Recently, Zoeller warned of a mortgage fraud scheme that many of us in the regulatory scheme and real estate industry have suggested needs to be addressed. The Indianapolis Star reports:
Indiana's attorney general is warning about a mortgage fraud scheme in which criminals exploit a loophole in state law to transfer the ownership of properties.A deed only has to be signed by the seller. With the forged deed recorded, the new "owner" can apply for a mortgage. The title company will do a search to ensure the person is in title, and the recorded deed will satisfy that requirement. The person then walks off with the money from the mortgage. Or, what they can do which is not addressed in the article, is turn around and sell the property for cash.
Attorney General Greg Zoeller said the thieves aren't interested in the property they steal, but in using their "ownership" of a property to obtain a fraudulent loan. Once they get the money, they disappear with it and leave the true property owner with the debt.
"The actual homeowners, through no fault of their own, are at risk of losing their home to foreclosure," Zoeller said. "Correcting the problem and clearing the cloud off the title could cost the homeowners thousands of dollars."
Zoeller joined the Indiana Recorders Association and the Association of Indiana Counties in Indianapolis on Thursday to publicize the scheme. He explained that Indiana law does not allow county recorders to demand proof of identification from customers who are recording deeds and other notarized documents.
"Criminals are exploiting a loophole to fraudulently transfer ownership of properties in an effort to steal money from lenders," Zoeller said during the announcement.
I saw the latter happen first hand last year. I had a client who had the same man forge his name on two quit claim deeds for rental properties he owned. The deeds transferred the properties to the man's company. He then turned around and sold them for cash, at a reduced rate. One of the new, innocent buyers, went out and sunk a bunch of money into rehabbing the property. The forger was reported to the Marion County Prosecutor's office by my client, but the office had no interest in prosecuting him. (It never ceases to amaze me that stealing a loaf of bread is prosecuted, while stealing a whole house is not.) The forger actually showed up in our civil quiet title lawsuit. He did not deny the forgery, but rather suggested what he did was okay because the properties were not being maintained.
In 2007, when I was head of the state's Title Insurance Division, we had several meetings with other regulators and people in the real estate industry where we discussed addressing Indiana's mortgage fraud problem by requiring more information on the deed. Right now the buyer does not even have to sign the deed. Neither the buyer or seller's actual address has to be listed. The title company used does not have to be on the deed. Unlike in many states, Indiana does not require the actual sales price to be on the deed, which would often be a red flag to a fraudulent transfer. Our meetings produced a great deal of consensus on what should be on a revised deed. Unfortunately, Attorney General Steve Carter's office was not interested in participating in that reform group's efforts.
While this additional information on the deed might not eliminate fraudulent transfers, it would make the real estate transfer more transparent, giving valuable information to regulators and prosecutors investigating mortgage fraud. However, we still need county prosecutors who are much more willing to go after white collar crime, like mortgage fraud, than is currently the case. Attorney General Greg Zoeller and other regulators can assist in that effort by making the expertise of their office available to local prosecutors who want to prosecute mortgage fraud.
I applaud Attorney General Greg Zoeller's continued efforts to improve his office's real regulatory efforts.