Real estate fraud rises in US

"Everyone forgets what their mama told them: 'If you have to lie to get it, you're probably breaking the law,' " says Barbara Nelan, an assistant US Attorney in Atlanta.

For example, authorities extradited a California real estate developer from Samoa on Tuesday to face charges that he and four accomplices bilked banks of over $50 million. The indictment says the developer purchased tony homes in upscale Bel Air and Pebble Beach, recruited buyers to take out inflated mortgages based on phony appraisals, and then "flipped" the homes for up to triple their actual value.

In Conway, Ark., two women were found guilty Monday of falsifying lending documents to make buyers appear more qualified than they were in order to sell them mobile homes. In Denver, criminals coming out of prison were pulling real estate scams they learned behind bars.

In over 80 percent of the cases, scammers are helped by an insider, the FBI says. One of them was Jerome Mayne, a former loan officer who spent time in prison before becoming a motivational speaker in Eden Prairie, Minn. "The buyer they sent me was completely full of holes, fake everything, and I knew darn well that these guys were slippery enough to try to pull it off," says Mr. Mayne. A bottle of expensive booze and $500 cash helped grease the wheels, he admits.

Unraveling such gangs takes time and expertise, which has become the focus of law enforcement and industry professionals across the country. Working in their favor, at least, are solid paper trails.

"Usually when we complete an investigation, we end up with a spectrum of actors, from closing attorneys to brokers to appraisers, organizers, recruiters, and straw buyers," says Ms. Nelan. "It's fairly sophisticated, and it takes a lot of people to do it."

One of the toughest things for prosecutors is sorting out who's guilty. One group of recent perpetrators turned out to be clueless senior citizens in Alabama, who OK'd ploys to inflate their income in order to "invest" in real estate, says Linda Finley, a civil attorney who prosecutes such fraud cases in Atlanta. "It's gotten to the point where it's really hard to figure out who the actual victims are."

Critics say what's needed is a national lenders' clearinghouse and more federal regulation. Still, law enforcement can have a quick impact. Indictments against developer Philip Hill, who's charged with using up to 22 associates to do hundreds of fake deals in and around Atlanta, have alone caused the metro area to go from having four of the top 10 "fraud zones" in the country to two, according to Fannie Mae. His trial is scheduled to begin Jan. 9.

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