2007 Where Knowledge is Power in Real Estate

January 1st, 2007 categories: Fraud, Loan Fraud, Real Estate, Real Estate News, Real Estate Tips

2007Year Today, I would like to introduce you to our guest, Ed Rybczynski formerly with Liberty Title Company in Baltimore where in 2003, Ed pleaded guilty to Federal conspiracy stemming from house flipping and mortgage fraud.

Ed served time in Lewisburg Federal Prison Camp. Today,Ed spends his time educating others about fraud and helping Title companies to be proactive with strategies designed to reduce the risks of loss. Ed has served his time and currently consults making others aware of how there must be a change and not status quo read, devour and become aware so that you are not a victim of fraud in 2007.

Real estate fraud is a remarkably complex social issue with a spectrum of costs and consequences that are generally misunderstood. Its now identified by the FBI as the nations fastest growing type of white collar crime.

The Treasury Department reports a 35 percent increase in 2006, over 2005, of suspicious activity claims made by lending institutions. Still, the published number of incidents is understated because many crimes remain undiscovered, unrecognized or unreported. The term real estate fraud describes a broad category of crime that loosely includes mortgage fraud, predatory lending, property flipping, postal fraud, identity fraud and bankruptcy fraud.

Technology is not without blame for accelerating fraud statistics. All real estate is listed and sold locally, yet lenders and title companies increasingly employ a business model that encourages automated processing from remote locations. Sadly, homes being purchased have become digital images with a stated value while consumers are reduced to faceless ambiguous names on a computer screen.

Fraud clearly flourishes when lending and settlement services are anything other than community based. Another contributing factor is the approach taken by state governments when prescribing licensing and continuing education standards for real estate professionals. In April of this year, the Government Accountability Office released a preliminary study of the title industry requested by Congressman Michael Oxley.

Surprisingly, 3 states plus the District of Columbia dont require the licensing of title agents; 18 states and the District of Columbia dont require title agents to pass a test before licensing; only 20 states have an educational requirement as a pre-requisite to licensing. A similar scenario currently exists for the mortgage banking industry.

The media often portrays consumers as villains when, in fact, all forms of real estate crime require the coaching and orchestrated efforts of realtors, mortgage brokers, title agents and appraisers.

Its safe to assume that seemingly benign, yet criminal behavior is internalized to some degree in this nations real estate culture. Carol Lloyd, The San Francisco Chronicle, correctly described the problem in a recent column when she wrote: It’s the convoluted world of mortgage fraud, a crime in which it’s sometimes hard to disentangle victim from criminal and crime from business as usual.

While working as a title agent in Baltimore, MD during the 1990s, I heard a continuous stream of comments that illustrated the underpinnings of fraud in real estate deals. No one will know! Everybody gets paid! What difference does it make!

The buyer gets the house! Contrary to a belief held by many, consumers face the same risk of criminal prosecution as industry insiders when a fraudulent scheme is uncovered. Earlier this year, a federal grand jury indicted an Ohio mortgage broker and the seller of a home she was purchasing as a residence for their coordinated exploits to defraud a lender.

Far too often, fraudsters target neighborhoods and individuals that can least afford the abuse. Property flipping has decimated entire communities that were already at risk before the victimization began.

Repeated studies show that predatory lending practices are biased towards minority and lower income groups. A sophisticated lending concept known as the yield spread premium is frequently used to over-sell unsustainable payments to trusting customers. Abusive and deceitful loan brokers are then paid undisclosed fees by wholesale lenders.

A study released this month by the Consumer Federation of America indicates that woman with above average income and credit scores were more likely to obtain sub-prime financing than men with similar profiles. Households headed by woman, particularly women of color, are unable to realize financial security through homeownership. The historical effects of real estate fraud on society have been disastrous. What about the future?

Within industry circles, there are few signs of a concise and cohesive strategy to reduce real estate fraud on a large scale. The lending and title industries have visibly embraced technology as the means of reducing fraud related losses. Conceptually, the potential for fraud is reduced by tagging individuals and properties as high risk factors based on information contained in data bases.

The high tech model for fraud mitigation results in trendy sound bytes, but its practical application has been ineffective as evidenced by current crime statistics. Accredited business and law schools, recognizing the importance of human nature in fraud deterrence, have approached the white collar crime epidemic from a different angle. To benefit students, the reality of a criminal conviction is dramatically brought to life.

In some cases, students are required to spend a day inside a federal camp. They tour the facility, interact with select inmates and eat prison food. In other cases, white collar convicts are invited to the classroom to talk candidly about the personal consequences of making bad choices. Much is learned about the personalities, behavior and motives of actual fraudsters when students are placed face to face with the insiders to any scheme.

In his book, An Inconvenient Truth, Al Gore wrote We have everything we need to begin solving the crises, with the possible exception of the will to act. An informed and concerned community of consumers is the fraudsters worst enemy! A community based approach to fraud prevention presents opportunities for consumers to avoid exploitation; especially when initiated by industry insiders.

Real estate professionals have a duty to heighten the publics awareness of potential pitfalls. This site is a perfect example of a learning opportunity for consumers. Ultimately, homebuyers are best positioned to recognize fraud and avoid its consequences.

My advice to consumers:

Question anything and everything about a real estate deal that you dont understand;
Avoid situations that demand less than full and honest disclosure to lenders;
If you suspect that something is wrong, it probably is;
Report suspicious activity to authorities;
Reputation, not fee structure, should be the primary factor in choosing a realtor, lender and title agent.

As Gena has so properly stated in a prior article: Experience doesnt cost it PAYS.

Thank you Ed, for your input and helping to educate the public on an issue that affects us all. You are a welcome guest here.

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This entry was posted on Monday, January 1st, 2007 at 3:22 pm and is filed under Fraud, Loan Fraud, Real Estate, Real Estate News, Real Estate Tips. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.