Some common examples of mortgage fraud as described by the FBI include:

·        Property Flipping – Property is purchased, falsely appraised at a higher value, and then quickly sold.  What makes property flipping illegal is that the appraisal information is fraudulent.  The schemes typically involve one or more of the following: fraudulent appraisals, doctored loan documentation, inflating buyer income, etc.  Kickbacks to buyers, investors, property/loan brokers, or appraisers.  Example: A home worth $300,000 may be appraised for $600,000 or higher in this type of scheme.

·        Silent Second – The buyer of a property borrows the down payment from the seller through the issuance of a non-disclosed second mortgage.  The primary lender believes the borrower has invested his own money in the down payment, when in fact, it is borrowed.  The second mortgage is usually not recorded to further conceal its status from the primary lender.

·        Nominee Loans/Straw Buyers – The identity of the borrower is concealed through the use of a nominee who allows the borrower to use the nominee’s name and credit history to apply for a loan.

·        Fictitious/Stolen Identity – A fictitious/stolen identity may be used on the loan application.  The applicant may be involved in an identity theft scheme: the applicant’s name, personal identifying information and credit history are used without the true person’s knowledge.

·        Inflated Appraisals – An appraiser acts in collusion with a borrower and provides a misleading appraisal report to the lender.  The report inaccurately states an inflated property value.

·        Equity Skimming – An investor may use a straw buyer, false income documents, and false credit reports, to obtain a mortgage loan in the straw buyer’s name.  Subsequent to closing, the straw buyer signs the property over to the investor in a quit claim deed which relinquishes all rights to the property and provides no guaranty to title.  The investor does not make any mortgage payments and rents the property until foreclosure takes place several months later.

As is demonstrated in each of the foregoing descriptions, a key element of the problem is the imbalance of information.  One side, normally the borrower or someone working with the buyer, conceals information from or affirmatively misleads the lender.  Anytime one suspects this may be the case, further investigation is warranted to rule out any involvement by the agent or their unwitting client in a fraudulent transaction. 

Bills to watch in Sacramento are:

·        SB 1065 (Correa) Home Financing Programs – Currently local government may provide funding to qualified home buyers and owners for down payment and closing cost assistance, as well as home improvement loans for owner-occupied housing rehabilitation.  SB 1065 would authorize an additional option for local government by providing a new lending authority to cities and counties that permits them to offer their residents the opportunity to refinance troubled home loans.

·        AB 1366 (Portantino) Housing Impact Statement Requirements for Local Land Use Decisions.  This bill would strengthen the annual housing element reporting process that governs local housing actions and will provide a reporting structure that will better assist local governments’ focus on the regional impact of their housing decisions.

·        AB 2259 (Mullin) Ownership Rights in a Common Interest Development (CID).  AB 2259 would protect property ownership rights in a CID by preserving an owner’s right to lease or rent their unit if such a right existed at the time they purchased the unit.

·        AB 2363 (Ma) Megan’s Law – “Just Cause Evictions” under Megan’s Law.  AB 2363 would require local jurisdictions with a “just cause eviction” ordinance to permit landlords to evict a registered sex offender in order to protect a person at risk, as is permitted in existing law.

·        SB 1053 (Machado) Mortgage Loan Broker Disclosures.  SB 1053 will require a prominent disclosure to all parties whenever a broker, business entity or licensee represents a buyer and originates a loan in a “1-4” transaction.  This legislation will help to alleviate the perceived conflict created by the loan originator’s obligation to ensure that the loan application is accurate and adequately underwritten.