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Toby Tobin: Go Toby
Palm Coast Thursday, Mar. 24, 2011 7 years ago

How mortgage fraud hurts everyone

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by: Toby Tobin Contributing Writer

The recent arrest of Flagler Beach real estate agent Linda Kasper, charged in a $9 million fraud, highlights the extent to which mortgage fraud exists, even in our own back yard.

Kasper’s arrest was the culmination of a nearly three-year investigation, prompted when GoToby.com provided state investigators with details of 18 suspicious Palm Coast real estate transactions. All 15 defendants in the case are charged with one count of criminal racketeering and one count of conspiracy to commit racketeering, both first-degree felonies.

The investigation, named “Operation Fast Cash Kickback,” focused on a complex scheme involving home buyers, real estate agents, appraisers and mortgage brokers. Investigators allege the charged individuals artificially raised home prices, falsified appraisals and pocketed large amounts of cash by facilitating a series of fraudulent home sales.

The scam involved using “straw buyers” to purchase a home. The straw buyer’s real estate agent then asked the seller to raise the price of the home in order for the difference to be provided back to the straw buyer for alleged “renovations.” The appraiser would then inflate the price of the home to meet the contract sales price. At closing, a designated third party received the proceeds for “renovations,” which ranged from $25,000 to $320,000 for each sale.

The third party recipient then returned a majority of the funds back to the straw buyer via check or wire transfer. No renovations were ever conducted on the homes, and each of the properties foreclosed a short time after the sale.

Many believe lenders are the only victims of mortgage fraud because they are the ones who take the financial hit. And banks haven’t gotten too much sympathy lately. But banks are not the only victims. Each and every one of us was affected by the alleged crimes.

Fraudulently inflated appraisals spread throughout the community when they are used to compare other home sales, or “comps.” Fraudulent transactions were used to support additional appraisals until the phantom equity becomes the new norm. Everyone’s home gained “value.” Even innocent buyers and sellers were influenced by the inflated comps.

The quick rise in value helped fuel the feeding frenzy that became the housing bubble. Normal people became investors or flippers. Those who stayed in their homes took advantage of their new equity to justify “cash out” refinancing or a home equity line of credit. The home became an ATM. Quickly dropping prices left many unexpectedly owing more than their home was worth, without any viable solution.

The complexity of mortgage fraud investigations forces authorities to concentrate on only a few cases. Many frauds simply go unreported, uninvestigated and unpunished.
 

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