Mortgage Fraud Bust: Perhaps Largest in US History

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By Caleb Groos on August 27, 2009 2:10 PM

An Ohio man, along with 40 other individuals and four businesses have been indicted in what some are calling the largest mortgage fraud scam in the country's history.

Uri Gofman has been charged as the mastermind of the scheme, which involved 453 homes in and around the Cleveland area, and an alleged $44 million in fraudulent loans. Gofman has been charged with racketeering, theft, tampering with records, wire fraud and money laundering.

As detailed by the Cleveland Plain Dealer, the scheme allegedly involved Gofman paying straw buyers to purchase foreclosed homes. According to the indictment, a man named Naum Simkhovich recruited the straw buyers from his Cleveland synagogue.

Then, according to the indictment, Gofman and his company (Real Asset Fund) would file fraudulent paperwork stating that they lent the new homeowners money to restore the homes. The straw buyers would then apply for bank loans to refinance the "loans" Gofman made to them.

The problem was, as alleged by authorities, Gofman never made the loans (and the homes were not restored). They maintain that he did, however, keep the proceeds of the loans made by the banks -- to the tune of about $20 million to Gofman and $11 million to co-conspirators, who included a bank loan officer, real estate agents, mortgage brokers, and title agents, along with the straw buyers.

The scheme also allegedly involved seed money from a Latvian bank and running the proceeds through a Ukrainian rabbi who would fly to Cleveland and leave the same day with huge amounts of cash.

The Plain Dealer reports that 79% of the homes eventually fell back into foreclosure, adding considerable blight and decreasing property values in Cleveland's already tatered housing market.

Though this appears to have been a large scale orchestrated scheme to defraud banks, it also offers a good time to remember what constitutes mortgage fraud.

Under federal law, mortgage fraud is any material misstatement, misrepresentation or omission relied upon by an underwriter or lender to fund, purchase or insure a loan. While it can be a premeditated attempt to defraud, mortgage fraud can include more simple exaggerations and omissions such as:

  • falsifying employment income;
  • unreported kick-backs from the seller;
  • not disclosing down payment "gifts" you will repay; and
  • non-occupants claiming to be occupants.

As for the case of Mr. Gofman and his associates, of course the scheme, if true, was more nefarious. But anyone from a potential straw buyer to someone who just wants to fudge their loan application a bit to get into their dream home can easily find themselves guilty of mortgage fraud.