Mortgage Fraud Anatomy

Mortgage fraud permeated the country during the real estate boom, but it was especially rampant in Florida, and Miami, as the market became flooded with new homes and condominiums. During the market boom, prices were appreciating at dizzying levels, doubling in just a few years in some markets. Lenders made borrowing easier, offering the lowest rates seen in years. Real estate investment seemed like an easy way to make money by just “flipping” properties - holding it for a short period and selling for a profit. Property owners who suddenly realized the equity in their homes blossomed overnight found lenders were only too happy to lend money based on this equity by refinancing at low rates.

Inflated real estate prices suddenly led to deflated prices when the market crashed. The down turn left many property owners under water holding more debt in their mortgage than their property was worth. This market collapse affected all economic sectors – banks, financial markets, homeowners - causing economic losses across the board.

At the time the upward real estate markets looked endlessly optimistic, it gave fertile ground to mortgage fraud schemers who saw the real estate boom as an easy way to make money. As long as prices appreciated they would probably not get caught. This is how a typical mortgage fraud worked.

An “investor” or “speculator” would recruit a person with good credit known as a “straw buyer.” The straw buyer would not have the financial ability to borrow enough to purchase the property. The investor would offer to pay the straw buyer to have the property purchased in the buyer’s name, calling it an investment and assured the buyer the property would be flipped for a profit to another purchaser or rented out. The straw buyer would sign mortgage applications prepared by the investor containing all sorts of false information about their income and assets. The mortgage application might have a fictitious job or it would exaggerate the income of the borrower. Often fraudulent document such as letters confirming employment were provided to dupe banks into believing the borrower could qualify for the loan. In some cases the straw buy had no idea about the false financial information in the mortgage application. In other cases the buyer was well aware of the scheme. The straw buyer broke the law by knowingly providing this false information.

The false statements would be used to help the straw buyer qualify for loan that the buyer could never qualify for without the false information. Usually the purchase was made with very little down payment. The investor would then flip the property to another straw buyer for a greatly appreciated price, pocketing the profit. The investor would continue to flip it until the market collapsed, when the investor would just walk away from the property.

When the market collapsed, properties could not be resold for profit and speculators walked away from the property leaving the property in the foreclosed owner’s name. The investors often pocketed whatever loan proceeds came from the bank once the property fell into foreclosure.

Only after the property fell into foreclosure would the false information be discovered because by then the loan application document would be more closely examined.

Miami attorney Ken Swartz at the Swartz Law Firm has extensive experience representing persons charged with these types of offenses.