If you want a mortgage, Esteemed has one for you. Recent bankruptcy? No problem? A foreclosure last month? So what. Less income? They can work with you.

And help with short sales? Who could possibly do a better job than Esteemed?

“We guarantee a loan to fit every situation,” says Esteemed. “Our qualified loan specialists have been helping people just like you find the best interest rates and loan terms possible for your unique situation. We will guide you every step of the way to get you the loan you need. You can lower your current payments on your mortgage, refinance existing debt, and even get extra cash to pay for unexpected expenses.”

And getting a loan is hardly more difficult than going through a car wash.

“Even if you’ve been turned down by other lenders because of a less than perfect credit history, we can help. It’s time to act and start saving money today. Apply now and let us help you start on your way towards a debt-free future!

“It’s easy to qualify and 100% FREE to apply.”

There are two things about this lender which stand out. First, its “line” sounds a lot like some other lenders we’ve heard. Second, the company is a fraud.

“These scammers may create professional-looking websites, use trustworthy-sounding names and promise you loans to help meet your needs or live your dreams, even if you’ve had credit problems,” says the FTC.

“The catch comes when you apply for a loan or credit card and find out there’s a fee you have to pay first. If you pay, it’s unlikely you’ll see the promised loan, and you run the risk of someone using your personal or financial information to steal your identity.”

Six Warnings

The FTC says borrowers should be aware of six rad flags when looking at online mortgage sites:

• A lender who isn’t interested in your credit history. Ads that make claims like Bad credit? No problem, We don’t care about your past. You deserve a loan, Get money fast, or even No hassle — guaranteed often indicate a scam.
• Fees that are not disclosed clearly or prominently. Legitimate lenders disclose their fees clearly and prominently; they take their fees from the amount you borrow; and the fees usually are paid to the lender or broker after the loan is approved.
• A loan that is offered by phone. It is illegal for companies doing business in the U.S. by phone to promise you a loan and ask you to pay for it before the loan comes through.
• A lender who uses a copy-cat or ‘wanna-be name.’ Crooks give their companies names that sound like well-known or respected organizations and create websites that look slick to try to convince you they’re legitimate.
• A lender who is not registered in your state. Lenders and loan brokers are required to register in the states where they do business. Checking registration does not guarantee that you will be happy with a lender, but it helps weed out the crooks.
• A lender who asks you to wire money or pay a particular person. Legitimate lenders don’t ask anyone to do that.

More Bogus Sites

The FTC has created a number of fake sites in addition to Esteemed Lending Services. For instance, there’s FatFoe which will help you lose weight without diet or exercise and, of course, there’s also Glucobate™, the all-natural diabetes breakthrough. Glucobate uses “Cucumis melo — or Elixir of Muskmelon — an all-natural sugar regulator with none of the side effects of the medications that break your budget without curing your condition.”

The FTC is using bogus sites to make a point: The fact that something is on the Internet and has a really nice web page does not mean a product or service is anything but an outright fraud. Use common sense, check around, speak with licensed professionals and hold on to both your wallet and your wonder when you see claims which seem to good to be true.

This Mortgage Lender Is A Fake (Don’t Just Take Our Word For It) is a post from: Refinance, Home Mortgage Loans & Rates, Home Equity Loan

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But nowhere in the news do we hear of any effort to help the mortgage borrowers whose screwing made the financial meltdown possible. While the SEC is concerned about helping securities investors who lost $1 billion, no one gives a damn about the people who lost their homes.

Let’s look at what really happened:

*We have millions of foreclosed homes, a downsized economy and massive job losses as a result of the financial meltdown.

*The federal government had to bail out Wall Street because big banks and brokerages were stuck with mortgage-backed securities (MBS) they were unable to unload on pension funds and various investors.

*The MBS were insured in case their value eroded, but the insurance was no good because there were few if any reserves set aside for claims.

*To create mortgage-backed securities, Wall Street needed an ongoing supply of mortgages. Since lenders could sell virtually all the loans they originated it made sense to lower application standards and introduce non-traditional mortgage financing and popularize option-ARMs, interest-only loans, financing with little or nothing down, piggy-back financing and “stated income” loan applications which allowed borrowers to essentially guess their income.

Bottom line: There would not have been a financial melt-down if the mortgage origination process was effectively regulated at the point of sale, the moment when loans are sold to borrowers. With good loans the mortgage-backed securities would have been fine, the ratings would have been justified, few insurance claims would have arisen and a Wall Street bailout would have been unnecessary.

Best Rates And Terms

Anyone who has ever looked for a mortgage naturally wants the best possible rate and terms for their financial situation. And lenders are happy to offer such rates and terms, at least that’s what they say. After all, no one would use a mortgage lender who advertised the second best rates in town.

In other words, virtually all borrowers rely on mortgage lenders for product options, rate information and counseling. And lenders, for their part, have no obligation under federal rules except to maximize their profits.

Don’t believe it?

“Some have proposed,” said Harry Dinham in 2007, then president of the National Association of Mortgage Brokers, “that a fiduciary duty standard should be implemented and mortgage originators and their loan officers should act in the ‘best interests’ of the consumer. NAMB remains opposed to any proposed law, regulation or other measure that attempts to impose a fiduciary duty, in any fashion, upon a mortgage broker or any other originator.

“Simply put, a mortgage broker should not, and cannot, owe a fiduciary duty to a borrower. The consumer is the decision maker, not the mortgage broker,” says Dinham.

John Robbins, then chairman of the Mortgage Bankers Association, explained during June 2007 congressional testimony that “notably, MBA does not believe that a disclosure of function and fees is warranted for mortgage lenders. Unlike a broker whose role may be uncertain -– agent or loan provider -– a lender’s role is clear. A lender underwrites, approves and funds the loan. The lender does not hold himself out as an agent of the borrower. While a lender must serve its customers fairly, and the industry has done much to assure high professional standards, a lender owes a duty to its shareholders and investors. A borrower knows a lender offers its own products and does not offer to shop for borrowers.”

No Help For Borrowers

While the SEC is busily doing battle with Goldman Sachs, who is fighting for the borrowers who lost their homes? The SEC claims that 99 percent of the residential mortgage backed-securities (RMBS) in one loan portfolio had be to downgraded. Is there any possibility that loans which fail with such frequency were tainted from the moment of origination? Can lawyers claim an unconscionability defense on behalf of borrowers with such mortgages?

Lenders point out that borrowers signed all the paperwork and were free to decline loan offers. But who was the authority figure in the room? Upon whom did borrowers rely? Has anyone actually read their loan papers?

Mel Martinez, an attorney and former HUD Secretary under George W. Bush told the Washington Post, “you know if I’m a lawyer and the secretary of HUD and I’m not reading this junk, you know there’s work’ to be done fixing the system.” (See: “HUD Chief Seeks Simpler Sale Closings,” June 2, 2001)

Attorney and also a former HUD Secretary under George W. Bush, Alphonso Jackson, told the Washington Times that “I’m an attorney and I’ve had eight houses and I didn’t read all that mess. If I didn’t read it — and I doubt anyone around this table read it — then we can’t hold people responsible for not reading every line when they were closing their loan.’” (See: “Jackson: Mortgage fine print not read,” March 20, 2008)

What lenders won’t point out is this: Every loan, without exception, is underwritten. The lenders create qualifying standards for each mortgage product and have in place an extensive process to assure that the borrowers met all requirements. Lenders can decline questionable loan applications, something that no doubt would have happened were it not so easy to sell such paper on Wall Street.

To their credit, many small lenders did not and do not regard homebuyers as prey. Few community banks or credit unions, as examples, offered toxic loan products.

Think about it the next time you need a mortgage.

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Think about stock. You buy stock in the morning and sell it in the evening. You flipped the stock. Does anyone care? No.

Think about a foreclosed property bought from a lender, a REO (real estate owned by a lender). You buy this morning and sell this afternoon. Does anyone care? Maybe. Here’s why.

Foreclosure Flipping

First, a trail of quick sales for a single property often suggests illegal activity such as faked appraisals, false documentation, and fraudulent closings and settlements. If a home is bought for $200,000 at 10 AM, sold for $225,000 at noon and re-sold for $250,000 at 3 PM you have to wonder what caused the sudden increase in value.

Second, to protect against illegal flipping the FHA and many private-sector lenders have long had a rule which says that they will generally not finance a property which has been sold within the past 90 days. In January 2010 HUD suspended the FHA 90-day anti-flipping rule for a year, meaning that you can buy a property today, a buyer can purchase tomorrow, and the buyer can get an FHA loan. For specifics and the latest details please speak with lenders.

To protect yourself when dealing with foreclosures and quick sales, be sure to keep good records of any repairs as well as before-and-after photos of the property to document why a higher price could be justified.

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This is very different from the S&L crisis of the early 1990s. Back then, says the Financial Times, almost 1,100 S&L officials and 2,600 bankers literally went to jail. (See: Insight: A matter of retribution, September 3, 2009)

“There are precious few other financiers behind bars, or facing momentous fines,” says the paper. “Compared to the S&L days, the level of retribution so far seems almost non existent.”

(The numbers cited by the Financial Times came originally from a Justice Department special report entitled Financial Institution Fraud (June 30 1995) as cited in The Great Texas Savings and Loan Financial Debacle By Tom S. King.)

Actually, there are several reasons why so few mortgage lenders have wound up in jail.

First, predatory lending is not a federal crime. It’s perfectly okay under federal rules to sell a borrower who qualifies for an FHA loan a subprime mortgage with a higher rate and steeper costs. If that more expensive loan ultimately leads to foreclosure and bankruptcy, that’s a problem for the borrower — the loan officer, the underwriter and the originating lender were paid long ago.

Some would make the argument that the borrower is entirely responsible for the mortgage because he signed the paperwork at closing.

However, two attorneys who happen to have recently been HUD Secretaries obviously disagree with this line of thinking:

Alphonso Jackson: “I’m an attorney and I’ve had eight houses and I didn’t read all that mess. If I didn’t read it — and I doubt anyone around this table read it — then we can’t hold people responsible for not reading every line when they were closing their loan.” (See: Jackson: Mortgage fine print not read, The Washington Times, March 20, 2008)

Mel Martinez: “You know if I’m a lawyer and the secretary of HUD and I’m not reading this junk, you know there’s work’ to be done fixing the system.” (See: HUD Chief Seeks Simpler Sale Closings, The Washington Post, June 2, 2001)

It should be fairly obvious that many lenders took advantage of a large number of borrowers by steering them into loan products which were costly, unneeded and filled with gotcha clauses. How do we know? The Wall Street Journal studied mortgages from 2005 and found that 55 percent of all subprime borrowers actually qualified for conventional financing. By 2006, 61 percent of all subprime financing went to borrowers who qualified for better — and less expensive — mortgages. (See: Subprime Debacle Traps Even Very Credit-Worthy, December 3, 2007)

Second, insider trading may be a crime for stocks and bonds but that’s not the case for commodities such as oil futures or derivatives.

As Damon Silvers, associate general counsel for AFL-CIO, told Reuters, “the Commodities Exchange Act does not recognize insider trading as a violation of law.” (See: SEC, CFTC urged to align rules to police markets, September 3, 2009)

As the great songwriter Woody Guthrie wrote long ago, some people will rob you with a gun — and some with a pen.

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The two men face decades of jail time for defrauding investors by selling securities which were described as being backed by federally-guaranteed student loans when in fact they were actually auction-rate securities, a more risky financial product.

So, let’s review. It’s illegal for stock brokers to engage in bait-and-switch tactics. Why then is such behavior entirely fine for loan officers and mortgage bankers selling loans from national lenders?

It’s a normal and routine thing to sell borrowers mortgages which are not right for them. Don’t believe it? According to the Wall Street Journal, its review of subprime loans showed that 61 percent had been sold to borrowers who qualified for better better financing with lower costs. (See: Subprime Debacle Traps Even Very Credit-Worthy, December 3, 2007)

How is it possible that borrowers consistently opted for loans with worse terms and higher costs during the past few years? Do you think when lenders promised to get those borrowers the best possible terms and instead sold them loans with high costs but higher lender profits that no bait-and-switch was involved?

There’s justice for rich investors, but when was the last time that a mortgage broker or a loan officer went to jail for screwing a borrower? As we have explained, predatory lending is not even a federal crime, it’s perfectly legal under federal rules to ruin mortgage borrowers with higher fees and costs then they should be paying.

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This is an unhappy statistic, but it does not tell the whole story. First, as the FBI explains, “the total dollar loss attributed to mortgage fraud is unknown.” This makes much sense given that fraud cannot be known until it’s uncovered — think of Bernie Madoff, Enron and Worldcom.

Second, there’s no central repository to collect mortgage fraud complaints thus the counting and definitions of one source may be different than another.

Third, and most importantly, the FBI report does not cite ONE instance of predatory lending.

Could it possibly be that in a one-year period there was not a single predatory loan issued anywhere in the US?

You’re kidding, right?

Predatory Lending Is Not A Federal Crime

The reason there are no predatory loan statistics in the FBI report is very simple: Although most mortgages originate from nationally-regulated lenders, predatory lending in not a federal crime so there are no statistics to report.

As Benny Kass explains, “there are no federal laws making predatory lending illegal.” Kass is a long-time real estate columnist with The Washington Post and a well-regarded real estate attorney.

In other words, if you make a material misstatement, misrepresentation, or omission on a loan application that can be regarded as mortgage fraud. However, if a lender sells a subprime loan to a family that qualifies for a prime mortgage and increases their housing costs by thousands of dollars per year, that’s just dandy — even if it drives them into foreclosure and bankruptcy. No crime there, no obligation to do what is best for the borrower.

Suspicious Activity Reports (SARs)

The FBI report reflects Suspicious Activity Reports (SARs) rather than actual fraud cases. Given that millions of loans are originated each year the number of fraud prosecutions is tiny. As the FBI reports, last year — in fiscal 2007 — there were 1,204 mortgage fraud cases. They produced 321 indictments and 260 mortgage fraud convictions.

The point, of course, is that the FBI cannot go after predatory lenders if predatory lending is not a crime. Can you guess which industry has worked zealously to assure that mortgage fraud is an issue — but predatory lending is not?

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The Securities and Exchange Commission today charged former Countrywide Financial CEO Angelo Mozilo and two other former executives with securities fraud for deliberately misleading investors about the significant credit risks being taken in efforts to build and maintain the company’s market share. Mozilo was additionally charged with insider trading for selling his Countrywide stock based on non-public information for nearly $140 million in profits.

The SEC alleges that Mozilo along with former chief operating officer and president David Sambol and former chief financial officer Eric Sieracki misled the market by falsely assuring investors that Countrywide was primarily a prime quality mortgage lender that had avoided the excesses of its competitors.

The SEC’s enforcement action alleges that from 2005 through 2007, Countrywide engaged in an unprecedented expansion of its underwriting guidelines and was writing riskier and riskier loans, which these senior executives were warned might ultimately curtail the company’s ability to sell them. Countrywide was required to disclose these important trends to its investors in the Management Discussion and Analysis portion of its SEC filings, but failed to do so.

“This is the tale of two companies,” said Robert Khuzami, Director of the SEC’s Division of Enforcement. “Countrywide portrayed itself as underwriting mainly prime quality mortgages using high underwriting standards. But concealed from shareholders was the true Countrywide, an increasingly reckless lender assuming greater and greater risk. Angelo Mozilo privately described one Countrywide product as ‘toxic,’ and said another’s performance was so uncertain that Countrywide was ‘flying blind.’”

Rosalind Tyson, Director of the SEC’s Los Angeles Regional Office, added, “Angelo Mozilo had access to detailed and alarming information about Countrywide’s operations. He knew that Countrywide was gambling with increasingly risky mortgages and he kept those details from investors while he was actively taking his own chips off the table.”

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But while states are busily trying to stamp-out foreclosure rescue schemes they’re also enacting laws which are so broad they may snare legitimate investors. As you’ll shortly see, investors have a need for extra caution these days as we enter a new period of state activism.

To see how mortgage rescue programs work, imagine that Mr. Sherman lost his job. It quickly happens that a few mortgage payments are missed and Sherman is soon desperate and scared. Bought for $200,000 and refinanced once, the property has been Sherman’s home for nine years. He pays $1,200 a month for the loan, but now foreclosure looms. Instead of contacting his lender or asking a community group for assistance, he sees a flyer for a company that promises to stop foreclosures.

Sure enough, says a representative for the Arcola Foreclosure Rescue League, they can help. They’ll stop the foreclosure instantly. How? They’ll pay off the mortgage, they’ll give Sherman $20,000 in cash to pay off credit card bills and Sherman can stay at the property.

“Don’t worry about a thing,” said the Arcola rep. “We have money and we help people all the time. We’ll do all we can to save your home from those evil lenders.”

The paperwork is signed and magically worries about foreclosure are gone. But what really happened is this: Sherman didn’t get a new loan. Instead, he actually sold his home to Arcola for the remaining mortgage balance, closing costs and $20,000 in cash, a total in this case of $190,000 for a property with a market value of $400,000.

Arcola, however, is there to “help.” It offers to instantly sell the property back to Sherman for $250,000.

As to the rent, Arcola is as good as its word. It rents the property back to Sherman — for $2,000 a month.

The situation is impossible for Sherman. He cannot finance a re-purchase because of the late payments on his credit report. He can’t make the monthly rent payments for long because even if he again becomes employed the cost is too great. In a few months he leaves, powered in part by a “moving allowance” that will soon lapse if he stays.

As the number of foreclosures nationwide increases, the number of foreclosure rescue scams is also on the rise, a trend which has not gone unnoticed.

“Foreclosure assistance scams kick consumers who are already down, so we’re working to shut down the scammers,” says North Carolina state attorney general Roy Cooper.

“Consumers facing foreclosure should be wary of companies that solicit them with offers to help them avoid the loss of their home,” says California attorney general Bill Lockyer. “Foreclosure consultants often charge high fees, but take the money and run.”

“Mortgage rescue fraud is a cancer that is eating away at our neighborhoods,” says Illinois attorney general Lisa Madigan.

You get the picture. State governments across the country are going after bad apples. But there’s a catch.

It’s tough to write legislation which targets scammers and cheats. How do you say in proper legal language that it’s illegal to buy a home from someone facing foreclosure? Arcola, after all, did stop any possible foreclosure. It did allow Sherman to stay at the property.

What Arcola did not do is this: It did not rescue the property for Sherman. In the end he lost his home and most of his equity — and Arcola knew full well that would happen the minute they answered the phone. The basic fraud in this situation was that Arcola represented itself as an agent trying to help Sherman when in fact it was nothing other than a buyer seeking to acquire Sherman’s property.

“There’s a real challenge here,” says Jim Saccacio, Chairman and CEO at RealtyTrac.com. “You want to get rid of the scammers but if you discourage legitimate investors the number of homes going to foreclosure will skyrocket. Balance is needed to assure we do not throw out the baby with the bathwater.”

State lawmakers have been busy crafting laws to stifle foreclosure rescue specialists, mortgage fraudsters and “equity-stripping” schemes. Recent examples of legislation addressing such issues can be found in California, Illinois, Maryland, Minnesota, New York and Rhode Island.

Laws in a growing number of states set stiff requirements for foreclosure rescue specialists, update mortgage fraud rules and outline extensive disclosure regulations. Some state rules effectively require that foreclosure rescue consultants must pay 82 percent of all sale profits back to original owners if a property is re-sold within a given period, perhaps as long as 18 months in some jurisdictions.

The caveat though is that anti-fraud legislation may inadvertently include investors generally and not just illicit foreclosure rescue consultants.

What are the lessons for legitimate foreclosure investors? Three points stand out.

First, the rules regarding foreclosure purchases are changing. New legislation — which can include stiff fines, damages, and jail time for violations — must be taken seriously. Before entering the marketplace, consult with a knowledgeable real estate attorney to determine what’s allowed — and what’s required — in your jurisdiction.

Second, be certain your real estate broker is familiar with the latest rules and regulations. This is important because when a broker is acting as your agent you may be held responsible for his or her acts.

Third, speak with lawmakers and ask them to clarify state rules. Unlike fraud and misrepresentation, buying distressed properties is not a crime. Lawmakers need to be careful that in curtailing the bad guys they do not inadvertently punish legitimate investors and marketplace activities that are both lawful and necessary.

————————

Published originally by RealtyTrac.com during September 2006 and posted with permission.

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The current theory seems to be that a consumer can sign on, sign up, click a few buttons and magically become a real estate client, someone entitled to a bundle of professional brokerage services in exchange for a given fee. Current regulation, in the main, seems to support this arrangement, but are yesterday’s rules sufficient in the face of today’s realities?

It is surely true that consumers are spending money online to buy books, airline tickets and other items. It is equally true that not everything can be done online. For instance, electronic signatures are now legal for most documents — but not all.

In June 2000, federal legislation — the Electronic Signatures in Global and National Commerce Act or “E-Sign” — was enacted to permit the use of electronic signatures. However, as computer and technology lawyer attorney David Millstein points out, “E-Sign now makes it clear that an electronic contract which is formed by using electronic signatures is as legally enforceable as its paper equivalent under most conditions. Note that there are certain exceptions, such as a will or trust, which must continue to be executed with a handwritten signature and retained in paper format. In addition, entering into an electronic transaction is an entirely voluntary endeavor, as a party may choose not to conduct business online.” (See: Make your electronic transactions enforceable agreements, The Albany Business Review, March 28, 2003)

Given their enormous importance should real estate listing agreements, sale contracts and related documents be enforceable when created online? Or should they be treated like wills and trusts and require actual paperwork and signatures?

The assumption that an online form is automatically binding may or may not be true — it is at least necessary to look at state rules. The question then becomes, which state? The state where the site owner is located? The state where the consumer pressed the button? The state where the server is located? And if the consumer is overseas, then which country’s laws apply?

It’s a routine matter for authorities to determine what professionals in a given field can do or not do, to establish the rules of the game. Such rules apply universally to all of those who are regulated and are designed to protect the public interest.

Given this brief background a number of questions regarding instant online contracts for realty services are beginning to emerge:

• Do consumers have enough information to instantly enter into a binding contractual agreement online with a real estate broker which may cost them thousands of dollars?
• Is it in the public interest to have consumers instantly and immediately commit to binding contractual arrangements which may substantially impact where they live for decades?
• What happens if a consumer fills out forms on several sites?
• If Mr. Green pushes an online button but Mrs. Green does not, is either Green a client?
• In the age of identity theft and online “spoofing,” how do we know Green signed up with anyone?
• Were the price and terms of the online agreement negotiated?
• Should consumers be advised to consult an attorney before signing up?
• What if a consumer simply presses the wrong button — is there a no-penalty cooling-off period during which time the broker has to cement the agreement in writing? If yes, how long is the amnesty period? If there is an amnesty period, should it not be the same for all brokers in each state? What notifications are received by the consumer?
• Does broker Smith have the right to give the consumer’s name and information to other licensees without the consumer’s express permission? Should there be a separate and adequate permission form consumers must complete?
• What about privacy? Must consumers be told if broker Smith will allow the use of their data by others? If consumers object to such arrangements can they opt out?
• Suppose the consumer does not like the broker? Must the consumer continue to work with the broker? For how long?
• What about the use of online disclaimers? How much protection can consumers get if links to disclaimers are in microscopic type at the bottom of web pages, disclaimers written in dense legalese and typefaces which demonstrate new advances in miniaturization? Should there be a minimum type-size requirement? A required page location?

The Broker’s Perspective

Given their client obligations, do brokers under the current system have enough information to serve the needs of someone pressing an online button? Can a broker “decline” to serve someone who signs-up online? Can the decision to reject a prospective client be seen as discriminatory? What if the person signing up is age 17 — has the broker made an agreement which a minor can enforce but a broker cannot? What if a buyer wants the broker to find a $50,000 property in a community of million-dollar homes?

But wait: If push-button contractual relationships were banned will brokers be able to obtain listings, buyer brokerage agreements and referrals online?

Business was generated before the emergence of instant online agreements — sites with good content and marketing attracted public interest and such interest lead to broker/client relationships and referral fees. But unlike today’s situation, consumers were not tied into contractual relationships with the press of a button.

Instead, brokers and consumers developed relationships individually over time. Questions were asked and answers given. In effect, traditional practices recognize that all realty transactions are unique, that all buyers and sellers are different, that brokers are distinctive, and that listing agreements are negotiable.

Consumer Groups

Does anyone honestly believe that consumer groups are not going to take a new and profound interest in real estate matters if instant online agreements become common? Will trial attorneys question the use of instant online agreements? Would it not be better for real estate regulators to address this issue now, before it becomes a consumer issue, a media staple, a court case or a federal matter “requiring” HUD involvement?

The time has come for state realty commissions to determine whether the public interest is protected with the creation of instant “client” relationships. Should binding online broker contracts be prohibited or allowed? If allowed, under what terms and conditions? Should there be a requirement to negotiate online terms and conditions? Should brokers be allowed to transfer consumer information captured online without separate and express permission?

Both brokers and consumers need clear and settled answers to these questions, otherwise enterprising attorneys and consumer groups may well ask if instant online forms are worth the paper they could be written on. No less important, the answers are needed now, before the industry adopts or declines given online policies.

————————
Published originally by Realty Times on April 15, 2003 and posted with permission.

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Timothy Husvar, according to the Cincinnati Enquirer, was involved in illegal flipping worth $2.3 million over a three-year period. The paper says he has “admitted in court papers to serving as a mortgage broker and property seller in a scheme involving low-priced homes, stooge or puppet buyers, bogus appraisals, falsified loan applications and, ultimately, loans well in excess of the value of the properties. Among his victims: Washington Mutual Bank, Midas Mortgage Corp. and Trust Corp. Mortgage Co.” (See: “More ‘flippers’ are sentenced,” June 29, 2006)

How illegal flippers get away with their crimes is an unremitting source of amazement. Every time I apply for a mortgage I wind up with a 12,000-page application file and the need for more verifications than we require from North Korean nuclear plants. But somehow, magically, illegal flippers glide through the system with the ease of a champion ice skater.

“Flipping” — the idea of quickly buying and selling real estate — is entirely legal. The parallel is this: You buy a stock on Monday for $10 a share and sell on Tuesday for $20. There is no crime here, nothing wrong or immoral.

Illegal flipping is another story. From one end to the other these are deals that routinely involve valuations from appraisers who get money under the table, falsified loan applications, mortgage fraud, bait-and-switch financing, predatory loans with unconscionable terms and repairs which are not up to code and thus result in a house which may be neither safe nor habitable.

Illegal flipping occurs in large measure because we see it as an acceptable white-collar crime. Many of those involved in the Cincinnati scheme received two years in jail for their assorted crimes. If you think that’s tough, consider how much damage was done and how many people were harmed — and then imagine the sentence if someone robs a convenience store of $20.

Those who engage in serial illegal flipping should face far tougher sanctions than we now demand.

The Cincinatti convictions relate to activities that stopped in 2003. According to Walt Molony of the National Association of Realtors, the typical Cincinatti home sold for $138,900 that year. If it’s true that the scams were valued at $50 million, then we might reasonably expect that some 360 properties were involved. Even this estimate may be too small given that illegal flippers usually concentrate on less expensive homes.

Imagine the impact on the local marketplace when hundreds of homes are illegally flipped. If the houses were concentrated in one area or a small number of neighborhoods, we might see a huge number of foreclosures.

What happens to home values when there are many foreclosures in a given area? Do prices rise or fall?

In other words, illegal flipping surely harms innocent buyers, sellers and lenders, but it also harms communities in general. If you’re on the same block with a few homes that have been foreclosed, the value of your house will fall.

Have people who live next to illegally flipped homes done anything to justify the reduced value of their properties? Or are the neighbors just like you and me — people who pay their mortgage, pay their taxes and probably hope to clean out the basement next week? Isn’t the damage from less equity and lower selling prices real?

Given that the social and financial damage from illegal flipping is so great, we need to treat such activities as if they were a real crime, a crime that requires more serious sentences. If someone burned down a few houses in a neighborhood we wouldn’t fool around with light sentences, and the result should be the same for someone who flips multiple homes, causes multiple foreclosures and ruins multiple lives.

In addition, all lenders should adopt the HUD anti-flipping measures that were first established in 2003.

In basic terms, HUD will not provide FHA loan guarantees to finance any private home that has been sold within 90 days except for estate sales and sales within presidentially-declared disaster areas. A second appraisal is required when a home is resold between 91 and 180 days after the last sale and additional paperwork and verifications are needed for homes being re-sold within a year. No property will be financed unless the seller is also the owner — a requirement to make life tough for settlement agents who fail to properly record property transfers or pay the taxes that are due.

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Published originally by Realty Times on August 22, 2006 and posted with permission.

Why Is Illegal Flipping A White-Collar Crime? is a post from: Refinance, Home Mortgage Loans & Rates, Home Equity Loan

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