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We’ve all heard of squatters’ rights. In fact, at one point in our nation’s history, squatting on land was even encouraged. But now, they’re not just trying to take over properties; squatters want lenders to pay cold, hard cash. While this concept is not new and many landlords have opted to pay a small cash sum to tenants in exchange for a quit exit instead of undergoing a tedious eviction process, in southern California the squatters are asking for big bills, not small cash sums to help the move go more smoothly. For example, Gregory Russell, who is a convicted squatter, recently demanded $25,000 from Gateway Bank in exchange for moving out of a foreclosed Bel Air mansion and turning over the keys[1]. Gateway has a policy of paying squatters up to $5,000, but balked at $25,000.

Russell is the exception in that he has been convicted of misdemeanor trespass thanks to his squatting. Most squatters are not charged and prosecuted. Many squatters research lenders and properties extensively before moving in, finding out just how much they can ask for and what they can expect to get. Some lenders will actually negotiate with squatters for faster exit times and smoother transitions. They say that it can cost more than $100,000 and take over a year to go through a court process and eviction, even if the squatter had no right to be on the property in the first place.

Do you think that lenders should pay cash for keys? If they do, do they deserve this “bad behavior” from squatters?

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Let us know what you think of “Cash for Keys” below.

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[1] http://www.nbcsandiego.com/the-scene/real-estate/LEGAL-SD-Cash-For-Keys-115983169.html

When times get tough, the con artists come out of the woodwork. Today’s real estate market is no exception, with CoreLogic estimating 2010 losses to amount to as much as $11 billion and more than 500 people being arrested for “alleged mortgage crimes” in the first half of 2010 alone[1]. Furthermore, the FBI reported that pending mortgage fraud investigations are up a full 71 percent from 2008 to 2009 and that 2/3 of all those investigations involved losses of more than $1 million.

From the Miami assistant fire chief indicted on $10 million in mortgage fraud (she is accused of being a “straw buyer” for homes she had no intention of living in and that eventually went into foreclosure)[2] to the Virginia real estate agent who fled the country after she was accused of inflating incomes and fraudulently fixing credit scores for high fees totaling more than $1 million, fraud cases are certainly all over the news. However, these are not isolated instances being blown up in the media. “Cases like this that involve false promises, misleading information and fraudulent sales pitches…are being aggressively pursued across…the United States,” said A. McFeely from the FBI yesterday.

Do you think that enough is being done to fight mortgage fraud in the United States?

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Please leave your thoughts on how mortgage fraud is impacting real estate investors below.

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[1] http://www.dsnews.com/articles/fbi-cracks-down-on-mortgage-fraud-schemes-across-country-2011-02-23

[2] http://www.miamiherald.com/2011/02/22/2079728/miami-assistant-fire-chief-snagged.html

A Texas entrepreneur singlehandedly raised nearly $8 million dollars to fund two commercial investments in New Mexico and Texas, which would have been impressive if the money had gone to building the large-scale retail development projects that he was pitching to would-be investors. Unfortunately, instead of building retail space, he spent most of the investment capital on “expenditures unrelated to the two projects” and now faces up to a total of 200 years in federal prison[1]. The 68-year-old man, Eric Brauss, who was indicted late last week, was indicted on ten counts for defrauding investors.

What makes this case more complicated is that Brauss fled the country in 2009 after his company, Today Realty Advisors, closed down (or fell apart) as his schemes started to crumble[2]. He is believed to be living in Brazil and, according to his attorney, is likely gone for good[3]. It is believed that myriad investors have a total of $200 million at risk in various partnerships with Brauss, but the indictments last week are the first criminal charges. According to his attorney, Brauss “liquidated valuable personal items including his watches and wine collection…Frankly, Eric’s not coming back,” the lawyer said. Brauss faces civil complaints from Bellagio, Mandalay Bay and the Mirage in Las Vegas for gambling losses in addition to an ongoing FBI probe.

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Let us know what you think should be done with Brauss below.

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[1] http://www.ntxe-news.com/artman/publish/article_67894.shtml

[2] http://www.dallasnews.com/business/headlines/20110218-former-dallas-arts-patron-eric-brauss-indicted-on-fraud-charges.ece

[3] http://www.dallasnews.com/business/headlines/20100408-With-Las-Vegas-on-Dallas-dealmaker-3853.ece

While it is problematic enough that Chicago’s 60621 zip code has been rated the most at-risk for mortgage fraud in the country for three straight quarters, what is perhaps more disturbing out Interthinx Mortgage Fraud Risk Report numbers are the way that the risk appears to spread. According to the data-tracking firm’s analysis, Chicago as a whole has increased when it comes to risk of mortgage fraud from “moderate” in second-quarter 2010 to “very high risk” by the end of 2010, indicating that “ ‘very high’ risk at the zip code level can, in a short period of time, spread and elevate the overall risk of much larger geographies”[1]. Kevin Coop, Interthinx’s president, cited employment/income and identity fraud risk as accompanying factors to mortgage fraud, and recommended that lenders in all areas “be more vigilant about using fraud detection systems during refinancing, modifications and purchase transactions that involve the resale of distressed properties.”

Interthinx considers fraudulent activity to be misevaluations, employment misrepresentation or concurrent closing schemes. Normal fraud risk would be 100. Chicago has a fraud index of 568[2]. “Professional real estate investors” are cited as common perpetrators in particular of occupancy fraud because, according to some sources, they may “falsely claim the intent to occupy the purchased property to obtain lower interest rates or down payments on a mortgage.” This strategy index declined throughout the country over the past year, but many investors believe it is unreasonable to consider it fraud. What do you think? Should real estate investors be forced to pay higher down payments and interest rates if they plan to turn the property for a profit rather than live in it?

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[1] http://nationalmortgageprofessional.com/news23707/interthinx-report-finds-mortgage-fraud-rise-windy-city

[2] http://www.housingwire.com/2011/02/17/chicago-tops-for-mortgage-fraud-infection-interthinx

Juan Rangel of California was heartless when it came to taking money from his victims, and he would get it nearly any way that he could think of. Rangel operated a $30 million Ponzi scheme in California targeting Hispanic investors and also managed to talk many of them into signing over title to their distressed properties as well[1]. He has been in court on multiple charges since 2008 and finally was sentenced yesterday as part of a plea agreement in which he pled guilty in exchange for 15 years in prison. A judge added seven more years because of the “devastating impact Rangel’s actions had on his victims.” Those victims number more than 500[2].

The two-part scheme involved promising to pay investors high returns on investments – often as high as 60 percent – by placing their money in real estate and lending situations that would realize high profits. In reality, Rangel simply took new money to pay off old investors and also bought a mansion and a Lamborghini. He also targeted Latino homeowners in preforeclosure, taking title to homes, draining equity and selling the properties without the owners’ knowledge to a number of straw buyers. These straw buyers then were used to apply for more loans on the home, few or none of which were ever paid.

While all this is bad enough, Rangel had a completely “callous disregard” for his investors, said the court. One victim testified that she had invested all the money she received after her son, a marine, was killed in Iraq. He also did everything possible to scare his investors away from putting money in banks and recommending that they give all funds to him instead.

It seems like every day a new mortgage fraud story breaks. Do you think that new mortgage regulations will help this situation? Have you personally encountered this type or a similar type of fraud?

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Leave your comments and questions below.

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[1] http://nationalmortgageprofessional.com/news23646/california-man-gets-22-year-sentence-leading-ponzi-scheme-and-mortgage-fraud-scam

[2] http://www.businessweek.com/ap/financialnews/D9LDAOA80.htm

Bidding at a real estate auction can be complicated and intimidating, but it becomes even more so – and actually frightens a lot of would-be investors off entirely – when the issue of bid-rigging comes into play. A major issue in today’s real estate auction arena is that of “bidding rings” or “clubs” of bidders who all agree ahead of time to put competition aside until the auction is over in order to keep prices artificially low. At first, this might seem harmless. After all, if businesspeople get together and work out an arrangement ahead of time to avoid competition, that is just foresight, right? Well, although it can be, but in many cases it is more simply fraud.

When a bidding ring works at an auction, bidders decide ahead of time who is going to bid on the properties on the block. Once the properties are won and purchased, they are entered in a secondary, private auction. Ultimately, most – if not everyone – involved walks away a winner because the properties go for less than they would have on the “open” block and the designated bidders make a bundle on the second auction since they paid artificially low prices on the original properties. In some cases, these “clubs” actually divide the profits up to make membership more worthwhile.

Whether it seems fair or not, the Department of Justice says “not.” In fact, this type of rigged bidding violates the Sherman Antitrust Act and people have been charged and convicted for this type of behavior.

Have you ever encountered this issue? How did you deal with it as an investor?

Please leave your questions and comments below.

Purchasing a property via tax deed is a great way to get involved in real estate investing. Unfortunately for a homeowner in New York that has been fighting for his home for almost seven years now, a tax lien paved the way for a Long Island woman to forge his name, take possession of the property and then sell it multiple times to other investors[1]. Garfield Gillings let his tax and water bills slide on his Brooklyn house back in 2003. When he contacted the collection agency that he believed was in possession of the lien, he was told that the lien had been satisfied – by him. Someone posing as Gillings had paid the bill, forged his name on a deed and, once the property and water liens were cleared, first signed the property over to a holding company and then eventually sold the property to another business entity.

While the woman who masterminded the theft is now in jail for 5 to 15 years thanks to her thievery of Gillings’ house and more than 30 other properties, Gillings himself has not yet managed to prove his own ownership. When he fell behind on his taxes and the lien was turned over to a collections agency, the delinquency probably “drew the attention of predators who paid the lien and, posing as owners, unlawfully sold the house to an entity that they controlled,” speculate prosecutors involved in the case.

While Gillings once more has access the property, he has not yet been able to unravel the fraud. The house was sold at least once more – to that investor’s detriment as well once the deed turned out to be forged – and the home was seriously damaged by vandals and workers hired by the “pretender owners” to clear and clean the property. Because the woman who stole the house did not specifically refer to the address of the property when she pled guilty, Gillings’ ownership cannot be automatically restored.

This is among the more publicized instances of con artists and thieves using payment overdue tax liens to take ownership outside of the legal system. As a tax lien investor, you should always use the legal system and certified tax lien auctions to purchase tax deeds and tax liens.

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[1] http://www.nytimes.com/2011/01/17/nyregion/17house.html

It is one thing to lose your house to foreclosure as a casualty in the real estate market crash and another to lose it because a person you trusted sweet talked you into deals that were destined to fail. At least 75 home owners are complaining about being “coaxed” by a real estate agent into dealings that made them lose their homes to foreclosures. Miguel Romero – real estate agent, income tax preparer, insurance dealer, and credit repair specialist – is being complained about by 75 of the 122 Latino families to whom he sold homes since 2004. Though there are no public allegations to him breaking the law, his case showcases industry excesses that may partly explain the foreclosure crisis: The largely Spanish-speaking borrowers claim that they were convinced to sign documents that they did not understand, charged excessive fees by mortgage brokers who exploited language barriers and offered high-risk loans made more tempting by promises of high payoffs for investments.

Though documents of the clients never show Romero as loan officer, the complainants report that they were actually pushed into lying in mortgage applications – a state crime. But Romero’s colleagues came to his defense, saying he is not the type of agent who would have encouraged people to lie. Records show that on top of the 122 homes sold (and 75 foreclosed), Romero also had a network of employed real estate agents who sold 63 more homes since 205 – and 21 of these have entered foreclosure. In summary, 69% of his sales and 33% of his agents’ have resulted either in short sale or foreclosure. And the clients contest this is not a coincidence. There have been no comments from the attorney general and district attorney as to whether Romero’s actions are now being investigated.

Federal prosecutors seem to be getting some results in their probe into real estate investment scam. Two more defendants have plead guilty to charges of conspiracy and mail fraud regarding real estate investment scam [1].

The eighth and ninth to enter guilty pleas to be entered were on behalf of brothers Matthew and Lance LaMadrid – 44 and 46 respectively. The two admitted that from 2004 to 2008 they operated Plus Money Premium Return Funds and other entities. The said entities have gotten at least $30 million from investors by providing false monthly statements showing profitable brokerage accounts. The funds from new investors were in actuality being used to pay debts from older investors.

The younger of the two also confessed to misrepresenting borrowers’ assets on loan applications. As a result of the fraud, millions of dollars were obtained by the younger LaMadrid’s entities. The elder, on the other hand, said his fraudulent activities caused around $400,000 to $1 million losses. April 4 is set for the brothers’ sentencing.

[1]http://www.sdbj.com/news/2011/jan/04/two-brothers-enter-guilty-pleas-real-estate-invest/