Magazine article The FBI Law Enforcement Bulletin

Real Estate Fraud

Magazine article The FBI Law Enforcement Bulletin

Real Estate Fraud

Article excerpt

The increasing number of real estate foreclosures has become a significant financial issue negatively impacting the national economy. In 2005, 846,000 homes entered into foreclosure. The following year, the number increased 41 percent to over 1.2 million. In 2007, more than 2.2 million reportedly foreclosed, a 75 percent rise over 2006 and a 149 percent increase over 2005. (1) Most of the homeowners legitimately purchased their residences with adjustable rate mortgages (ARMs). Believing that their home values would rise, the buyers expected to refinance if necessary.

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However, a significant number of people were not innocent bystanders but perpetrators of a criminal conspiracy frequently involving real estate professionals and speculators, mortgage brokers, appraisers, and title companies. The actions of these individuals largely helped create a market with artificially inflated home prices, increasing the potential for values to decline and foreclosures to increase. This criminal activity has impacted communities nationwide and victimized everyone. A combined response by federal, state, and local law enforcement can punish the perpetrators and deter this activity in the future.

A SERIOUS PROBLEM

Individuals become involved in real estate fraud to obtain a residence to live in or to profit financially. Those committing the crime for monetary gain frequently participate in multiple transactions with the same group of coconspirators.

Real estate fraud hurts everyone, decreasing the values of homes, negatively impacting the stock market, and increasing the cost of borrowing. In the long run, not only do the lenders suffer but the stockholders and future borrowers pay increased fees for loan services so that the lenders can recoup their losses.

AN EFFECTIVE RESPONSE

Due to the broad and significant community impact of this type of fraudulent activity, the investigation of real estate fraud must receive a high priority. In view of resource limitations among agencies, an effective response requires a team approach involving federal, state, and local law enforcement and regulatory agencies.

Identifying Targets

Once established, the team can identify targets for investigation. To do so, law enforcement personnel should establish relationships with honest, ethical real estate professionals, lenders, and financial institutions within the community. These individuals and organizations scrutinize the local market and know when a sales price for a property or group of properties is significantly out of range or, of course, when they personally have been victimized. The local assessor and personnel in the recorder's office also closely monitor transactions and often are aware of sale or foreclosure anomalies within the community.

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Reviewing foreclosure records also can help identify coconspirators in fraudulent activity. Based on available information, investigators can look for connections, such as multiple foreclosures in a new housing development or numerous transactions involving the same buyer, seller, real estate agent, lender, or settlement agent.

Examining Documentation

After identifying targets, investigators next should collect documents regarding the transactions in question. In other types of white-collar crime investigations, documentation relative to a financial transaction frequently is available on a limited basis and is only in the possession of potential targets who do not have to maintain it. However, in real estate fraud investigations, the buyer, seller, mortgage broker, lender, real estate agent, appraiser, and settlement company maintain the records--in many instances, for an extended period of time by law. Rarely will investigators find a shortage of documentation that they can review and, frequently, identify discrepancies that, in and of themselves, indicate fraud. …

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