Jennifer Chambers / The Detroit News

Mortgage fraud losses in Michigan jumped from nearly $9 million to $26 million over a two-year period in what has become one of the fastest-growing white-collar crimes in the nation.

"These criminals are literally trying to steal the homes out from underneath unsuspecting citizens," said Oakland County Clerk Ruth Johnson, who formed a task force last month with police and prosecutors to combat the problem.

Nationally, the Federal Bureau of Investigation reports that mortgage fraud losses jumped from $429 million in 2004 to $1 billion in 2005. Michigan was identified as one of the top 10 "hot spots" in 2005 for mortgage and deed fraud by the FBI. The crime can take many forms, and combating it has become an FBI priority because the scams not only hurt lending institutions and ultimately the health of the U.S. economy, but also thousands of homeowners every year. Consumers pay through increased interest rates and fees at banks. In addition, values of other real estate in a neighborhood can be skewed by the artificially inflated prices claimed by the scammers.

"It messes up the appraisal process for the entire neighborhood and the true value in that neighborhood," John Gillies, assistant special agent in charge of the financial crimes unit for the Detroit office of the FBI.

Rarely do victims of mortgage fraud come eye to eye with the person trying to steal the property from right beneath their feet.

In one version of mortgage fraud, Casha Valentine did. A man walked up to the counter at the Wayne County Register of Deeds where Valentine works and presented a deed with Valentine's forged signature saying she was selling her property. She was not.

"I was sitting there looking right at him. I could have grabbed him over the counter. I said to myself 'Why is he doing this?' I was shocked, but they do it every day," said Valentine, 45, of Southfield.

And thanks to the quick thinking of her co-workers who called police and stalled the con man, Valentine won't be spending thousands of dollars trying to reclaim the home she rightfully owns. But hundreds of Metro Detroiters are not so lucky.

In the type of fraud that Valentine witnessed, criminals claim ownership of a home with a phony deed and sell the property to another person.

That person mortgages the house and cashes out, walking away with hundreds of thousands of dollars.

The actual homeowner only learns of the misdeed when the bank comes looking for its money.

Victims often own their homes free and clear, own vacant property or, in other types of scams, are having trouble making mortgage payments

"Until we started going through these cases I had no idea the complexity of it and how easy it is to do," said Oakland County Chief Deputy Prosecutor Deborah Carley.

The most widespread kind of mortgage fraud is another type of scam where cons use a combination of fraudulent appraisals, doctored loan documents, inflated buyer incomes and the use of fake or "straw" owners who allow their identities or credit records to be used but have no real ownership in the house.

The FBI says 80 percent of mortgage fraud is done through industry insiders -- most often appraisers, but also bankers, lawyers, accountants and real estate brokers.

"As long as you have insiders willing to participate it becomes fairly easy," Gillies said.

Oakland steps up security

In January, the Oakland County Clerk's Office installed two security cameras in its register of deeds office to thwart mortgage and deed fraud in that county, where just a handful of new cases under investigation in recent months has added up to potential fraud of $500,000.

Oakland County's Johnson said the cameras will help police and prosecutors nab and convict con artists. In one case, a mentally ill woman from Bloomfield Hills was in and out of the hospital last year when thieves literally stole her paid-off home via public documents and a fraudulent deed.

"She doesn't have possession of the house so she may lose it and get bad credit all at the same time because there is a mortgage taken out on it for $278,000," Johnson, a former state representative, said. "That is how these people do business: They look for those that are vulnerable and those they can hit. That's the heartache for everybody and the homeowner."

The only way to clear the property of the debt is to hire an attorney to go to court or wait for the financial institution or police to determine the homeowner has been truly victimized. Either remedy can take months or years.

When a deed is presented to her office now, Johnson has her staff checking the buyer and seller's names against a list of 30 known con artists.

"We formed a task force to be more efficient and pool our resources," Johnson said. In Wayne County, Register of Deeds Bernard J. Youngblood created a fraud fighting task force in September that includes his office, the Wayne County prosecutor's office and the sheriff's department.

Mortgage scams vary

The FBI has also seen its share of illegal property flipping where property is purchased, falsely appraised at a higher value, and then quickly sold. What makes property flipping illegal is that the appraisal information is fraudulent.

In one case in Detroit, a house was sold for $25,000 one day and $250,000 the next. A real gem? Not exactly. The house was a collapsed pile of rubble with no walls to speak of -- another egregious case of mortgage fraud where the property was bought, falsely appraised at a much higher price and quickly resold.

Last October in Detroit, 20 people were arrested by the FBI in a widespread mortgage fraud case that one prosecutor said was "just the tip of the iceberg." The government contends the suspects typically located distressed homes and persuaded the owners to join the scam. Meanwhile, they recruited appraisers willing to inflate the value of the property and individuals with good credit -- but often little to no income -- to pose as buyers.

Using the inflated appraisals and fake income documents, the "buyers" borrowed much more money than the homes were worth and split the proceeds among the participants. Investigators said the banks had been defrauded of more than $10 million in the scam.

The Mortgage Bankers Association projects $2.5 trillion in mortgage loans will be made in 2005. Yet the true level of mortgage fraud is largely unknown. Much of the mortgage industry is devoid of mandatory reporting, Gillies said, particularly the nonfinancial institutions such a mortgage brokerage firms, the majority of lending institutions.

Appraising process targeted

Combating mortgage fraud is a pressing issue for the appraisal industry, according to Les Linder, an appraiser and president of the Great Lakes Chapter of the Appraisal Institute.

Linder, who works in Southfield as a commercial appraiser, said the industry is pushing for an increase in enforcement of licensing laws and increasing qualifications for appraisers across the board.

Murray Brown of Michigan Lenders Association said his group has organized mortgage fraud workshops to discuss how those in the industry can better assist regulators in addressing the problem.

Part of the reason some industry officials don't report the crime, Brown says, is many have turned in someone like an errant loan officer only to find that they themselves become the target of the investigation.

"'Why should we make ourselves a target,' they say. That causes people to not get involved," he said.

You can reach Jennifer Chambers at (248) 647-7402 or jchambers@detnews.com.

Detroit News