2. Today’s Goal: Provide A Brief Overview Of
Mortgage Fraud and How to Fight
What is Mortgage Fraud
Types of Schemes
Where the Lies are
Why We care
How to Fight –
prosecution
3. What is Mortgage Fraud
Mortgage Fraud is any material
misstatement, misrepresentation
or omission relied upon by an
underwriter or lender to fund,
purchase or insure a loan.
4. What is Mortgage Fraud Cont . . .
What does that mean?
Sounds a lot like Justice Stewart's
definition of pornography: “I know
it when I see it.” Jacobellis v. Ohio,
378 U.S. 184, 197 (1964)
(concurring).
5. What is Mortgage Fraud Cont . . .
Simply Put:
Mortgage fraud is lying
to get money from a
bank
6. Two Categories of Mortgage Fraud
Fraud for Property: minor
misrepresentations by the applicant solely for the
purpose of purchasing a property for a primary
residence. Usually a single loan.
Fraud for Profit: gross misrepresentations
concerning appraisals and loan documents and
participants are frequently paid for their participation.
Usually involves several loans.
7. Today’s Goal: Provide A Brief Overview Of
Mortgage Fraud and How to Fight
What is Mortgage Fraud
Types of Schemes
Where the Lies are
Why We care
How to Fight –
prosecution
8. Bankruptcy
Bankruptcy
Schemes
Schemes Foreclosure
Foreclosure
Rescue – – 2%
Rescue 2%
Fraud - 1%
Fraud - 1%
Advance
Advance
Fee -2%
Fee -2%
Builder
Builder
Bailout – 2%
Bailout – 2% Equity
Equity
Skimming – 2%
Skimming – 2%
Commercial
Commercial
Short Sale
Short Sale Real Estate
Real Estate
Settlement
Settlement 4%4% Fraud – – 4%
Fraud 4%
related
related Real
Real
Schemes
Schemes
Loan Origination estate
estate
(kickbacks)
(kickbacks) Loan Origination Investment
14% Investment
14% (property flipping)
(property flipping) 7%
7%
62%
62%
9.
10. Loan Origination: Flipping
False statement can include:
False appraisal
False straw buyer financial
qualifications
False transaction documents
based on phony price
14. Builder-Bailout
False statement can include:
False appraisal lender relies on
for loan approval
False transaction documents
based on phony price
Fictitious down payment
15. Builder-Bailout Example
Step 1
Step 2
Step 3
Builder/Developer can’t sell Builder/Developer gets Loan Documents falsely
his/her inventory inflated appraisal state $500,000
For $500,000 for a Transaction price
$400,000 home
Step 5 Step 4
Based on phony down payment. Lender funds a mortgage
Lender funds 100% of loan of $400,000 believing
homes value. Builder/ Developer that $100,000 was paid to the
keeps his profit builder, creating home equity
17. Equity Skimming: Reverse Mortgage
Home Equity Conversion Mortgage
(“HECM”) Scheme:
Perpetrators purchase properties using straw
buyers
Deed then transferred to senior
After 60 days, with inflated appraisal,
perpetrator helps senior obtain HECM, usually
in lump sum
Perpetrator absconds with all the money
18. Foreclosure Rescue Scam
False statement can include:
Failure to disclose homeowner’s
interest in property in subsequent
financing transactions
Subsequent lender is misled if title
transfer/deed is manipulated or
forged
19. Foreclosure Rescue Scam
Step 1
Step 3
Perpetrator convinces Homeowner
homeowner they can save their
home from foreclosure through
deed transfers and up-front fees Step 2
Up-front fees
The Perpetrator may sell the
victim’s home without Homeowner signs
the homeowner’s knowledge deed over to
Deed Transfer. Perpetrator Victim’s House
Step 4 The deed is manipulated
and forged by the
Perpetrator
The Perpetrator may secure
a second loan without the
homeowner’s knowledge
20. Short Sale Scheme
False statement can include:
False appraisal lender relies on for loan
approval
False transaction documents based on
phony price
Perpetrators secret control of transaction
and fact that straw buyer does not intend
to be responsible for payments on loan
21. Short Sale Schemes:
Perpetrator identifies a home in the process of foreclosure.
Bank is owed $500,000.
Perpetrator finds a buyer to purchase the property for $400,000
Perpetrator makes an offer to the bank to purchase the property in a “short sale” for
$300,000. Bank agrees believing that a buyer willing to pay $300,000.
Lender agrees to the short sale not knowing that the buyer has agreed to purchase the
property for $400,000.
Perpetrator sells the property at actual value for a profit, or has the property artificially
inflated to conduct an illegal property flip
22. Today’s Goal: Provide A Brief Overview Of
Mortgage Fraud and How to Fight
What is Mortgage Fraud
Types of Schemes
Where the Lies are
Why We care
How to Fight –
prosecution
23. Motivational Quote
“Like music, lying requires
exquisite timing, a consistent
beat and a melodic quality
designed to sooth the most
cynical beast.”
Robert F. Miller, real estate con-artist, Statement to the
United States District Court, District of Columbia,
1:05CR00143
24. Form 1003
Is it claimed as a
primary residence
Is the employment
history true
25. Motivational Quote 2
“ Like painting, lying requires
varying shades of color,
depending on the visual or
intellectual effect desired.”
Robert F. Miller, real estate con-artist, Statement to the United States
District Court, District of Columbia, 1:05CR00143
28. Motivational Quote 3
“ Like poetry, lying has to be
precise, measured, lyrical
and appealing.”
Robert F. Miller, real estate con-artist, Statement to the United States
District Court, District of Columbia, 1:05CR00143
33. Final Motivational Quote
“ Are you kidding? I couldn’t
make this much money selling
crack in Detroit. Besides, this
way no one shoots me and I get
to wear a suit.”
A. S., Straw Buyer, Proffer Session, EDKY
34. Real Estate Investment Schemes
Louis J. Borstelmann:
$18.9 Million Real Estate Ponzi Scheme
Over 100 Victims in Several States, including
Oregon, California, Hawaii, Montana, and
Texas
108 Months’ Incarceration and $18.9 Million in
Restitution
35. Today’s Goal: Provide A Brief Overview Of
Mortgage Fraud and How to Fight
What is Mortgage Fraud
Types of Schemes
Where the Lies are
Why We care
How to Fight –
prosecution
36. Why We Care
Mortgage fraud has
the single biggest State 12 Month Housing
Price Index % Change
impact on quality of
life in an area California -4.73%
Nevada -6.56%
In Central Oregon Arizona -13.38%
and Coastal cities Florida -5.79%
Oregon -10.02%
prices have dropped
more than 10 percent
37. Foreclosures
In 2008, Oregon’s
foreclosure rate
jumped 121 percent
In 2009, Oregon
foreclosures 12th
highest in nation
In 2010, Oregon’s
foreclosure rate
increases 20 percent
to 3rd highest in nation
40. Today’s Goal: Provide A Brief Overview Of
Mortgage Fraud and How to Fight
What is Mortgage Fraud
Types of Schemes
Where the Lies are
Why We care
How to Fight –
prosecution
41. Possible Federal Charges
Bank Fraud
Wire Fraud
Mail Fraud
Loan Application Fraud/False Statement to
Banks
Conspiracy
Money Laundering
Bankruptcy Fraud
42. Possible Oregon Charges
Aggravated Theft – by deception
Forgery (and related offenses)
Income Tax Fraud/Evasion
Mortgage Broker Fraud (see list in ORS 86 et seq)
Aggravated Identity Theft
Money Laundering
Racketeering--includes the above charges, and
Federal Charges listed in Federal RICO such as:
Bank Fraud, Wire Fraud, Mail Fraud, Money
Laundering
43. Why Oregon Racketeering (“RICO”)?
Can bring federal charges such as bank
and/or wire fraud and state charges.
Uniquely suited to target organized
mortgage fraud.
If real property – enterprise not required.
Required pattern evidence – advantage.
Class A felony.
44. What do you need for RICO?
A Pattern of Racketeering Activity (“PRA”)
At least two or more incidents with same/similar:
Intents, results, accomplices, victims, OR
Methods of commission, OR,
Otherwise are interrelated by distinguishing, including
a nexus to the same enterprise (and not isolated)
PRA –or “predicates” can include:
Aggravated Theft (Oregon),
Bank Fraud (Federal), Wire Fraud (Federal)…
45. 2 underused RICO weapons
RICO
ORS 166.720
(3) Enterprise (only) (4) Conspire/
Endeavor
(1) PROCEEDS & (2) INTEREST..
REAL PROPERTY in REAL PROP.
(or enterprise) (or enterprise)
47. Unlawful Proceeds
and Mortgage Fraud
ORS 166.720(1)
IF proceeds from PRA and
Proceeds used to finance enterprise, OR
In the acquisition of any title to, or any right,
interest or equity in, real property
Injury from proceeds itself.
Kotera v. DAIOH International, 179 Or.App. 253, 277 (2002)
THEN CHARGE RICO
48. RICO example #1
Unlawful proceeds in Mortgage Fraud
Suspect uses
unlawful proceeds
as down payment
Suspect generates $$$$$
unlawful proceeds
through 2x mortgage fraud
Suspect’s unlawful
proceeds used to
obtain real property
49. RICO example #2
Unlawful proceeds in Mortgage Fraud
Suspect uses
unlawful proceeds
as down payment
$$$$$
Suspect generates
unlawful proceeds
through 2x drug sales
Suspect’s unlawful
proceeds used to
obtain real property
50. Interest or Control
and Mortgage Fraud
ORS 166.720(2)
IF from a PRA, a person
Acquires, maintains, direct or indirect, interest or
control
Of any enterprise,
OR
ANY REAL PROPERTY
Injury from acquisition, etc., itself.
Kotera v. DAIOH Int’l, 179 Or.App. 253, 277 (2002)
THEN CHARGE RICO
51. RICO example #3
Interest or Control in Mortgage Fraud
Suspect then
Suspect falsely
Obtains HELOC #2
Represents to
from Bank #2 for
To Bank #1 that
House #2 by using
HELOC is for
money from HELOC #1
home improvement.
and by concealing
In reliance, Bank #1
Origin of money.
Issues HELOC #1
for house #1
Money from HELOC #2 is used to acquire
House #3 by concealing the origin of the money.
52. Some Oregon Charges available?
Racketeering (1x) with predicates:
Aggravated Theft (3x)
Bank Fraud (3x)
Wire Fraud (3x)---if electronic….
Aggravated Theft (3x)
….More…….
53. So why not charge RICO?
RICO is a class A felony.
Maximum penalty:
20 years
$375,000 fine
Actual penalties can include
sentencing based on the
highest level predicate.
Sentencing may be
consecutive to underlying
predicates. State v. Blossom,
88 Or.App. 75, 78-79 (1987).
54. Sample Proceeds (subsec.1)
Indictment Language
“The Defendant, between [begin date here] through [end
date here], in [county here], did unlawfully and
knowingly receive the direct or indirect proceeds of a
pattern of racketeering activity, used or invested,
directly or indirectly, any part of such proceeds,
derived from the use thereof, in the acquisition of
title, rights, interests, or equity in real property, to-
wit; [identifying real property information/location here]
The pattern of racketeering activity consisted of incidents
that were not isolated but that had the same or similar
intents, results, accomplices, victims, or methods of
commission, or were otherwise interrelated by
distinguishing characteristics is more particularly
described as follows:
[allege predicates individually here]”
55. Sample Interest/Control (subsec.2)
Indictment Language
“The Defendant, between [begin date here] through [end
date here], in [county here], through a pattern of
racketeering activity, did unlawfully and knowingly
acquire, maintain, directly or indirectly, an interest
or control in real property, to-wit;
[identifying real property information/location here]
The pattern of racketeering activity consisted of incidents
that were not isolated but that had the same or similar
intents, results, accomplices, victims, or methods of
commission, or were otherwise interrelated by
distinguishing characteristics is more particularly
described as follows:
[allege predicates individually here]”
56. RICO Remedies
Injunctions and orders
Divestitures of --interests in enterprise OR real
property;
Restricting future activities, investments, enterprise;
Dissolution or reorganization of any enterprise.
Suspensions or revocations of licenses, permits, etc.
Forfeiture/revocation of authority to conduct business.
Forfeiture of personal or real property, and proceeds
Seizure without court process -- incident to arrest,
administrative inspection warrant, prior RICO judgment.
Award of costs of investigation and litigation - for
agencies working case. Includes attorney fees.
The AG, any DA, and state agency with jurisdiction over
predicates may institute civil forfeiture proceedings.
57. Civil RICO Complaint
Any DA, state agency, investigative agency, or the AGO –
may file civil RICO.
Any aggrieved person – may file civil RICO, with limit:
It must follow a RICO criminal conviction with appeal
rights expired OR Civil RICO Complaint limited to selected
list of predicates from ORS 166.715(6)(a) – most not
mortgage fraud.
May seek forfeited property or proceeds superior to the
state, attorney’s fees, three-fold the actual damages
sustained and, when appropriate, punitive damages.
Damage awards are supplemental and not mutually
exclusive of other damages.
Collateral Estoppel: If criminal RICO conviction, then
estoppel in subsequent civil actions or proceedings.
58. RICO
Use Oregon RICO to fight mortgage fraud –
When there is a predicate involving a
pattern of mortgage fraud.
Two or more is sufficient for a pattern
Use to bring federal and state charges.
