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State Abbre

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n STATE 2009 Q1

2009 Q2

2009 Q3

2009 Q4

2010 Q1

2010 Q2

2010 Q3

2010 Q4

2011 Q1

2011 Q2

2011 Q3

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2012 Q1

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AK Alaska 48 51 46 48 48 50 21 47 50 47 42 22 20 42 AL Alabama 34 34 36 33 35 24 44 21 38 37 46 41 41 35 AR Arkansas 41 37 34 39 44 35 29 48 36 45 44 49 38 43 AZ Arizona 5 4 4 5 6 12 4 6 11 7 6 9 4 4 CA California 3 3 3 3 3 3 2 3 1 1 2 1 1 1 CO Colorado 12 12 14 11 19 18 17 17 15 23 17 13 8 5 DE Delaware 29 22 22 23 17 16 38 31 13 11 5 18 22 15 FL Florida 1 1 1 2 2 2 1 2 5 2 4 2 3 3 GA Georgia 11 6 6 8 5 4 8 7 7 12 19 7 10 10 NM New Mexico 33 24 33 34 38 30 49 24 20 28 30 40 17 7 NV Nevada 2 2 2 1 1 1 3 1 2 3 3 5 2 2 NY New York 15 15 15 14 13 13 7 9 17 15 10 11 5 8 OH Ohio 26 32 29 30 39 39 40 40 34 42 38 31 29 24

Financial Crimes Enforcement Network(FinCEN) State Ranking by Suspicious Activity Reports

per million population

County State

2011 Q3 (Older

Activity)

2011 Q3 (Recent

* Activity)

All 2011 Q3

Subjects

2011 Q4 (Older

Activity)

2011 Q4 (Recent

* Activity)

All 2011 Q4

Subjects

2012 Q1 (Older

Activity)

2012 Q1 (Recent

* Activity)

All 2012 Q1

Subjects

2012 Q2 (Older

Activity)

2012 Q2 (Recent

* Activity)

All 2012 Q2

Subjects Los Angeles California 1882 605 2487 1435 570 2005 1947 643 2590 2201 729 2930 Cook Illinois 1116 227 1343 980 275 1255 900 201 1101 1005 208 1213 Harris Texas 278 61 339 202 94 296 198 72 270 164 76 240 Maricopa Arizona 864 173 1037 725 134 859 795 134 929 778 208 986 San Diego California 585 109 694 469 187 656 601 130 731 612 166 778 Orange California 785 215 1000 621 158 779 873 261 1134 828 270 1098 Kings New York 175 81 256 206 93 299 224 107 331 199 156 355 Miami-Dade Florida 1396 130 1526 1415 132 1547 1144 112 1256 1126 111 1237 Dallas Texas 150 33 183 178 24 202 121 28 149 108 35 143 Queens New York 280 97 377 238 72 310 251 94 345 234 102 336 Riverside California 541 136 677 419 88 507 583 116 699 589 177 766 San Bernardino California 494 143 637 392 55 447 502 100 602 492 127 619 Clark Nevada 642 104 746 550 76 626 560 90 650 579 116 695 King Washington 221 62 283 219 40 259 215 74 289 199 77 276 Wayne Michigan 268 55 323 199 62 261 165 38 203 161 42 203 Tarrant Texas 60 24 84 78 27 105 67 13 80 68 29 97 Santa Clara California 363 148 511 276 109 385 319 84 403 352 118 470 Broward Florida 798 115 913 716 92 808 693 73 766 668 75 743

Financial Crimes Enforcement Network(FinCEN) County Ranking by Suspicious Activity Reports

per million population

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18

Top 10 Real Estate Schemes per FBI Opened Cases

Top 5 riskiest states according to FBI National Fraud Index

Top 5 riskiest cities according to FBI National Fraud Index

• FY 12 Mortgage Fraud Suspicious Activity Reports (as of 9/25/12): 69,030 with losses of $2.6 billion • FBI Mortgage Fraud Task Forces/Working Groups: 83 • Pending Investigations (as of 6/30/12): 2,307 with 71 percent involving losses of $1 million or more • Total cases opened in FY 2011: 599 • Successes in FY 2011: 1,220 indictments/informations; 1,089 convictions

Fraudulent Mortgage Originations by Year

Fraud Index by Zip Code

Principle Alert Categories of Fraudulent Mortgage Originations

Employment • An intentional misrepresentation of employment information in order to qualify for a loan

Identity • Any scenario in which an identity is altered, created or stolen to obtain a loan

Income • An intentional misrepresentation of income by applicant

Occupancy • Deliberate intention by applicant to claim residency to secure incentives, lower interest rate, etc.

Property • Intentional misrepresentation of property value to achieve fraudulent gains through fraudulent flip[ping, flopping or money laundering

Undisclosed Debt • Intentional failure of applicant to disclose debts during the origination process falsifying their debt-to-income ration in order to qualify for a loan.

Employment Fraud Risk Index Florida, Nevada and Arizona are the top three for this category. All three states also have equal to, or higher than, the national unemployment rate with increasing under-employment rates. California is a medium risk state for employment fraud.

Identity Fraud Risk Index Nevada, Mississippi and Alaska lead the states in identity fraud but California is in the top 10. After briefly slowing in Q4 ‘10 and Q1 ‘11, rates have risen steadily again.

Income Fraud Risk Index Washington DC, New York, Florida and California lead the states in income fraud. This index has dropped some since Q3 ‘11 as a result of lenders requesting borrower tax transcripts on an increasing number of originations by instituting new ‘best practices’.

Property Fraud Risk Index Florida, Illinois and Oklahoma lead the states in property fraud. This index has dropped for the last four quarters but is expected to remain high due to increased short sale volumes and the effect of new Fannie & Freddie short sale guidelines.

What’s in YOUR market? • Short sale fraud is still most prevalent

Unlicensed negotiators Outside of escrow payments DRE is investigating transactions where listing brokers are indicating preferential treatment

• Loan modification fraud • Bail-out Specialists / Home Rescue Schemes • Squatters

Grow Houses Adverse possession

• Rental Fraud / Craig’s List Scams • House Stealing (Identity Theft / Mortgage fraud) • Reverse Mortgage Fraud (Elder Abuse)

Forgery Diminished Capacity Undue Influence Fraud

• Real property crime can take many forms, but most often involves grand theft, forgery, and a relatively recent scheme, identity theft

• Fraudulent real estate investment schemes, typically involving the sale of trust deeds. Trust deeds may be unsecured, or inadequately secured.

• Use of forged escrow instructions to steal escrow deposits. • Fraud in private sales of property, such as failure to disclose all liens against the property. • Fraud in installments land sales contracts. The seller may accept payments from the buyer, but fail

to pay the underlying mortgage, causing the property to be foreclosed. • Forgery of grant deeds. • Forgery or alteration of a trust deed or grant deed before recording. For example, the loan amount

on a trust deed may be altered to look like the borrower owes much more. • Undisclosed addenda that are not submitted to short sale lenders with the original purchase

contract. • Another variation on the theme of short sale negotiator payments is seen in agreements wherein

sellers are crediting buyers with so-called non-recurring closing costs. • DRE is investigating transactions where listing brokers are indicating in their advertisements that

only offers where buyers request a non-recurring closing cost credit from the seller to pay for the short sale negotiator fee will be submitted to the short sale lender.

• The Department has also learned of several occurrences in which buyers and/or sellers are receiving undisclosed monies and credits outside of escrow.

• Foreclosure Bailout • Home Equity and Home Renovation Fraud • Deceptive Timeshares • Forensic Loan Audits • Home Mortgage Relief Thru Litigation • False & Misleading designation or claims

One of the major and recurring schemes is short sale flopping, where real estate agents and brokers have defrauded a short sale lender with respect to the value of a property and purchase offers received, and then, in turn, resold the property for a much higher price. These types of scenarios usually involve a false appraisal or broker price opinion (BPO) that was provided by the listing broker to the short sale lender with the intent of under pricing and falsely stating the value of property. Sometimes, the listing broker will withhold offers from the short sale lender and will only submit one offer from a buyer, or straw buyer, that they have personally secured for the purchase of the property at an artificially low price. Without the knowledge of the short sale lender, the listing broker will then resell the property for a profit, sometimes immediately

Short Sale Flipping/Flopping

Short Sales Involving LLC’s An LLC Buyer or Go-between in a short sale transaction has long been a red flag for potential fraudulent activity. ‘Standard’ short sales have just over 2% rate of fraudulent activity while short sales involving LLC’s have a 34% rate, although that has declined somewhat

Short Sales and Resale Age CoreLogic data has shown that in 2008 & 2009, nearly 50% of fraudulent short sale activity could be traced to homes that were flipped (or flopped) within 30 days, nearly 20% with concurrent escrows. In 2010 and 2011 that seasoning has gradually increased to 60 to 120 days. Part of that comes from new seasoning rules enforced by lenders, part of it comes from fraudsters learning what set off a red flag with lenders.

Short Sales and Price Gain Since 2010 CoreLogic has also observed a rising trend in the percentage of short sales flipped for more than $50,000. More than 60% of suspicious transactions involve a re-sale for more than $50,000 over the initial sale price. Either they’re doing much better re-habs than they used to or they’re evolving into a more profitable strategy.

A totally new kind of crime: HOUSE STEALING. Here’s how it generally works:

…The con artists start by picking out a house to steal—

say, YOURS. …Next, they assume your identity—getting a hold of

your name and personal information (easy enough to do off the Internet) and using that to create fake IDs,

social security cards, etc. …Then, they go to an office supply store and purchase

forms that transfer property. …After forging your signature and using the fake IDs,

they file these deeds with the proper authorities, and lo and behold, your house is now THEIRS.*

What do you get when you combine two popular rackets these days

identity theft and mortgage fraud?

Are you being asked to pay ‘up-front fees’ Are you being asked to pay for something in cash? Are you being asked to pay for something ‘outside of escrow’ ‘on the side’ or ‘after closing’ Are you being asked to pay the real estate agent directly Are you dealing with unlicensed agents, brokerage companies or short sale negotiators Are you being asked to transfer your title to a 3rd party Are you being encouraged to make payments to a 3rd party Are you being told not to contact your lender yourself Are you being asked to ‘not show that to the bank’ Are they offering a ‘forensic loan audit’ Are you dealing with an ‘attorney backed business’ or out of state attorneys Is the buyer an LLC representing an investor Is there a concurrent escrow Does the program or organization claim to represent a Federal or State program without backup Does the sales pitch have obvious holes, inconsistencies or blue-sky’ assumptions Are you being provided the mandatory state and federal disclosures early in the transaction Refuses to met in an actual office, lack of actual office or refuses to meet in person.

Potential Red Flags

• Effective with your next transaction certain document fees go from $3 to $10. • The fees are imposed whenever an individual or business records a deed of trust, a notice of default, notice of trustee sale, affidavit, lien, lease or quitclaim deed, as well as other documents filed with the Office of the Assessor-Clerk-Recorder. • Revenue generated from the fees is deposited into the Real Estate Prosecution Trust Fund, from which the D.A.'s office withdraws money as needed - - restricted for investigations and prosecutions of mortgage and foreclosure- related scams. • The assessor's office receives a relatively small portion of the money to cover costs associated with mailing "courtesy notices" that alert homeowners whenever a document has been filed that impacts his or her property. • DA’s office received more than 2,400 referrals for real estate fraud investigation in fiscal 2011-12, up more than 500 from the previous fiscal year. • The expanded office would create regional teams in the southwest county and Indio to investigate fraud allegations in those areas. The Riverside office’s staff of four investigators would grow to seven, and a forensic accountant, a real estate fraud document examiner and a forensic computer analyst would be among the other staff additions.

Call:

Mark Singerton Deputy DA

951.955.5400 masingerton@rivcoda.org

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