Wednesday, November 11, 2009

Mortgage Fraud Accomplice Gets Three Years; Need for Real Estate Regulatory Reform

Yesterday, Timothy A. Brown was sentenced to 37 months in federal prison by U.S. District Court Chief Judge David F. Hamilton in Indianapolis. Brown had pleaded guilty to one count of wire fraud and one count of money laundering.

Brown participated in an extensive mortgage fraud scheme that involved hundreds of homes. The mastermind behind the scheme, Robert A. Penn, has already pled guilty and is also awaiting sentencing.

It would be easy to pack ourselves on the back and say "job well done" for putting these folks behind bars. But that would omit some troubling facts. These individuals would have escaped any punishment had the feds not stepped in, using federal criminal law, to bring them to justice. Our Marion County Prosecutor's Office, though well aware of the scheme, failed to prosecute.

That's not unusual. Many county prosecutors simply do not feel comfortable prosecuting scams related to highly complex real estate matters. That is why, as I have preached many times before, we need a special unit to investigate and prosecute these types of crimes, or at the least to lend assistance to prosecutors who want to take up the cause. Anyone who thinks these are 'victim-less"crimes should go view the neighborhoods where the Penn mortgage scam was unleashed.

Second, we can't overlook how state regulators dropped the ball. Indiana has a plethora of offices that regulate real estate matters. When I was head of the Title Insurance Division at the Department of Insurance, we regulated title insurers. The Attorney General's Office regulates appraisers, while the Secretary of State regulates mortgage brokers. The Department of Financial Institutions regulates lenders. And the list goes on.

Most of these agencies knew fairly early on about the Penn scheme. Yet very little action was taken to discipline those involved. In particular, the Attorney General's Office frustratingly and mystifying would usually refuse to take any sort of action against those they regulate. While the Secretary of State's Office was better when it came to regulating mortgage brokers, that office suffered from high turnover and a lack of personnel which really understand how complex real estate transactions work.

Also, there was a lack of communication between the agencies on real estate regulation that hampered any comprehensive regulatory effort. While at the Title Insurance Division, we always tried to communicate with other agencies. But many times we would not know about action taken by the Attorney General's Office or Secretary of State until we read it in the paper. In fact, on one occasion it came out in the newspaper that another agency had identified a title insurance agent for alleged misconduct when in fact the agency's inexperienced regulators simply did not understand the real estate transaction and the title insurance agent's role in it. He simply had not done anything at all wrong. We at the Title Insurance Division had to spend several hours trying to educate the regulators about the role of a title insurance agent.

As with prosecution of mortgage fraud, we need a comprehensive regulatory effort. The patchwork of regulators does not work. The Penn mortgage scheme, which devasted entire Indianapolis communities, clearly shows that.


guy77money said...

My favorite real life story during the housing bubble is as follows. My friends wife worked for a real estate agent in Geist (well at least she lived on Geist) was selling houses to woman who's only source of income was child support. His wife's job was to call the ex husbands and boy friends and make sure they were paying child support. When she told these guys why she was calling most of them would go ballistic on the phone saying these women had no business buying a house. As long as there was income they were approved for the loan. Apparently over 80 percent of these houses were foreclosed on in under a year and a half. It's really to bad the feds don't put all these idiots in jail or at least pull their licenses. My friends wife said it was a horrible job (she now in the nursing field) but she was pulling down over 70 grand a year.

Paul K. Ogden said...


The state has a lot more poer to regulate and punish these people criminally. We should not be depending on the feds to do the job.

The feds can't pull their licenses. The state people would have to do that. The worst thing is the appraisers who were involved who were not pursued by the AG's office.