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September 4, 2015

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Nevada ranks No. 2 in attacking mortgage fraud

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Sam Morris / Las Vegas Sun

IRS Criminal Investigation Special Agent in Charge Paul Camacho briefs the media on a nationwide sweep that targeted mortgage fraud across the country Thursday, June 17, 2010. The operation has resulted in 123 people in Southern Nevada being charged, convicted or sentenced in connection with the probe.

Daniel Bogden

Daniel Bogden

Federal prosecutors in Nevada — home to a record number of foreclosures and plummeting home prices — rank second in the nation for attacking mortgage fraud.

Mortgage fraud includes falsifying loan documents to qualify for a home loan, and skimming money from mortgages through property flipping schemes.

With the downturn in the housing market, mortgage fraud victimizes homeowners who pay upfront fees to scam artists. The homeowners think they’re either going to avoid foreclosure or at least get a more favorable loan, but they often find out they’ve been ripped off and remain in danger of losing their homes.

Although lenders have been victims of mortgage fraud, they’ve also been accused of fueling the housing market collapse by giving subprime loans to borrowers who weren’t financially qualified. And lenders have been accused of fraudulently foreclosing on homes.

A study released last week by the Transactional Records Access Clearinghouse at Syracuse University in New York, which analyzes data from federal agencies, found that the U.S. attorney’s office in Nevada had the nation’s second highest per capita rate of prosecutions for mortgage fraud from October 2007 through last year. The Nevada office, run by U.S. Attorney Daniel Bogden, trailed only its counterpart in southern Florida.

The study, which looked at the 90 federal judicial districts in the 50 states and Washington, reported Nevada prosecuted 80 people over that period, or 30.3 per 1 million residents. The study also said prosecutors netted 13 convictions so far.

Asked for her reaction, UNLV assistant professor of criminal justice Tamara Madensen wrote in an email: “I am not surprised to learn that Nevada ranks high on this list. It makes sense given the rate of foreclosures in the Las Vegas area and the heavy emphasis criminal justice agencies have placed on preventing and prosecuting these crimes in Las Vegas.”

The U.S. attorney’s office in Nevada declined to comment on the report but furnished data showing it had much higher numbers of prosecutions and convictions for mortgage fraud than study reported. Last year alone, the office said it prosecuted 107 people for mortgage fraud, 105 of whom in Southern Nevada. Nevada’s federal prosecutors say they have secured 46 guilty pleas since June and have charged 11 others with mortgage fraud this year.

“Our investigations and prosecutions of federal mortgage fraud offenders in 2010 were major successes,” Bogden said. Many of the prosecutions and convictions over the past year were tied to Operation Stolen Dreams, announced in June as part of a nationwide crackdown on alleged swindlers who were accused of causing losses of more than $246 million in the Las Vegas area. Most of the suspects who allegedly engaged in hundreds of “straw buyer” transactions in Southern Nevada worked in the valley’s real estate industry. Straw buyers are people who allow their names and credit histories to be used to secure mortgages to buy homes they never intend to own or occupy. Often, they are part of a scheme with other con artists to skim money from mortgage lenders.

The crackdown was run locally by the Southern Nevada Mortgage Fraud Task Force, created by the FBI.

“The Southern Nevada Mortgage Fraud Task Force continues to aggressively investigate and prosecute mortgage fraudsters, and we expect to see many more defendants charged with these types of crimes in 2011 and over the next couple of years,” Bogden said.

Typical of the cases in Operation Stolen Dreams is one involving the indictment by a federal grand jury of Lloyd Gardley, Candis Gardley, Suzanne McAllister, Arcell Mitchell Jr. and Sharon Wagner.

They are accused of devising a scheme involving straw buyers and the submission of false information to financial institutions to obtain mortgage loans. From August 2005 through April 2007, they were allegedly connected with 28 fraudulent real property sale transactions involving 21 homes sold in Las Vegas and $18.9 million in mortgages.

Seven of the homes were “flipped” or sold twice within a short time, and most sold for more than $700,000.

Many Operation Stolen Dreams defendants are awaiting trial.

In September, Bogden told the Financial Crisis Inquiry Commission formed by President Barack Obama and Congress that from 2000 to 2007, when the economy was stronger and home prices were rising, most mortgage fraud in Nevada involved loan origination schemes and property flipping. All this was fueled by the state’s rapid population growth.

“The growth led to new housing developments and a larger resale market, which the culprits used to perpetrate their schemes,” Bogden said. “The sharp increase in home prices created the opportunity for culprits to inflate home prices and conceal their frauds. As home prices fell, the frauds became evident.”

As the housing market weakened in 2007, he said mortgage fraud began shifting to foreclosure rescue scams and loan modification fraud.

Clearinghouse Co-director David Burnham, a former New York Times reporter, said the reason his group attributed a lower number of prosecutions to Nevada than reported by Bogden’s office was because that was the number of mortgage fraud prosecutions categorized by the Justice Department.

Individuals prosecuted for mortgage fraud could be classified under a different category if they were charged with multiple crimes but it was not immediately known if that was the case. The Justice Department usually declines to comment on clearinghouse studies because it argues its own data routinely differ from the studies’.

The study found that southern Florida, Nevada and eight other districts accounted for slightly more than half of the 2,015 federal mortgage fraud prosecutions over the past three-plus years. But three other districts in the top 10, representing western Pennsylvania, southern New York and Connecticut, are not among the areas normally associated with the nation’s highest foreclosure rates.

That prompted Burnham to observe that the decision to prosecute mortgage fraud is more a function of the way a U.S. attorney sets his administrative priorities than it is the amount of crime in his district.

“There’s a lot more crime than the federal government can deal with,” Burnham said. “In a broad way, the U.S. attorneys do what they want to do.”

Federal prosecutors aren’t the only ones who handle mortgage fraud. So does the Nevada attorney general’s office, which created a task force in 2007 to handle those crimes. Since then the task force has fielded complaints about 232 businesses, and has filed criminal cases against 18 loan modification companies. Fifty-one mortgage fraud cases also are being handled through civil litigation.

Mortgage fraud criminals run the gamut from sophisticated international organized crime operations that launder money overseas to document forgers and boiler-room scam artists. Many are felons.

Chief Deputy Attorney General John Kelleher, who runs the task force, said mortgage fraud criminals always seem to be a step ahead of law enforcement. That’s the reason his office applied for and recently received a $1.7 million federal grant to hire two attorneys and four investigators to join the two attorneys and three investigators on his staff.

“The amount of mortgage fraud we have now is as high as it has ever been,” Kelleher said. “One of the challenges is that every case is turning into a complex investigation with multilevel crime.”

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