The following is an excerpt from a Houston Chronical article Good credit can attract a bad deal by Purva Patel.
Investigators predict more frauds will surface if the economy cools and interest rates rise, because it would be more difficult to turn homes over.
Many scams don't surface because mortgage companies are sometimes reluctant to report fraud. Often it amounts to indicting themselves if they turn in employees who commit fraud under their watch, said David Zugheri, a Houston mortgage broker. Many also fear being hit with defamation lawsuits if they report the activity.
"The industry is turning a blind eye to fraud," said Zugheri, whose own company was sued for defamation by a former employee fired for suspicious activity. "The industry is completely inside-out right now."
Those defrauded also are often reluctant to come forward.
Despite the damaged credit history and burdensome debt they're often left with, they aren't always innocent in the law's eyes since they often sign documents with inflated incomes. Often, the FBI's Ortega said, the buyer will sign an application saying the home will be owner-occupied to get a lower mortgage rate even though the property will be rented.
"Those misstatements translate to federal felonies," Ortega said. "It's a lie and it's a lie to obtain money, which makes it a fraud. By and large we haven't really pursued the straw borrowers, but if you get somebody who has done multiple properties, they're on the hot seat. They are criminally liable and could be indicted."
Muir wasn't indicted for signing certain papers, but she acknowledges the flawed reasoning that entangled her in Benham's scheme.
"When I went to the office to sign the papers, he shoved a stack that was a ream thick in front of me," she said. "Name me one person who has bought a property or two in their whole life who understands what all that paperwork says. There may be some people, but I wasn't one of them."
"According to her lawsuit, she did notice the high appraisal value. But when she questioned it, Benham got angry and told her appraisals can't be inflated."
Later, according to her suit, she learned the appraiser, Donald W. Scales, compared the town house she bought to real estate across the street, which was worth much more.
Scales said he couldn't recall everything about the appraisal but said that it was meant for the lender, not for a buyer to decide if a property should be purchased.
"I don't remember details of the thing, but I heard it wasn't used for the purpose it was intended," said Scales, who said he didn't have an attorney representing him.
Muir managed to hang on to the property by burning through her savings and temporarily renting it out before selling it for less than her loan.
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