(20hr) Day 6 - FRAUD, CONSUMER PROTECTION and FAIR LENDING ISSUES - Case Studies 1-3

Students - when commenting on the following Case Studies, be sure and start your response with the corresponding Case Study number    (ex : 1 of 3)

Class Blog (1 of 3)
Chunking  

Ten (10) people involved with a Florida mortgage company were charged with over sixty (60) felony counts in relation to an alleged two (2) year chunking scheme involving fraudulent money practices and racketeering.


It is alleged that, at various times from 2002 through 2004, the mortgage company approached “nominees” and enticed them into allowing the company to apply for mortgages in the name of the nominee in order to buy houses.  The Florida mortgage company paid the nominees a small amount for allowing it to use their names to apply for these mortgages.  The Florida company would complete the mortgage application paperwork, falsifying application information in order for the nominees to qualify for the mortgage and then would receive an inflated property appraisal and two (2) mortgages on each home—one for the purchase price and another for the balance of the appraisal value.


The mortgage company informed the nominees that it would “manage” the property, find a tenant, collect monthly payments and pay the mortgages.  The nominees would have no involvement beyond the mortgage application.  The mortgage company would place a tenant with insufficient credit into a nominee’s home under a proposed lease/option-to-buy contract.  After a specified period, the tenant would have the option to buy the house.  The tenant would pay a deposit as consideration for this option, usually in the amount of $5,000, and a monthly payment, which was to be applied directly to the mortgage.  The company failed to make a majority of the nominee’s mortgage payments, causing many of the mortgages to default.  In some instances, the mortgage company took the tenant’s deposit money and did not place the tenant in a home.


How were the “nominees” harmed in this scheme? 



Class Blog (2 of 3)
Foreclosure Rescue Scheme 

From November 2003 through April 2005, it is alleged that Mr. M engaged in a fraud scheme targeting homeowners whose homes, primarily in Brooklyn and Bronx, New York, were in foreclosure or facing foreclosure, by offering them a plan to “save” their homes.  The plan included the refinancing of the homeowners’ debt with new, larger mortgages.  Because the distressed homeowners typically had poor credit and were not eligible to refinance their debt at favorable terms, the defendants induced them to “sell” their homes to third parties, or straw buyers, who would apply for loans to be used to “save” the home.  The defendants promised that once the straw buyer obtained the mortgage, the proceeds would be used to pay off the homeowners’ old debt and make one (1) year worth of payments on the new loans.  The homeowners were told that, during that year, they could continue to live in their homes and work on improving their finances and credit.  Finally, Mr. M explained to the homeowners that, at the end of the year, the title to their homes would be returned to them by the straw buyers, with their credit repaired and their homes saved.  There were also cases in which Mr. M and his accomplices did not explain to homeowners that the plan to “save” their home required them to deed their house to a third party and did not obtain permission to deed the homes to others.  In such cases, the defendants effectively stole the property of the homeowners by forging the homeowners’ signatures on various documents that transferred the homes to straw buyers without the homeowners’ knowledge.
In furtherance of the scheme, Mr. M submitted loan applications to various banks and lending institutions on the straw buyer’s behalf.  In submitting these applications, the defendants regularly used documents containing false or misleading information, including information concerning the straw buyer’s income, assets, and existing debt, to improve the straw buyer’s credit-worthiness.  In addition to false statements concerning the straw buyers’ financial profile, the defendants misrepresented to lenders that the straw buyers intended to reside in the property that would secure each mortgage or loan, when, in fact, the properties were already occupied by the distressed homeowners.
Mr. M, who directed the daily operations of the scheme, obtained more than eighty (80) home mortgages and/or equity loans valued at over $20 million.  In some instances, the defendants failed to make even one (1) payment on the loans, causing the loans to default immediately; in nearly every other case, they eventually failed to make the payments and defaulted on the loans, thereby “cashing out” on the properties.  As a result, the distressed homeowners lost the titles to their homes and faced eviction; the straw buyers owed the lenders hundreds of thousand of dollars that they were unable to repay, and the lenders suffered losses from the defaulted loans.  The scammers’ profit consisted of the difference between the value of the new and old loans; they also earned at least $1.4 million in fees. 
So in the end, what did Mr. M get from all his hard work?



Class Blog (3 of 3)
"Rent To Own" Agreement  
A client sits down in the office of a mortgage broker and says she is interested in obtaining a home improvement loan in order to replace the roof of her home and to add on a master bedroom and bathroom. She supplies the broker with all the necessary data and documentation regarding her creditworthiness.  Everything seems to be in order.  Then the broker notices that the purchase agreement she signed for her home is actually a rent-to-own agreement.  She explains that her monthly “rent” payments are being applied toward the purchase of the home.  As long as she is never late on a payment, she will have the option to  purchase the home in two (2) years.  

Let's take a look at what transpires next in their meeting:






The next week, she brings in a document that reads “Purchase Agreement.”  The “Purchase Agreement” is dated the same as the original “Rent to Own” agreement, and it is not presented as a newly executed document, but as the original document from the initiation of the transaction.


So do you think this works?  What is a likely outcome to this scheme?




www.mymortgagetrainer.com

17 comments:

  1. 1 of 3
    The nominees were harmed in this chunking scheme by having 2 defaulted mortgages for each property eventually & probably no way to contact the "property manager company" either.

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  2. 2 of 3
    Mr. M I am sure served some prison time & had to give away all of his "profits"

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  3. 3 of 3
    I do not think that will suffice in the underwriting process & that is not honest. The MLO is not operating in the up n up in advising/steering the borrower this route. It will not end well for both the MLO and the borrower

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  4. 1 of 3
    The borrowers were tricked into a scheme that lead them to take on loans that they wouldn't be able to afford without the promises of the schemer. They've defaulted on their loans, and have harmed their credit and the possibility of getting loans in the future.

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  5. 2 of 3
    Mr. M kept the equity that was left on the homes. He also ruined the lives on many people and put them out of their homes when they could have found legitimate assistance.

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  6. 3 of 3
    I feel like this would be considered a "backwards application." The MLO is advising the borrower to falsify information in order to move forward with the loan. I don't think this will work. A likely outcome of this scheme would be a fine and/or jail time.

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  7. 1 of 3
    The nominees had their credit damaged by, for a fee, taking on loans with over appraised values and falsified credit information. Additionally, the mortgage company failed to make all of the payments and placed unqualified tenants in property that likely were unable to make their payments, causing loans to default directly impacting credit of nominee

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  8. 2 of 3
    Although Mr. M profited greatly from this fraud in a financial sense, ultimately his fraudulent plan was exposed and I would hope the resulting penalties which could include prison time and large penalties, far outweighed the temporary financial gain

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  9. 3 of 3
    The MLO is leading the borrower into dishonest action suggesting they will look over the 'correct' paperwork showing it as a purchase agreement next week with a wink. Obviously, either she forged the updated document on her own or her seller was complicate with her, making it's possible that this could carry through to close. Either way, this is not an ethical or legal situation.

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  10. 1 of 3
    The mortgage would foreclose, leaving them without the home they believed they were purchasing, and a defaulted mortgage debt would now be associated with them.

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  11. 2 of 3
    Mr. M was sentenced to time in prison, supervised release, and community service to be performed. Also I'm sure he forfeit millions.

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  12. 3 of 3
    I think if this is approved eventually it will go into default. Seems like there is a fabrication in there somewhere.

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  13. 1 of 3
    The nominees were used as scapegoats and their credit ratings most likely took a significant hit. Barring them from ever receiving a loan because of defaulting on 2 loans simultaneously.

    2 of 3
    Mr. M received over 80 mortgages and $1.4 million in fees and the deeds to the properties that would never even be 'saved'. Plus the difference of the old and new loans.

    3 of 3
    This would be considered steering in part of the MLO. Instead of rent to own the purchase agreement would most likely be forged to make the deal go through. The outcome would be exposed because after the loan for home improvement is granted the seller would notice the changes to their property.

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  14. 1 of 3
    The nominees would be left without a home that they thought they were purchasing
    2 of 3
    120 months in jail, 3 yrs of supervised release, 100 hours of community service, and had to forfeit 2.5M dollars
    3 of 3
    seems fraudulent

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  15. 1 of 1:
    They were scammed out of money, They will have to figure a way to repair their credit, and it makes the real estate industry unfavorable to them and the public.

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  16. 2 of 3:
    If caught he paid fines and spent time in prison.
    if he did not get caught he got 80 mortgages worth 20 million and 1.4 million in cash. Not to mention the damage he did to the mortgage industry.

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  17. 1 of 3
    The nominees are going to be in debt & foreclosure.

    2 of 3
    jail time and fines

    3 of 3
    It could work if everything goes exactly as planned. The likely outcome is that they will get caught.

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