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Wednesday, July 22, 2009

Herald Tribune: Flipping Fraud Ignored

by Calculated Risk on 7/22/2009 10:24:00 AM

From the Herald Tribune series on mortgage fraud in Florida: Flipping fraud ignored by police and prosecutors

In November 2005, when the real estate market in Florida had just begun to slow, the state’s top law enforcement agency issued a warning that mortgage fraud was about to wreak financial havoc.

In sober language, a 36-page Florida Department of Law Enforcement report explained that banks would collapse and losses would be counted in “hundreds of billions of dollars.”
The report, which was not released to the public but was sent to prosecutors and law enforcement officials across the state, laid out a series of responses to help prevent or lessen the disaster.

But instead of heeding the warning, most law enforcement officials ... did nothing.

Even the most basic recommendation in the FDLE assessment — posting a notice at the county courthouse warning that mortgage fraud is a criminal offense — was ignored in Sarasota County.

Today ... the scope of fraud has overwhelmed state and federal law enforcement agencies to the point that only the most egregious cases are likely to be prosecuted.

In addition to the FBI’s 2,500 cases, state agencies, including the Attorney General and FDLE, have pursued a few hundred more dating back to 2000.

But the amount of fraud dwarfs the number of cases being pursued, the Herald-Tribune found. The Herald-Tribune analyzed nearly 19 million property transactions looking for one type of housing fraud — illegal property flipping. The newspaper found more than 50,000 transactions in which prices increased so much, so quickly, that fraud experts interviewed by the newspaper deemed them highly suspicious.
Here are the first three in the series:

'Flip that house' fraud cost billions

Flippers' toll: On Gulf Coast, half a billion in defaults

The king of the Sarasota flip

Note: And from Tanta in 2007 (my former co-blogger): Unwinding the Fraud for Bubbles