Here in Massachusetts, mortgage fraud is not a crime
Pretty bizarre given all that has happened in the global economy over the past few years, but sadly it's true.
I set out to find examples of scammers doing jail time here in Massachusetts for mortgage fraud given the explosion in foreclosures, especially in poor neighborhoods across the state.
Instead, I came back pretty much empty handed and for a reason that floored me. Mortgage fraud is not a criminal offense here in the Bay State, Attorney General Martha Coakley told me.
Given that mortgage fraud is considered a civil but not a criminal offense in Massachusetts, Coakley has had her hands tied behind her back when it comes to going after some of the scammers. While mortgage fraud is a crime under federal law, there are many cases in this very local kind of abuse that should not or can't be pursued by the feds.
I take a look at this issue - which has pretty much gone largely unreported until now - in my weekly column for Banker & Tradesman.
There's no doubt we saw an orgy of mortgage fraud, both during the bubble years and even after the market began to collapse.
Small time speculators wreaked a trail of foreclosures in poor neighborhoods from Boston to Springfield. The schemes were brazen and simple: Flip three barely rehabbed condos in a Dorchester triple-decker to straw buyers for $350,000 or so each, get no doc loans from some brainless subprime mortgage factory, and walk away with a million bucks.
Nine months later, all three units would be foreclosed on and sold at auction back to their lenders, ready to be bought by another group of fraudsters.
It really does not seem much different than walking into a bank with a gun and demanding money, but maybe I am missing something here.
Luckily, that may be about to change, but as all things on Beacon Hill, cross your fingers.
State Sen. Susan Tucker (D-Andover) appears determined to close this loophole once and for all.
On Thursday, the Senate is expected to take up Tucker's proposal to make mortgage fraud a criminal offense in Massachusetts, part of a larger package of mortgage market reforms.
Of course, why in the world has it taken this long?
With the subprime mortgage industry by then in full meltdown mode, Gov. Deval Patrick actually filed legislation back in the summer of 2007 to make mortgage fraud a criminal offense under state law.
To much fanfare, the governor and lawmakers on Beacon Hill passed a series of mortgage market reforms that following fall. Unmentioned in all the chest beating was the fact that criminalization of mortgage fraud had been quietly left on the cutting room floor.
The real tragedy, however, is that even if Beacon Hill finally makes mortgage fraud a criminal offense, it will be too late now to go after many of the fraudsters and scammers who wreaked such havoc over the past few years.
After all, when they are doing their dirty deeds, it was all just a civil offense under Massachusetts law. That means some modest fines, not jail time. If you are shamelessly ripping off lenders and using straw buyers, a few fines here and there are probably baked in as a cost of doing business.
Still, there is always the future to think about. At least having a law on the books that might deter the next wave of scammers.
Of course, jail time for a few of these characters would have been ultimate deterrent, don't you think?
