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May 20, 2010

Janet Dorsey, REFAT Public Outreach Chair
If you weren’t in attendance at the Ventura County Real Estate Fraud Advisory Team’s (REFAT’s) Industry Outreach Forum on Thursday, May 20th, you missed out on three dynamic, heavy-hitting speakers discussing current fraudulent activity and efforts to lose the fraudulent weight.
Stella Ling, Sr. Attorney at the California Association of Realtors® (C.A.R.)
Jeff Davi, California Department of Real Estate Commissioner
Miles Weiss, Sr. Deputy District Attorney – Real Estate Fraud Prosecution Unit
The Chairperson for REFAT Industry Outreach, Charlene Williams, welcomed attendees and gave a brief introduction and overview of the day’s events.  Jim Keith, Chairperson for REFAT, played the role of emcee.

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The opening statement was given by Ventura County District Attorney, Greg Totten, who congratulated and commended the work being done by the REFAT to educate the public and industry professionals about fraudulent activity and ways to prevent and report real estate fraud.  The DA discussed a $1.7 million grant award from the Federal Government to continue prosecutorial activities related to real estate fraud.  Only 7 awards were granted in the entire United States and the Ventura County DA’s office was the only recipient in California – making his office the envy of other DA offices in the state.   Mr. Totten attributed the efforts between his office and REFAT on winning the grant and said it would not have happened without Realtor® collaboration.   The grant has allowed the DA’s office to hire 1 additional Deputy DA in the Real Estate Fraud Prosecution Unit, as well as provide an additional investigator and support staff.
First to weigh in on current real estate fraud was Stella Ling.  She gave the crowd of over 200 real estate industry professionals the A-B-C’s on Short Sale Flipping.  Stella has a comedic quality in her delivery, which made what could have been a complex and confusing explanation, something that was informative and entertaining.
Party “A” – Seller & Facilitator of Short Sale
Party “B” – Buyer with lowball offer marketing property to new/subsequent buyers
Party “C” – Buyer purchasing from Party “B”
In a nutshell, Party A lists the property for sale at below market value to obtain a quick offer from Party B and submits it to the lender for Short Sale approval.  In the meantime, Party A continues to market the property for sale with Party B without the knowledge or consent of the lender.  Party C makes an offer at a market value to Party B.  Party B accepts the offer and they concurrently close both escrows.  The higher purchase price is never disclosed to the lender and the second closing happens outside of the original escrow.
Stella made the following points to help keep Realtors® out of trouble:

  • Realtors® owe a Fiduciary Duty to their clients.  It is not in your client’s best interest to not submit the highest and best offer to the seller’s lender.
  • Do not allow transactional activity to happen outside of escrow.
  • Realtors® are prime targets for a seller’s attorney after a Short Sale.
  • Sellers or Lenders can sue for the purchase price difference between Party B and Party C.
  • Seller damages can be tax liability for debt forgiven, lender deficiency clauses, equitable damages (i.e. seller wants to undo the Short Sale)
  • There could be Loan Fraud for Party C if they are used as a Straw Buyer
  • Realtors® could be prosecuted for aiding and abetting loan fraud

Could be construed at defrauding the US Government on government-back loans (VA, FHA, Fannie/Freddie Loans)
Stella’s advice:  Because Realtors® need protection, CAR has employed a crack team of 15 attorneys at no additional charge to Realtors®.  USE THEM!

REFAT Fraud Forum May 2010-DRE Commisioner Davi

Jeff Davi was the next speaker to weigh in on the subject.  Jeff opened with the No Advance Fee for Loan Modifications law (SB94) [1] that has been in place since October 11, 2009.  This law applies to everyone claiming to help a consumer with a loan modification including attorneys, real estate agents and consultants.  He offered up the following stats:  The DRE has opened 2400 investigations on Loan Mods; 75% of all Loan Mod complaints going to the DRE come from Southern California.

Mr. Davi went on to say that many of the Loan Mod scammers have morphed into Forensic Loan Audit companies claiming to review your loan documents for RESPA violations and charging an up-front fee for the service.  This is essentially just another way to get around SB94 and scam people out of their hard earned money at a time when they are seeking assistance to reduce debt obligations.

Recent DRE Actions
While the DRE does not have police powers, they have collaborated with law enforcement agencies.  The DRE now has trained investigators whose interviews and investigations can be used by law enforcement.  Why is this significant? Law enforcement no longer has to go back and re-interview dozens of witnesses which helps speed up their prosecutorial efforts.

The DRE has also beefed up their website.  The site is now more consumer-friendly and includes Consumer Alerts, new laws affecting real estate, and a Financial Services License Status Check.

Mr. Davi admitted they are overwhelmed with complaint-driven issues and simply do not have enough manpower to conduct as many random audits as they’d like, but that doesn’t mean audits aren’t being done.

In closing, Mr. Davi predicted there will be an upsurge in Debt Collector Fraud due to the numerous Short Sales in the market.  Essentially, Debt Collector Fraud occurs when someone claiming to be a debt collector fraudulently claims a deficiency note has been sold to them.  They then begin collecting monies from unsuspecting former homeowners on notes they don’t legally own.

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Last to weigh in on real estate fraud was Miles Weiss.  Mr. Weiss explained the nuts and bolts of Securities Fraud, Money Laundering and Aggravated White Collar Crime as tools to prosecute real estate fraud.

The audience, of course, was eager to hear about the prosecutions and convictions obtained by the DA’s office and Miles didn’t disappoint.  Since January 2009, there have been 191 complaints to the DA’s Real Estate Fraud Prosecution Unit.  80% of those are related to Loan Modifications, which represents a dramatic shift from the previous top crime of Loan Fraud.

Mr. Weiss went through several presentation slides detailing the crimes committed and the sentences obtained within the last couple of years.  His last slide was a teaser, though.  It showed 3 simulated mug shots for a pending arrest of 3 Ventura County residents.  Weiss indicated the arrest would happen within the next 24 hours, which did occur.  See related story from the Ventura County Star.

From my perspective, Ventura County REFAT put on another, well-received and informative Industry Outreach Forum.  To stay informed on real estate fraud prevention activities, please visit the Ventura County REFAT website at www.REFAT.org.  To invite an expert from Ventura County REFAT to speak at an upcoming event, please contact Kay Runnion at (805)981-2100, or visit our contact page.

Copyright 2012, REFAT