Mortgage Fraud: YOU CAN'T *HANDLE* THE TRUTH

I was shocked to read this article and I have developed my own theory about why mortgage fraud isn't being more aggressively pursued, which I have included at the bottom.

Panel drops mortgage fraud cases

State task force says it lacks staff, funds to handle backlog

By Jennifer Bjorhus
Article Last Updated: 03/19/2008 09:48:45 PM CDT

The Minnesota Financial Crimes Task Force has decided to stop taking mortgage fraud cases in a move that may or may not dent the state's efforts to combat a widespread problem, depending on whom you talk to.

Either way, the decision speaks to the tough time law enforcement is having tackling a new breed of financial crime, one that has played a significant role in the nation's foreclosure crisis and doesn't fit neatly into traditional police beats. In fact, the U.S. Attorney's office in Minneapolis is holding a special meeting today to discuss just how federal and state laws can be used together to better tackle mortgage fraud.

"If the task force can't do it, then we need to reinvigorate this other task force to start coordinating cases," said John McCullough, executive director of the Retailers Protection Association, which includes lenders. McCullough also is a member of the council that oversees the Minnesota Financial Crimes Task Force.

The "other task force" McCullough referred to is a group of federal investigators in the Twin Cities including the FBI that have been working on mortgage fraud with prosecutors in the U.S. Attorney's Office.

As for the Minnesota Financial Crimes Task Force, its 17-member oversight council in January instructed the group to shut the door on mortgage fraud, saying the cases were so time-consuming they threatened to overwhelm the group. Chris Omodt, a Hennepin County Sheriff's lieutenant who heads the task force, said he thinks crimes will go unchecked, but acknowledges it doesn't have the resources.

Mike Siitari, Edina police chief and oversight council chairman, said the group needed to return to its original mission: identity theft and financial crimes such as credit card fraud and check fraud.

As for mortgage fraud, "We don't have the staff or funding to address it," Siitari said. "We have hundreds of cases of backlog."

The financial crimes task force charged 301 people in 2,203 cases last year, according to its report to the Legislature this month. Only a handful of its cases focused on mortgage fraud, a problem the task force began looking into last year.

Yet Siitari calls mortgage fraud a "massive problem" that is being dumped on law enforcement. Everyone is looking at each other thinking, "Where does this go?" Siitari said. "There is no good answer right now. Who has the resources?"

Anoka County Attorney Bob Johnson, former chair of the oversight council, said mortgage fraud presents a major challenge for local law enforcement already close to capacity handling normal street crime. "This type of crime really taxes a decentralized criminal justice system and points out, frankly, its weaknesses," Johnson said.

The financial crimes task force, which currently has nine investigators and operates on a $750,000 annual budget through the state Department of Public Safety, could see that amount reduced to $300,000 for fiscal 2009 under Gov. Tim Pawlenty's proposed budget.

(If Pawlenty is not protecting the public...then who IS he protecting?)

Three of the task force's most experienced investigators — Sgt. Chris Abbas, Detective Jack Talbot and Sgt. Mark Johnston — left the task force in the past month. Talbot and Johnston said Abbas was ordered to leave and reassigned to the Minneapolis Police Department's fraud and forgery unit. Abbas couldn't be reached for comment.

(Oh, there is a bigger story here, that's for sure)

The mortgage fraud decision was "a part" of their decision to leave, Talbot and Johnston said. They said they also were very frustrated by budget problems and how politicized the task force had become. Both were near retirement.

("Politicized?" Could you be more specific? Never mind, I have my own theory and I'll tack it to the end of this article)

"We're the Minnesota Financial Crimes Task Force and we're not going to do mortgage fraud? Who is going to do them? It's preposterous," said Johnston.

(Here, here. See my wild theory. At the end.)

Pawlenty's office said it's simply paring the task force budget back to prior levels. The task force "was never envisioned to deal with mortgage fraud," Pawlenty spokesman Brian McClung said. He said the state already employs a team of investigators at the Commerce Department devoted to real estate crimes.

(The Commerce Department? If I were one of these mortgage fraudsters, I'd be laughing my ass off and saying, in a mocking tone, "Oh, no, not the COMMERCE DEPARTMENT. Oh, anything but that."

Are these the same do-nothing dweebs who sent me a polite letter when I complain about consumer fraud? Oh, no, wait...that would be the Consumer Affairs Division of the State Attorney General's Office.)

Nonetheless, it's the wrong time to be cutting back on mortgage fraud efforts, said Sen. Satveer Chaudhary, DFL-Fridley, a member of the oversight council. Chaudhary said he doesn't support the decision.

"In a worsening economy, financial crimes are only going to go up. If anything, we need to double our efforts, not diminish them," Chaudhary said.

Pat Diamond, deputy county attorney in Hennepin County, said the task force's decision will make it harder to thoroughly investigate cases in a way that gets them to trial. He said the task force was instrumental in three cases in which his office has filed multiple charges. (Name them. Geez, WTF?) The task force never handled mortgage fraud cases in Ramsey County.

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OK, enough suspense. Here is what I think is happening. At a very high level, the powers-that-be have made a collective decision not to go after all the mortgage fraudsters and, instead, to go after lenders under lame theories of "predatory lending." If they find, charge and convict the tons of mortgage fraudsters out there, this will weaken the case against the so-called "predatory lenders," who will be able to cite, in their defense, that the people they were dealing with were, HELLO, actual criminals engaging in deception.

The point is to go after the "deep pockets." The fraudsters, if they can be found, have probably spent the money on "high living" or, in the alternative, they have squirreled it away and are prepared to do a year or two in a country club white collar prison before retiring in Bermuda. So going after the fraudsters will be of no benefit to a city like Minneapolis and, instead, will only result in expensive prosecutions which will make it HARDER to sue the so-called "predatory lenders."

So what to do instead? Let the criminals go, and prosecute the lenders who were, at some level, victims.

It is wrong and it stinks. And I'm calling bullshit on it right here.

Researching properties on the North Side, I started by trying to find the addresses of houses linked to T.J. Waconia and Universal Mortgage. However, most of those houses don't appear to be on the market quite yet. All the same, every vacant house I looked at on the North Side showed evidence of mortgage fraud. Right now, I'm buying a house for $8,500 that was once sold for $195,000.

Based on my observations--and from talking to somebody in a North Side neighborhood association who was involved in gathering information--the fraudsters who have been arrested and indicted were the tip of the ice berg. Mortgage fraud is everywhere on the North Side. Individuals and small groups were probably freelancing. Arguably, it may have become part of the culture, like pit bulls and chain link fences.