Creative Financing Schemes Continue to Plague Real Estate Market
Mortgage fraud was a primary force in destroying the United States economy, many believe. As a result, news stories and exposés have been staples in the media and the FBI has increased its efforts to identify mortgage fraud offenders. Yet, despite these efforts and more, mortgage fraud is alive and well.
According to the Federal Bureau of Investigations' year-in-review report for 2010, the number of mortgage fraud cases is growing. The increase is attributed to the deteriorating real estate market. With many residential and commercial property owners strapped with underwater mortgages and the abundance of foreclosures throughout Florida and nationwide, the conditions are ripe for unscrupulous professionals to profit.
The FBI defines mortgage fraud as employing "some type of material misstatement, misrepresentation, or omission relating to the property or potential borrower which is relied on by an underwriter or lender to fund, purchase, or insure a loan." In simple terms, mortgage fraud is simply robbing lenders without the lenders knowing, and later the lenders are left responsible for covering significant losses. Common techniques used in mortgage fraud schemes include:
- Inflating appraisals
- Fabricating income statements
- Recruiting straw buyers
- Falsifying earnest money deposits
- Hiding a second mortgage
- Receiving kickbacks
Unfortunately, the offenders are the very ones that most consumers trust to handle real estate transactions: appraisers, real estate agents, mortgage brokers, underwriters and even lawyers and accountants. For example, a Naples, Florida, resident and former Allegheny County probation officer, Alfredo Sararo III, was recently indicted on charges of defrauding investors. Based on misrepresentations of South Florida properties, he persuaded Pittsburgh investors to purchase real estate and to lend money for the purchase of real estate. If he is found guilty of the charges, Sararo could face a fine of $2.75 and/or up to 152 years in prison.
The FBI has invested significant resources into developing teams to investigate mortgage fraud. By analyzing Suspicious Activity Reports (SARs) filed by federally insured financial institutions and working with federal, state, and local law enforcement, the FBI is committed to moving forward with efforts to identify mortgage fraud perpetrators.