Watch out for fraudulent short sales

By Kelli Hart, OC Register

2010-04-09

The Department of Real Estate is issuing warnings about fraudulent short sales, blogger Marilyn Kalfus reported recently.

It notes that in April, the federal government will offer financial incentives to provide short sales through the Home Affordable Foreclosure Alternatives program, with requirements including a shorter time frame to respond to offers, debt forgiveness, and government payments to homeowners (for moving) and lien holders alike.

Short sales, in which properties are legally sold for less than what’s owed on the mortgage as long as the lender agrees, have been on the upswing this year. The DRE says it’s also been alerted to fraud surrounding short sale transactions.

Some examples:

•Short Sale flipping by unlicensed people using straw buyers “In some cases, unlicensed short sale ‘facilitators’ hone in on homes that are on the verge of foreclosure and persuade the lenders to accept lowball purchase offers, often times by using straw buyers, questionable or self-interested broker price opinions or appraisals, and by failing to disclose that a sale at a higher price has previously been put on the table or negotiated.”

•Multiple lenders and lien holders, and payments outside of escrow “Where more than one Lender or lien holder is involved, the negotiations are complicated. Second and other subordinate lien holders often hold up the short sale transaction, and seek to extract the largest possible payment in consideration for releasing their lien. Often times there are monies secretly paid outside of escrow, without the knowledge of the senior lien holder. This is a sure sign of fraud. Such undisclosed payments are likely illegal. The economic substance of and all payments in the short sale transaction should be disclosed on the HUD 1 statement. There should never be dual or multiple contracts, only one of which shows the true purchase price.”

•On its site, the DRE lays out a case showing how an unnamed company has violated California law by practicing real estate without a license, collecting advance fees in violation of the law and profiting through false pretenses at the expense of a federally insured institution by misrepresenting the value of the home to the lender. “This may constitute federal loan fraud, which is a serious felony offense which is punishable by imprisonment and fines.” Read the details of the case HERE.

 

A Newport Coast man who committed mortgage fraud and filed for bankruptcy without telling authorities he bought two Ferraris and a Lamborghini was sentenced to five years in federal prison Monday.

Lorenzo Espinoza, 43, also was ordered to pay the Department of Housing and Urban Development restitution of more than $614,000, blogger Marilyn Kalfus recently reported.

In sentencing him, United States District Judge Stephen V. Wilson said Espinoza demonstrated ‘extreme greed.’

Espinoza pleaded guilty in 2006 to conspiracy to defraud HUD, bankruptcy fraud, money laundering and failing to pay federal taxes. Prosecutors said he didn’t pay them for more than a decade and owed more than $5 million in taxes, interest and penalties.

Here’s how the U.S. Attorney’s office described the crimes:

•Espinoza and his associates fraudulently purchased nearly 100 residential properties.

•The properties were sold at inflated market values to straw buyers. Espinoza and his associates made the down payments and in some cases submitted bogus tax forms and paycheck stubs with the loan applications.

•When the straw buyers defaulted on the home loans and the lenders foreclosed, HUD reimbursed the lenders for their costs. HUD’s losses came to $2 million when it sold the homes for much less than the fraudulent purchase prices.

The news release stated:

“In addition to defrauding lenders and HUD, Espinoza committed bankruptcy fraud in 1999 when he filed for bankruptcy and failed to tell the United States Trustee that he owned a Rolex Daytona watch, two Ferraris and a Lamborghini. In late 2002, Espinoza laundered the proceeds of his bankruptcy fraud when he sold the Ferrari automobiles for $127,500.

“Espinoza also pleaded guilty to willfully failing to pay income tax, admitting that he did not pay $199,053 due for the 1996 tax year. In court papers filed in relation to the sentencing, prosecutors pointed out that Espinoza had not filed tax returns for well over 10 years and owes the Internal Revenue Service more than $5 million in taxes, interest and penalties.”

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