When most people buy a home they are required to submit financial paperwork to banks, title companies, and others involved in the mortgage process. The case of the “House King” in South Florida illustrates how when fraudsters manipulate that system, lenders can lose millions—and innocent buyers and sellers also suffer.
“Imagine,” said Special Agent Denise Stemen, “a world where buyers don’t fill out any mortgage paperwork and don’t even read it, because everything on the application is a lie.”
Don’t Be a Victim
Combating mortgage fraud is a priority for the FBI, and we have more than 90 mortgage fraud task forces and working groups around the country to investigate crimes estimated to produce annual losses of more than $10 billion.
The illegal schemes used for obtaining home mortgages vary based on market conditions, but all have the same result: they make it more costly and difficult for legitimate home buyers to get loans. The most common schemes include loan origination, builder-bailouts, seller assistance, short sale, foreclosure rescue, reverse mortgage fraud, and identity theft exploiting home equity lines of credit.
Here are some tips to avoid becoming a victim of mortgage fraud:
- Get referrals for real estate and mortgage professionals. Check their licenses with state, county, or city regulatory agencies.
- Do your own research into sale prices and recent tax assessments of other homes in the neighborhood.
- Don’t make a false statement on your loan application, like overstating your income or lying about where your down payment is coming from.
- Never sign a blank document or a document containing blank lines. Read and review all loan documents signed at closing. If you don’t understand what you’re signing, get an attorney who can review the documents for you.
The House King, Angel Puentes, used a classic loan origination scam, said Stemen, a veteran mortgage fraud investigator in our Miami office. “In this scheme, you need all the players,” she explained, from straw buyers—who were paid to lend their name to documents—to a real estate agent, licensed mortgage broker, and title attorney. Mortgage applications were falsified to inflate the value of properties, defraud lenders, and line the pockets of the fraudsters.
Puentes—also known as D’Angelo Salvatore—was so influential he created his own glossy real estate magazine calledHouse King. “Five or six years ago he was the guru of South Florida real estate,” said Special Agent Mark Soucy, who investigated the case, adding that “100 percent of the funding for the magazine came from the fraud he was committing.”
The House King paid straw buyers to sign bogus mortgage applications claiming that purchased homes would be their primary residences when in reality they had no intention of living there. The fraud was so extensive that some buyers had closings with three different lenders on the same day.
An attorney signed off on the fake documents, and the lenders—believing everything was legitimate—made the loans. The applications also inflated the value of the properties. If a home was appraised at $400,000, for example, the bogus loan application might list the value at $500,000. Puentes pocketed the extra money and used it to pay his accomplices. He then paid the mortgage for a number of months, until he could flip the property for a further profit—or sometimes he rented it to generate more income. But then he stopped paying. After taking his ill-gotten profit, Puentes simply walked away from the mortgage, leaving the lender with a toxic asset. Meanwhile, he was living large, taking trips to Paris and buying a Ferrari.
We began investigating Puentes in 2008. At the time, before the real estate market began to collapse in South Florida and around the country, many speculators were buying properties and trying to flip them for quick profits. But Stemen said, “Our investigation focused on the organized group that was falsifying documents to profit from the loan origination schemes.”
Puentes was indicted in February 2011 on multiple counts of wire and bank fraud and for defrauding three lending institutions out of approximately $10.5 million. Although he fled the country for a time, Puentes eventually returned and was arrested. In June 2011, he was sentenced to more than eight years in prison.
Because of fraudsters such as Puentes, South Florida real estate was artificially inflated, and innocent people paid too much for their homes. When the market crashed, many of those homeowners were left under water—their property worth less than what they paid for it.
“Those are the true victims of this type of mortgage fraud,” Soucy said—“the legitimate South Florida residents whose home values were inflated because of these fraudulent transactions.”