The office of the U.S. Department of Justice in the District of New Jersey recently made an announcement. Its investigation of a New Jersey mortgage fraud scheme is drawing to a successful close.
A Jersey City resident concocted a series of crimes. Over the course of the scheme, a trio of collaborators bought properties and received cash loans borrowed against property values — that is, home equity line of credit (HELOC) funds. The broader conspiracy involved $30 million in mortgage fraud. It netted the fraudsters hundreds of thousands of dollars over several years.
The mastermind is a real estate investor… and a licensed real estate agent.
Bogus Tax Documents, Shady Loan Applications
This series of white-collar crimes found its way to the Newark court of U.S. District Judge Katharine Hayden. The co-conspirators faced multiple counts of conspiracy to commit bank fraud, and bank fraud itself. Documents show that Anthony Garvin and co-conspirators defrauded banks from January 2011 to November 2017.
It might seem bizarre that the lenders could be duped, and for such a long period of time. But the perpetrators are highly sophisticated actors. One of the co-conspirators is a lawyer and the owner of a New Jersey law firm, who was previously a mortgage officer. The other is adept at processing documents and negotiating short sales and getting banks to finance them. The group would flip and then finance the properties at higher prices.
Both co-conspirators acted as straw borrowers, and Anthony Garvin’s real estate was used to secure the bank loans.
Along the way, these culprits also got four different lenders to support the purchases of two properties – one on Union Street and another on Fulton Avenue — in Jersey City.
All the loan applications were loaded with false statements, and fake income documents. Among these fabricated documents were bogus deeds and title reports, and made-up tax returns, along with faked W-2 forms, pay stubs, and account statements. (The risk of this type of fraud is exactly why lenders get so picky about the statements they’ll accept from an ordinary loan applicant!)
The group split up the ill-gotten gains among themselves and other associates. They made no payments. They left the lenders holding the bag.
Payback Time Is Coming
Mortgage fraud can look like a victimless crime. Compared with other serious crimes, it is rarely punished. But this group of schemers got tracked down and caught.
Garvin’s first Grand Jury indictment came in 2019. Garvin’s co-conspirators have already pleaded guilty and await their sentences. And this month (December 2022), Garvin himself pleaded guilty in an audio-visual conference with the court of Judge Hayden in Newark.
Involved in the investigation along with the DOJ are the Federal Housing Finance Agency, the Office of the Inspector General, and the FBI. The pleas they obtained are admissions of guilt which could bring decades of prison time and substantial fines. Garvin faces sentencing on April 11, 2023.
HELOC Fraudsters Are Stealing Home Equity
The Garvin group’s indictments stand as warnings to other would-be cheats. Unfortunately, there are many others out there, looking for ways to get money out of banks. Let’s take a look at the big picture.
Currently, according to figures from CoreLogic, one in every 131 mortgage applications contains signs of fraud. Mortgage fraud comes in a variety of forms. These can include, for a few examples, faked debt and income evidence, impersonations, and lying about primary residences.
Most mortgage fraud types have been on the rise lately, according to the National Association of REALTORS® and CoreLogic. Especially when it comes to home equity lines of credit. Why? CoreLogic says rising interest rates are making it harder for loan applicants to show eligibility for approvals. But HELOC applicants aren’t vetted as rigorously. HELOCs don’t go through the title insurance process, and their underwriting is streamlined. They can be obtained from a distance.
Some HELOC cheats apply to several funding sources at once. The New Jersey fraudsters did this — they applied with various lenders without telling any of the banks about the other applications. It’s known in the industry as shotgunning. (CoreLogic has developed a tool to detect this activity, called the Multi-Close Alert Program.)
In short, HELOC money can be especially tempting to fraudsters. They might prey on, say, elderly homeowners who’ve paid off their mortgages. Scammers seek out vulnerable owners out to siphon the equity from their homes.
Mortgage Fraud Now Targets Cheaper Homes
As our readers know, housing affordability is in crisis. The White House announced a 2022 action plan to grapple with it. Part of the plan supports enhanced financing for owner-occupied, multi-unit real estate. In this way, the Biden administration is supporting upzoning (changing single-residence zoning to allow for up to four units).
CoreLogic is advising lenders to proceed cautiously, as the new, affordable two- to four-unit properties could become mortgage fraud targets. In fact, the firm’s research suggests a 4X heightened risk factor with these loans, compared to single residences. The major reason? Misrepresentation of the owner-occupancy intention. Some real estate investors are likely to try to pose as local, multi-unit landowners who live on the properties so they can get better loan terms than distant landlords get.
And then there’s the investor who obtains inflated appraisals or falsifies income sources to buy properties.
But that’s not all. Sophisticated schemes involve flipping real estate among professional buyers who conspire to obtain inflated financing from lenders. A four-unit property can be quite valuable, especially as its value encompasses future rent proceeds.
The Reality: Fraud Hurts Everyone
Of course, ever since the massive housing crash of 2008-09, lenders have gone over loan applications with fine-toothed combs. But mortgage fraud persists. Once it takes hold in a market, it tends to spread.
Bad actors make it difficult for ordinary people to satisfy the criteria for mortgage approvals. Lenders, trying not to get burned, sometimes screen applicants extremely strictly. And that sidelines a lot of potential home buyers from the real estate market.
In so many ways, mortgage fraud is far from a victimless crime. Lenders can become victims. Innocent residents can become victims. Ultimately, many people are unreasonably turned down for mortgages, and they are harmed, too.
New Jersey Press Release Number 22-448: U.S. Attorney’s Office, District of New Jersey, Hudson County Real Estate Investor Admits Multi-Year Mortgage Fraud Scheme (updated Dec. 5, 2022).
United States District Court, District of New Jersey. United States of America v. Anthony Garvin: 18 U.S.C. § 1344 Superseding Indictment (PDF).
John Heinis for the Hudson County View (Hudson County, NJ): Jersey City News – Jersey City Man Pleads Guilty to $30M Mortgage Fraud Scheme That Led to $400K in Losses (Dec. 5, 2022).
CoreLogic, Inc. via Corelogic.com: Intelligence – 2022 Mortgage Fraud Report (Sep. 9, 2022).
CoreLogic, Inc. Data Team via Corelogic.com: Intelligence – HELOC Loans May Be the Next Threat for Mortgage Fraud (Oct. 21, 2022).
The National Association of REALTORS® via REALTOR® Magazine: Where Mortgage Fraud Is Highest (May 17, 2022).
And as linked.