Nov 24, 2005 11:13 am US/Central
FBI Investigating Possible Mortgage Fraud In MN
by Jason DeRusha
(WCCO)
The FBI is investigating whether mortgage fraud is happening in the Minnesota real estate market.
The Minnesota Realtors sent a letter to its members, saying the FBI is looking into "potential fraudulent activities talking place in the marketplace".
The fraud typically involves inflated house assessments and off-the-books exchanges of cash.
For most people, their house is the biggest single investment they make. When they put up the "For Sale" sign, they trust that their realtor and mortgage broker will do them right.
"As the mortgage business has gotten a little more difficult, people are a little more willing to play with the rules," said Chris Galler with the Association of Minnesota Realtors.
An example of the fraud is if you are selling your house for $250,000 and then come closing time, there is a change. An unscrupulous broker artificially pumps the price up to $280,000. To close the deal, he tells you to write a $30,000 check to the buyer.
The trickle down can be complicated. For example, if your neighbor overstates the sale price of his or her house, that is fraud. That can make the city tax assessor think that your house is worth more than it really is and that costs homeowners money.
With the housing boom starting to slow, the FBI worries about desperate brokers and realtors, who rely on commission to make a living.
"So there's a real strong incentive there that can sometimes push people over the line," said Alex Stenback, a mortgage broker.
Stenback supports the FBI investigation.
"It really, at the end, hurts the consumer because they're put into a position to be accessories to fraud," Stenback said. "They're trusting the professionals and they have really no idea exactly what they're participating in."
Sources said the FBI has been active in the community for the past couple of days, seizing documents. The bureau has gone after mortgage fraud across the country, making two arrests in Illinois this month.
A warning sign for consumers is the cash kickback. Giving $1,000 or $2,000 to cover closing costs is legal. However, $10,000, $20,000 and even $50,000 is fraud.
If people default on those mortgages, the banks are out money, because they are lending more than the house is worth.
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