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Posted: December 15, 2008 5:00 a.m.

Mortgage fraud cases prevalent

Georgia in top 10 for these crimes

 Newton County is no stranger to mortgage fraud — having seen several fraud rings busted in recent years, including one involving Eastside High head football coach Rick Hurst that came to light this week.

A 2006 Newton County case that swept up at least seven people in charges of residential mortgage fraud still has two more defendants — Trudy Jacek and Tracey Moore — awaiting trial.

The 2005 fraud that brought theft by taking charges on Hurst and five other defendants involved properties purchased from late 2004 to early 2005 from Argent Mortgage Company, People’s Choice Home Loan, Argent Mortgage Company again and Consumer Mortgage Services and that were located in Decatur, Tucker and Lilburn.

According to a DeKalb County Police Department report, Gwinnett County police were initially notified by an employee of Consumer Mortgage Services in September of 2005 about a possible mortgage fraud on a property at 824 Rebecca Street, Lilburn that had been purchased by Joseph Rick Hurst.

The employee said there were issues with the documents that surrounded the transactions and that no mortgage payments had been made on the loan, which was sold to Wells Fargo, since August 2005. Further investigation revealed the property along with five other properties purchased under Hurst’s name were all brokered by Anthony Brewer, of Lithonia, a mortgage broker with Homequest Financial Services Inc. and appraised by Arthur Heidgerken of Commerce, with Piedmont Realty. The closing attorney’s office in each case was also Aforo & Kadiri of Stone Mountain.

Another defendant in the DeKalb County case, Dennis Gutierrez, also has a pending case in Gwinnett County with five counts of theft by taking, two cases from 2006 of theft by deception, a case from 2007 of larceny and deception and another case from 2007 of burglary by forced entry – all in Gwinnett County.

A 2005 Cobb County case of felony theft by deception was dismissed after Gutierrez paid at least $3,000 in restitution. In that incident, Gutierrez was accused of accepting a GMC Sierra truck as a down payment for a house that he did not own and had no right to sell, according to court documents.

Despite increased scrutiny in the mortgage industry, mortgage frauds are actually increasing, according to a recently released report from the Mortgage Asset Research Institute (MARI). The institute found that fraudulent mortgages were up 45 percent in the second quarter over last year nationwide.

For several years Georgia had the dubious distinction of being in first or second place on MARI’s list of top 10 states with mortgage fraud, but dropped down to sixth place in 2007.

Many mortgage frauds fall into two categories, according to Rod Carnes, deputy commissioner for the Non-depository Financial Institutions Division at the Department of Banking and Finance, which investigates and licenses the mortgage industry in Georgia.

"Fraud for property" occurs when a potential homebuyer gives false information, such as income or the amount of debt they owe, in hopes of being able to purchase a home to live in and for which they intend to make payments.

Although this kind of fraud used to be viewed as not as serious of an issue, it’s gained more attention recently because of the rising number of foreclosures and their contribution to the economic downturn, said Carnes.

"Fraud for profit" occurs when there is a more deliberate effort to gain money upfront and leave the lender holding the bag and involves the coordination of industry insiders, such as appraisers, mortgage brokers and attorneys.

For instance, a piece of property may be purchased at $200,000 and then appraised at a falsely inflated value of $300,000. A "straw buyer," or front person who usually has a clean credit record, applies for a mortgage and buys the house at the inflated price.

"What happens is, the fraudsters take the money at closing and run. And the straw buyer is left with a home going into foreclosure and it ruins their credit," Carnes said.

The straw buyer is often recruited by the fraud organizer through informal relationships, said Carnes.

"What oftentimes happens is that the orchestrator reaches out to groups where they build trust, such as people within their church, or golf partners, or a friend of a friend," he said. "These people, the orchestrators, tend to be very good salesmen."

The orchestrator might promise to arrange for renters and manage the property and reassure straw buyers that they would only lend their good name and credit, in return for receiving a payment. Or, they might recruit homeless people with no credit record, such as the Newton County Superior Court case of Kwame Gordon who pled guilty to two counts of mortgage fraud in 2007 after convincing a man from New York to assume a stolen identity.

Carnes, a Covington resident whose son attends Eastside, admitted that for many people, especially to people in the real estate and mortgage industry, walking away from a closing without having to put down money and receiving a payment might look a little fishy.

"They (the straw buyer) can be looked on as a victim, but they can also be looked upon as ‘Did you not see that coming?’" he said. "Unfortunately, it has happened to a lot of folks."

Although some people might think mortgage fraud is a relatively harmless crime, Carnes points out that neighborhoods are harmed by foreclosures as a result of increased blight and vulnerability to crime, not to mention lowered property values.

Because of the prevalence of mortgage fraud, Georgia has been cracking down. In 2005, the state passed the Georgia Residential Fraud Act, making it easier to charge fraudsters with mortgage fraud, instead of trying to bring the cases under harder to prove Racketeer laws or theft by taking.

In the Non-depository Financial Institutions Division, investigators have switched to a "risk-based" audit system that responds to complaints, rather than a time-based audit system that inspects brokers on a schedule. This switch has resulted in more sanctions against mortgage brokers, said Carnes, from only a handful of administrative actions before 2003 to 324 actions in 2007.

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