One of the fastest growing areas in real estate in recent years, unfortunately, has been mortgage fraud. During the boom, in which prices were rising, and sub-prime mortgages were being given to borrowers who would not have qualified in the past, there was an enormous opportunity for the unscrupulous to make money illegally. A huge number of criminals moved into this market, with a wide variety of dishonest schemes.

It is difficult to generalize about mortgage fraud, because every aspect of the process of buying, selling and financing real property was corrupted during the boom. There have been dishonest real estate brokers, dishonest mortgage brokers, dishonest appraisers, dishonest loan officers and dishonest lenders. So much money was pouring through the system, and there were so few controls, that people in every part of the system were tempted to run scams and hustles of all types.

A few examples will give a flavor of this. One of the more common types of mortgage fraud involves a straw buyer. In a straw buyer fraud, dishonest individuals will pretend to sell a property at a vastly inflated price to a phony buyer. The phony buyer might be a real person, who is involved in the scam, whose income is fraudulently overstated. Or the phony buyer might be a real person, who knows nothing about the deal, but whose identity has been stolen. Once the sale goes through, the bad guys will immediately take out a new mortgage, at a high loan to value ratio. They then use that money, to pay off the old mortgage, and to provide a large amount of money, which they then steal.

At the end, the lender is stuck with a loan that will never be paid, because: (1) there is no real buyer, who might actually try to pay the loan; and (2) the loan is for much more than the property is worth.

There are many variations on straw buyer scams. A really nasty one involves stealing homes from distressed homeowners. In this scam, a homeowner will fall behind on his or her mortgage payments. A predator will then show up, offering to “help.” The predator may actually help, short term, by providing new money to bring the loan current. The predator’s real intent, however, is to obtain the homeowner’s personal information, so that the predator can then arrange a phony sale to a straw buyer. If the homeowner is foolish enough to cooperate, he or she may be given part of the profit. Or the predator may forge the sale documents to the straw buyer. The end result is that the home is transferred to a phony buyer, who never moves in, but a huge new mortgage is put against the house, which the homeowner can never pay.

There are a number of blogs which track news in this area. For further details, see, and similar websites.

Almost all forms of mortgage fraud involve some violation of the state or federal criminal laws. In major mortgage fraud causes – some of these criminals pulled scams against dozens or hundreds of homeowners – state or federal law enforcement will bring criminal charges. Often, the bad guys end up in jail.

Putting the bad guys in jail usually does nothing to help the victims, however. For the victim to get help, he or she usually has to bring a civil lawsuit. As a rule, it is relatively easy to prove a case of some type against the actual bad guys. The problem is that, as a rule, by the time that the scam has come to light the actual bad guys are usually nowhere to be found or insolvent. Thus, to actually get some relief, the victims usually have to try to hold liable some of the institutions involved in the transaction, such as lenders, title companies or escrow companies. Depending upon the facts of the case, this may or may not be possible.

For example, some of the key documents have been forged. In the wild, over-heated, get-rich-quick atmosphere of the real estate boom, many documents were forged. We have seen forgeries ranging from forged grant deeds to forged deeds of trust. Every document involved in real estate can be, and often is, forged.

The rule about forgeries in California is simple. “A forged deed is absolutely void and wholly ineffectual to pass title, even as against innocent third persons claiming through the instrument, and although it purports to have been acknowledged by the grantor and has been recorded. The procurement of the signature to a deed by trick or device is as much a forgery as if the signature had actually been forged, when the grantor, at the time he or she signed the instrument, believed the paper to be a substantially different instrument.” 26 Cal. Jur. 3d Deeds { 139.

Under California law, forged documents generally are void. Thus, if a homeowner has lost his or her home, though a forged title deed, the fraudulent transfer can generally be set aside. If a mortgage has been put against a property by a forgery, it also can generally be voided.

Other causes of action may be possible. It is sometimes possible to sue institutions under theories such as negligence, conspiracy, other torts or perhaps federal Truth in Lending Act violations. Analysis of these cases turns upon their specific facts. If you have been victimized by mortgage fraud, you should consult with an experienced real estate litigator to see if anything can be done to help you.