GrewUpInIrvine - Yes, let’s keep focus here.  "Fraud" topic please.  Your point is very taken though!

I don’t mean to be obtuse, but really don’t understand the meaning of the term "fraud" here: is it due to a speculator buying multiple homes with no money down and eventually leaving the banks holding unpaid loans, or is it referring to banks lending to someone who has no business getting multiple loans who will only destroy his credit history soon?  Can someone please explain?  Thank you.

Amazing when million dollar housing frenzies are near similar to beanie babies or tulips…

 
     
       
        Current Fraud Headlines
       
         
             
                Last Updated
                <csobj w=“119” format=“LongDate” locale=“00000409” region=“0” h=“14” t=“DateTime”></csobj>Tuesday, March 06, 2007
                <csobj w=“47” format=“ShortTime” locale=“00000409” region=“0” h=“14” t=“DateTime”></csobj>03:31 PM
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        FBI Mortgage Fraud Report

        Mortgage fraud is worst in the Western region of the country, according to a new report from the Federal Bureau of Investigation. The report said mortgage industry insiders are involved in four out of five cases.
     
 

 
Does anyone have a full report for this Headline?

almon, I am pretty sure that the lenders did not know of the buyer getting financed for 3 properties in 1 month.

almon,

A brief fraud primer: Real estate fraud generally requires 3 complicit parties; a buyer, a mortgage broker or lender, and an appraiser. Lets say there is a property available for sale for $500,000. The appraiser values the property at $700,000, the mortgage broker processes the loan based on the appraisal, and the buyer goes through with the transaction. At the closing table, they buyer is cashing out $200,000 which gets split between the three parties in some way. The buyer then walks from the property without making any payments letting the property go into foreclosure. Because this harms the credit of the buyer, straw buyers are often brought into the scheme (illegal aliens, homeless people,  identity theft, etc.) Ordinarily this is very hard to get away with because everything would be scrutinized closely. However, with the flood of new buyers from sub-prime lending and the widespread use of stated income (liar) loans, this kind of fraud became much easier to do.<em></em>

almon, IrvineRenter’s example fit a refinancing scenario; however, new purchase homes would have to involve 4 more parties:  Listing agents, Buying agents, seller, and title insurance for the loan.  Several defaulted loans  in the 92602 zip listed in Foreclosures.com were purchased above list price for up to $100K, in a down market
Does anyone know if tiltle insurance cover a fraud transaction?  When I purchased my house many years ago, they said I had  to buy title insurance for the loan amount!!!

Thank you IrvineRenter and IrvineMom, you’ve opened my eyes…

By the way, IrvineRenter, thank you for the excellent first articles, I’ve saved them for re-reading later.  Please keep them coming, I will use them as reminder that up markets never keep going up and vice versa.

A warranty deed is a quitclaim deed with certain warranties explicitly listed on the deed itself. This type of deed is almost never used in real estate transactions anymore since the Trust Deed already has the generally accepted warranties built in. Also, a trust deed is required for the three party transaction that is standard in California Real Estate transactions (Buyer, Seller, Trustee).
 
I did see a guy in Kinko’s earlier this year getting a notary done on a Warranty Deed and I was curious enough to ask him about it, due to their rarity. Sure enough, he told me that he was basically in the game of buying large parcels of land in the boondocks through tax lien auctions, partitioning them into smaller properties (basically illegal without going through a GREAT DEAL of paperwork since this type of activity requires all of the steps of a subdivision… but probably not looked at too carefully in Victorville) and then finally selling the lots on EBay.
 
Thus, a Warranty Deed is no guarantee of illicit activities, but it certainly would make me take notice.  Also, the fact that the property is in the name of a revocable trust is another bad sign. The name that you saw is actually the name of the trust, and certainly does not have to be the name of the person who owns it. Revocable trusts and LLCs are often set up in Nevada to serve many purposes. Firstly, they can reduce liability to personal litigation. However, trusts and LLCs can also be used to disguise ownership, which may well be the case here. Most owners of Single Family Residences would NEVER choose to deed their properties to LLCs or Trusts since that would prevent them from gaining the benefits of the tax write off for their interest expense on their mortgages. However, since investors don’t get this benefit anyway, they have no such squabbles. So there is one thing that you CAN conclude then, is that if the property is in the name of a trust, the property is NOT home owner occupied.

Also, Title Insurance only insure that the Chain of Title on the property is correct.  This is required by lenders to cover themselves just in case there were some liens on the property or other encumbrances that did not go in the initial Title Report that can detrimentally affect the value of the property.  To the best of my knowledge, it does not cover a fraudulent appraisal. 

NickStone - Thank you for explaining very well.  Is there any title insurance that cover fraud? 

The CLTA (California Land Title Association) Policy is standardly required to be purchased by the buyer in a  Deed of Trust Sale.  It is usually referred to as a Standard Policy.  It extends protection against matters of record and many non-recorded types of risks, depending on the type of policy purchased.
It protects against:
- Forgery, impersonation, or failure of a party to be legally competent
- The possibility that a deed of record was not in fact delivered with intent to convey title
- The loss which might arise from the lien of federal estate taxes, which is effective without notice upon death
- The expense incurred in defending the title
A Standard Policy DOES NOT protect against:
- Defects in the title known to the holder to exist at the date of the policy, but not previously disclosed to the title insurance company
- Easements and liens which are not shown by the public records
- Rights or claims of persons in physical possession of the land, but whose claims are not shown by the public records
- Rights or claims not shown by public records, yet which could be delivered by physical inspection of the land
- Mining claims
- Reservations in patents or water rights
- Zoning ordinances
 
Often the lender will purchase an Extended Policy for an additional cost.  This Extended Policy, also referred to as an ALTA  (American Land Title Association) Policy, offers the same coverage as the CLTA policy with the following additions:
- Protection against claims of parties in physical possession of th property, but no recorded interest.
- Reservations in patents
- Unmarketability of title.
 
**** Note that fraud is not covered in either policy
Source:  Price, Sherry Shindler, California Real Estate Principles, 7th Edition, 2003, Ashley Crown Systems, Inc., pp 78-79.

NickStone - Thank you for the info.  Under standard policy, forgery is covered.  Say if a straw buyer is involved and the real buyer forged his signature, then will this be covered by title insurance?  Thank you again.

Yes, but it does not cover for fraudulent appraisals, since that is not a subject of record.

I am bringing this one back up since the foreclosures have begun. 68 Arcata was taken back by the bank 3/28 for $620k. There was a lot of discussion on Zovall’s original blog post about the prices for this tract. So I wanted to hear what people think this will do to the prices there?

68 Arcata

If you look at Zillow, you see an interesting price/value graph. It spiked up like everything else in 2005, then it leveled off through 2006 at about $620. Then you have the sale in May of 2006 and you get the huge spike followed by a leveling out through the rest of the year. Wait until we get the big drop once this sale is recorded.