Foreclosure Frauds and Scams

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Georgia cracks down on fraud

State makes mortgage shams a crime, leading to dozens of arrests.

Mike Wilkinson / The Detroit News

After watching scam after scam glean millions from lenders and homeowners, Georgia officials wanted action -- and they got it.

In 2005, state legislators adopted sweeping laws that targeted bad appraisers, lenders and borrowers, making it a crime to commit mortgage fraud, for which Georgia was ranked No. 1 in the U.S. from 2002 until 2005, according to the Mortgage Asset Research Institute. Following the changes, Georgia fell to No. 5 in one year.

Almost instantly, county prosecutors began convicting people of falsifying appraisals and forging loan documents. Just a year earlier, mortgage fraud was rampant in Georgia, but arrests weren't.

McFall has arrested 26 people since 2005 and another 30 are awaiting indictment on mortgage fraud charges; more are pending. Indeed, McFall said he could arrest one or two people a day if the courts had room for his cases. "I've got 200 homes I'm working and each one's a new story," he said.

Like Michigan, Georgia was home to serial home flippers and identity thieves who were committing hundreds of frauds a year. One case, which garnered the attention of the FBI and U.S. Attorney's Office, involved 400 fraudulent loan applications, $100 million in mortgages and 120 scheme participants. Nine people were convicted.

Prior to the changes, house flippers acted with impunity, often buying and selling the same house several times in one day in an effort to jack up the price to secure bigger loans, said Terry Franzen, an attorney who represents lenders and brokers. She was part of the Georgia Real Estate Fraud Prevention and Awareness Coalition that pushed for major reforms.

"Today in Georgia that shouldn't happen," Franzen said, because police now have more tools to combat mortgage fraud.

Legislators worked with industry leaders and advocates for homeowners to draft the new rules. Chief among them was the criminal statutes that made mortgage fraud a separate felony.

Prior to the new laws, mortgage fraud was considered a theft. Franzen said some prosecutors found it difficult to convince jurors that stealing equity in someone's home was the same as taking their car.

You can reach Mike Wilkinson at mwilkinson@detnews.com.