Busted!

One big item in yesterday's news was the arrest of two Bear Stearns hedge fund accounts senior managers charging them with conspiracy, securities fraud and wire fraud. On the same day more than 400 others including Realtors, appraisers, and mortgage brokers were arrested as part of Operation Malicious Mortgage conducted by the Justice Department. Busted! CLICK HERE to read the details on the Justice Department website. The news yesterday said more arrests are on the way.

I want to know when the Justice Department is arriving in Key West to round up the culprits still walking the streets and doing new deals. A couple of months ago I wrote about how mortgage brokers profited from booking fraudulent loans. The Justice Dept. site referenced above says "mortgage frauds employ a variety of tactics including misrepresentations, deceit and other criminal abuses to fund, purchase or insure mortgage loans". It goes on to say "lending fraud frequently involves multiple loan transactions in which industry professionals construct mortgage transactions based on gross fraudulent misrepresentations about the borrower’s financial status, such as overstating the borrower’s income or assets, using false or fictitious employment records or inflating property values".

Some of you know that I used to practice law. I used to work in banks and chased the bad guys from the inside. I never practiced criminal law, but I know a crook when I see one. I know fraudulent conduct and deceit. I know misrepresentation and prevarication. I know the Justice Department needs to come to Key West.

I have repeatedly noticed that certain names keep reappearing in numerous short sales and foreclosures in Key West. Not a few short sales and not a few foreclosures, mind you. But a lot. So I started to do a little investigating on the Internet. I checked out buying agents and selling agents on short sales and foreclosures. I checked out the offices where the agents were licensed when the original deals went through and where the agents are located today. I used the Monroe County Clerk's website to see which lenders financed the multitude of malicious mortgages.

A few select Realtors happened to sell a lot of properties that ended up in short sales or foreclosures. I'll bet the statistical probability of a responsible Realtor selling more than two or three properties that end up being foreclosed upon or offered as short sales in a little burg like Key West would be astronomical. But that is exactly what happened to several local Realtors and real estate investors.

It takes more than one person to pull off a fraudulent scheme. When I saw so many Key West foreclosures with the same names appearing as real estate agent or purchaser (or sometimes both), I assumed that the Realtors involved had figured out how to manipulate the system. They would use a familiar mortgage broker who could package multiple loans to multiple lenders for the same buyer. Mortgage brokers were booking loans for many different lenders. (Most sales were 100% financed with an 80% first mortgage to a lender like Countrywide and a 20% second mortgage to another lender, often times the same company or a subsidiary.) Finding a willing lender was not difficult as long as there was supporting documentation to substantiate the value of the collateral. Enter the appraiser. The mortgage broker used approved appraisers to value the collateral on pending mortgage applications. I am not saying or implying that any local appraisers engaged in fraud. But I think the Justice Department ought to examine the relationship among certain Key West Realtors, real estate brokers, appraisers, and/or mortgage brokers.

"And this is important to me today because?" you ask. I'm seeing some of the very same Realtor names on short sales and foreclosuresof sales the same Realtors handled a couple of years back. Yep. I'm seeing Realtors listing short sale of people with whom they have a very close personal relationship or business relationship. One Realtor (who I will not name) purchased numerous properties with 100% financing. The company where this Realtor's license is hung is now handling some of those same properties as short sales. I wonder if the banks that are being asked to permit short sales are aware of this incestuous conduct. There are more examples of this kind of conduct. This is not an isolated case.

I'm rooting for the FEDS on this one. I'm hoping they come to town looking to bust more "evil doers"to quote President Bush. We are all paying the price for the greed of some very unscrupulous people.