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Mortgage fraud called 'bank robbery with a pen'

Walworth County broker charged with wire fraud

Mike Heine/The Week

(Published Jan. 26, 2007, 9:38 a.m.)

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Mortgage fraud. "It's bank robbery with a pen," said California-based attorney and fraud expert Rachel Dollar.

Dollar, who runs the Web site www.mortgagefraudblog.com, said mortgage fraud is running rampant across the country. It's swindling the lending companies out of millions and ruining the credit worthiness of buyers.

Even those not involved in the sale are hurt, said Ralph Roberts, a mortgage fraud expert who developed the watchdog Web site www.flippingfrenzy.com.

When a property is sold fraudulently and goes into foreclosure, which often happens, neighbors face the chance that their property will devalue when a distressed property sold nearby. Local schools and municipalities miss out on additional tax dollars because properties lose value when they aren't kept up, Roberts said.

Sometimes a person's identity is stolen and they are listed as a homeowner without even knowing about it, Roberts said.

Why does it happen?

"It is spelled G-R-E-E-D. Pure and simple," said Bob Rauland, owner of The Rauland Agency in Walworth and 46-year real estate veteran. "There is no other reason other than greed."

Rauland, a Realtor, said industry insiders sometimes go astray because the "mighty buck got in the way."

That might have happened in Walworth County recently.

Lake Geneva-based mortgage broker James Lytle was charged May 15 with wire fraud for allegedly orchestrating a fraud scheme that bilked eight lenders out of more than $4 million through the sale of about 19 county properties, according to federal court documents.

(See story on next page)

Rauland said real estate buyers and sellers need to be vigilant and know who they're dealing with. Consumers check out the backgrounds of doctors, contractors and accountants. People in the real estate world should not be an exception, Rauland said.

"Mortgage brokers have come onto the scene very strongly in the last five to 10 years and there are a lot of very good mortgage brokers," Rauland said. "But there are a lot of unscrupulous ones who find flaws in the system and commingle with other people who are looking to make a quick buck. Everyone thinks they're not going to get caught."

Committing mortgage fraud has become easier since sales and loan approvals are largely done through computers, Roberts said. Fudging numbers on one's income or employment history is easy to do, and creating false documents and identities can be done with a few mouse clicks.

"Guys are able to just plug this stuff into a computer," Roberts said. "The world has gone virtual. When you used to buy money (through a mortgage) for a house you'd sit across from someone at a bank or a credit union and they'd ask you questions."

FBI Supervisory Special Agent Dave Gorr, who is in charge of the White Collar Crime Program in Milwaukee, said mortgage fraud is becoming one of the bureau's top priorities. Industry insiders commit about 80 percent of all mortgage fraud and there are many types of schemes that can be hidden in the paper trail.

Lytle's alleged scheme is perhaps the most significant mortgage fraud case to have been conducted out of Walworth County, but some Chicago-based frauds have targeted Geneva Lake-area properties because of their high property values, Gorr said.

It's disappointing to know mortgage fraud has found its way into Walworth County, Rauland said. He hopes this was an isolated case.

"We don't know what else is out there," he said. "You know what's there with this particular mortgage broker... but there may be others who haven't been found out yet or they may be on a smaller scale. There may be others out there who probably will never be found out for what they are."

Home buying/selling tips

-- Find honest and reputable real estate agents, banks, brokers, appraisers, inspectors and title companies, Rauland said. "It isn't a good idea to rush into something. You need to work with reputable, reliable and qualified people and don't be afraid to get a second opinion. Take your time. Sometimes you lose out on a house you want to buy because you didn't act quickly enough, but sometimes haste makes waste."

-- Basically, "if it sounds too good to be true, it probably is," Gorr said. Unsolicited contracts are always something to be wary of.

-- Check signatures on documents. Make sure they match and are of the same person. Also, make sure checks are made out only by people that are a part of the transaction, Gorr said. Don't allow money to come in from non-buying parties.

-- Make sure your original asking price for the home is the amount being mortgaged by the buyer. An amount for more than what you're asking could indicate a scam.

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