Mortgage and Real Estate Scams in Michigan

The downward trend in the real estate market has encouraged mortgage fraud perpetrators to develop and utilize many schemes. The recent rise in foreclosures along with a depressed market, declining values and decreased demand has placed pressure on lenders, builders and home sellers. Fewer loans will be originated as lending practices tighten in response to the subprime lending crisis. Identity theft is a popular tool for use in mortgage fraud. With higher lending standards being enforced, individuals with good credit are valuable to perpetrators; therefore, at risk for identity theft and mortgage fraud schemes.

Illegal Property Flipping

Illegal flipping is a popular scam; here’s an example: An investor purchases a property for $20,000 and has the property fraudulently appraised for $80,000. The flipper then sells the house for $80,000 to a straw buyer who is able to get an 80% loan of $64,000. The flipper makes a $44,000 profit, while the home goes into foreclosure. The bank is left with a $64,000 mortgage owed on a home that is worth only $20,000. If the mortgage is FHA insured, the government absorbs the loss.

Builder-Bailout Schemes

Builder-bailout schemes occur when a builder or developer has difficulty selling their inventory, so they use fraudulent methods to sell the homes. This is most common in a depressed market and typically involves builders offering incentives to buyers which are not disclosed on the mortgage loan documents. For example, a builder wants to sell a house for $200,000. He begins by getting an inflated appraisal for $240,000 and finds a buyer. The lender funds the mortgage, believing that the buyer already paid the builder a 20% down payment of $40,000. The builder gets his $200,000 at closing and forgives the down payment; the lender has funded 100% of the home’s value. If the home should foreclose, the lender has no equity.

Seller Assistance Scams

Mortgage fraud perpetrators exploit the depreciating real estate market by assisting sellers when they provide buyers to conduct sales that are based on inflated appraisals. In a typical scam, the perpetrator determines the amount the seller is willing to accept and then hires an appraiser to inflate the value. He then finds a buyer who will obtain a mortgage for the inflated amount so the seller gets his asking price and the perpetrator gets the difference between the market value and the inflated value. If the mortgage should default, the lender forecloses, but is not able to sell the house for what is owed on loan because of the inflated appraised value.

Short Sale Scams

With the increase in foreclosures, short sales are a way out for many distressed homeowners. Lenders cut their losses by agreeing to accept less than what is owed to them on the mortgage rather than waiting out the foreclosure process while property values continue to decline. Here is an example of a pre-meditated short sale scam:

The perpetrator finds a straw buyer to purchase a property, providing fraudulent information about the buyer and the value of the house. He may even get the straw buyer to refinance the home to borrow money for repairs; he pockets the money and repairs are not made. He defaults on the payments and the home goes into foreclosure. When the straw buyer shows hardship and informs the lender that he cannot make the payments, he recommends the perpetrator as a buyer who will purchase the home on a short sale. The perpetrator gets the lender to accept less that he would receive in a foreclosure sale, and then sells the property for its actual value, or gets an inflated appraisal to conduct an illegal flip.

Foreclosure Rescue Scams

Escalating foreclosures have provided the opportunity for scammers who claim to be foreclosure help consultants who convince homeowners that they can help them save their homes from foreclosure. Some will agree to take over the mortgage payments while the homeowner rents their own home. Of course, they keep the rent payments but do not pay the mortgage payments. If the home has a lot of equity, the scammer may forge a deed, or trick the homeowner into signing a deed so they can secure a second loan without the homeowner’s knowledge, thus stripping the property’s equity. Many of these types of scams also involve an upfront consulting fee which adds to the scammer’s profit.

Read 10 Tips for Protecting Yourself from Real Estate Scams and Mortgage Fraud

Robert Shumake addresses Mortgage Fraud and Real Estate Scams in Michigan

Realtors and mortgage loan officers depend on closings and loan originations to earn commissions to make a living; the depressed market has encouraged many to commit fraud

Detroit, MI -- Mortgage fraud is on the rise due to a declining real estate market and an increase in foreclosures. The number of real estate sales is down; therefore, realtors and mortgage lenders, who are paid on commissions, are not making money. These circumstances have encouraged real estate agents and mortgage lenders to commit fraud to close deals and make commissions.

Robert Shumake is the CEO of Inheritance Investment Group in Detroit, a company who manages and develops real estate. He is a real estate expert; not one who would be expected to be a victim of fraud. “Anyone can be a victim of real estate fraud,” says Shumake. “Sometimes people will commit identity theft to obtain a housing loan, sell someone else’s house or take over someone else’s property.”

When Robert Shumake tried to sell some investment property, he found out that he was a victim of fraud. Someone has fraudulently executed a quit claim deed to transfer title of ownership, move into the property and take out building permits to make improvements. It took 2-1/2 years and over $60,000 in legal fees resolve the matter. “You can spend tens of thousands of dollars and still not be guaranteed your property,” said Shumake.

Robert Shumake’s experience led him to join with Michigan state officials to launch a mortgage fraud task force to aid victims and promote consumer awareness and prevention. Robert has made it his mission to help prevent this from happening to others.

There are steps people can take to protect themselves from mortgage fraud and real estate scams. Robert has written and published articles about the many ways predators commit fraud. According to Shumake, understanding how the scams are pulled off is the first step to preventing them. Robert is working on compiling his articles into blogs on the internet for consumers to read. Learn about the fraudulent activity in today’s market at http://robertshumakemortgagefraud.wordpress.com/

Contact:

Robert Shumake
Inheritance Capital Group, LLC
25900 West 11 Mile Road
Southfield, MI 48034
Phone: 248-443-0939
Email: nmccalister@icgreit.com

Mortgage Fraud Report: Michigan is among the Top 10 States

Mortgage fraud is defined as the intentional misrepresentation of information, by applicants, loan officers or other parties, which is relied on by an underwriter to provide funding for a mortgage loan.

Mortgage fraud is divided into two categories: fraud for property and fraud for profit. Fraud for property or housing involves misrepresentations by the applicant for the purpose of purchasing a primary residence. Although applicants may claim more income and less for expenses in order to qualify for the loan, they usually do intend to repay the debt.

Fraud for profit often involves multiple loans and elaborate schemes generated to gain commissions or proceeds from property sales. This is the category that is of the most concern to law enforcement within the mortgage industry. Inflated appraisals and misrepresentations on loan documents are common in fraud for profit schemes and participants are frequently paid for their participation.

Many reports on real estate and mortgage fraud have been released in the last few years. The downward trend in the housing market will continue to provide further incentive for shady real estate deals and dishonest practices for earning a profit. Michigan is among the top 10 states for mortgage fraud with the largest share of fraud being in the north-central region of the United States.

The subprime lending practice is a major contributing factor to real estate and mortgage fraud. Subprime loans were designed for people with poor credit or limited credit histories. These high-risk loans have contributed to well over 2 million foreclosures filed during 2007. The increasing real estate values lead to relaxed lending practices in the industry and created more opportunities for scam artists to prey on vulnerable homeowners.

Some of the latest mortgage scams include builder-bailout schemes where developers unload excess inventory through financial trickery and foreclosure help scams where distressed homeowners are tricked into signing over the deed to their home. Others include seller-assistance with the use of false appraisals to sell homes and identity theft leading to home equity credit lines being opened and drained.

Mortgage Fraud in a Depressed Market

The increasing interest rates and the declining housing market have contributed to the high foreclosure rate. As homes depreciate and the demand for housing decreased, distressed homeowners are unable to sell their homes for what is owed on them. During declining markets, mortgage lenders are likely to commit mortgage fraud to earn commissions.

The housing market is expected to continue to decline; therefore, reducing the amount of mortgage loan originations in 2009. As values decline and mortgage guidelines get tougher, fraudsters will devise now and improve schemes to exploit the weaknesses in the market.