Real estate fraud is alive and well — a recent prosecution results in 75-month sentence for Minnesota mortgage broker; more scams continue to get uncovered
Some significant mortgage and real estate fraud schemes have been recently prosecuted in Minnesota. Michael Hadalla, CEO and co-owner of Enzo Mortgage Group, was sentenced to 75 months in prison and ordered to pay $800,000 in restitution and a fine of $10,000. (http://minnesota.cbslocal.com/tag/enzo-mortgage-group/) Prosecutions involving the Enzo Mortgage firm have previously resulted in the conviction of other individuals involved in the scams. ( http://www.hennepinattorney.org/NewsPress/tabid/391/EntryId/56/Three-defendants-sentenced-to-serious-time-for-mortgage-fraud-racketeering.aspx)
Another mortgage company (Mortgage Planners, Inc.), alleged to be involved in a “sophisticated” fraud scheme found itself in the eye of the storm in 2011 when a collaborative investigation / prosecution team involving the Commissioner of Commerce, HUD, and the Hennepin County Attorney’s Office initiated charges of racketeering in an alleged fraud scheme involving more than 60 properties. (http://minnesota.publicradio.org/display/web/2011/06/22/mortgage-fraud-charges/) This scheme is alleged to have involved “straw buyers” purchasing properties at foreclosure sale, who never intended to be the owners or occupants of the property.
In a June 2011 press release, the U.S. Department of Justice indicated more than 30 individuals in MN were prosecuted for mortgage fraud or related crimes, and that number had reached more than a dozen by the middle of 2011. http://www.justice.gov/usao/mn/press/jun047.pdf
The June U.S. Department of Justice 2011 press release details the prosecution and conviction of several notable mortgage fraud schemes that have taken place in Minnesota, including the infamous scandal involving the Cloud 9 Sky Flats. The carnage left by that scandal continues to unfold, with business owners involved in a mortgage brokerage and title company having ties to the Cloud 9 development entering guilty pleas as recently as last month. (http://www.bizjournals.com/twincities/news/2012/01/19/two-more-guilty-cloud-9-fraud-trooien.html)
In March, the author of this blog entry, Thomsen Nybeck shareholder Brad Boyd, will join representatives of the FBI and the Department of Commerce in presenting a seminar to real estate agents and brokers addressing some of the current fraud issues in today’s real estate marketplace. It is important for real estate professionals (real estate agents, brokers, mortgage brokers, title companies, attorneys) and consumers alike to recognize that we have not emerged from a fraud-ridden marketplace, fraud continues to occur.
While many people mistakenly believe real estate fraud is part of a bygone era, that’s simply untrue. FBI statistics report that FBI mortgage fraud pending investigations totaled 3129 in FY 2010, up 12% from FY 2009 and up 90 percent from FY 2008 (source: FBI.gov). Minnesota ranks in the top 3 states for mortgage fraud cases nationally, based on dollar amount (as of Q3 2011 based on a MortgageDaily.com report).
Mortgage fraud hurts consumers and taxpayers by taking money away from banks. While banks are not always a sympathetic victim, what hurts the banks in turn hurts consumers. Lending standards go from nearly unregulated to hyper-regulated, making financing more difficult to obtain for legitimate and qualified buyers. In the end, many of the economic woes of a damaged real estate marketplace and devalued housing market can be directly or indirectly linked to fraud scams and real estate values which were simply a mirage, propped up by illicit transactions.
In a market filled with foreclosure and short sale transactions, fraud hasn’t disappeared, it’s simply found a new format, and we all need to remain alert to the new trends. Everyone can play a role in being alert to avoiding the misrepresentations, omissions, or false information that form the basis of a mortgage fraud scheme.
This blog entry is written by Brad Boyd, a Shareholder at Thomsen Nybeck. Brad’s practice focuses primarily in Real Estate, Real Estate Brokerage, Business and Corporate law. Brad provides legal advice, guidance, and representation related to risk management in a wide variety of real estate and business law matters. He is counsel to the Minnesota Association of Realtors, many individual Realtors and brokerages, business clients and individuals, and is a frequent speaker for real estate continuing education throughout the state of Minnesota.