Mortgage and Title Fraud - Housing Iowa Conference September 5, 2018 Des Moines, Iowa - Iowa Finance Authority
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Mortgage and Title Fraud
Housing Iowa Conference
September 5, 2018
Des Moines, Iowa
The 18 1/3-Year Cycle in Real Estate
Activity, 1795-1958
Projecting Forward, market bottoms in 1991 and 2009/2010
Copyright 2018 Rachel Dollar
The 18.3 year cycle in mortgage fraud
1
• Pressure to get into market- perception that
price increases will prohibit entry; Market
flooding with new construction; Identify new
buyers and borrowers
Copyright 2018 Rachel Dollar
Top of Market (Front End Fraud)
• Fraud to buy property or more property
– Qualifying – Documents
– Affordability – Down payment
– Multiple purchases – straw buyers / occupancy
• Fraud to earn commissions
– Flipping loans
– “Helping” borrowers qualify
Copyright 2018 Rachel Dollar
The 18.3 year cycle in mortgage fraud
↓
2
• Market disappears quickly- real estate
professionals have lifestyles to maintain,
businesses/employees/overhead to support,
builders left with inventory
Copyright 2018 Rachel DollarMarket starts to decline (Fraud moving
from front to back end)
• Builder bailouts
• Straw buyers
– owners try to get out of property
– Loan modifications
• Escrow frauds as sales dry up and funds for
operations are not readily available
• Appraisal fraud trying to keep prices highThe 18.3 year cycle in mortgage fraud
3
• Borrowers distressed as real estate affects
broader economy, prolonged distress uses up
reserves, real estate professionals target
distressed homeowners/real estate as business
Copyright 2015 Rachel DollarBottom of the market (Back End Fraud) • Modification frauds • Short Sale frauds • REO frauds • Bankruptcy frauds • Foreclosure rescue • Mortgage elimination (sovereign citizen) Copyright 2018 Rachel Dollar
The 18.3 year cycle in mortgage fraud
↑
4
• Opportunity abounds, get rich quick schemes
start to appear, opportunists continue to
target remaining vulnerable homeowners
Copyright 2018 Rachel DollarRising Market (Fraud becomes mainly
Front end)
• Credit Repair
• Inflated appraisals – Valuation pressure
• Flips, flips, flips
• Title Fraud
• Down payment frauds
• Investor Clubs/Schemes
– Straw buyers
• Ponzi schemes
Copyright 2018 Rachel DollarCycles
• The driving forces are the same
• The crooks are still out there
• What about Dodd-Frank
– Tighter Lender Controls
– Appraisal Rules
– Underwriting
– Awareness
• With changed appraisal rules it is harder to find
the “money” in a mortgage fraud transaction
Copyright 2018 Rachel DollarCopyright 2018 Rachel Dollar
AMC
• What are appraisers saying?
– Reconsideration of value or request for new appraisal
• Being used as alternative to direct pressure
– AMCs allow lenders to choose panels
• Recommendation from branch manager to get on panel
• Rotation doesn’t hit all appraisers
• Appraisers removed if they do not hit value
– Price/Turn time is only criteria
• Requests for bid do not give minimum data to determine own
competency to accept assignment
• Race to the bottom – least experience appraisers and “mills” get
the work
• No professional criteria for being on panel other than licensing –
don’t ask for resume/appraisals/examples
Copyright 2018 Rachel Dollar“Indirect Pressure”
• If don’t hit value consistently – won’t get
assignments
• If they don’t change value on reconsideration
request – will be removed from panel
– Even if the pressure isn’t there, if they think it is, they
will hit values
– Are they hitting values or does shortage of appraisers
alleviate this problem?
– Although the processes have changed, the appraisers
haven’t
• THIS IS WHERE IT CAN ALL BREAK
Copyright 2018 Rachel DollarBut, if appraisers aren’t in on it …
• Cannot consistently make money on flip
transactions
– Actually have to create value
– Fraudsters are not honest business people
• WHERE DOES THE FRAUD GO?
Copyright 2018 Rachel DollarProperty Theft is the New
Appraisal Fraud
Copyright 2018 Rachel DollarForgeries - DC
• Robert McCloud, South Carolina
• Identified vacant or seemingly abandoned residential properties
– No mortgage liens
• Forged transfer deeds – filed with recorder of deeds
– Transferred to fictitious people
• Agreed to sell to legitimate purchasers
– Effected sales through title/escrow companies
– Presented fake driver’s licenses with real photos
– Money transferred to bank account in name of fake person
• Two successful transactions in 2015 – received $580K
• $369K was seized and forfeited
• Title company loss of $200K
Copyright 2018 Rachel DollarForgeries – New York
• Aderibigbe Ogundiran, New York
• Target properties whose owners were deceased or seemingly
abandoned properties
• New York closings are table top – all parties appear at closing
• Six different homes
– Owners were deceased
– Transferred properties to controlled corporations
– Often through powers of attorney ‘signed’ years after owners died
– Used imposters to pose as deceased owners
• Sister of one deceased owner who lived in home was served
notice to vacate and filed complaint
• One owner in a house owned by three people received
notice of transfer from the title company
• Another heir received notice of the title transfer
Copyright 2018 Rachel DollarForgeries - PA • Kenneth Hampton running scheme from prison through is son Terrell • Identified vacant properties in Philly • Created and filed false transfer deeds • Moved into the properties using fake leases • Either sold properties, took out mortgages or obtained aid from government programs Copyright 2018 Rachel Dollar
New Foreclosure Rescue or just theft
• Arlando Jacobs, Clarence Reynolds, Texas (both pled)
• Gained control of property
– Convinced owners needed to sign Deed in Lieu for Loan Mod
– Or just falsified conveyances)
• Cleared Title and encumbered
– Recorded documents showing conveyance to lender (generally pool) –
foreclosure deeds
– Recorded fraudulent deed from lender to their company “for consideration”
– At times recorded assignments of mortgage
– Recorded false mortgage from controlled company
• Sold property to third party
– Submitted fraudulent payoff demand and instructions
– Received proceeds into own accounts
• Used real lenders (BofA, Interbank) but their account number
• Ten properties in California and Texas
Copyright 2018 Rachel DollarSovereign Citizen Simplified
• Identify Property
• Gain Control and Clear Title
– Sell programs
– Forged Documents
– Lies
• Finance or Sell
• No need to jump through hoops when you
just steal the title
Copyright 2018 Rachel DollarIT STARTED WITH THE SOVEREIGN CITIZENS … MORTGAGE ELIMINATION
Some people believe with great fervor
preposterous things that just happen to
coincide with their self-interest.
Judge Frank Easterbrook, Coleman v. CIR (7th
Cir 1986) 791 F2d 68 at 69
Can I get rid of my mortgage?
Copyright 2018 Rachel DollarShon-te-East-a, Walks with Spirit Copyright 2018 Rachel Dollar
• Tax Exempt religious organizations
– Shon-te-East-a, Walks with Spirit
– Pillow Foundation
• Dichiara was ‘archbishop’ of both
• Helped individuals spiritually by alleviating
them from personal debt (mortgages)
• CCTT Group (Castle) did “administrative
default process” and “mortgage elimination”
Copyright 2018 Rachel Dollar• Identified target homeowners
– Distressed
– Property value less than owed
– In danger of foreclosure but no foreclosure recorded
• Recruited distressed homeowners
– Held seminars
– Offered relief from foreclosure and protection of
spiritual/charitable organization through mortgage
elimination
– Homeowner had to agree to sell their home
– Tax write-off for donating home to church and 20% of
short sale proceeds
Copyright 2018 Rachel Dollar• Homeowner convey home to Shon-te-East or
Pillow Foundation as charitable donation
– Quitclaim recorded or assignment executed
• Sent documents to lender challenging loan
• Recorded sham deed of trust to fictitious lender –
arbitrary higher loan amount
• Recorded fraudulent deed of reconveyance of
original lender’s deed of trust
• IF NOD recorded, recorded fraudulent rescission
Copyright 2018 Rachel Dollar• Located short sale buyers • Fictitious lenders “approved” short sale at fraction of recorded DOT amount • Fictitious lenders submitted payoff demands to escrow • Divided sales proceeds among selves and homeowners Copyright 2018 Rachel Dollar
• 37 properties completed • $8M in sales proceeds • Addition 97 properties in process at indictment • Kirkpatrick Pled • Romano Pled • Pezzi Pled • Larsen and Todt guilty Copyright 2018 Rachel Dollar
Larry Allen Todt Copyright 2018 Rachel Dollar
Copyright 2018 Rachel Dollar
Copyright 2018 Rachel Dollar
Crazy stuff Copyright 2018 Rachel Dollar
FBI • “The FBI considers sovereign-citizen extremists as comprising a domestic terrorist movement …” • Paper warriors • Proliferation due to financial crisis Copyright 2018 Rachel Dollar
Not “militia”
• “Constitutionalists”
• “Freemen”
• “Sovereign”
• Emancipated from “trappings” of citizenship
– Taxes
– Driver’s Licenses
– Believe that laws do not apply to them
– Sometimes use or buy illegal weapons
Copyright 2018 Rachel DollarBelief System • Government system originally set up by founding fathers was “common law” – under common law, men are free • During civil war or in 1933, replaced by “admiralty law” – men are slaves • Law enforcement and judges know about this change but hide it from people out of treasonous loyalty to government system Copyright 2018 Rachel Dollar
Cash in on your birth certificate
• 1933 – Franklin D.
Roosevelt unable to pay
debt of US, bankrupting
the country
• Only thing left to sell
was the citizens
• Utilized future
work/income of citizens
to collateralize for the
US debt
Copyright 2018 Rachel DollarHow’d they do that? • US created a “corporation” or ‘straw man’ for each individual person • The straw man is what the US uses as collateral – deposit with Treasury made on birth registration • Birth certificate is a document of title • Splits rights between natural person and straw man • “straw man” is name in all capital letters – distinct from the actual person • As most legal documents use all capitals, they relate to straw person, not natural person Copyright 2018 Rachel Dollar
The proof?
• Name in all caps “creating the
straw man
• Sequentially number – to keep
track of their property …
• Issued on “American BankNote
Company” paper – because
you are collateral ,,,
Copyright 2018 Rachel DollarWhy be soveriegn
• Admiralty law does not apply
– Driver’s license
– Traffic tickets
– Tax obligations
• Can tap into treasury account for own use
– Each birth certificate worth between $700K and $1M
– File a “notice of lien” with the department of
commerce
– File a UCC-1 financing statement listing the property
as collateral
– Use “bond” to pay off debt
Copyright 2018 Rachel DollarHere comes the theory • When you took out the “loan” from the bank, did you receive gold? Did you receive cash? • The bank actually used money it had created out of thin air … the money didn’t actually exist … it was “vapor money” • The bank didn’t actually you anything • AND, the promissory note you gave the bank had value – it was booked as an asset Copyright 2018 Rachel Dollar
Therefore • You don’t owe the bank anything • You already paid them by giving them the promissory note • Which they booked as an asset • Fractionalized • Created money from • And loaned to others Copyright 2018 Rachel Dollar
On the Back End
SOME OLD, SOME CREATIVE
Copyright 2018 Rachel DollarRobert Jacobsen
• American Home Mortgage Company- Originator –
did business as American Brokers Conduit
• Jacobsen started American Broker’s Conduit
Company
• Jacobsen obtained homes with AHMC liens
– $$ owed on mortgage
– Represented to owners that liens invalid
– Jacobsen to clear lien, sell home, provide owners with
some $$
• Transferred properties to shell companies he
owned
Copyright 2018 Rachel DollarThe scam • Hired lawyer to sue American Broker’s Conduit on behalf of shell companies claiming liens invalid • Hired lawyer to represent American Broker’s Conduit • Had American Broker’s Conduit enter stipulated judgment agreeing to lien invalidity • Recorded stipulated judgments • Sold 3 homes 1.6M - attempted one other 2.5M • Indicted November 2015 Copyright 2018 Rachel Dollar
On the Front End
SAME OLD, SAME OLD
Copyright 2018 Rachel DollarEscrow Officer gets wrapped in
• Abolghasseni “Abe” Alizadeh was real estate developer
• Submitted altered purchase contracts which significantly inflated
purchase prices on commercial property to get excess funds
• $22M funding/loans to purchase $10M property
• Alizadeh did not have funds to cover down payment
– At Alizadeh request, Weaver delayed depositing down payment checks
until after closing
– After disbursement of proceeds, borrower would use bank funds to
cover down payment and closing costs
• Six properties - $22M in bank losses
• Mary Sue Weaver, 65, Scottsdale, AZ – ESCROW AGENT
– Pled guilty to wire fraud and bank fraud
• 4 years and 2 months in prison
• $15M restitution
Copyright 2018 Rachel DollarStraw Buyers?
• 2011 and 2012
• Joseph DiVali, loan officer New Jersey
• Recruited straw buyers to purchase
– False loan applications/documents
– False appraisal reports
– Conspirator in bank to create false verifications of deposit
– Backdated deeds
– Unlicensed title agents to close and disburse
• $6M in loans
• 18 months in prison
Copyright 2018 Rachel DollarDiversion of Funds • Dean Ross, PA • Owned low-income properties in PA • Obtained loans to purchase or refi • Worked with title/escrow agents to divert funds which were to pay off existing mortgages • Continued to make payments for years Copyright 2018 Rachel Dollar
Multifamily
• Seven properties in New York – 4 men recently indicted
• False rent rolls
– More occupied units
– Higher rental rates
• False information about income
• Fraudulently altered leases
• Prevented inspectors from touring
– Turned on radios in vacant units
– Placed mats and shoes outside apartment doors
– Hired someone to stage apartment and pretend to be tenant
• Loan Amounts Significant
• Size and worth of companies involved unusual
Copyright 2018 Rachel DollarAll those pesky appraisal rules
• Kirk Lawrence Brannan – real estate and tax attorney in Texas
• Brannan owned beach homes in Texas
• Lanier offered to obtain buyers if Brannan would kick back the proceeds
above a certain amount
• Brannan ‘sold’ three of the homes to his family members at exorbitant
prices
– no money changed hands
– false HUD-1s created to use as appraisal comps in actual sales
• Morris and Blackshear recruited straw buyers
– Told buyers that Morris/Blackshear would make the payments
– False qualifying information for the straw buyers was used
– Appraisals inflated (fake comps)
• Excess proceeds kicked back to Lanier and not reflected on HUD
• Lanier sent the excess proceeds to Morris/Blackshear to pay straw buyers
• Payments were not made on the loans
Copyright 2018 Rachel DollarGeorge Price, Rafael Duran,
Richard Munoz, Lazaro Fernandez
• Miami-Dade Police Officers
• Credit repair business provided PII on customers
to police officers
• Officers created false ID theft police reports and
sent to credit bureau – filed with Miami-Dade
• Sent to credit bureaus to clear customer credit
• Police officers paid for false reports
• Motivation? $$ - to increase success of credit
repair business … ???
Copyright 2018 Rachel DollarNew and Growing Fast
CYBER FRAUD
Copyright 2018 Rachel DollarWashington Post
Cyber-Threats
• 2016 480% increase in complaints filed by title/escrow
companies
• Hijack real estate agent, borrower, escrow company emails
• Real estate agent emails very susceptible
– gmail/aol other easily accessed email accounts
– high use of iphones
– unsecured names/email addresses/escrow numbers/addresses
• Direct victim to wire funds to erroneous accounts
– Emails often include transaction specific details
– Targeting high dollar transactions
– Increased sophistication – no typos
• COURTS HAVE SAME TOOLS … NEW FACTS
– Contracts, torts, crimes … negligence, performance, breach
Copyright 2018 Rachel DollarLaw Firm Settlement Hijacked
• Attorney knew two days before transfer to him that his email was being used and that the
transaction was being targeted. Failed to appraise wiring party. Held: Wire was substantial
performance
• UCC provides guidance (not controlling)
– UCC 3-420 – if check intercepted by fraudster does not affect intended payee’s right to payment
– UCC 3-404 and 3-406 interject principle that party who fails to exercise reasonable care should bear loss
– (3-406 if failure to exercise care contributes to alteration/forgery, precluded from asserting
alteration/forgery against person who pays/takes for value – basically contributory negligence
• Taken together - A blameless party is entitled to rely on reasonable representations, even when
those reasonable representations are made by fraudsters
• Two-step rule: (1) "it is a condition of each party's remaining duties to render performance ... that
there be no uncured material failure by the other party to render any such performance due at an
earlier time" and (2) the parties' material failure (or its converse, substantial performance) shall be
determined by examining whether they acted in accord with principles of ordinary care
– If the wire transfer is issued by reason of the payor’s own lack of ordinary care, the payor remains liable
– If the payee causes the wire to be issued pursuant to their own error or lack of care, the payee is not
entitled to collect
• Bile v. RREMC, LLC, 2016 U.S. Dist. LEXIS 113874 (E.D. Va. Aug. 24, 2016)
Copyright 2018 Rachel DollarTrucking Company Wire • Buyer of truck wired payment to seller based on false wire instructions. Parties had done business together previously. Seller sued for payment. • Party in best position to prevent loss bears burden – here party who received fraudulent instructions that differed from previous instructions in multiple transactions should suffer loss • Arrow Truck Sales, Inc. v. Top Quality Truck & Equip., Inc., 2015 U.S. Dist. LEXIS 35039, 2015 WL 1278053 (M.D. Fla. Mar. 20, 2015) Copyright 2018 Rachel Dollar
Kansas Jury Verdict Upheld • Seller’s broker received spoofed email from underwriter purporting to be closing statement – forwarded to buyer • Email contained new wire instructions • Seller’s broker 85% liable – neg misrep • USDC Kansas upheld • Bain v. Platinum Realty, LLC, No. 16-2326-JWL, 2018 WL 3105376 (D. Kan. June 25, 2018). Copyright 2018 Rachel Dollar
YOU MUST EXERCISE CARE
• VIGILANCE
– Your own wires
– Any transaction you are involved in
• Training and internal ‘phishing’
• Implement process for change of wiring information
– Do not include process in an email
– Require multi-layered process/approvals
– DO NOT ACCEPT VIA UNSECURED EMAIL – FAX IS BACK
– Verbally verify changed instructions – using verified contact info
• Re-type email addresses for sensitive communications – do not REPLY
• Review own insurance policies and those of business partners
– Especially small escrow companies
• Closing protection letters are unlikely to cover
“actual loss of Funds” – defined as the money received by the issuing agent
Limits to losses “solely caused by” negligence/fraud handling funds
Essentially “gap” insurance: James B. Nutter & Co. v. Old Republic Nat'l Title Ins. Co., 2016
U.S. Dist. LEXIS 137257
Copyright 2018 Rachel DollarAlways Submit IC3 Reports Copyright 2018 Rachel Dollar
QUESTIONS?
Rachel Dollar
Smith Dollar PC
www.smithdollar.com
707-522-1100
www.mortgagefraudblog.com
The information contained in this presentation is for general informational purposes only and is
not intended and should not be construed as legal advice. Please consult an attorney for advice
and assistance with your specific legal questions and situations.
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