Anatomy of a swindle

The state's investigation of Cuffy offers a glimpse at how the scam works: Cuffy paid for an appraisal showing the inflated price. He recruited a "straw buyer," Kervyn Harris, whose name appeared on the deed and the mortgage. Then he arranged for Fremont Investment & Loan of California to lend Harris $340,000, according to police reports.

When the sale closed on Dec. 30, 2005, Cuffy walked away $95,000 richer. State investigators say Cuffy divided the proceeds among his father, Sylvester, 58; his sister, Lillia, 35, (the Cuffys run BlueKap Financial of Tamarac); and another man who provided Harris as the straw buyer.

Now in foreclosure, the small house sits in a down-at-the-heels neighborhood in Fort Lauderdale. A chain-link fence guards the front yard, and the for-sale sign screams, "BANK OWNED." The Florida Department of Financial Services' fraud division arrested Johnson, Sylvester and Lillia Cuffy in July and accused them of theft.

Johnson Cuffy didn't return calls seeking comment, but when he was arrested, he admitted to the scam, Swope said.

South Florida long has been a hot spot for mortgage fraud, and the chicanery comes in a variety of flavors, from borrowers fudging their income to qualify for a loan to massive scams using straw buyers to create phantom transactions. The latest brand of scam, the type that Cuffy and countless others have pulled off, combines a legitimate seller with a not-so-forthright buyer.

Stanley Foodman, a forensic accountant in Miami, calls the scheme the real estate world's version of the penny-stock pump and dump. The new book Protect Yourself from Real Estate and Mortgage Fraud dubs it "cash back at closing."

"As with most deals that seem too good to be true, cash-back-at-closing schemes are just another way of scamming someone - in this case the lender, who's fooled into making an under-collateralized loan," write authors Ralph Roberts and Rachel Dollar.

One homeowner who's trying to sell a house in Wellington's Black Diamond development says she has been contacted repeatedly by buyers looking to do cash-back-at-closing sales. Another seller in a development west of Lake Worth said he, too, was solicited by a buyer hoping to inflate the appraisal. Wary of being involved in a shady deal, both refused to do so.

Investigators say they typically don't target sellers in their investigations. Padich, the state detective, said he usually treats sellers as witnesses, not suspects.

Although there have been no Cuffy-like arrests in Palm Beach County in recent months, real estate agents say there is no shortage of eyebrow-raising transactions where a legitimate seller's house fetches more than the asking price.

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