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E-mail StoryAppraiser: local fraud rampant
Authorities alerted about suspicious mortgage cases
| Friday, Apr 20 2007 11:46 PM
Last Updated: Monday, Apr 23 2007 12:00 PM
A local home appraiser is alleging widespread mortgage fraud in Bakersfield’s housing market, accusing local real estate professionals of artificially inflating prices to generate illegal profits.
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Appraiser Gary Crabtree said Friday he has alerted federal, state and local authorities to “suspicious” home sales in the Bakersfield area. But he said he believes what he has found is just the beginning.
“I think I’ve just scratched the surface,” Crabtree said. “I know there are other people in the real estate industry in Bakersfield that have knowledge of this. They are just not talking.”
After documenting 22 suspect cases in the last year, Crabtree said he has referred six of the strongest instances to the FBI, California Department of Real Estate and California Office of Real Estate Appraisers, and three to the Bakersfield Association of Realtors. He also has attempted to notify the lenders involved in each of the 22 cases.
Neither the FBI, Department of Real Estate or Office of Real Estate Appraisers would confirm Friday whether they have ongoing mortgage fraud investigations in Bakersfield. Crabtree stressed that he doesn’t have any firsthand knowledge of any investigations by the agencies.
The California Department of Real Estate receives between 8,000 and 10,000 complaints a year, spokesman Tom Pool said.
“We investigate any complaint that comes our way,” Pool said. “It is very likely some of those came from the Bakersfield area. But I can’t tell you how many of them are mortgage fraud.”
Crabtree and Bakersfield Association of Realtors President Ray Karpe said they believe questionable transactions make up a minority of local home sales.
“There are hundreds of really good, really qualified serious lenders and Realtors in town,” said Brynn Powers, vice president and general manager of Alliance Title’s Bakersfield office. “There are just a few that have found a way to get around the rules.”
Crabtree said some of the properties in question may have been “flipped” — purchased and sold for profit — by investors, real estate professionals or so-called straw man buyers whose identities and credit histories were used to secure loans. The cases include what Crabtree said appear to be fraudulently inflated sales prices and buyers purchasing properties with 100 percent financing.
Some buyers received money back at the close of escrow, Crabtree said, sometimes under the guise that the money would be used for installing amenities that were not installed, such as backyard landscaping.
Crabtree said he believes some real estate agents and brokers as well as lenders and appraisers may have taken part, while others were taken advantage of in the scheme.
Some of the properties have gone into foreclosure or received notices of default, Crabtree said, leaving lenders holding the bag.
“It has falsely inflated values,” Crabtree said. “Foreclosures will follow.”
Powers said a relative who earns about $10 an hour was approved for a $200,000 loan and asked to falsify documents to say he made more money.
“If anybody asks you to tell a lie or an untruth to get qualified for a loan, you shouldn’t do it,” Powers said. “If you have to tell a lie, don’t do it, even if you want the house real bad.”
Karpe confirmed that his organization received information from Crabtree, but said the potential wrongdoing falls outside the association’s policing authority. He said the Realtors association would wait to see if any punishment was handed down from higher authorities.
“Once some of the investigations go through and people get their just punishment, it will clean things up,” Karpe said. “But you are always going to have people pushing things. Most of the people in our business do good business, but a couple grab the headlines and it taints the whole industry. I don’t like it.”
The FBI estimates that mortgage fraud losses total between $1 billion and $4 billion a year.
“It is an epidemic,” said Ann Fulmer, vice president of industry relations for Interthinx, a company that provides mortgage fraud prevention and detection technology and risk management tools to banks and lenders. “We don’t have a ... handle on how big a problem it is because it is not reported by everyone. Lenders don’t always recognize it.
“I don’t think we have seen the worst of it yet.”
Fulmer, who has worked with federal and state regulatory and law enforcement agencies fighting mortgage fraud, said more mortgage fraud cases are coming to light.
“When the market was so hot and properties were appreciating quickly, it was more difficult to spot,” she said. “Because the market is slowing down, the fraud that happened in loans that originated in the last two years is like dead bodies rising to the surface.”
Crabtree said he began tracking the questionable transactions so he wouldn’t use them as comparable properties when doing appraisals.
Crabtree said word is out in local real estate circles that he has provided information to agencies about potential improprieties.
He said he has lost business as a result and others in the industry have stopped talking to him for fear of being implicated.
But he said he believes it is the right thing to do.
“I could have just let this gone on and not said anything to anyone,” Crabtree said. “But it is my responsibility as an ethical appraiser to report these cases of suspicious activity.”
COMMON MORTGAGE FRAUD SCHEMES
Property flipping
Property is purchased, falsely appraised at a higher value and then quickly sold. Scheme often involves fraudulent appraisals, falsified loan documents, inflated buyer’s income, kickbacks to buyers, investors, appraisers and title company employees.
Straw buyers
A buyer’s identity is concealed through the use of another person’s identity and credit history, which is used to apply for the loan.
Inflated appraisals
An appraiser works with a borrower to provide misleading appraisal information to the lender, inflating the value of the property.
Equity skimming
An investor uses documents to obtain a mortgage loan in a straw buyer’s name. Before closing, the straw buyer signs over the property to the investor in a quit claim deed that relinquishes rights to the property but doesn’t guarantee title. The investor fails to make mortgage payments and rents the property until it goes into foreclosure.
SOURCE: www.fbi.gov
TIPS TO AVOID MORTGAGE FRAUD
Check out real estate and mortgage professionals’ backgrounds, see whether they are licensed and ask for referrals.
• Be wary of promises of large profits in a short period of time.
• Question strangers, unsolicited contacts and high-pressure sales techniques.
• Check pertinent recent comparable sales in the area and tax assessments to verify the value of a property.
• Read and make sure you understand all documents you are signing and never sign documents that contain blank spaces.
• Review the property’s title history to determine whether it has been sold multiple times in a short time span with its value falsely inflated.
SOURCE: www.fbi.gov