A host of real estate scams popular during the 1990s housing downturn are back this year and snaring unsuspecting homeowners and renters, say law enforcement and real estate officials.
"The ones that know how to do it are remembering how to do it and doing it again," says Elk Grove real estate agent Alan Wagner, president of the Sacramento Association of Realtors.
Sacramento County prosecutors say they haven't noticed a marked increase in scams, or a rise in arrests or charges. But as the region's real estate market has filled with thousands of vacant houses and desperate homeowners, real estate industry officials say scammers are taking new advantage.
The scams range from pretend landlords making off with rent checks to so-called foreclosure specialists cheating people out of money when they're already down. Among other schemes:
• Scammers are using the bankruptcy laws to convince troubled homeowners they can forestall foreclosure;
• Unscrupulous mortgage brokers are pushing loans they're not approved to make.
"These cases are often so complicated and convoluted in my brain I can only handle two or three at a time," says Sacramento County Sheriff's Detective Mark Freeman, who specializes in real estate fraud.
Industry watchers say the mortgage fraud prosecutions that have made headlines recently – some for allegedly pocketing big fees from placing people in bad loans, others for reportedly stealing the home equity of struggling borrowers – are more typical of crimes that occurred years ago when home prices were escalating.
Earlier this week, federal prosecutors in Sacramento indicted 19 people, mostly from Southern California, alleging that homeowners on the edge of foreclosure were duped into giving up their property. Last week, state Attorney General Jerry Brown charged Southern California mortgage firms with pocketing big fees from placing people in shaky loans that led to foreclosure.
Three years of falling home values, however, have unleashed new schemes based on the troubles triggered by vanishing home equity.
One is the fake landlord scam. Sacramento real estate agent Carey Covey says a would-be renter at one of his listings lost $2,000 after handing a security deposit and first month's rent to someone pretending to rent him the house. The house had been foreclosed on and was owned by the bank – not by the person posing as the landlord.
The victim, reached by phone, declined to comment. But he questioned the realty company's vigilance over its listings, saying he was inside the house painting for two days before he was told he didn't have a legal right to be there.
Covey says con artists "track homes that have been on the market for a while, have them re-keyed and put an ad in the paper or Craigslist and offer it for rent."
Freeman of the Sheriff's Department said he saw this crime "at least 10 years ago when I was on patrol." He said scammers typically break into the house through a side door.
"You run to Home Depot and buy a full set of exterior locks for $50 or $60 and re-key a whole home," Freeman said. "You can do that in, what, an hour?"
Another rent-related scam is called "rent skimming." Rent skimmers prey on troubled borrowers worried about losing the house. They agree to take over loan payments and let the owner stay and pay rent. Wagner says skimmers don't pay the mortgage, but collect a few thousand dollars in rent before the lender initiates foreclosure.
A variation on that has the scammer persuading the homeowners to file for bankruptcy a day or two before the scheduled foreclosure. That stops foreclosure proceedings long enough for the scammer to make off with a few more months' rent, Wagner says.
Freeman said he also is deluged with cases involving "foreclosure consultants." Like rent skimmers, they knock on doors of distressed homeowners and offer to help save the house. Foreclosure consultants typically ask the owners to deed the house to a third party. In turn, they will offer the distressed owners an arrangement that allows them to stay as renters and eventually buy back the home.
Freeman said those lease-option deals are written to become void as soon as the distressed people miss a rent payment. Once they do, they get booted out of their house. The new owner often then gets a home equity loan for what little equity is left in the house and lets it go into default.
Such foreclosure consultants often operate without using state-approved contracts that spell out every detail of the arrangement, Freeman said. It is a red flag, he says, if an offer of help does not come with the proper contract.
Citrus Heights home loan broker John Arvanitis says he is seeing a surge in unauthorized brokers illegally originating Federal Housing Administration loans. Those loans can only be done by brokers approved and regulated by federal housing bureaucracies. Arvanitis says unapproved brokers originate them and then try to run them through legitimate brokers for a piece of the commission.
Take note if a broker must pass your FHA application to someone else to do the loan, Arvanitis advises. That could cost you $3,000 or more in extra fees based on the helper's commission.
One thing has changed for the better, though. During the boom years, standard mortgage abuse – inflated borrower salaries, inflated home values and no documentation of borrower assets – was all too common, says Patricia Laffin, general counsel of Auburn-based Placer Title Co. Now, lenders have so tightened standards that irregular applications now stand out.
"Most lenders have come to recognize the red flags in a transaction," she says. "Not only are they requesting and demanding that closing agents notify lenders of red flags, the lenders are also aware of the patterns that indicate mortgage fraud. We're seeing less of it and that's good."
Call The Bee's Jim Wasserman, (916) 321-1102. Read his Home Front blog at www.sacbee.com/blogs.
