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Sharp rise in cases

The Valeses aren’t alone.

The FBI recently warned of an “exponential rise” in the number of mortgage-fraud cases nationwide. Deputy FBI Director John Pistole told Congress more cases are surfacing as an “unexpected consequence” of the current financial crisis.

“These fraud schemes are not new, but they are coming to light as a result of market deterioration,” he said.

Although there is no specific statute that defines mortgage fraud, each mortgage fraud scheme contains some type of material misstatement, misrepresentation or omission relied upon by an underwriter or lender to fund, purchase or insure a loan.

The FBI has opened 965 mortgage-fraud cases in fiscal 2009, compared to 136 in all of 2004. And suspicious activity reports of mortgage fraud rose 36 percent in 2008 to 63,173 reports, figures show.

Some areas of the country are harder hit than others. One FBI ranking put Maryland among the top 10 states in the country for mortgage fraud for 2008, with Rhode Island, Florida and Illinois as the top three.

A statewide task force of state, local and federal agencies formed in Maryland earlier this year. In one of the biggest mortgage-fraud cases locally, Joy Jackson, 41, president of the Metropolitan Money Store, pleaded guilty to conspiracy in a $16.8 million fraud scheme.

The company promised to help homeowners facing foreclosure to keep their homes, but it “was in the business of ripping off homeowners,” said U.S. Attorney for Maryland Rod Rosenstein. Investigators said proceeds from the scam helped pay for Jackson’s $800,000 wedding.

But the Vales case isn’t like many of the equity-skimming or property-flipping scams in the news these days, said Curt Novy, president of Corporate Mortgage Advisors, who has testified as an expert witness in fraud cases.

“It’s just not on the radar,” he said.

A more common sort of fraud occurs when individuals, often retirees, are convinced to provide a loan with real estate as collateral, Mr. Hagar said.

Only later, he said, these investors learn that somebody else already had secured a higher-priority lien on the property, meaning they won’t get paid first if the loan defaults, if they get paid at all.

The Vales case was different, however, because there never was a lien.

‘Don’t worry about it’

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