Scams, Lies & Mortgage Fraud—How Homeowners Can Avoid the Traps

Editor’s note: More than 1.2 million homeowners in California have faced foreclosures. And the number of foreclosures this year is expected to be even higher than last year. But the foreclosure crisis has also given

Ngoc Nguyen - NAM Editor

rise to new waves of scam artists, from low-grade to high-tech, who are looking to profit off of vulnerable and desperate homeowners. NAM editor Ngoc Nguyen asks Deputy District Attorney David Lim, who leads the Alameda County District Attorney’s Real Estate Fraud Unit, how homeowners can protect themselves against mortgage fraud.

Has there been an increase in mortgage scams?

Lim:  Since I’ve been here, it’s sort of been out of control. We went from having one DA and two inspectors to having two DAs and four inspectors and we’re still barely keeping up with the flow of real estate fraud complaints.

It started heavily in the sub-prime boom, 2005-06. We started to see a lot of equity fraud, where people were submitting false loans. Con artists were taking advantage of those very lax underwriting standards to use identity theft and falsify information, to get loans and take out equity way beyond what the property was worth. When the bubble burst in 2009, that fell away as the government tightened up regulatory standards and the less scrupulous banks started to fold and go under … In 2009, the focus shifted to loan modification fraud–people take advantage of people in foreclosure and charge upfront fees to do loan modifications.

Scams fall along a spectrum — from simple to sophisticated. What is the most common type of scam in the foreclosure crisis?

Lim: At the worst of those scams, you had people just collecting money from homeowners, saying they would modify the loan and negotiate with banks, and instead they weren’t doing anything. And those are pretty straightforward, almost just theft scams. You take money from someone and you don’t perform.

The law at the time [said] you could not take an upfront fee for somebody who owned a single-family home whose home was in default or in foreclosure. But there were loopholes in the law, where if you had permission from the Department of Real Estate or an attorney, you were allowed to collect upfront fees. That caused a huge problem because there was not really good oversight from the Department of Real Estate of who they approved to accept advance fees. The legislature closed that loophole in late 2009, so it’s basically a blanket prohibition on anyone accepting advance fees.

What do you see on the other side — the really complicated scams?

Lim:  The more sophisticated scams were basically, you want to describe them as pyramid schemes, because they were designed to suck as much money away from an individual homeowner as possible. There’s no simple way to describe it. Scams by definition are not easy; they are designed to be complex by a con artist, so they can fool homeowners into believing they are legitimate.

When I give community presentations, I never go into deep specifics about the crime, because number one, we don’t know who is in the

District Attorney Office in Alameda

audience. Sometimes, our fear is that there are bad guys sitting in the audience looking to see what we do and how we do it so they can figure out ways around it.

The other reason I don’t necessarily tell people at the community meeting what scams are or what they have been is…number one, they are too confusing and number two–and of more concern to me in terms of consumer protection–is our fear that the consumer is only looking for that scam. And by the time I’ve described the scam to you or by the time I’ve figured out a scam, [the con artists have] already moved on.

What do all mortgage scams have in common?

Lim:  The common elements of all scams are that they are wrapped in an aura or shroud of pretending to be legitimate. They rely on the con artist getting close to the victim and gaining the trust of the victim. And they rely on separating the victim from their money. So, in some ways, they are complex and in some ways they are not. If you know, if you remember what the three tenets of a scam are, it helps protect you from becoming the victim of a scam.

How can homeowners protect themselves from getting scammed?

Lim:  It’s not like deciding where to get lunch or if you’re going to get your hair cut short or long. It’s a decision in real estate where you’re dealing with your house and large sums of money, and you shouldn’t just be making snap decisions like, ‘Oh, I like this person. I like the way they look, or they seem nice, or this program sounds good.’ You have to do your homework.

\Don’t trust someone just because they look like you, just because they sound like you, and just because they say they come from the same village as you or went to the same high school as you. Assume that everyone is a stranger and assume everyone is out to con you. Remember that the goal of a con, at its most basic level, is to separate you from your money. Anytime anyone asks you for money, think long and hard before you give money and if you do give money, give money you can trace. Write a check; get a cashier’s check; don’t give cash. Do something where you can trace it, so if you need to find the person later, you can track them down.

What makes a scam effective? What vulnerabilities is the scam artist preying on?

Lim:  It’s easy for me to say, ‘Don’t be a victim of a con,’ but the reason these people are con artists is that the best ones are good at it. They are playing on two levels. They’re playing on your emotions and catching you in a vulnerable position. They are catching homeowners either when they are being greedy and they think they can make money, or now in the current climate, because they face the loss of their home, and they are desperate.

The other thing con artists are doing is they do play on your very base emotion. If you see someone who looks like you, sounds like you and is related to your culture, [they may still be a con artist]. Most of these crimes are affinity crimes–black on black, white on white, Asian on Asian.

Do scams differ among different ethnic and racial groups?

Lim:  There are cultural aspects that the con artist can use to their advantage. If you take victims from Central America, many of them have fled their home country because of turmoil in that country, so they either fled from a civil war or corrupt government, so in many cases, there’s a deep distrust of government, and police. If you talk to victims from Mexico, they never want to talk to police, because they think the police will shake them down. We are very clear to tell people, we are not a federal agency, we are not Homeland Security. We do not care about your immigration status. In fact, legally we are not allowed to ask you your immigration status.

It’s very hard. We’ve gone out into the field where we’re looking for witnesses we know that have been scammed. We want to talk to them to offer our assistance. We walk up the driveway, and we can see them looking at us through the window and they pretend they aren’t home, because they think we’re immigration. That’s another advantage the con artists have over us. We have to break down the barrier of mistrust and fear that lot of immigrant communities have toward governments in general.(New America Media/IM)