Large Fines for Real Estate Misconduct Started with Whistleblower

A whistleblower blew the lid off of a multimillion-dollar scheme that involved the forging of documents so that lenders would be deceived into approving large loans for buyers who were not qualified to receive them.

The three unlicensed individuals who were caught up in the real estate scheme were fined a total of $3.25 million for the roles that they paid.

There were also two other schemes in which real estate salespeople fooled lenders by causing the market value of residential properties to inflate, which inflated the sales prices. One salesperson convinced a client to lend $30,000 that was never repaid to the client.

In all, the Minnesota Department of Commerce took action against 32 individuals and 21 companies that played a part in the fraudulent real estate transactions, ending an operation that lasted from September 2012 to March 2012.

There were 10 people fined at least $20,000. Some of the individuals in the case who were not fined agreed to smaller fines and sanctions that were based upon the specific allegations against them. For instance, 9 of the individuals and companies are not allowed to engage in mortgage origination after they played a part in the scheme that involved over 40 residential properties.

The scheme involved a number of forged documents to help “straw buyers” to become qualified for Federal Housing Administration loans. Lenders were even given a telephone number to verify the employment status of each applicant, but the phone was answered by a person who was part of the scheme. The information given to the lender by that individual was completely false. In the end, many of the properties ended up being foreclosed upon or subject to short sales.

The exact acts that were committed included document falsification, unlicensed real estate activity, inflated sale prices to secure larger loans for buyers, taking large kickbacks, illegal mortgage origination, improper collection of advance fees, selling properties without a real estate license, and not paying federal taxes on fraudulently received earnest-money.

Some of the individuals involved that have received reduced fines must pay larger fines if they ever attempt to engage in real estate activities within the commissioner’s jurisdiction.