Mortgage fraud under fire in Washington state

New tax on home titles funds state attack on mortgage fraud

The problem of mortgage fraud is a growing one. As housing values increase and lenders remain busy processing loan applications, it has become easier and easier to “game the system” by forging documents, submitting fraudulent appraisals and even selling property that doesn’t exist. This has led to a multibillion dollar fraud industry, often perpetrated by members of the lending industry itself. The problem is one for lenders and customers, who both end up footing the bill and for law enforcement personnel, who rarely have the time to pursue such crimes. In areas where violent crime persists, mortgage fraud will always take a back seat. The police and other agencies simply don’t have the time or manpower to pursue them.

The state of Washington is taking a new approach to fighting the scourge of mortgage fraud. The state has recently created a Mortgage Lending Fraud Prosecution Account. This fund, maintained by the state, was established by placing a modest $1-2 surcharge on every recorded Deed of Trust within the state. If you buy a house or sell one, the fund gets its two dollars. It may not sound like much, but over time, the fund has built up. Funds are expected to roll in at a rate of about $1 million per year, as Washington has a very busy real estate market.

The average mortgage fraud case can take months to unwind. The crime is rarely as simple as a convenience store robbery; the typical mortgage scam involves, brokers, lenders, banks or mortgage companies and appraisers. The path of fraud is labyrinthine and there are hundreds or even thousands of pages of documents that need to be tracked down on multiple computers systems owned by multiple entities. It’s a long, arduous, time consuming process to convict a mortgage fraud perpetrator.

The Mortgage Lending Fraud Prosecution Account will help with that. The fund was brought into existence by the state Legislature after urging by real estate professionals who were worried that the growing fraud problem was putting a black eye on the entire industry. The fund is administered by the Department of Financial Institutions, and the money can be disbursed in a number of ways. The most common is to reimburse county and city prosecutors for costs related to the investigation and prosecution of mortgage fraud cases. Counties and municipalities can now pursue cases that they otherwise might have let go due to lack of funds or manpower.

In more egregious cases, county prosecutors may, at their discretion, transfer cases to the state Attorney General’s office. The office of the Attorney General now has a special team of professionals that work exclusively on mortgage fraud cases.

The problem won’t go away overnight. Mortgage fraud persists because it is relatively easy for knowledgeable people to pursue and because those who engage in it rarely get caught. There is so much paperwork involved in a home loan, and few consumers know enough about the process, or the paperwork, to know when or if they are being swindled. Still, this is a step in the right direction, and the state is making it clear that this crime will no longer be tolerated.

Once a few high-profile mortgage fraud cases pop up in the news, this pervasive crime should slow down in Washington.