Short Sale Fraud Schemes on FBI Radar November 30, 2009 Stephen J. Nash Nash & Lodge, PLLP nash@nashandlodge.com The FBI website provides a great deal of information regarding real estate fraud.   It lists Minnesota as one of the states with the rate of fraud, and shows Minnesota to be located in a region that has the second most ongoing investigations in the country.  In one section they describe various forms of real estate fraud that they recognize and are actively investigating, one of which is short sale fraud that I wrote about in the October update.  The following is from the FBI site:.   "Short sale fraud schemes continue to be used in combination with foreclosure rescue schemes in an effort to victimize homeowners and financial institutions (see Appendix A for an explanation of a short sale scheme).  Perpetrators across the country are recruiting real estate agents and paying them referral fees for locating and soliciting homeowners undergoing foreclosure.  Homeowners are entering into agreements with perpetrators deeding their property to them in the form of a land trust.  The homeowner is listed as the beneficiary of the trust and the real estate agent is listed as the trustor.  The perpetrators then negotiate a short sale with the lender.  After the short sale, the real estate agent sells the property for a profit to another previously identified buyer, but the lender and the homeowner do not know this.  In effect, the perpetrator sells the property for less than the mortgage and re-sells the property, often the next day, for a profit. " There are of course many forms of short sale fraud and, like all fraud, will continue to mutate so that those who are active in the fraudulent activity can argue that some change that they have made in the scheme somehow makes the transaction legal. Times are tough and it is tempting to go along with that deal that you want to believe is legit even though your gut says this is too good to be true but be aware, the FBI is aware of the variuos forms of fraud that are out there, we are in a state that has been recognized as one of the top for real estate fraud and for being in a region that has the second most ongoing invest.   The following charts regarding real estate fraud charts are found on the FBI 2008 Mortgage Fraud Report "Year in Review":    Federal Bureau of Investigation FBI mortgage fraud investigations totaled 1,644 in FY2008, a 37-percent increase from FY2007 and a 100-percent increase from FY2006 (see Figure 10).  Sixty-three percent (1,035) of all pending FBI mortgage fraud investigations as of FY2008 involved dollar losses of more than $1 million.   According to SAR reporting, the Los Angeles, Miami, San Francisco, Chicago, Sacramento, New York, Tampa, Detroit, Minneapolis, and Atlanta Divisions, respectively were the top 10 FBI field offices impacted by mortgage fraud during FY2008 (see Figure 13).17 US Department of Housing and Urban Development - Office of Inspector General    Federal National Mortgage Association (Fannie Mae) Loans originated in 2007 through 2008 and reviewed by Fannie Mae through December 2008 were used to formulate a geographic top 10 list by state for concentrated mortgage loan misrepresentations.  Fannie Mae's top 10 mortgage fraud states based on significant misrepresentations discovered by the loan review process through the end of December 2008 included California, Florida, Michigan, Georgia, Arizona, Texas, Minnesota, Illinois, Virginia, and Missouri (see Figure 17).22 Regional analysis of FBI pending mortgage fraud-related investigations as of FY2008 revealed that the west region of the United States led the nation with the most pending investigations.  The west region was followed by the north central, southeast, northeast, and south central regions, respectively (see Figure 11).   NOTICE The foregoing is not intended to constitute legal advice for any specific circumstance, but is intended to reflect broadly applicable principles, under Minnesota law, relevant to a typical situation. Each set of facts and each contract are, or can be unique; the unique facts and specific language of the contract may require a different legal analysis and may result in a different outcome. Before proceeding in reliance upon this or any other general description of law, consult with an attorney competent in the field of practice relevant to your situation. Copyright 2009 Nash & Lodge, PLLP