For The Defense, October 2010 - DRI Today
For The Defense, October 2010 - DRI Today
For The Defense, October 2010 - DRI Today
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<strong>The</strong> Task <strong>For</strong>ce helped to identify mortgagefrauds such as loan originationschemes, short sales, property flipping,and equity skimming. As part of OperationStolen Dreams, on June 17, <strong>2010</strong>, theFBI reported the following examples of thetypes of mortgage fraud cases that were targetedin this operation:• Two people were arrested in Miami forpreying upon the Haitian- Americancommunity by offering to assist themwith immigration and housing issues.Instead the fraudsters used the Haitian-American’s personal information toproduce false documents to obtainmortgage loans.• In California, a prominent home builderused straw buyers to sell his houses at inflatedprices. <strong>The</strong> scheme inflated priceson other homes in the area, creating artificiallyhigh comparable sales and affectingthe overall new-home market.• In Detroit, FBI agents arrested severalindividuals in a $130 million schemeorganized by a local motorcycle gang.<strong>The</strong> gang members fraudulently representedthemselves as mortgage brokers,appraisers, real estate agents, andtitle agents and used straw buyers toobtain around 500 mortgages on only180 properties.See FBI Press Release on Operation StolenDreams dated June 17, <strong>2010</strong>.White Collar <strong>Defense</strong>While you may be an attorney skilledin handling commercial, financial, andmortgage banking litigation matters, youmay soon need to learn about white collarcriminal defense to fully represent yourcurrent clients. Criminal mortgage fraudcases present unique challenges for defensecounsel. On one hand, a criminal mortgagefraud case may involve numerous documentsand transactions that are familiar toa civil defense attorney who is experiencedwith commercial, financial, and mortgagebanking litigation cases. On the otherhand, the opposing side is not a local plaintiff’sattorney, but an assistant U.S. attorneywith the support of nationally trainedand experienced task force agents with proactiveinvestigative techniques includingundercover operations, wiretaps, and surveillance.<strong>Defense</strong> counsel will need to balancethe sophisticated financial aspects ofthe case with the street crime nature of theinvestigation and prosecution of the case.Who Is a Target?Mortgage fraud has been defined as a “materialmisstatement, misrepresentation, oromission relied upon by an underwriteror lender to fund, purchase or insure aloan.” See Financial Crimes Section, FBI,FBI Financial Crimes Report to the Public(September 2006) (hereinafter “2006FBI Financial Crimes Report”). <strong>The</strong> targetsof these serious federal investigationsinclude borrowers, lenders, investors, realestate professionals, appraisers, and real estatebrokers. Many cases involve multipleco- conspirators involved in the underlyingmortgage fraud scheme. In some cases it isnot obvious which participants are involvedin the conspiracy as participants and whichpersons may be innocent bystanders or additionalvictims. It is crucial that you knowand understand the roles of the participantsin assessing your client’s role in a criminalinvestigation or indictment.<strong>The</strong> Investigators<strong>The</strong> Justice Department is not sympatheticto anyone perpetuating mortgagefraud crimes. In white collar crime, it’s onestrike and you’re out. FBI agents are utilizingintelligence, enhanced surveillance,and undercover operations to identify keyplayers behind large scale fraud and identifytrends. Rest assured that the Task<strong>For</strong>ce and numerous local and regionaltasks forces targeting mortgage fraud areequipped with experienced personnel andadvanced investigative tools.Federal prosecutors are developing andmaintaining relationships with communitygroups that come in contact with mortgagefraud victims, which helps prosecutorsidentify potential schemes. “Legal servicesattorneys, housing counselors, and housingactivists … have direct, personal contactwith the people that mortgage fraud affects.By contacting [the U.S Attorneys’ office]right away when someone comes to them,they can save … the time of searching outvictims.” See Michael S. Blume and RichardJ. Zack, Using Community Outreach toFind and Prosecute Mortgage Fraud, UnitedStates Attorneys’ Bulletin, May <strong>2010</strong>.“Mortgage fraud is no different from anyother scheme to defraud; it is about lyingor hiding the truth for money. <strong>The</strong> factthat mortgage fraud occurs in the businessenvironment is actually a huge plus for theinvestigation and… prosecution. <strong>The</strong> businessenvironment requires documentation,and documentation means the fraudhas left tracks.” See Barbara E. Nelan, Findingthe Smoking Gun, United States Attorneys’Bulletin, May <strong>2010</strong>. Prosecutors haveWell before indictment,the prosecutors have alreadyidentified and catalogued allthe smoking gun documentsnecessary for prosecution.the subpoena power and the investigativetools necessary to gather all relevant documentsand piece together the documentpuzzle before the defendants and theircounsel even know that they are under afederal investigation. Well before indictment,the prosecutors have already identifiedand catalogued all the smoking gundocuments necessary for prosecution.<strong>The</strong> CrimeHistorically, mortgage fraud cases are generallydivided by law enforcement investigationsinto two basic categories: fraud forhousing and fraud for profit. See 2006 FBIFinancial Crimes Report; see also FFIECFraud Investigations Symposium, <strong>The</strong> Detection,Investigation, and Deterrence ofMortgage Loan Fraud Involving Third Parties:A White Paper 2 (Oct. 27–Nov. 7, 2003)(hereinafter “FFIEC Mortgage Loan WhitePaper”). Fraud for housing is typically perpetratedby an individual borrower whowants to purchase property that the borrowerwould not otherwise qualify to purchase.On the other hand, fraud for profitis a scheme where the purpose is to profitfrom either creating fictitious properties orfalsely creating high property values andthen looting the values of the properties.Mortgage fraud schemes can come in allshapes and sizes depending upon the ingenuityof the participants. However, there are<strong>For</strong> <strong>The</strong> <strong>Defense</strong> n <strong>October</strong> <strong>2010</strong> n 75