The buyer went in to obtain a mortgage after having references and income checked and work prepared by an attorney. The credentials were impeccable. The deal was simple and smooth. There was only one problem: The buyer didn’t exist.
This is the core of a case that was filed last week, charging elaborate mortgage fraud on Long Island in which buyers were essentially made up – simply to obtain mortgages fraudulently.
Long Island has lately become a hotbed for various types of mortgage fraud.
Local residents are being charged with everything from presenting phantom buyers and preparing fraudulent paperwork to deceptive advertising and promising services they never provided to mortgage clients.
“Parties misidentify themselves at closing for residential mortgages,” said Abraham Krieger, a partner at law firm Meyer, Suozzi, English & Klein. “They produce false driver’s licenses, false IDs, and get the loan.”
The Federal Bureau of Investigation in its 2008 Mortgage Fraud Report said difficult credit, increasing foreclosures and lower property values “fueled a rampant mortgage fraud climate fraught with opportunistic participants desperate to maintain or increase their current standard of living.”
In the most egregious Long Island case, 12 people, including lawyers and loan processors, were arrested last week and charged with being part of a fraud ring that allegedly obtained $9 million in loans for phantom home buyers.And this summer, the New York state attorney general’s office filed a lawsuit against Uniondale-based Amerimod.
While the Amerimod case involved false advertising and improper fees, the latest case involving others in the mortgage industry goes far beyond that.
The New York state attorney general’s office in the more recent and more egregious case leveled charges against others in the mortgage industry, pertaining to a web of illegal activities on Long Island from 2005 to 2007.
These indictments, which included a half-dozen Long Islanders, named lawyers as well as loan processors. Preet Bharara, the U.S. attorney for the Southern District of New York, called it a conspiracy of “industry insiders.”
Members of this alleged ring prepared fraudulent mortgage loan applications and falsely verified employment and residential information. Others posed as buyers while attorneys handled legal work.
“These defendants were allegedly able to obtain millions of dollars in home loans for phantom buyers,” New York State Attorney General Andrew Cuomo said in a written statement.
While the mortgage fraud ring allegedly victimized banks and other lenders, the Amerimod case victimized consumers seeking help with their mortgages.
Krieger said consumers need to be careful of loan modification firms that offer too much.
“What they’re promising to do is pull a rabbit out of a hat,” Krieger said. “It’s all window dressing that people in dire straits would pursue.”
Some loan modification companies create the illusion of an ability to solve financial problems in ways they can’t.
“They’ll take your money or do nothing or a little bit of something and not get any result for you,” Krieger said. “You’re dealing with people attempting to grab at any last straw.”
Cuomo’s office said Amerimod’s advertising was full of unsubstantiated claims, including that it had success rates of 90 to 100 percent. His office also said Amerimod failed to provide contracts that include required notice of cancellation rights and failed to provide Spanish-speaking consumers with Spanish contracts, also in violation of New York law.
The Federal Trade Commission said such scams thrive not only in offices, but online where it’s easier to reach vulnerable customers.
“The Internet is a fertile breeding ground for these scams because the low cost of starting a Web site makes the barrier to entry quite low,” according to the FTC.
The FTC also has gone after mortgage modification companies for “giving the false impression” that they’re connected to the government.
In one case, the FTC charged that Cherry Hill, N.J.-based Hope Now Modifications often offered little more than hope – after charging fat fees. The company’s name also sounded similar to Hope Now Alliance, created by the government to offer free help.
Krieger said consumers can protect themselves from scams by having attorneys review documents, even for something as simple as a refinancing.
“On refinances, the borrower is often not represented separately by an attorney,” Krieger said.
He said borrowers need to be sure the documents they’re signing at closings match the initial loan.
“On a worst-case scenario, you have what can be the wolf with the key to the chicken coop,” Krieger said of fraud being committed on borrowers with no attorney. “There’s nobody there to protect the borrower.”