Miami Mortgage Fraud Criminal Defense Attorney on Straw Buyer Mortgage Fraud

March 30, 2009 by David S. Seltzer

Mortgage fraud is on the rise in the United States, especially in South Florida. State Attorney General Bill McCollum has even gone so far as to call the sharp rise in mortgage fraud a state of emergency. Against that backdrop, I was not surprised to see an item in today’s South Florida Business Journal reporting that 11 Miamians have been indicted for an alleged mortgage fraud scheme worth as much as $4.7 million.

The defendants, one of whom remains at large, are accused of running an elaborate scheme. Alleged ringleaders Juan Garcia and Yenisley Acosta are accused of recruiting the others to buy homes using false financial information and claiming the homes were for residential use. These buyers are called “straw buyers.” Once the home sales closed, the straw buyers would immediately sell the properties to other straw buyers at a higher cost, for a total of 13 transactions involving six properties over four years. Sale proceeds would go to the alleged ringleaders; none of the buyers made mortgage payments or even paid closing costs.

Of course, five of the six properties went into foreclosure right away. According to a press release from the U.S. Attorney’s office for the Southern District of Florida, several of the fraudulent loans in the scheme were Federal Housing Administration loans, which means they were guaranteed by the federal government. When the homes went into foreclosure, the federal Department of Housing and Urban Development had to pay back the loans, for a total loss to the government of $1.6 million. The newspaper gave the total value of the scheme as $4.7 million.

This is an elaborate example of the “straw buyer” or “for-profit” type of mortgage fraud, in which one person purchases the property on behalf of another person who would normally be ineligible. The straw buyer uses or falsifies good credit and a strong income in order to get the loan, but the real purchaser pays all of the costs of the transaction. In exchange for his or her services, the straw buyer (and anyone else involved in the scheme, such as an appraiser) gets part of the proceeds from the loan. The real purchaser pockets the remainder of the loan and walks away from the home without making any payments, sending it into default and foreclosure right away. This is one of the most common mortgage fraud schemes I’ve seen as a Miami mortgage fraud criminal defense attorney.

In this case, the alleged perpetrators actually sold the properties to new straw buyers, at inflated prices and using even larger loans, allowing them to profit more than once from the same property. Naturally, this defrauds the bank, which now has no way to collect on its investment. Indirectly, it also affects all of the honest homeowners in the area as well, because foreclosures drive down home prices and give banks a reason to tighten their credit standards even further.

As a South Florida mortgage fraud criminal defense lawyer, I expect to see more stories like this in the near future. The Cape Coral-Fort Myers area has the second most foreclosures of any U.S. city, according to recent statistics, and the rest of South Florida is affected as well. In many areas, we are also seeing an uptick in fraudulent schemes exploiting homeowners desperate to avoid foreclosure. Because this issue is so relevant, I intend to address different aspects of it from a Miami mortgage fraud criminal defense attorney’s perspective in the upcoming weeks’ blog posts.