September-October 2013

Assistance available for mortgage-fraud prosecution

F. C. “Chris” Schneider

Associate General ­Counsel at the Texas Department of Savings and Mortgage Lending in Austin

If you need expertise or money to try mortgage fraud, here’s where to get both.

Since 1999, the Texas Department of Savings and Mortgage Lending has been responsible for licensing and regulating mortgage originators in Texas. In 2008 the mortgage industry experienced a meltdown, which resulted in a flurry of new legislation on the national and state levels and created a national registry for mortgage loan originators. In the years prior to that legislation, when the real estate market was booming and mortgage loans were being handed out to almost anyone who could breathe, mortgage fraud was commonplace in the industry and many of those cases are just coming to light or working their way through the system.

    Today, mortgage fraud continues to occur as fraudsters seek new ways to separate unsuspecting consumers from their money. Over the past seven years, the department has had significant experience in investigating the various forms of mortgage fraud. We have pursued administrative actions against those individuals as well as assisted federal and state law enforcement authorities with criminal prosecutions.

    Mortgage fraud can take many forms. Fraud to purchase a home includes such actions as falsified income verifications, employment verifications, and bank statements and involves the borrower as an active participant. Fraud to make money normally takes the form of a straw borrower transaction and usually includes falsified appraisals, falsified income verifications, falsified repair invoices, phony consulting fees, or other non-existent expenses to drain money off of the transaction. These types of fraud were greatly reduced with the tightening of lending practices after the mortgage collapse in 2008. These changes eliminated some of the fraud on the origination end, causing the fraudsters to move on to different scams. The most common of these, post-2008, has concentrated in fraudulent loan modification and foreclosure prevention scams. These individuals frequently obtain up-front money for which no services are provided, telling the homeowner to stop making payments on their mortgage and not to contact their lender or servicer. With the growth of the Internet, these fraudsters can wreak their havoc from anywhere in the country on trusting homeowners. Internet solicitations for loan modification and foreclosure services are very common and often involve attorneys, many of whom have been prosecuted for fraud.

    In February 2012, a coalition of state attorneys general and federal authorities settled a multi-state litigation case against a number of the nation’s largest mortgage servicers for $25 billion. The State of Texas, through the Office of the Attorney General, was included in that settlement and as a result received a large sum of money, which was divided among a number of state agencies. The Department of Savings and Mortgage Lending received $500,000. We have placed that money into a fund to assist local law enforcement and prosecutors in the investigation and prosecution of mortgage fraud. This fund is now available upon approval to assist local prosecutors with the costs of investigating mortgage fraud, witness expenses, and other related expenses. In addition to financial assistance, the department has made its personnel available to assist local prosecutors in the investigation, preparation, and prosecution of mortgage fraud cases.

    These cases are often intimidating to people unfamiliar with the vernacular and the intricacies of the mortgage business. Paper crimes can be challenging to investigators and prosecutors who are not used to dealing with them on a daily basis. We have resources available to assist law enforcement and prosecutors with investigating mortgage fraud and related crimes. We employ four investigators with over 35 years of experience investigating mortgage issues and mortgage fraud. All four have experience in the mortgage-lending business and are familiar with its forms, language, and procedures, which can often be confusing to someone unfamiliar with the industry. Our investigators are available to review documents and evidence at our offices or to travel to assist investigators and prosecutors in interpreting and evaluating such information.

    The department also has resources available to assist prosecutors with trying mortgage fraud and related crimes. I am the associate general counsel for the department and have served as the chief enforcement attorney for the past six and a half years. Prior to that, I was the criminal district attorney for Caldwell County and was in private practice for 20 years before that, including criminal law and 20 years as an escrow officer and closer for a title insurance company. I have tried more than 100 criminal jury trials in my career, and I’m available to assist local prosecutors in evaluating, preparing, and trying cases involving mortgage fraud.

    Interested prosecutors and investigators can apply for this assistance by contacting me at 512/475-0980 or [email protected]. The criteria and financial limits on this assistance are purposely being left open to encourage interested parties to seek assistance and take advantage of this service. Limits and criteria may be redefined at a later date depending on demand.