According to the “2010 Mortgage Fraud Report Year in Review” prepared by the Financial Crimes Intelligence Unit of the FBI, mortgage fraud continued at elevated levels in 2010, consistent with levels seen in 2009 and is resilient and easily adaptable to economic changes and modification in lending practices. One type of mortgage fraud is the use of straw buyers. Straw buyers are loan applicants who mortgage fraudsters use to obtain home loans, though they have no intention to occupy the properties or to pay back the loan, (ACFE 2010 Fraud Manual).
Several recent local cases show us that Las Vegas is not immune to this scheme and also, other detrimental effects of straw buyers.
In the first case, the secretary of a Las Vegas-based real estate investment firm pled guilty for their role in $3.4 million mortgage fraud scheme (FBI Press Release, January 5, 2012). Along with co-defendants, they conspired to execute a fraudulent scheme where they recruited straw buyers and bailout buyers, acted as straw buyers themselves and falsified mortgage loan applications with federally insured financial institutions from April 2006 through November 2006.
In the second case, prosecutors allege that co-conspirators devised a takeover scheme involved finding straw buyers to buy condominiums and getting them to run for seats on the Home Owners Association board (Review Journal, Jeff German, November 12, 2011). After being elected to the boards, the straw/bailout buyers would send HOA business to the co-conspirators.
According to the Association of Certified Fraud Examiners (ACFE), the following red flags may occur in straw buyer transactions:
- At closing, the check is from someone other than the party to the contract.
- Borrower resides in different state than purchasing property, which is described as a primary residence.
- Quit claim deed is used very close to loan closing.
- Investment property represented as owner-occupied.
- A third-party signed on the borrower’s behalf.
- Names added to purchase contract.
- There is no sales agent involved.
- There are indications that the property seller defaulted.
- Existence of a high FICO score.
- Gift used for down payment despite the presence of good assets.
With this type of fraud, the lenders and title companies need to be aware of these red flags. Mortgage companies who think they may be victim to this scheme should contact a Certified Fraud Examiner to conduct a fraud investigation.
Tricia J. Cook is a senior forensic analyst with the forensic accounting and litigation services department at Piercy Bowler Taylor & Kern CPAs. She sifts through financial transactions to resolve allegations or evaluate suspicions, interpreting that transactional data and then organizing that information into easy to understand reports for use by counsel, or for presentation in a court-of-law. She can be reached at firstname.lastname@example.org or 702-384-1120.