Mortgage fraud prosecutions on the rise
An Atlanta real estate closing attorney was sentenced yesterday in a federal mortgage fraud case. The Atlanta Journal Constitution reports that the lawyer received a three year sentence for his role in a large-scale mortgage fraud scheme involving real estate investor Phillip Hill.
Our firm has handled many mortgage fraud cases in the past few years. We have represented closing attorneys, appraisers, mortgage brokers, investors and "straw-buyers" investigated for mortgage fraud in federal and state court.
Mortgage fraud cases can be complex, but they usually follow a similar pattern. A house is purchased by an investor, then resold to a straw-buyer at an inflated value. The inflated value is the result of an overstated appraisal. The loan documents are usually falsified so that the straw-buyer can qualify for the loan. The house is then sold to the straw-buyer from the investor and the investor gets the profit. The straw-buyer gets a little something for his role, usually a few thousand dollars. Unfortunately, the straw-buyer also gets a house that's worth less than he owes on it.
Mortgage fraud prosecutions usually focus on the key players in real estate transactions - investors, brokers, appraisers and attorneys. One of our recent mortgage fraud cases involves a prominent real estate lawyer arrested on RICO and mortgage fraud charges in Georgia. Here is the story from the local newspaper:
Attorney: Fraud case flimsyAn Athens attorney might have worked on some 60 mortgages that authorities allege were part of a $7 million fraud scheme, but he turned away about 40 more because he sensed there was something amiss, said the Atlanta attorney who is defending the local lawyer.
"Based on everything I have seen, they should never have charged him," said Page Pate, the attorney representing C. Michael Rose. Pate, who specializes in mortgage fraud, said the case against Rose is so flimsy he should never have been arrested for allegedly violating the state's Racketeering Influenced and Corrupt Organizations Act.
Although Rose was the closing attorney for many sales in the subdivision, he turned down others that involved "insufficient paperwork and other indications the documents were not in order," Pate said. The closings Rose did participate in were all legitimate, Pate claimed. "Any disbursements or payments that were made in connection with those loans were fully disclosed to the lenders, and the lender approved each and every closing that Mike Rose did," he said...
In that case, unlike the closing attorney sentenced yesterday in Atlanta, our client had no involvement in any fraud. There was no way for our client to know that the loan documents were false.
Prosecutors often overlook the fact that there would be very little mortgage fraud if lenders had not been so greedy to fund questionable deals. Some of the mortgage brokers are also to blame because they did everything they could to get people qualified for loans that they could not afford. In many cases, the brokers and the lenders did not care what happened after the loans closed because they sold the loans to some other lender or investor. Getting the mortgages paid became someone else's problem.
I expect an increase in mortgage fraud prosecutions on both the federal and state level as more and more lenders get into financial trouble because of bad loans. We've heard of a lot of mortgage lenders getting out of the business and announcing major financial losses. If history is any guide, they will be looking for someone to blame and encouraging federal and state prosecutors to indict more cases.
