TheREALTYgram Blogger

Georgia Gets Tough On Residential Mortgage Fraud;Perpetrators Face Prison Sentences and Property Loss

A new law in Georgia increases the penalties for residential mortgage fraud. Those convicted can be sentenced one to 10 years in prison and be fined up to $5,000, while those found guilty of multiple frauds can be imprisoned for three to 20 years and be fined up to $100,000.

The Georgia Residential Mortgage Fraud Act (S.B. 100) also states that any property used to violate the law can be forfeited.

Four people are going to be charged under Georgia's tough new mortgage fraud law. The following appears in The Atlanta Journal Constitution:

"The four accused conspirators — a buyer, an agent, a broker and an alleged ringleader — are accused of attempting to steal at least $60,000 from a bank by inflating the value of a Fulton County property by placing fake liens on it.

"That method is a variation on a widely practiced scam that has turned metro Atlanta into one of the nation's worst hot spots for mortgage fraud, federal authorities have said.

"Typically, the scam involves a buyer who obtains a loan to buy a home for far more than it's worth based on a phony appraisal. In many cases, the borrower is in on the conspiracy.

"The original owner, who usually knows nothing about the conspiracy, is paid the asking price, but the additional cash from the loan is divided among the conspirators. In most cases, the property gets foreclosed upon because the buyer doesn't make the mortgage payments.

"The hyper-inflated values of the "flipped" houses also can prompt increases in surrounding home values and property taxes."

Georgia has become a hot bed of mortgage fraud. Earlier this year the state legislature enacted a new law that makes it a felony to illegally flip a piece of property. First time offenders face up to 10 years in prison and a $5,000 fine.

The law will help reduce the number of buyers who obtain "inflated appraisals" on newly purchased properties and then sell them a few days later at a profit. It defines residential mortgage fraud as "knowingly misstating, misrepresenting, or omitting information during the mortgage lending process; receiving proceeds from a mortgage closing that one knew to be fraudulent; conspiring for either of the previous or filing with the official registrar of deeds of any county any fraudulent document."  

Justice Prevails In Pacific Northwest;Mortgage Fraud Culprits Sent To Prison

John Hansen, a Washington State real estate appraiser, was the final culprit in a mortgage fraud ring to be sentenced (MortgageFraudBlog). He was ordered to spend 18 months in federal prison followed by three years of supervised release and ordered to pay restitution of $287,796. Hansen pleaded guilty to conspiracy to commit wire fraud last year in connection with the Century Mortgage fraud in Washington.  According to authorities, Hansen inflated appraisals on homes purchased by vulnerable homebuyers. The Seattle Times reports the following:

Former Century Mortgage co-owner Dale D. "Sage" Gibbons was sentenced to five years in prison and ordered to pay $449,953 in restitution. He was convicted in July on 16 counts of wire fraud.

Former real-estate agent Sally L. Gibson, who sent home buyers to Century Mortgage for financing, was sentenced to 30 months in prison and ordered to pay $264,406 in restitution. She was convicted of a dozen counts of wire fraud.

Co-defendants Ronald Lee Burger and Cathy M. Patrick pleaded guilty to wire fraud and testified against Gibbons and Gibson.

Burger, also a co-owner of Century Mortgage, was sentenced to 37 months in prison and ordered to repay $423,011. Patrick, a closing agent, was sentenced to 60 days in jail and three years' probation and was ordered to repay $148,340.

In the home-sales fraud conspiracy, scores of people bought houses for far more than market value, then found themselves facing balloon payments, high interest rates, foreclosure and even bankruptcy.

 

Historic Home Sale In New Mexico ImpededBy Appraiser's Disclosure Of Ghostly Inhabitant

CORRALES, NM -- As the owners of the historic Perea Casa 19th century home faced foreclosure recently, a prospective buyer from Massachusetts attempted to purchase the property. Underwriters at several lenders refused to grant financing after seeing an appraiser's note that the original owner of the property haunts the premises and throws orange peels at guests. WMC Mortgage Corp. spokesman said:

"It's just something that's so out of the ordinary, that if you had to foreclose on it, there would be a limited buyer pool."

Perea Casa, built by Don Juan Perea between 1830 and 1850 is a classic 19th century Territorial style house with its central sala flanked by a row of rooms on each side. It served as county courthouse and as a place for dances and fiestas.

Ghost occupancy can decrease property value by 35%. Stigmatized property studies have long been a focus of legal concern and valuation scrutiny. Not all appraisers and valuation reports will discount the value of a property on supernatural occupants. Commercial properties with haunted holdings have been known to see an increase in value.

Banks Pressure Appraisers To Inflate Property Values

Appraisers across the country have turned to federal and state regulators for help in stemming a tide of corruption involving lenders who apply undue pressure on appraisers to inflate property values. Banks and other lenders have threatened to withhold business from appraisers who refuse to inflate property values or guarantee a predetermined value. They promise the same fate when appraisers refuse to ignore deficiencies in properties, according to an Appraiser's Petition signed by almost 8,000 appraisers, real estate agents, and consumers. Other charges in the petition include refusal to pay appraisers who do not meet target values and blacklisting honest appraisers. A recent survey of 500 appraisers found that 55% of those polled reported pressure for inflated value reports.

"Appraisal fraud has been kind of lingering in the background for a long period of time," owing in part to highly automated lending practices, a growth in financial services conglomerates, and house-price inflation, according to Bill Apgar, former Assistant Secretary of Housing/Federal Housing Commissioner at the US Dept. of Housing and Urban Development (HUD) who is a senior scholar at Harvard's Joint Center for Housing Studies. "This is a big black eye for the entire industry."

Experts agree that the foreclosure market is particularly vulnerable to these pressures. Investors typically look to this market for distressed properties that can be bought at a discount, rehabbed and resold in a short period of time. This practice is known as "flipping" properties.

Soon this blog will address the writer's firsthand experience with appraisal fraud and predatory lending practices in the Lehigh Valley (PA) that led to a rash of  foreclosures and left its mark on inner city neighborhoods.