by Nancy Osborne, COO of ERATE®
April 25, 2008 - The states of Arizona, California, Florida and Nevada have collectively led the country in a notorious category, property foreclosures. This of course is the result of the surge of buying activity in these states by real estate investors and speculators in the years leading up to the burst in the real estate bubble sparked by the melt-down in sub-prime mortgages. While the foreclosure problem has been magnified by the number distressed homeowners who are unwilling to stick with their property, regardless of the concessions made by their lender applying to the mortgage payment, there is also the issue of out right fraud which is occurring at an alarming rate as a result of cash-back schemes involving so called straw buyers.
Straw buyers are abandoning properties in all of these troubled states at a pace that is pushing the level of foreclosures even higher. A straw buyer is essentially a “bad faith” loan applicant involved with a group of scam artists who applies for and obtains a mortgage loan to purchase a property no one intends to occupy or make the mortgage payment on. Straw buyers can be willing or unwilling (in cases involving ID theft) participants in the mortgage scam and are selected on the basis of the quality of their credit profile, a straw buyer must have a credit history which would allow them to complete the mortgage underwriting process without arousing suspicion or being detected.
Those executing the scam typically start by contacting a distressed homeowner who is facing foreclosure and then persuading (or conning) the owner that they can “help”. The scam artists then convince the distressed homeowner to sign over the deed on their home or to sell the home to the straw buyer who in turn obtains a loan against the property far exceeding the current mortgage balance against it and then splitting the proceeds with fellow scammers. It may seem to those perpetrating the scam that the only injured parties are the sellers and ultimately the investors in the mortgage-backed security however in cases involving appraisal fraud, which raises the value of the target property (increasing the ill-gotten gains from the scam), the fraudulent appraisal has now raised the value of homes throughout an entire neighborhood, thereby creating a ripple effect. Cases involving straw buyers have been abundant in recent years but have proven very difficult to prosecute. Popular scam targets are For Sale By Owner (FSBO) properties as well as property owners who are delinquent or in default on their mortgage payments. Therefore both FSBO sellers and distressed homeowners need to be on the alert and to exercise caution when approached by potential buyers who claim they want to help. Homeowners must perform their own due diligence to protect themselves from becoming the next victim of scam artists.
Nancy Osborne has had experience in the mortgage business for over 20 years and is a founder of both ERATE, where she is currently the COO and Progressive Capital Funding, where she served as President. She has held real estate licenses in several states and has received both the national Certified Mortgage Consultant and Certified Residential Mortgage Specialist designations. Ms. Osborne is also a primary contributing writer and content developer for ERATE.
"I am addicted to Bloomberg TV" says Nancy.