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.
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    • 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.
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    • Nominee Loans: The identity of the borrower is concealed through the use of a nominee who allows the borrower to use the nominee's name and credit history to apply for a loan.
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    • Property Flips: Property is purchased, falsely appraised at a higher value, and then quickly sold. What makes property flipping illegal is that the appraisal information is fraudulent. The schemes typically involve fraudulent appraisals, doctored loan documents, and inflation of the buyer’s income.
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    • Foreclosure schemes: The subject identifies homeowners who are at risk of defaulting on loans or whose houses are already in foreclosure. Subjects mislead the homeowners into believing that they can save their homes in exchange for a transfer of the deed and up-front fees. The subject profits from these schemes by re-mortgaging the property or pocketing the fees paid by the homeowner.
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    • Equity Skimming: An investor may use a straw buyer, false income documents, and false credit reports to obtain a mortgage loan in the straw buyer's name. Subsequent to closing, the straw buyer signs the property over to the investor in a quit claim deed which relinquishes all rights to the property and provides no guaranty to title. The investor does not make any mortgage payments and rents the property until foreclosure takes place several months later.
  • Federal law enforcement is working with state and local law enforcement, regulators, and the financial institution industry to combat the problem.
    • OFHEO (Office of Federal Housing Enterprise Oversight) has passed a regulation requiring Freddie Mac and Fannie Mae to report suspicious mortgage fraud activity on a Mortgage Incident Notice (MFIN).
    • FBI, OFHEO, and FinCEN (Financial Crimes Enforcement Network) are working to establish a reporting device similar to the banking industry's Suspicious Activity Report. This is in progress, but will likely take some time as regulations and possibly legislation will have to be passed.
    • The FBI, HUD-OIG, USPS, and IRS conduct criminal investigations into Mortgage Fraud Activity with a goal of disrupting and dismantling mortgage fraud rings. We strongly support joint investigations to effectively utilize all of our limited resources while strengthening investigations by tapping into everyone's expertise.
  • From July 5, 2005, until October 27, 2005, the FBI, HUD-OIG, USPS, IRS, in coordination with the DOJ, indicted 156 mortgage fraud subjects. A total of 81 arrests were made. A total of 89 convictions were obtained, and 60 subjects were sentenced during this time frame.
    • The combined loss to the industry by the above-subjects is $606,830,604.
  • In fiscal year 2005, the following stats are available:
    • 21,994 SARs were filed (up from 17,127 in Fiscal Year 2004).
    • 721 pending FBI Mortgage Fraud cases (up from 534 in Fiscal Year 2004).
    • 1,020 pending HUD-OIG Mortgage Fraud cases (up from 920 in Fiscal Year 2004).
    • 206 FBI indictments/informations (down from 241 in Fiscal Year 2004).
    • 170 FBI convictions (consistent with 172 convictions in Fiscal Year 2004)
    • $1,014,000,000 (FBI) reported loss (up from $429,000,000 in Fiscal Year 2004).
  • Top ten hot spots for Mortgage Fraud activity in 2003 (per capita): California, Nevada, Utah, Colorado, Missouri, Illinois, Michigan, South Carolina, Georgia, and Florida.
  • Top ten hot spots for Mortgage Fraud activity in 2004 (per capita): California, Nevada, Utah, Arizona, Colorado, Missouri, Illinois, Maryland, Georgia, and Florida

Comments

2 Comments

  • Luis Roque
    by Luis Roque 2 years ago
    Flipping a house is not necessarily illegal, buying and selling a home sometimes is misinterpreted by the media as flipping and scare people into buying homes. If you purchase a home cash and you want to sell it to a buyer with an FHA/Conventional loan, you have to hold the property for 3 months before you can sell it in most instances. Visit www.hisrealestatenetwork.com to find out how to legaly buy and sell real estate and pocket quick profits without breaking the law.
  • Rick Melero, Commercial Investor, Real Estate Mentor, Member of HIS Board of Advisor
    by Rick Melero, Commercial Investor, Real Estate Mentor, Member of HIS Board of Advisor 2 years ago
    Great stuff man...
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