Housing scam artists staying on the move

They adapt to the market and the law, as Nevada’s top fraud fighter can attest

Chris Morris

By J. Patrick Coolican (contact)

Friday, Sept. 25, 2009 | 2 a.m.

Catherine Cortez Masto

Mortgage fraud is expected to escalate (7-17-2009)
Editorial: Tackling fraudulent loans (4-10-2009)
Foreclosures attracting fraudulent schemes (2-5-2009)
Las Vegas man pleads guilty to mortgage loan scam (11-20-2008)
Hearing delayed for 2 mortgage brokers accused of fraud (11-20-2008)
Arrests made in mortgage loan scam (11-4-2008)
Mortgage fraud blamed in more foreclosures (10-21-2006)

View the FBI's 2008 Mortgage Fraud Report

John Kelleher’s professional life is beginning to feel cyclical, like the seasons.

Nevada Attorney General Catherine Cortez Masto asked Kelleher, a chief deputy, to head a mortgage fraud task force in early 2007.

With so many shady real estate players and dicey mortgages, the new task force kept him busy.

Then the foreclosure wave started, and the task force shifted its focus to scam artists falsely promising to keep Nevadans in their homes for a steep fee.

Then the fraudsters began offering phony loan modification services, so Kelleher went after them, too.

And now, with foreclosures and sinking home prices prompting an uptick in real estate sales activity and an influx of investors buying houses — think of it as spring again — Kelleher is back to square one: plain old mortgage fraud.

“We’ve come full circle,” he said in an interview, sounding incredulous.

He tries to keep his good humor about him, but the work is grim, another side effect of Nevada’s Great Recession.

According to his boss Cortez Masto, Nevada leads the nation in mortgage fraud.

In one typical case, the attorney general alleges that in 2007 a Henderson company called Sapphire Mortgage “obtained mortgage loans for clients by inflating home values using fraudulent appraisals, falsifying loan documents, inflating buyers’ income, forging signatures on checks and loan documents, and submitting bogus invoices for the purpose of obtaining loan proceeds.”

The mortgage fraud didn’t always target faceless banks, but was also directed at vulnerable Nevadans, according to the attorney general’s office. In one case, the defendants forged an elderly victim’s signature on loan application documents, submitted the loan and pocketed a commission.

When the foreclosure crisis hit, scam artists were conning homeowners into giving them a flat fee — often thousands of dollars — in exchange for helping them save their homes. Only, they would take the fee and provide no service.

The Legislature stepped in and began regulating foreclosure consultants in 2007. But it was a game of whack-a-mole, and the scam artists evolved again. The new law applied only to people advising homeowners on the foreclosure process, so the scammers became “loan modification consultants,” offering their services before foreclosure.

Again, the fraudsters would demand up-front money, but never provide services.

This year the Legislature acted again, this time to regulate loan modification consultants, forcing them to become licensed and bonded and preventing them from taking up-front money and running.

At the moment, Kelleher is primarily focused on these fraudulent loan modification specialists.

Certainly there are many companies providing sound and legitimate advice to people trying to escape onerous loan terms.

Still, Nevadans have registered complaints against 130 companies; there are active investigations against 40 of them.

Lately, Kelleher is even seeing twofers: A company scams a customer into paying for a loan modification, and rather than just walking away with the money, the company gets a phony loan, pocketing the commission on the new loan.

As in most scams, the elderly are a frequent target, Kelleher said.

All this raises the question: What’s wrong with Nevadans?

Why are we so prone to preying?

Michael Green, the Nevada historian, said the real estate boom and bust and their attendant crimes are in line with a long history of get-rich-quick schemes, going back to phony mining claims.

“A lot of the history of the frontier is a history of the scam artist and the trickster, and we’ve had no shortage of that,” he said.

Discussion: 7 comments so far…

By HookorCrook

9/25/09 at 7:55 a.m.

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Probably 1,000 mortgage litigation/predatory lending lawsuits have been filed in Clark County state and federal courts over the past 18 months. Each time, the Las Vegas state and federal court judges rely on old fashioned real property and contract law to decide the cases. They are in desparate need of a "Higher Court" decision preferably from Nevada, but they would settle for a decision from California or even a "mandate" from Washington DC. For reasons unknown, the higher courts and Washington have dodged the issue. Here is an interesting article on the results of the first four Nevada Foreclosure Mediation Sessions http://tinyurl.com/yc7ega4 showing mixed results. Sadly the judges have no choice but to kick the cases down the road for a few months, than ultimately the homeowner gets discouraged and the case gets dismissed.
By wizardofOz

9/25/09 at 9:06 a.m.

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Wheeeeeee, suckers abound!

And you call the "mortgage-loan-sale-modification-remodel-equity-housing-brokerage-business" an INDUSTRY...?

Why on God's green earth would you do that?
Nevada has only ONE industry - gamblin'. Sumthin' like 90% of ALL revenue comes from 'dose 'guys.

And that INDUSTRY gets HEAVILY REGULATED for honesty and integrity of the game (as a general rule).

Now comes before us, shall it please the court, an "INDUSTRY" with ABSOLUTELY UNEQUIVICALLY NO REGULATION during the boom years - and a local population of born-again suckers ready to be taken for a long hard ride.

How did it happen, shall it please the court, that the brokers, sales agents, mortagage bankers, loan originators, appraisers, loan modifiers, remodelers, equity loaners, et all, WERE NOT PREVIOUSLY MONITORED for ethical and legal behavior?

Could it be possible that ALMOST ALL OF THEM WERE IN, OR CONNECTED TO, LOCAL GOVERNMENT..?

Now, shall it please the court, this is the mess we are in, shall it please the court, and those who scammed us, shall it please the court, got our money, shall it please the court, and got out of dodge, shall it please the court, and got off SCOTT-FREE, shall it please the court, shall it please the court, shall it please the court.
By KillerB

9/25/09 at 10:35 a.m.

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Two points to be made here:

1- it's a complete fallacy to assume because the state outlawed a whole class of person-to-person service providers there is any more integrity involved; and

2- when is the biggest scammer of all, MERS (according to a local company http://www.americanrecourse.com/home/v1/...), going to be added to Mr. Kelleher's list?
By davidwayneosedach

9/25/09 at 11:56 a.m.

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This loan modification fraud is one of the cruelest scams of the foreclosure crisis.
By KillerB

9/26/09 at 12:13 a.m.

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davidwayneosedach -- no, the cruelest scam is our government just assuming institutions like MERS have integrity. They've been scamming mortgagors for twenty years and only now are the courts starting to pay attention. A federal judge here in Vegas last year shut it out of a case. The Kansas Supreme Court last month declared they had no legitimacy. Where's Masto on that?
By LasVegasLawyerGal

9/26/09 at 1:50 a.m.

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We missed a wonderful opportunity earlier this year when a bill died (by like seven votes in the senate) which would have empowered bankruptcy judges to adjust mortgages inside a Chapter 13 proceeding. (BK Judges can already do this for other types of secured debt, like cars, but a U.S. Supreme Court decision has been interpreted by many judges as prohibiting such modification absent statutory authorization). If Harry had managed to get this through, mortgages could be worked out through a transparent process supervised by both a Chapter 13 Trustee and a bankruptcy judge--and the "loan modification industry" would be a thing of the past.
By KillerB

9/26/09 at 12:33 p.m.

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LVLawyerGal -- imagine what Judge Riegle could have done with that kind of authority last year when she ruled against MERS!

http://www.lvbusinesspress.com/articles/...

I especially like her MERS conclusion -- "if it doesn't walk like a duck, talk like a duck and quack like a duck, then it's not a duck."

She's a hero along with California's Samuel Bufford. Now these are some of the very few judges who actually deserve the title "Honorable"!