Mortgage Fraud: A Classic Crime's Latest Twists
As 'Reverse' Loans Grow More Popular, Scams Put Older Adults at Risk
By Anne Tergesen
The Wall Street Journal
August 27, 2009
Last summer, Lawrence Ford jumped into the fast-growing market for so-called reverse mortgages. The retired auto mechanic and horse trainer used the money he received to pay off his existing $70,000 mortgage and "piddled away" the remaining $24,000 on things like restaurant meals for his four girlfriends, he says.
Or so Mr. Ford thought. Last month, the owner of the Orlando, Fla., title company that handled his loan admitted to stealing more than $1 million from several reverse-mortgage holders, including Mr. Ford. Bank of America Home Loans, a unit of Bank of America Corp., says the title agent never sent it the money required to pay off Mr. Ford's mortgage. As a result, Mr. Ford says, the bank recently threatened to foreclose on his seven-acre ranch in Archer, Fla.
"That will put me on the streets with my cars and horses and tools," says the 68-year-old Mr. Ford. Bank of America, which says there is no immediate danger of foreclosure, adds that it is working with Mr. Ford "to find a home-retention solution."
In the wake of the mortgage meltdown, regulators and law-enforcement officials are sounding alarms about the potential for yet another type of mortgage fraud—this time, in the small but fast-growing reverse-mortgage market. Such fraud, though still rare, "is occurring in every region of the United States and reverse-mortgage schemes have the potential to increase substantially," according to a recent publication issued by the Federal Bureau of Investigation and the Office of Inspector General at the U.S. Department of Housing and Urban Development, which oversees the federally insured loans that account for some 99% of the reverse-mortgage market.
Available to people 62 and older, reverse mortgages allow homeowners to convert their home equity into cash. Instead of writing a check to the bank each month, the bank pays the homeowner, who can elect to receive a lump sum, a line of credit or monthly payments. The loan is repaid, with interest, when the borrower dies, moves, sells the house, or fails to pay property taxes or homeowner's insurance.
Reverse-mortgage fraud, typically committed by homeowners' relatives, caretakers or financial advisers, has also been cropping up recently in schemes to unload distressed real estate. Regulators cite cases in which real-estate speculators bought properties on the cheap and then sold them, using inflated appraisals, to senior citizens willing to take out reverse mortgages.
Lenders and administrators of the HUD program say reverse mortgages, for the most part, are still working well. "There are little scams around the edges," says Meg Burns, director of Single Family Program Development for the Federal Housing Administration, the HUD division that administers the reverse-mortgage program. But she dismisses talk of widespread abuse as "unsubstantiated."
Understating the Problem
Yet recent data—and HUD's own inspectors—indicate reverse-mortgage scams are on the rise. So far this fiscal year, which ends Sept. 30, HUD has referred 29 cases of suspected fraud to its Office of Inspector General for investigation, up from two the year before. Jacqueline Felton, who heads the FBI's mortgage-fraud team, says her agency is also seeing an increase. Indeed, HUD's data on suspected fraud likely understates the extent of the problem. Anthony Medici, who in June testified before Congress as a special agent in the OIG's Criminal Investigation division, said current cases "involve hundreds of properties."
This corner of the mortgage market is attracting concern for a couple of reasons. As the falling stock market has crushed retirement nest eggs, the number of federally insured reverse mortgages soared to 112,000 in 2008, up from 43,082 in 2005. HUD forecasts some 165,000 will be originated in this fiscal year. At the same time, Congress earlier this year temporarily raised the maximum amount homeowners can borrow against, from $417,000 to $625,500, making the loans "more lucrative for misdeeds," Mr. Medici told Congress.
In recent months, lenders including Wells Fargo Home Mortgage, MetLife Bank and Financial Freedom Acquisition LLC have taken steps designed to prevent and detect fraud. For instance, many are now looking for evidence that reverse-mortgage applicants have owned their homes for a set time frame—typically at least six months or a year.
Such measures are designed to curtail "flipping." Under these arrangements, speculators purchase distressed properties and, with the aid of cosmetic repairs and inflated appraisals, deed them to seniors at above-market prices. Seniors—some of whom may be part of the scheme—typically are promised homes for no money down. In return, they secure a reverse mortgage and divert some, if not all, of the proceeds to the scheme's promoters. Regulators say promoters have even recruited seniors from homeless shelters.
In response, U.S. Sen. Claire McCaskill (D., Mo.) is pushing legislation that would, among other things, require government-certified professionals to conduct appraisals on these loans. Because the government insures lenders against losses if a home ultimately sells for less than it takes to pay off a reverse mortgage, Sen. McCaskill has expressed concern about the risk fraud poses to taxpayers.
Despite such transactions, experts say most reverse-mortgage scams are perpetrated by people well-known to their victims. In one case, Larry Bekis, 51, of St. Paul, admitted to absconding with just over $121,000 from a reverse mortgage he arranged in 2006 on his 84-year-old mother's Lauderdale, Minn., home. From March 2007 to March 2008, Mr. Bekis—who was legally responsible for his mother's finances—failed to pay over $49,000 in nursing-home bills on his mother's behalf, police say.
After pleading guilty to theft by swindle, Mr. Bekis was sentenced in June to 30 days of home detention, plus five years of probation. Mr. Bekis's attorney, John Cabak of Pine City, Minn., says he plans to contest an order that Mr. Bekis pay $80,975 in restitution to the nursing home.
Thomas Prusik Parkin, of Brooklyn, N.Y., allegedly went a step further. In April, according to local prosecutors, Mr. Parkin received a reverse mortgage in his mother's name—despite the fact that Irene Prusik has been dead since 2003. Mr. Parkin withdrew some $463,000 of the $600,000 available under the loan's line of credit, using it for expenses including tax liens on the roughly $1.5 million home he continued to claim title to, even after a 2003 foreclosure, prosecutors say.
Prosecutors also state that Mr. Parkin pocketed some $52,000 of his deceased mother's Social Security and thousands more in other government benefits she qualified for. Dennis Ring, deputy bureau chief in the rackets division of the Kings County District Attorney's Office, says Mr. Parkin maintained the fiction his mother was alive by giving the funeral director who completed her death certificate a false Social Security number and date of birth; thus, "under her legitimate information, there was no death certificate on file," Mr. Ring says. Occasionally, Mr. Parkin would also don a dress, cane and oxygen mask to disguise himself as Irene Prusik, Mr. Ring adds. Mr. Parkin pleaded not guilty, and his attorney declined to comment. He is being held on $1 million bail.
Ensnared in a Scam
Mr. Ford, in Florida, became ensnared in a larger scam. Before moving to Orlando in 2008, Garry Martin, 37, the title agent on Mr. Ford's reverse mortgage, was convicted of mortgage fraud in New York.
In Florida, Mr. Martin orchestrated about 10 reverse-mortgage schemes, pocketing about $1 million, prosecutors say. As title agent, Mr. Martin was obligated to distribute funds from his victims' reverse mortgages to retire their conventional mortgage loans. But according to prosecutors, he kept much of the money. To prevent his victims from catching on, he arranged for their monthly mortgage statements to be mailed to an address he controlled. The scheme unraveled when the banks contacted the victims about their missed mortgage payments.
Mr. Martin, who pleaded guilty to stealing over $5 million from more than 50 victims of mortgage-related frauds, faces up to 20 years in prison. His attorney declined to comment.
Mr. Ford, meanwhile, fears he may be running out of options. Unless the bank agrees to modify his loan, he says, "I don't see a way out."
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