Mortgage Fraud and Foreclosures
Commentary by Ralph Roberts
RISMEDIA, Nov. 23, 2007-In his article “Miami condo at ground zero in mortgage fraud,” Tom Brown highlights the fact that foreclosures follow fast on the heals of mortgage and real estate fraud. As he points out, “fraud accounts for a sizable share of the bad bets on mortgages,” which often result in foreclosures. Lenders get stuck holding the bag, but as we have seen recently, problems in the mortgage industry affect the entire national economy and can even destabilize the global economy.
Brown focuses his article on a 643-unit condo known as the Club at Brickell in Miami’s international banking district. Con artists and other opportunists used this building as a vehicle to commit rampant fraud in what are commonly known as cash-back-at-closing deals. With cash back at closing, buyers, sellers, appraisers, real estate agents, and other real estate professionals often conspire to inflate the value of a property to fool a lender into approving a loan that grossly exceeds the true market value of the property.
The buyer receives the excess proceeds, the sellers are able to sell their property for close to their asking price, the real estate agent receives a higher commission based on the inflated price tag, and the appraiser is rewarded with another satisfied customer.
These cash back at closing schemes have become very popular during the latest housing boom, because they seem like “everybody wins” deals. On the surface, even the lender seems to win-loaning more money and earning more interest over the life of the loan. Unfortunately, however, when the housing bubble bursts, someone gets stuck holding the bag-the lender. And when enough lenders get stuck holding the bag, they simply pass the costs on to investors, homeowners, and taxpayers. The only winners are the con artists who rake in the cash at the closing table.
Real estate professionals and homeowners need to keep in mind that cash back at closing is wrong, however right it may seem when someone pitches the idea. They also need to keep in mind that cash back at closing is just one of the many schemes that con artists use to rip off the system. Remember that the best defense against scams and the scumbags who perpetrate it is education. Learn how to spot, stop, and post (report) real estate and mortgage fraud. It just may save your home, your neighborhood, and your nation.
Ralph Roberts is a real estate fraud expert and activist and co-author of Protect Yourself from Real Estate and Mortgage Fraud: Preserving the American Dream of Homeownership (Kaplan, August 2007). Contact him by e-mail RalphRoberts@ralphroberts.com or 586.751.0000.