Hot Housing Market Opens Doors for Fraud

Agents told Maria Mateo that she could buy two homes, even though her credit was tarnished. She has poured her life savings into a Brooklyn house that was deemed uninhabitable after she bought it.
Agents told Maria Mateo that she could buy two homes, even though her credit was tarnished. She has poured her life savings into a Brooklyn house that was deemed uninhabitable after she bought it. (By Helayne Seidman For The Washington Post)
By Michael Powell
Washington Post Staff Writer
Friday, July 29, 2005

NEW YORK -- For mortgage scammers, deed thieves and property flippers, this is the Golden Age.

The chatter in New York, as it is in Washington, Las Vegas, San Francisco and Miami, is of housing riches quickly realized. Prices have tripled in those cities, and 70 percent of Americans now own a home. But for thousands of working-class and poor Americans, the venture into homeownership has brought misery at the hands of the unscrupulous.

"We've never seen so many schemes and such complexity to the fraud," said Sarah Ludwig of the Neighborhood Economic Development Advocacy Project, which has helped lead investigations into predatory lending in New York. "Everyone works to defraud: the broker, the appraiser, the attorney and the inspector. Before a homeowner knows it, they are in way over their heads."

Maria Elena Mateo is one of the victims. The Dominican immigrant wanted only to buy a house with a back yard for her three children and a bedroom for herself. But a lawyer, a real estate agent and an appraiser pressured her into buying an overvalued and uninhabitable home in Brooklyn, according to court papers. She has expended her life savings of $13,000 trying to repair it.

"My kids thought their mommy was getting them a house," said Mateo, 41, tears flowing. "Everything was lies."

Echoes of such homeowner pain can be heard across the nation. Fueled by loose credit and lending standards, a growing number of "subprime" mortgage companies and rogue bands of scam artists are using false appraisals to inflate prices, stripping equity from elderly homeowners and even persuading untutored homeowners to surrender their home deeds.

The FBI's Financial Crimes Report in May noted that mortgage fraud is "pervasive and growing," thriving on "collusion by industry insiders." Suspected major mortgage finance violations reported by financial institutions increased from 4,225 in 2001 to 17,127 last year, and the money lost in such fraud has doubled in the past year.

In California last year, the state attorney general cracked a foreclosure ring that had netted 1,800 victims. In Florida, the FBI targeted "massive . . . mortgage fraud" in Jacksonville. Another federal investigation broke up a $15 million property-flipping scheme in Kansas City, Mo. And the National Consumer Law Center noted that "the entire D.C. region is rife with these scams."

"Housing is supposed to be the great ladder into the middle class," said Steve Tripoli, a fraud investigator for the National Consumer Law Center. "But scam artists fish where the fish are, and now the money is in Americans' homes," he said.

Often the fraud goes lightly punished and scam artists operate in plain sight, government investigators acknowledge. Prosecutors mount few investigations into the mortgage industry, preferring to leave that task to state regulatory agencies. And the firms that engage in questionable practices are expert at avoiding regulation. For instance, these companies often buy homes and resell them themselves -- avoiding the need for a real estate license and state regulation.

Some firms also decline to offer federally insured home loans to their customers. In this way, companies can sidestep regulation by the U.S. Department of Housing and Urban Development.

"Larceny is the mother of invention," noted Rick Wagner, a New York City legal services lawyer who has spent a decade pursuing such companies. "The bunco artists are way ahead of the regulatory agencies."

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