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Bank robbery without a gun

When it comes to bogus mortgages, Atlanta leads the nation


Ann Fulmer was the wrong person to get riled up. She's a former television investigative reporter who decided to get a real job -- so she went to law school. Now a resident of Smoke Rise, a 2,200-home, solidly middle-class community near Stone Mountain, Fulmer says she has time on her hands since, as she puts it, "I'm on the baby track."

She's also on track with a crusade.

"We started seeing some really weird home sales about eight years ago in our community," Fulmer recalls. "One house sold one day for $200,000 and the next day for $500,000. I wanted to know what gives."

What gives was mortgage fraud, and Fulton County tops the nation in the crime, according to the Mortgage Asset Research Institute.

For more than a year, Georgia has raced past Florida, the usual state of first resort for real estate scumbags, in mortgage fraud. Our fraud rates are more than two-and-a-half times what they should be for our population.

The Federal National Mortgage Association, aka Fannie Mae, pegged area codes beginning with 303 -- that's the heart of Atlanta -- as having the highest number of home loans with false statements in the nation.

Suburban areas with area codes beginning with 300 -- parts of DeKalb, Rockdale, Cobb and Gwinnett counties -- ranked third in bogus information. About 45 percent of all mortgage fibbing that Fannie Mae catches is in the Southeast.

The endgame of the fraud is measured in foreclosures. Fulton foreclosures last month totaled 789, up from a monthly average of 304 in 2000, according to the Fulton County Daily Report, a legal newspaper. (Daily Report writer Robin McDonald deserves kudos for ongoing muckraking about mortgage fraud, while the always development-friendly Atlanta Journal-Constitution has largely ignored the problem.)

In just one area code, 30310, between September 2000 and September 2002, there were 88 foreclosures, while during the subsequent two years, the number of foreclosures soared to 580.

Now, wait, I can hear astute readers opining, who the hell cares if banks and mortgage companies get taken for a little cash? After all, many of them are directly involved in securities rip-offs and predatory home loan lending, which fleeces the poor with churning, sky-high interest and gouge-'em fees. Powerful lobbyists protect carnivorous lenders -- as we've seen in Georgia's attempts to enact consumer legislation.

All of that's true. Major banks such as Bank of America and First Union (now Wachovia) have happily bilked customers, and have been caught.

But most lenders are honest, and they enable one of the most treasured of all American goals: home ownership. More important, lenders aren't the only victims of mortgage fraud.

The scammers -- usually a team consisting of real estate and mortgage brokers, along with crooked appraisers and lawyers -- descend on neighborhoods like locusts. "It's an infestation, that's for sure," says Fulmer.

Homeowners initially might think manna is descending on their community, because -- for a short time -- property values seem to increase. But the whole objective of mortgage fraud is to artificially inflate prices, with the perps pocketing the difference between what they really paid and what the bank is led to believe they paid. Ultimately, the values crash when the banks take back the property -- and in the meantime, the neighborhoods earn a bad reputation.

"What we saw," Fulmer says, "was taxes going up [due to fraudulently inflated property values], criminals moving into the neighborhood. Drug dealers moved in. We had pimps who would have their girls doing dances on car tops. A money-laundering lawyer [now federal prisoner J. Malik A. Frederick] had a house full of guns, including AK-47s, when federal agents arrested him. He didn't own the house, which was worth about $450,000, but had been sold in a mortgage fraud for $800,000.

"I ask you, aren't we victims?"

Fulmer didn't like that status, so she applied her legal and investigative skills through a group she founded, the Georgia Real Estate Fraud Prevention and Awareness Coalition.

"At first, law enforcement looked at us as if we were, well, a bunch of women," Fulmer recalls. "They said, 'Go home and play with the kids.'

"We didn't do that."

Now, thanks in large part to Fulmer's activism, the mortgage defrauders are in law enforcement's gun sights.

Federal prosecutors have charged more than 100 people in mortgage scams during the last five years, representing almost $200 million in fraudulent loans. And that's just the beginning. "Let's just say we won't run out of work anytime soon," says Assistant U.S. Attorney Barbara Nelan, who is part of the team focusing on the lending crimes.

When Tim Huhn was an FBI agent, his niche was chasing fraud-mongers. Huhn's niche hasn't changed, but he now does it as a private investigator for lenders and mortgage insurance firms.

He explains how the game goes: "You need to have an insider, a mortgage broker, appraiser, lawyer. And then you begin what's called flipping."

The bad guys spot a dwelling that's on the market for, say, $200,000. They get a sham appraisal for $400,000, get a loan for $400,000, pay the seller $200,000 and pocket the rest of the cash.

They might get another false appraisal and sell the home again for even more to someone who uses fake documents to qualify for a loan. The cash disappears, the buyer defaults on the loan and the bank forecloses. Homes sit idle or the crooks and their pals move in until the bank takes back the house.

"Often they will get an innocent person to invest in the property," Huhn says. "They want to use his good credit. They'll say, 'Buy it as an investment, and we have someone who will buy it from you.' But there is no buyer. The guy who thought he was making an investment ends up in bankruptcy, and the bad guys have the money."

One Atlanta West End property in Huhn's portfolio of fraudulent loans originally sold for $60,000. It was flipped five times, and the final price was $250,000. In another case, a gang got loans on 30 condo units for twice their purchase price and walked away with the money, and the apartments went into foreclosure.

Atlanta has become a hot market for fraud because of high growth and gentrification. It's hard for lenders to know the value of property in restoration neighborhoods. An owner might buy a distressed house, fix it up and -- as has happened in Inman Park, Grant Park and throughout the city -- the legitimate value soars by several multiples.

But a crooked buyer might purchase a shack next door to that renovated house and, with the help of a shady appraiser, get a loan for far more than the purchase price.

Subdivisions offer another opportunity, since their homes don't have a value history. Activist Fulmer cites Waters Edge, south of Stone Mountain, where "every other house was flipped. The houses in 1997 were selling for $165,000 to $180,000. But flipping drove up the prices to $277,000.

"And then came the foreclosures," Fulmer says. "I call it bank robbery without a gun."

If you think your neighborhood has been targeted by mortgage fraud, contact the U.S. attorney's office at 404-581-6000, or contact the Georgia Real Estate Fraud Prevention and Awareness Coalition at Group Senior Editor John Sugg, a Floridian by birth, grumbles, "First Georgia beats Florida in football, and now Georgia has edged out Florida in mortgage fraud. Where will it end?" Sugg can be reached at 404-614-1241 or at

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