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Mortgage Fraud Blog is the premier website for news and information on mortgage fraud and real estate fraud throughout the United States.
Rachel Dollar PictureRachel Dollar, the editor of Mortgage Fraud Blog, is an attorney and Certified Mortgage Banker who handles litigation for lending institutions and secondary market investors. She is an author and a nationally recognized speaker on the topic of mortgage fraud. Ms. Dollar is a shareholder with the law firm of Smith Dollar, PC, is licensed to practice law in California and maintains offices in Santa Rosa, California. Email Ms. Dollar

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Friday, June 22, 2007

Suspicious Activity Reports Prove to be a Helpful Tool in Combating Mortgage Fraud

According to the latest analysis of SAR reports, mortgage fraud Suspicious Activity Reports filed by depository instituions in 2006 increased 44% since 2005. 

Issue 11 of the SARs Activity Review, Trends Tips & Issues credits SAR filings with the government’s quick recognition and fast action of a mortgage elimination scheme.

In 2006, a Federal grand jury indicted several businesses and individuals, including mortgage brokers, on numerous charges of mail fraud, bank fraud, conspiracy to commit mail, wire and bank fraud and contempt of court in a nationwide scheme that purported to eliminate the mortgages of thousands of homeowners. The perpetrators, working largely through the Internet, offered to eliminate mortgage debt for fees amounting to thousands of dollars, and then fraudulently obtained equity loans, most of the proceeds of which went to the defendants. As the number of victims spread, various news articles and trade publications published information about the scheme and the defendants. With this increased awareness, financial institutions began filing SARs on the scheme. These SARs have helped investigators identify individuals and properties affected by the fraud.

As part of the mortgage elimination scheme, false title documents were recorded, allegedly to transfer a lender’s secured interest in the property, even though the mortgage on the property had not been paid. The fraudulently obtained free and clear titles were then used to obtain hundreds of thousands of dollars in home equity loans from independent lenders.

The Assistant U.S. Attorney on the case warned that homeowners should be cautious of offers that sound too good to be true, noting that the alleged scheme violated mortgage agreements between the lender and borrower and tainted property titles by recording false title documents.

The scheme’s appeal rests on the argument that mortgage loans are not legally enforceable, and, therefore, that borrowers are not legally responsible for re-paying their mortgage loans. Defendants claim that when a borrower gives the bank a promissory note in exchange for a loan, the bank never fronts any “real” money for the loan, so the bank puts nothing into the transaction. As a result, under defendants’ theory—sometimes called the “vapor money” theory—no enforceable debt accrues.

Normally, a single institution might file numerous SARs on an individual or organization for repeated suspicious activity. In this case, the widespread notoriety of the defendants has made it easier for financial institutions to recognize the fraudulent scheme. As the scheme and the perpetrators have become increasingly well-known, financial institutions have been filing increasing numbers of SARs. Since 2004, banks and others have filed at least 100 SARs on transactions to eliminate mortgage debt by the defendants dating back to 2001. The large number of SARs filed in connection with this case provides a rare opportunity for law enforcement and greatly contributes to law enforcement’s ability to determine the size and scope of the fraud.

Although the report doesn’t identify the scheme by name, it’s a pretty recognizable fact pattern for mortgage bankers!  Test your mortgage fraud knowledge:  How fast did you come up with The Dorean Group?

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Posted by Staff Reporter on 06/22/07 at 03:00 AM
Mortgage Fraud Locations • Total comments: (1) (0) Trackbacks
  1. Great information. This is something we should all be paying attention to.

    Posted by  on  06/23  at  07:29 AM

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The information and notices contained on Mortgage Fraud Blog are intended to summarize recent developments in mortgage fraud cases and mortgage banking matters nationwide. The posts on this site are presented as general research and information and are expressly not intended, and should not be regarded, as legal advice. Much of the information on this site concerns allegations made in civil lawsuits and in criminal indictments. All persons are presumed innocent until convicted of a crime. Readers who have particular questions about mortgage banking, mortgage fraud matters or who believe they require legal counsel should seek the advice of an attorney. The creators, editors and sponsors of Mortgage Fraud Blog do not intend to create a confidential relationship or an attorney-client relationship by communication via or arising from this site.

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