Cathy McDaniel | www.cathymcdaniel.com

Georgia Residential Mortgage

Disclosure: Legal Information is not legal advice! Always consult a lawyer if you need legal advice.

Video: https://www.youtube.com/watch?v=hNURYMKQW-M

What is Fraud? Fraud is a knowing misrepresentation of the truth or concealment of a material fact to induce another to act to his or her disadvantage, loss or harm. Consequently, fraud includes any intentional or deliberate act to deprive another of or money by cleverness, sneakiness, wiliness, deception, or other unfair means.

It’s About the Money Fraud is a complicated topic. It can take many forms and can pop up in almost every step of a transaction.

Lying, cheating and stealing for financial gain loosely defines white collar . Those who engage in white collar criminal acts are more sophisticated than ever. They take advantage of special circumstances likes disasters and mortgage issues and use new technology and other resources to make their scams more believable and effective. involves intent, not mistakes.

Mortgage fraud is multi-billion dollar criminal activities that creates significant negative financial bearing on homeowners, devastates family, hurts communities, can destroy a business and adds a great impact on the national economy.

Federal, state and local law enforcement officers are on the front lines in the battle to protect their communities from fraud and scams. They identify, investigate and prosecute.

What is Mortgage Fraud? (e.g., purchase, refinance, modification) Act of inducing a loan though means which involve either implied or expressed deceit, i.e. Material misstatement, misrepresentation, or omission of information relied upon by an underwriter or lender to fund, purchase, or insure a loan. It Involves the entire process of obtaining a residential mortgage, including solicitation, application, origination, negotiation of terms, third-party provider services, underwriting, signing and , funding of the loan and purchase from a correspondent.

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Documents involved may include residential loan applications or other applications; appraisal reports; HUD-1 settlement statements; supporting personal documentation for loan applications such as W-2 forms, verification of income and employment, bank statements, tax returns, and payroll stubs; and any required disclosures.

Residential mortgage fraud continues to receive much attention and has been more prevalent in Georgia. An FBI assistant director testified that fraud is "pervasive" in the mortgage market and is growing fast. With sophisticated electronic document-preparation programs, unethical mortgage loan officers, brokers, real estate agents and lawyers can create fake FICO scores, fake tax returns, fake identities and obtain inflated appraisals. According to the FBI, based on existing investigations and mortgage fraud reporting, 80% of all reported fraud losses involve collaboration or collusion by industry insiders.

Fraud for Profit – Fraud for Housing Mortgage fraud generally takes two forms: “fraud for profit” and “fraud for housing.” Fraud for profit, also referred to as industry insider fraud, (i.e., brokers, loan officers, appraisers, closing agents, etc.) is fraud where the “motive is to revolve equity, falsely inflate the value of the property, or issue loans based on fictitious . The FBI reports that, based on existing investigations, 80 percent of all reported fraud losses arise from fraud for profit schemes that involve industry insiders. Fraud for housing is fraud where a borrower perpetrates a fraud in order to acquire or maintain ownership of a house. This type of fraud is typified by a borrower who makes misrepresentations regarding his income or employment history to qualify for a loan.

Mortgage fraud and schemes awareness and best practice techniques are critical to combating mortgage fraud.

What is the difference between mortgage fraud and predatory lending? Mortgage fraud is different from predatory lending. A lending institution is deliberately deceived by another actor in the real estate purchase process — such as a borrower, broker, appraiser or one of its own employees into funding a mortgage it would not otherwise have funded, had all the facts been known.

“Predatory lending,” on the other hand, is a term used to describe a range of lending practices harmful to borrowers. Example: “Equity stripping” as a predatory lending practice, generally refers to “rescue” schemes where an owner sells the house and it back at a higher monthly payment to stave off foreclosure. Once the individual falls behind on those new payments, the house is taken away and any equity built up in the home is lost.

The Georgia Residential Mortgage Fraud Act – Signed May 5, 2005 The Georgia Residential Mortgage Fraud Act (O.C.G.A. § 16-8-100 et seq.) authorizes the Attorney General and district attorneys to prosecute cases of residential mortgage fraud. Georgia was the first state in the nation to have a statute that targeted residential mortgage fraud, and the statute has been the model for over a dozen other states which have followed Georgia's lead. Georgia’s legislation covers a variety of fraudulent acts in connection with home mortgages, from fraudulent appraisals and sales contracts to fraudulent representation of financial information by a purchaser in obtaining a mortgage, to foreclosure fraud. This Act covers anyone who knowing misleads another property in the “mortgage lending process.”

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The phrase “mortgage lending process” is defined very broadly as “the process through which a person seeks or obtains a residential mortgage loan including, but not limited to, solicitation, application or origination, negotiation of terms, third-party provider services, underwriting, signing and closing, and funding of the loan.”

This essentially covers the entire process. The term “residential mortgage loan” includes loans secured by an interest in one- to- four family residential properties in Georgia, including refinancing and renewals.

General Provisions Under the Georgia law, a person commits the offense of residential mortgage fraud when, with the intent to defraud, the person:

 Knowingly makes any deliberate misstatement, misrepresentation, or omission during the mortgage lending process with the intention that it be relied on by a mortgage lender, borrower, or any other party to the mortgage lending process  Knowingly uses or facilitates the use of any deliberate misstatement, misrepresentation, or omission, knowing the same to contain a misstatement, misrepresentation, or omission, during the mortgage lending process with the intention that it be relied on by a mortgage lender, borrower, or any other party to the mortgage lending process  Receives any proceeds or any other funds in connection with a residential mortgage closing that such person knew resulted from fraud; or  Files or causes to be filed with the official registrar of of any county of Georgia any document the person knows to contain a deliberate misstatement, misrepresentation, or omission  Allows civil forfeiture  Not mutually exclusive; other laws may also apply  First law in the United States

Penalties for Violating the Law A person who commits mortgage fraud is subject to imprisonment for up to 10 years and/or a fine of up to $5,000.

In addition, Georgia’s RICO (Racketeer Influenced and Corrupt Organizations) statute includes residential mortgage fraud within the definition of activity. A violation of the Georgia RICO statute is a felony punishable by five to twenty years imprisonment and/or a fine of up to the greater of $25,000 or three times the amount of any monetary value garnered by the violator from the violation.

Who Suffers From Mortgage Fraud? Mortgage fraud hurts lenders, victimizes homeowners and reduces confidence in the nation’s housing market.

 Lenders: high default rates  Neighborhoods: deteriorated properties, vacant houses, crime  Tax Base: fraudulent sales dominate select areas, tax values  Overlap into non-fraud areas, county-wide tax base increases  Borrowing Public: as loan sources lose money from fraud, mortgage rates rise for the residential borrower

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How Serious is the Mortgage Fraud? Mortgage fraud is often a complicated crime that can involve both mortgage lenders and borrowers. It's estimated, for example, that about 10 percent of the nation's mortgage applications contain either mistaken or intentional omissions. What makes an intentional omission different from an inadvertent one is often difficult to prove, which is why mortgage fraud prosecutions were, until more recently, relatively rare.

While mortgage fraud is more prevalent than in previous years, it is also prosecuted on a more regular basis by the FBI and other national, state and local law enforcement agencies.

Six-figure fines and lengthy jail times are not uncommon and federal laws enacted with the collapse of the real estate market in 2007-09 have made such penalties even harsher.

By definition, such fraud can clearly be committed by both lenders and applicants, even though the latter may not think their misrepresentations or omissions are significant enough to be a concern.

Mortgage fraud results in an estimated $6 billion to $10.5 billion in annual losses in the United States, and the number of cases reported continues to skyrocket each year.

More than three-quarters of fraudulent applications, though, are attempts at fraud for profit, sometimes referred to as “Industry Insider Fraud”. According to the FBI, mortgage loan fraud is one of the fastest growing forms of white collar crime in the United States.

FBI – Federal Bureau of Investigation – Just the Facts

Residential mortgage loan applications with fraudulent information totaled an estimated $10.5 billion in the first half of 2013 19,700 mortgage applications had high fraud risk in Q2 2013 of 2.4 million mortgage applications, $5.3B FY 12 mortgage fraud Suspicious Activity Reports: 70,291 with losses of $2.69 billion FBI mortgage fraud task forces/working groups: 84 Pending investigations (as of 3/31/13): 1,954 with 72 percent involving losses of $1 million or more Cases opened in FY 2011 (as of 2/28/2011): 245 Total cases opened in FY 2012: 414 Successes in FY 2012: 1,079 indictments/information’s; 1,026 convictions States with significant mortgage fraud problems: Florida, Nevada, Arizona, Michigan, Rhode Island, Georgia California, Illinois, New Jersey, and New York (Source: LexisNexis 14th Annual Mortgage Fraud Report)

CoreLogic – Dr. Mark Fleming, Chief Economist “As the housing market and economy have healed over the last 18 months, a transition away from property- related to identity-related application fraud has occurred. Rising prices and a healing housing market make property-related mortgage application fraud less likely, but a higher level of scrutiny on an applicant’s “ability- to-pay” increases the propensity to attempt income-related fraud.”

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Who May Be Found Guilty of Mortgage Fraud? Mortgage fraud is simply a type of fraud that falls under the of theft by deception and money laundering.

 Anyone who knowingly makes any deliberate misstatement, misrepresentation, or omission during the mortgage lending process with the intention that it be relied on by a mortgage lender, borrower or any other party to the mortgage lending process  Anyone who knowingly uses or facilitates the use of any deliberate misstatement, misrepresentation, or omission  Anyone who received any proceeds or any other funds in connection with a residential mortgage closing that the person know resulted from a violation of mortgage fraud  Anyone who conspires to violate any provision prohibited by the Act  Anyone who files or causes to be filed with the official or registrar of deeds of any county or state any document the person knows to contain a deliberate misstatement, misrepresentation or omission.  Preventing another from acquiring information that would affect his judgment concerning a transaction

However, mere puffery or exaggerated statements that would not deceive a reasonable person similarly situated will not amount to theft by deception.

Who Investigates Fraud? Fraud is a serious crime to commit and many people are caught red handed each and every day. Fraud is dealt with by a very wide range of different people, from government inspectors, police officers and auditors through to forensic accountants and private sector fraud investigators. The FBI is one of the most well-known investigating organizations in the USA today. These government officials have been able to spy on and capture some of America’s toughest criminals. In addition federal, state and local law enforcement, State Attorney Generals, the IRS, and Secret Service all jointly work together. Being on guard can help you minimize you, your customers and clients’ chance of being defrauded.

Mortgage Fraud Punishment Mortgage fraud is a serious crime, and one punished by significant penalties. Because mortgage fraud can involve different crimes at either the state or federal level, the potential penalties associated with the crime differ widely. Mortgage fraud is typically charged as a felony offense, but misdemeanor crimes are possible in cases where only a small amount of money is involved, typically less than about $1,000.

 Prison - Prison penalties for mortgage fraud can be significant. A conviction for federal mortgage fraud charges can result in a federal prison sentence of 30 years, while state convictions can last a few years or more. Misdemeanor fraud convictions can bring jail sentences of up to a year.  Fines - Fines for mortgage fraud are often extremely high, especially when professional fraud is involved. A conviction for a single count of a federal mortgage fraud can result in a fine of up to $1 million. State fines can range from a few thousand dollars for misdemeanor convictions to $100,000 or more for felony convictions. 1 to 10 years and $5,000 fines or both for first time offenders and 3 to 20 years and $1,000,000 fine for repeat offenders

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 Restitution - Mortgage fraud convictions often include restitution payments as well. Restitution is different than a fine, though they both involve money. Restitution is designed to compensate the injured party for your wrongdoing, while the government imposes a fine as a penalty. If, for example, you are convicted of mortgage fraud after you make false statements when applying for a mortgage, you may have to pay restitution to the lender in addition to your fines.  Probation - Probation sentences can be imposed for a mortgage fraud conviction separately from, or in addition to, fines and prison sentences. Probation sentences for mortgage fraud typically last at least one year, but longer terms are common. Someone on probation must meet specified court requirements, such as making regular reports to a probation officer, submitting to random drug testing, and refraining from committing other criminal acts.  Forfeiture of all real and personal property of every kind used or intended for use in violation of the mortgage fraud act.  Revoke license - real estate, mortgage, appraisal, law, etc.

Punish is not merged with other crimes, but imposed separately for mortgage fraud convictions.

Real Estate Agents Some real estate agents end up participating in mortgage fraud unknowingly due to a lack of understanding of how these schemes work or because they do not realize that their actions are unlawful. In other cases, agents may know or suspect certain transactions to be fraudulent but turn a blind eye because they are either:

 Unsure that they are really dealing with mortgage fraud, or  Worried that they might be breaching a duty to their seller/buyer clients if they "blow the whistle" and cause a sale to fall apart

Consequences for Real Estate Professionals Persons committing mortgage fraud can be charged with any number of state and federal crimes. At a state level, the more obvious crimes include criminal fraud, theft by taking, , , criminal solicitation, criminal conspiracy and racketeering. At a federal level, persons committing mortgage fraud can, among other things, be charged with wire fraud, mail fraud, use of false identification documents, use of false social security numbers, conspiracy to defraud the United States government and racketeering.

In addition to the above, real estate agents and brokers who participate in mortgage fraud can also be sanctioned by the Georgia Real Estate Commission, up to and including the revocation of their licenses, for engaging in any number of unfair business practices including the following:

 Making substantial misrepresentations  Being or becoming a party to any falsification of any portion of any contract or other document involved in any  Failing to keep for a period of three (3) years a true and correct copy of all sales contracts, closing statements, or other documents relating to real estate closings  Having demonstrated incompetency to act as a real estate licensee in such manner as to safeguard the interest of the public or any other conduct … which constitutes dishonest dealing

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Even if no specific charges are brought by the Georgia Real Estate Commission against a licensee for violating any of the above license law provisions, if a licensee is convicted of a state or federal crime involving mortgage fraud, they can also lose their real estate license as a result of the criminal conviction. Licensees are required to immediately report to the Georgia Real Estate Commission any felony conviction or any crime involving moral turpitude. The term "conviction" means a guilty finding, a verdict or plea, a sentencing to first offender treatment without a determination of guilt or a plea of nolo contendere. Upon such a conviction, the licensee's license is automatically revoked 60 days after the conviction unless the licensee timely requests a hearing to determine whether the licensee remains fit to hold a real estate license.

Brokers’ Liability for the Fraud of Their Agents Brokers may also have exposure to sanctions before the Georgia Real Estate Commission for mortgage fraud committed by their licensees if the Commission determines that the broker did not properly supervise his or her licensees. This may be the case even though the broker may not even be aware of the licensee’s fraud.

Georgia license law sets out numerous substantive areas in which brokers are required to establish and implement procedures to supervise affiliated licensees. Specifically, the law requires brokers to establish and implement procedures for reviewing “all listing contracts, leases, sales contracts, management agreements, and offers to buy, sell, or exchange secured or negotiated by the firm’s associates” for compliance with the License Law and Regulations. This review must be performed within thirty (30) days of the date of the offer or the contract.

During the review of each document, the broker should keep in mind other transactions in which the affiliated licensee has been involved. Brokers need to be on the lookout for patterns of quick re-sales of the same property and if a property is involved in a rapid resale, the broker should ask the licensee about the circumstances surrounding the parties to the sales, the loan, and the appraisal until the broker is satisfied that the transaction is legitimate. Brokers should also be sure that their office procedures manual includes a discussion of mortgage fraud and the consequences for licensees who participate in or abet mortgage fraud.

Tips for Recognizing Mortgage Fraud There are, however, some warning signs that will help real estate professionals be aware of suspicious situations. Below are my top eight "red flags" you should look for in trying to protect themselves against mortgage fraud. It should be noted, of course, that while the answer "yes" to one or more of these questions may be a cause for concern, it does not necessarily mean that mortgage fraud is taking place.

 Does the earnest money check come from someone other than the buyer?  Does the appraisal appear to be excessively high for that specific property or higher than seems warranted for the neighborhood?  After the buyer and seller have settled on a price, does the buyer ask the seller to increase the sales price and to take back a second mortgage that will be repaid at closing?  Does the buyer or the mortgage broker ask that at closing a significant portion of the Seller’s check be made payable to a third party for repairs, decoration of the house, etc.?  Is a prospective buyer offering the seller a deal that seems too good to be true, such as an offer at or above the listing price, an offer by the buyer to pay the transfer tax and all closing costs, or an offer by the buyer to take the property as it is without any repairs even though the property obviously needs repairs? 7

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 Is the title insurance commitment for the lender at a higher amount than the purchase price of the property?  Is the same property involved in several rapid sales with a large unexplained increase in purchase price in the subsequent sale(s)?  Does the seller’s/buyer's dress, demeanor, knowledge of real estate, and/or hygiene appear out of whack with what you would expect of the buyer?  There are large and unusual adjustments on the HUD-1 Statement e.g. large credit for renovations  The home has recently been purchased with all cash basis and now placing a mortgage on the property  The title indicates a pattern of mortgages being registered and discharged shortly afterwards  All of the funds required to close the transaction come from the institutional lender  The name of the seller/buyer in the identification produced by the seller/buyer does not match the name of the seller/buyer in other documents in the transaction  There is a surplus of mortgage proceeds after the closing of the transaction that are to be paid to the borrower or to a third party  The seller/buyer directs part of the mortgage proceeds to third parties (e.g., off-shore recipients, currency exchange)  The seller/buyer instructs the closing attorney that it is unnecessary to prepare written directions authorizing the payment of funds to third parties  The mortgage is a cashback mortgage and the cashback is the full amount of the equity in the property  A seller/buyer/investor (facilitator) refers a number of real estate files to the closing attorney and the seller/buyer although not a party to the transaction controls the transaction (e.g., gives instructions to the attorney, arranges for the parties to the transaction to sign documents etc.) and directs the parties in the transaction  The buyer does not have a personal check for the client’s pre-authorized debit plan but provides a blank “counter check  The closing attorney is instructed to pay the excess mortgage proceeds to the facilitator even though the facilitator does not appear to have an interest in the transaction  The closing attorney is asked to act for both the seller and purchaser in the flip transaction  The seller/buyer instructs the closing attorney not to disclose to the lender that the transaction is a flip or that the lender is lending money on the higher consideration

GAR “Disclosure of Potentially Fraudulent Activities Verbiage

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This paragraph is included in the:

 GAR F1, “Exclusive Seller Listing Agreement”  GAR F2, “Non- Exclusive Seller Listing Agreement”  GAR F4, “Exclusive Buyer Brokerage Agreement”  GAR F5, “Non-Exclusive Buyer Brokerage Agreement”

This paragraph is not in the:

 GAR F3, “Authorization to Show Unlisted Property”  GAR F6, “Agreement to Work with Buyer as a Customer”  RE Forms

Other Common Mortgage Fraud Schemes While mortgage fraud comes in a number of different forms, some types are more commonplace than others.

1. Income Fraud - One of the most common forms of mortgage fraud involves the borrower overstate his or her income. This allows the borrower to qualify for a higher loan. 2. Loan as Gift - Often people will borrow money from their family in order to make a down payment on a property. However, treating this as a gift reduces the amount of debt you appear to have, possibly causing the lender to approve a loan it would otherwise reject. 3. Occupancy Fraud - This is when a borrower wants to obtain a mortgage in order to purchase an investment property, but claims that they will actually live in the property. Lenders usually charge higher interest rates for investment property mortgages, since these are considered riskier loans for lenders. 4. Appraisal Fraud - This occurs when home’s value is deliberately or fraudulently understated or overstated. When the value is overstated, more money can be obtained. The value is then understated in order to get a lower price on a foreclosed home. 5. - This occurs when a borrower claims to be self-employed in a non-existent company or claims a higher position in real company in order to misrepresent their income for purposes of obtaining a mortgage. 6. Fraud for Profit - A complex profit scheme, fraud for profit involves multiple professional mortgage lender professionals in an attempt at defrauding the lender of large sums of money. Individuals who may be include a , a dishonest appraiser, and a dishonest settlement agent all working to get an under-served large loan. 7. - An individual buys a property and fraudulently sells it at a higher price. 8. Investment Property Scam - A purchaser or investor is induced to pay an excessive price for a property based on promise of future income from leases or tenants and the income never occurs or is much less than promised. 9. Inflated Purchase Price Scam - Property in poor condition, seller offered $20,000-$30,000 or more over purchase price for repairs, and the extra money turned over to a shell construction company with no repairs even being made.

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10. Debt Cancellation/Ownership Transfer Scam - The security on a property is fraudulently cancelled at a courthouse and the fraudster executes a new deed which transfers the property to a new owner. The new owner now sells the property to an unwitting purchaser who has secured a new loan to purchase the property. 11. Identity Theft Scam - Fraudster steals another person’s social security number or other personal information and uses that information to acquire a loan using that identity. 12. Straw Buyers/Nominee Loans - The borrower’s identity is concealed through the use of a nominee who allows the borrower to use the nominee’s name and to apply for a loan. 13. Pay “straw sellers”- To falsely claim ownership of a property, appear at a closing where the property is sold to “straw borrowers”, disburse the sale proceeds at the fraudsters’ direction and thereafter appear at another closing to purchase the same property at a lesser amount with a portion of the sale proceeds, a practice sometimes called “flipping.” Some flips are the same day and others within days, weeks or months. 14. File False and Forged - Quit Claim deeds transferring property from true owners to “straw sellers” and “straw borrowers”, thereby gaining control of the property to use as security for fraudulent loans. 15. Silent Second Mortgage - The fraudster leads a lending institution to believe its loan is for a safe percentage of the property value and that the seller is taking back financing for the difference. In fact, the second mortgage is not recorded or paid, forgiven by the seller at closing and the lender is lending 100% of the value of the property. 16. Undisclosed Kickbacks - If you strike a deal with a home seller to give you a big wad of cash or to slip a check across the closing table, say, to pay for a new roof, and if the lender doesn't know about it -- because it's not disclosed in the purchase contract nor addendum nor your HUD-1 settlement closing statement it's mortgage fraud. 17. Racketeering Activity - Racketeering refers to criminal activity that is performed to benefit an organization such as a crime syndicate. Examples of racketeering activity include extortion, money laundering, loan sharking, obstruction of justice and bribery. The Racketeer Influenced and Corrupt Organizations (RICO) Act became U.S. law in 1970, permitting law enforcement to charge individuals or groups with racketeering. Racketeering usually refers to continued engagement in criminal activity. 19. Foreclosure Rescue Schemes - These schemes prey on the desperation of people who have fallen behind in their mortgage payments and are in danger of losing their home. The fraudster may contact the homeowner in the beginning stages of foreclosure, present themselves as an intermediary, and offer to eliminate the debt and save the house for a fee. The fraudster collects the fee and disappears without providing any real assistance to the homeowner. In another scheme, the homeowner is approached by the fraudster who offers to help refinance the loan. The homeowner is then asked to sign documents that they later learn transferred ownership of their home to the company supposedly helping them. 20. Reverse mortgages are offered to eligible senior citizens who have accumulated a sizeable amount of equity in their home. Qualified senior citizens can turn the value of their home into cash without having to move or to repay the loan each month. No matter how this loan is paid out, repayment is typically not required until the owner dies, sells, or permanently moves out of the home. Once any of these events occur, the property is relinquished to the mortgage lender who may sell it to recoup the loan balance, fees and interest. While there is nothing illegal with this type of loan, the process can be complex and homeowners must carefully review all of the terms and conditions (preferably with trusted family members and an attorney) before signing anything.

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Elderly homeowners can be taken advantage of by unscrupulous estate planners who charge fees for information that is available at no charge from the U.S. Department of Housing and Urban Development (HUD), or by “mortgage consultants” who insist that unnecessary renovations be made to the home in order to qualify for the loan and specify which contractor should be used to make these repairs 21. Buy and Bail - This scheme typically involves a borrower who is current on a mortgage loan, but the value of the house has fallen below the amount owed. The borrower continues to make loan payments, while applying for a purchase money mortgage loan on a similar house that cost less due to the decline in market value. After obtaining the new property, the borrower “walks” or “bails” on the first loan. 22. Double Selling - Double selling occurs when a mortgage loan originator accepts a legitimate application and documentation from a buyer, reproduces or copies the loan file, and sends the loan package to separate warehouse lenders to each fund the loan. 23. Mortgage Servicing Fraud - This fraud is perpetrated by the loan servicer and generally involves the diversion or misuse of loan payments, proceeds from loan prepayments, and/or escrow funds for the benefit of the service provider. 24. Asset Rental - Cash or other assets are temporarily placed in the borrower’s account/possession in order to qualify for a mortgage loan. The borrower usually pays a “rental” fee for the temporary “use” of the assets. 25. Fake Down Payment - In order to meet loan-to-value requirements, a fake down payment through fictitious, forged, falsified, or altered documents is used to mislead the lender. 26. Identify Theft - Identity theft can be defined as assuming the use of another person’s personal information (e.g., name, SSN, credit card number, etc.) without the person’s knowledge and the fraudulent use of such knowledge to obtain credit.

Warning! Mortgage Fraud May Exist If

 The closing attorney, lender or someone else promises to “fill in” blanks on a purchase and sale contract  Contact or financial forms are altered with correction fluid  The seller and buyer exchange funds not reflected on the closing statement  There is an inflated appraisal fee (requested by the appraiser for higher values in an appraisal)  An attorney-in-fact executes documents because the seller or buyer is not available  There is recent payoff of a loan secured by the company  Prepaid fees are required, except for those normally required such as appraisals and credit reports  Separate closings on the same property are scheduled within the same day, usually back-to-back closings  The contract allows for repairs over $5,000  You are unable to contact the seller or the buyer and have to rely on third-party communication with one or the other  The contract includes a high price on a property in poor condition  The mortgage note is allegedly transferred in a single document along with the Mortgage or Deed of Trust (i.e., “Assignment of the Note and Mortgage”). You cannot “assign” a mortgage note. Example: The assignment is executed by a party in another county.

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 The assignment of the Mortgage or Deed of Trust is executed by a legal entity that was no longer in existence on the date the document was executed  The name of one or more of the signors is stamped on the document  The signature of one or more parties on the document is not legible and looks like something a three year old might have done  The document is dated and signed years before the document is actually filed with the register of real estate documents or deeds or mortgages  The document includes a reference to a “form number”  The date of the signature on the document and the date the signature was notarized are not the same  The document refers to a power of attorney but no power of attorney is attached  The document bears the following legend: “This is not a certified copy.”

Reporting Mortgage Fraud Immediately Though mortgage scams are rampant, you can protect yourself if you're aware of the red flags and remain suspicious of any deal that seems too good to be true.

If you find any of these types of mortgage irregularities during closing or soon after you close on your mortgage, you have the right to report these charges to federal and state authorities. Since most mortgage fraud committed for profit by a lender or broker could become very costly for you, it's also in your best interest to report it.

Georgia Real Estate Fraud Prevention & Awareness Coalition (GREFPAC) www.grefpac.org The GREFPAC works to:

 Prevent real estate and mortgage fraud  Facilitate cooperation among and between industry partners, regulators and law enforcement agencies  Pursue compliance with, and enforcement of, existing regulations and statutes  Develop and promote industry practices and regulatory and statutory reforms that will benefit consumers and industry partners  Promote public awareness through information and education

Other Important Georgia State Law Protection Georgia has enacted several state laws that directly address loan modification scams. Homeowners with a basic understanding of these laws are less likely to become victims as they may be able to identify potential scams and illegal activities.

 Georgia Law Prohibits Foreclosure Fraud (O.C.G.A. § 16-9-60) - This law makes it a felony to purchase or attempt to purchase property using a fraudulent scheme.  Georgia Laws Regulating the Foreclosure Process (O.C.G.A. § 44-14-7) - On May 13, 2008, Governor Sonny Perdue signed into law Senate Bill 531. The bill requires that the homeowner be provided with certain information prior to a foreclosure proceeding.

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This is important because when homeowners are negotiating with their servicers, they often do not know what entity actually owns their loan. Sometimes a servicer will refuse to offer the homeowner a loan modification or other workout, claiming that they lack authority to do so.  Georgia Law Regulates the Operation of Credit Repair Service Agencies (O.C.G.A. § 16-9-59) - It is a misdemeanor to operate a credit repair services organization. In extending credit, an organization cannot represent that it can improve a credit record, history, or rating, obtain an extension, or provide advice or assistance with regard to these issues.  Rules Governing Attorneys Providing Loan Modifications - Why are foreclosure consultants and attorneys teaming up to defraud homeowners experiencing mortgage-related distress? Individuals acting as “foreclosure consultants” are not entitled to receive payment until their loan modification work is completed. However, attorneys are permitted to accept advance fees for providing typical legal services. As a consequence, some foreclosure consultants and others offering foreclosure prevention services may partner with attorneys in an effort to get around laws that prohibit them from receiving payments from homeowners before providing the foreclosure prevention services. Homeowners should know that these partnering arrangements may violate the ethics rules governing attorneys’ professional conduct in Georgia.

Other Resources

 The Mortgage Bankers Association - www.mbag.org | 478-743-8612  Stop Fraud – http://www.stopfraud.gov/protect-mortgage.html  LexisNexis - http://www.lexisnexis.com/risk/financial/real-estate.aspx  Avoid Mortgage Scams - http://www.online-home-mortgage.net/avoiding-scams.htm

Reporting Fraud If you suspect mortgage fraud, talk to your broker and contact a Federal or State Authority.

 Georgia Department of Banking and Finance – Mortgage Division https://dbf.georgia.gov/sites/dbf.georgia.gov/files/imported/vgn/images/portal/cit_1210/23/63/ 999 30148IndustryFraudReports.pdf  Governor’s Office of Consumer Protection – 404-651-8600 http://consumer.georgia.gov  Consumer Finance Protection Bureau – 855-411-2372 https://help.consumerfinance.gov/app/mortgage/ask  Georgia Department of Banking and Finance – Consumer Resource List https://dbf.georgia.gov/sites/dbf.georgia.gov/files/related_files/document/GADBFResourceListR ev7-2013.pdf  The Federal Bureau of Investigation (FBI) - http://www.fbi.gov. (202) 324-3000

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Mortgage Fraud is investigated by the FBI Mortgage Fraud is investigated by the Federal Bureau of Investigation and is punishable by up to 30 years in federal prison or $1,000,000 fine, or both. It is illegal for a person to make any false statement regarding income, assets, debt, or matters of identification, or to willfully overvalue any land or property, in a loan and credit application for the purpose of influencing in any way the action of a financial institution.

Some of the applicable Federal criminal statutes which may be charged in connection with Mortgage Fraud include:

 18 U.S.C. § 1001 - Statements or entries generally  18 U.S.C. § 1010 - HUD and Federal Housing Administration Transactions  18 U.S.C. § 1014 - Loan and credit applications generally  18 U.S.C. § 1028 - Fraud and related activity in connection with identification documents  18 U.S.C. § 1341 - and swindles by Mail  18 U.S.C. § 1342 - Fictitious name or address  18 U.S.C. § 1343 - Fraud by wire  18 U.S.C. § 1344 -  42 U.S.C. § 408(a) - False Social Security Number Unauthorized use

Mortgage and Real Estate Fraud

Federal investigators have identified an increase in frauds and schemes in the real estate business.

These schemes victimize individuals and businesses, including low-income families lured into home loans they cannot afford, legitimate lenders saddled with over-inflated mortgages, and honest real estate investors fleeced out of their investment dollars.

Special agents with IRS Criminal Investigation are uniquely equipped to investigate these types of mortgage fraud and illegal real estate crimes because they are skilled financial investigators whose mission is to 'follow the money.'

Some of the common real estate fraud schemes include:

 Property Flipping - A buyer pays a low price for property, and then resells it quickly for a much higher price. While this may be legal, providing false statements to the lender is not.  Two Sets of Settlement Statements - One settlement statement is prepared and provided to the seller accurately reflecting the true selling price of the property. A second fraudulent statement is given to the lender showing a highly inflated purported selling price. The lender provides a loan in excess of the property value, and after the loans are settled, the proceeds are divided among the conspirators.

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 Fraudulent Qualifications - Real estate agents assist buyers who would not otherwise qualify by fabricating their employment history or credit record.

The income earned from these types of real estate fraud schemes is often laundered to hide the money from the government. Money laundering is simply a process of trying to make illegally earned income appear to be legitimately earned. IRS Criminal Investigation follows the money and collects evidence to prove applicable tax and/or money laundering violations. Once they have obtained the evidence, IRS agents forward their investigation to the Department of Justice for criminal prosecution.

If a criminal investigation is not warranted, the IRS can also take civil action. Each year the IRS audits thousands of tax returns involving individuals and entities associated with the real-estate business.

Videos  https://www.youtube.com/watch?v=uE-_l9oV2U8 – and Scams

NEW! Friend Fraud There is a brand new scam called “farcing” or “friend fraud” that criminals use to wiggle their way into your network and take large amounts of cash from your bank account. Anyone with a social media account— professional or private—should be wary of this scam.

Don’t think you are at risk? You may be wrong. The proposition is troubling, but the likelihood of it happening has been proven: one out of four consumers has been defrauded online or through a mobile device by someone they love and/or trust, according to a 2013 Consumer Mobile Insights study released by Jumio.

Farcing criminals ingratiate with social networks in order to commit fraud. Unlike phishing scams, friend fraud is not a large-scale operation that impacts many users; it’s a “one-on-one” confidence con-game.

The Friendly Cyber-Con Game A cyber-criminal sends friend requests to a group of people he doesn’t know. The more the merrier, since, like most types of fraud, farcing is a numbers game. Some will ignore the request; others will accept because of the “more is better” thinking.

Once the criminal has “friended” you, he will reach out to others in your network. The criminal’s job is easier now, because the next targets will see mutual friends along with the friend request. Then it’s game on.

Now that the cyber-criminal has gained access to your network, the strategy begins: gaining access to your cash by mining your personal and professional information.

Three New Cyber Scams Below are three types of scams you need to be aware of, but they are only the tip of the iceberg. The number of economic cybercrimes is growing and, according to Interpol, new trends emerge all the time.

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The Professional Network Community Scam You are a professional or aspire to be one. You post your résumé on a professional site, such as LinkedIn or Young Entrepreneur. You hope to make contacts, find a job, or connect with colleges in your field, but instead of making a bona fide professional connection, you meet a cyber-criminal.

It may take a while for the criminal to contact you directly while he is mining your information. When he does contact you, the criminal may bring up a past job, success, or college story: “Remember me? I used to work with you at XYZ Company in accounts payable.” You may be too embarrassed to admit you don’t remember, so you’re friendly instead.

When the criminal tells you that he is now working at ABC Mortgage Company, you’re probably going to be more open to the conversation—especially if you happen to be thinking about your own mortgage. But what happens if XYZ Company and ABC Mortgage Company don’t exist? And what happens when you hire and pay your criminal “friend” you found on a professional network?

The Hotel Scam You’re on vacation at a pricey hotel in Hawaii. You post a picture of yourself at the hotel to your social media account. Your cyber-criminal friend sees an opportunity. He calls the hotel you’re staying at and asks the receptionist to connect the call to your room. You answer and the cyber-criminal, now masquerading as a front desk clerk, tells you that the hotel encountered an error trying to run your credit card. Politely, the criminal apologizes for the inconvenience and asks for your credit card number in order to run it through the system one more time. He promises that if the error happens again, the hotel will comp you a free room. Your guard is down: you are on vacation; the call came from the front desk of your pricey hotel, and you’re potentially getting something pretty great in return for reading off your card number.

The Restaurant Scam You post a picture online of your scrumptious take-out meal or “check in” on social media at a restaurant for all your friends to see. The smell of this opportunity is too tasty for your cyber-criminal friend to avoid. He waits a day or two and uses the phone number you posted on your social media account to call you. He masquerades as the manager of the restaurant you dined at the other day. He’ll say, “This is Devon at Succulent Foods. Sorry to call you at home, Mr. Trusting, but we overbilled your credit card when you dined here the other night. Besides this trouble, I hope you enjoyed your T-bone steak. All you need to do is give me your credit card number so I can manually credit your account, and we will give you a free martini on your next visit for the inconvenience.”

How to Prevent Friend Fraud The solution is through education and by keeping your guard up. He says people who want to thrive in the 21st century should adopt this mode of thinking: “It’s a scam unless proven otherwise.” Everyone should understand the risks and take precautions. Some suggestions include:

 Do business with merchants you trust  Master privacy settings—don’t ignore them  Change passwords that have access to your financial information every three months  Choose passwords based on security, not memorability  If someone suspicious calls you, tell them you’ll call them back, and hang up 16

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 If you receive an email with a suspicious coupon, don’t click the link. Instead, copy the coupon name and search for it in your browser. If it’s real, it will appear in the search results.

All of these scams prey on your trust and often occur when your guard is down: when you are lonely and want to make friends, when you are busy, and when you are having a good time. And, it seems everyone has a basic desire of wanting to get something for nothing. The truth is, you can’t get something for nothing.

Friendship is an investment. The rewards are obvious, but there are also risks. Naturally, you want to trust your friends, but just like any investment strategy, you’ll also want to know the costs. Be a skeptic. Ask yourself, “Is more really better?”

Your friendship, like your hard-earned cash, is valuable. It’s Money Management 101: Safeguard Your Treasures.

Notes:

Cathy McDaniel 404-550-0775 [email protected] www.cathymcdaniel.com 17