This 6-part series is written to educate stakeholders about the crime of home title theft or deed fraud. People who need to read these articles include elected officials, county clerks/recorders/assessors, detectives and prosecutors, corporate and private investigators, real estate lawyers, title and escrow professionals, and other real estate professionals including notaries public. My goal is to assist you in the prevention, detection, investigation and prosecution of this crime.
I am writing this article on Valentine’s Day so I will tell you something that white collar criminals love: real property. They love it because we have created a user-friendly system for buying and selling valuable land, houses, and other buildings, and fraudsters use this system to steal 100s of 1000s of dollars. In fact, our real estate system is so easy to use, a lone con artist can commit mortgage fraud without having to recruit a single accomplice. That means they don’t have to share the stolen bounty with anybody, and there are no co-conspirators who could become rats and turn state’s evidence. Keep reading to understand how they do this.
Selling the Stolen Property
After the criminal gains control of a property, as I described in Part Two of this series, he will then sell it to an unsuspecting buyer, obtain a mortgage against it from an unsuspecting lender, or rent it to an unsuspecting tenant.
Finding a buyer is probably easier than you suspect because the criminal is looking for investors who can pay cash. The fraudster wants a buyer who doesn’t need to borrow money from a conventional lender because this means there will be fewer eyes on the transaction, fewer people who might spot red flags. Because an investor has cash on hand, he will likely agree to a short escrow period when the seller requests it. The fraudster wants to receive his money as quickly as possible before the true owner discovers the scam and interrupts it. In addition, if the transaction closes soon, the buyer may not do his due diligence and is less likely to discover anything that might give him pause.
Typically, the fraudster will set a very low price for the property, often around 65% of the true market value. He does this for two reasons. One, some investors will jump at the opportunity because they think they need to close the deal before other investors swoop in with a better offer. Two, some investors may want to obtain a loan from a hard money or private money lender. Such lenders often do very little due diligence on a property because all they care about is the amount of equity, and they will lend up to – you guessed it! – approximately 65% of the true value of the property. Since that amount is the asking price, the buyer easily qualifies for the loan he needs.
Once the sale closes, the money is wired to a fraudulent bank account controlled by the fraudster, who then transfers it to other accounts. Very quickly, the money will be laundered through multiple accounts and often cashed out in a foreign country. Before the true owner knows what has happened and has alerted the unfortunate buyer and his lender, the money is long gone.
Mortgaging the Stolen Property
In a similar scenario to the one described above, the criminal might know the hard money lending industry well enough to go directly to them for a loan. This removes the potential buyer from the fraudulent transaction, and anytime a fraudster can reduce the number of people observing the process, the more likely he is to succeed.
Instead of a potential buyer seeking a loan from a private lender, the fraudster himself will request the loan. As noted, these lenders often don’t do any due diligence other than to determine the state of title and to calculate the value of the property. With this information, they can determine the size of the loan they are willing to make – 65% LTV. In fact, some hard money lenders don’t even visit the property because they can find all the information they need on their computers. And, because they have no reason to suspect that their borrower doesn’t actually own the property, they believe that the worst that could happen is that he will default on the loan, and they will have to foreclose on the property. They are wrong, and hopefully they required the buyer to purchase a lender’s policy of title insurance.
Once the loan arrives in the criminal’s account, he and the money are quickly in the wind.
Renting the Stolen Property to Tenants
I once prosecuted a man who purchased two dozen homes in the names of identity theft victims, rented them to unsuspecting tenants, and collected the rent. That particular criminal did not have a good exit strategy other than to hope law enforcement was too busy with other crimes to care. He was wrong, and he spent 6 years in prison.
This particular scheme is reserved for the smarter criminals because they will remain connected to the property for an extended period of time as they collect rent from the tenants. One such criminal enterprise was led by an infamous real estate fraudster in Southern California, who is now in prison, probably for the rest of his life. The skill required here is to create enough layers in the transactions for the criminal to insulate himself from the dirty work, and frankly this is not easy to do.
Less clever con artists will no doubt continue this scheme, and many will get away with it. I’ve said this in other posts, but I’ll say it again: Because fraud cases are so complex and labor-intensive to investigate, there will never be enough criminal investigators, detectives or special agents to chase all the fraudsters out there. This means…unfortunately…that most scammers will get away with their crimes, and they will commit them again and again.
Conclusion
Fraudsters love real estate because the system makes it easy for them to steal a lot of money. In fact, there is no other crime that enables them to steal such large sums without the need to recruit accomplices. Once a title thief has control of a property, he can then sell or mortgage the property and abscond with 100s of 1000s and possibly millions of dollars. Or, he may choose to maintain his portfolio of stolen properties and rent them out to tenants. Either way, deed fraud was his ticket to substantial wealth.
This is the third of six parts to the series entitled Anatomy of Home Title Theft in the Home Title Theft Newsletter.
December 20, 2022 – Part One, Identifying the Target Property
January 19, 2022 – Part Two, Stealing Title with Fraudulent Documents
February 20, 2022 – Part Three, Profiting from the Crime of Deed Fraud
March 20, 2022 – Part Four, The Aftermath: The Impact of Deed Fraud on Victims
April 20, 2022 – Part Five, Investigating Property Title Theft
May 20, 2022 – Part Six, How to the Government and the Title Insurance Industry can Prevent Home Title Theft