Monday, December 5, 2005

Real Estate Transaction Fraud

The LA Times has an interesting story about various types of real estate transaction fraud, including this one involving mortgage brokers:

In another, more wide-ranging scheme that has only partially come to light, homeowners were not victims but eager participants. This hustle, which allegedly was orchestrated by a California broker, is said to have involved hundreds of people. It illustrates just how easy it is to break the mortgage rules on a large scale, and how minimal the punishment can be if you do.

The scheme worked like this, according to the lender that issued the broker's loans: The broker put his clients in loans in which they paid a higher-than-normal interest rate in return for negligible closing costs. These loans generate so much money for lenders that they pay brokers a big finder's fee for them.

To keep the homeowners quiet, the broker split the loot with them. Many of the participating homeowners liked the deal so much they allowed the broker to keep refinancing their loans every few months. Each time, the broker received a new finder's fee and the homeowners earned enough cash to pay their mortgages for a month or two.

The scheme violated California regulations against deception by brokers. But here's what happened when the broker's deceit was finally discovered: nothing. In fact, California regulators say they never heard of the case.

Thanks to Kurt Paulsen for the pointer.

Ben Barros

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