presented by lynn w. wilburn wilburn investigations, inc. 1980 post oak boulevard. suite r2b,...
TRANSCRIPT
Presented by Lynn W. Wilburn
Wilburn Investigations, Inc.1980 Post Oak Boulevard. Suite R2B,
Houston, TX 77056To the
Arkansas Land Title AssociationPeabody Hotel, Little Rock, Arkansas
Friday, June 15, 2012
Proper licensing, paying the fees, filling out the forms
Reporting timely, disclosing required information
Filing and adherence to regulated rates or premiums if applicable
Appointment by underwritersAnd, of course, criminal statutes
You could conform to every applicable law, regulation and policy and still be unethical.
You could establish an ethics policy, appoint a corporate compliance officer and still be unethical
Would you like an example?Enron had a 64 page ethics manual AND
a corporate compliance officer with staff
“Unethical behavior in business more often than not is a systematic matter. To a large degree it is the behavior of generally decent people who normally would not think of doing anything illegal or immoral. But they get backed into doing something unethical by the systems and practices of their own firms and industries. Unethical behavior in business generally arises when business firms fail to pay explicit attention to the ethical risks that are created by their own systems and practices."
The study of principles relating to right and wrong conduct.
Morality. The standards that govern the conduct of a person, especially a member of a profession.
Look up “ethics” in Wikipedia. You will be amazed at how some of the references apply to your business.
Major areas of study in ethics include:
Ethics, also known as moral philosophy, is a branch of philosophy that involves systematizing, defending, and recommending concepts of right and wrong behavior.
Meta-ethics is a field within ethics that seeks to understand the nature of normative ethics.
The focus of meta-ethics is on how we understand, know about, and what we mean when we talk about what is right and what is wrong.
Meta-ethics, about the theoretical meaning and reference of moral propositions and how their truth values (if any) may be determined;
Consequentialism, coined by G.E.M. Anscombe in her essay "Modern Moral Philosophy" in 1958, refers to moral theories that hold that the consequences of a particular action form the basis for any valid moral judgment about that action. Thus, from a consequentialist standpoint, a morally right action is one that produces a good outcome, or consequence.
This view is often expressed as the aphorism "The ends justify the means".
Rationalization encompasses consequentialism
Normative ethics, about the practical means of determining a moral course of action;
Business ethics (also corporate ethics) is a form of applied ethics or professional ethics that examines ethical principles and moral or ethical problems that arise in a business environment. It applies to all aspects of business conduct and is relevant to the conduct of individuals and entire organizations.
Interest in business ethics accelerated dramatically during the 1980s and 1990s
Adam Smith said, "People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices."
Governments use laws and regulations to point business behavior in what they perceive to be beneficial directions.
Ethics implicitly regulates areas and details of behavior that lie beyond governmental control.
Applied ethics, about how moral outcomes can be achieved in specific situations.
Here is a case in point….Mortgage Broker Sentenced to Over
Three Years in Prison in Fraudulent Mortgage Rescue Scheme Resulting in Losses of Over $1.2 Million to Homeowners in Financial Distress
Conspirators Also Obtained Over $4.7 Million in Fraudulent Mortgage Loans
U.S. Attorney’s Office District of Maryland May 01, 2012
BALTIMORE—U.S. District Judge William D. Quarles, Jr. sentenced Mary Anne Dean, age 60, of Severna Park, Maryland, today to 37 months in prison, followed by three years of supervised release, for conspiracy to commit wire fraud in connection with a mortgage fraud scheme which resulted in over $4.7 million in fraudulent mortgage loans, of which the lenders ultimately lost at least $944,223.91, and which caused the homeowners to lose over $1.2 million in equity in their homes. Judge Quarles also ordered Dean to pay restitution, with the exact amount to be decided at a later date.
The sentence was announced by United States Attorney for the District of Maryland Rod J. Rosenstein; Special Agent in Charge Richard A. McFeely of the Federal Bureau of Investigation; and Inspector General Jon T. Rymer of the Federal Deposit Insurance Corporation.
Inspector General Jon T. Rymer of the Federal Deposit Insurance Corporation (FDIC) said, “I am once again pleased to join our law enforcement colleagues in defending the integrity of the financial services industry by combating mortgage fraud. We are particularly concerned in cases like this one where professionals have misused their positions of trust and whose fraudulent activities in committing mortgage fraud have harmed numerous innocent homeowners. We are committed to continuing our investigations of such criminal misconduct to help maintain the safety and soundness of the nation’s financial and lending markets.”
According to her plea agreement, Dean was a loan originator and operated Sunset Mortgage Company, a Maryland-licensed mortgage brokerage franchise, from her home. Co-defendant Charles Donaldson, age 58, of Bowie, Maryland, who was also a loan originator during part of the conspiracy, steered clients to Dean’s brokerage franchise and facilitated the communication between Dean and the buyers and sellers that he had recruited.
Beginning in 2005, Donaldson identified homeowners who were in financial distress because they were unable to make the mortgage loan payments on their homes and enticed the homeowners to participate in a foreclosure “rescue” plan. Donaldson told the homeowners that he would locate “investors” to purchase the homeowners’ properties; that the homeowners would rent their properties after selling them to the “investors,” who would receive a small percentage of the homeowners’ equity; that the remainder of the homeowners’ equity would be transferred to Donaldson, who would hold it in escrow; and that the homeowners would buy back their properties after 12 to 18 months, during which they could rehabilitate their finances and “repair” their credit while they continued to live in their homes.
Donaldson recruited family members and associates as “investors” to purchase the properties and paid them a small percentage of the seller’s equity at the time of settlement. As part of the scheme, the homeowners were expected to pay monthly rent to the “investor” to remain in their home and the “investor” was to make the mortgage payments. Prior to the sales of the properties, Donaldson created and recorded Second Deeds of Trust or promissory notes that purported to show debts owed by the homeowners to Donaldson, and which were secured by the existing equity in their home. At the closing of the sale of the property to the “investors,” the title companies disbursed funds to Donaldson’s bank account in order to payoff the liens he had established. Donaldson assured the homeowners and “investors” that he would assist them, if need be, with their rent and mortgage payments respectively, using that equity, which he claimed he was holding in his “escrow account.” In fact, Dean and Donaldson knew that Donaldson was simply putting these funds into his personal checking account, and using them for personal and business purposes, including the purchase of a personal residence with a cashiers check in the amount of $169,132.60.
Dean and Donaldson obtained the new mortgage loans on the properties in the names of the “investors” with higher monthly mortgage payments, and, most times, higher interest rates, than that which the homeowners were currently paying. To obtain the new loans, Dean made false representations in the loan applications, including, that the “investors” intended to live in the properties as primary residents and inflating the incomes of the “investors.” Donaldson also assisted Dean by procuring false verification of employment letters. Dean, who acted as the mortgage broker, submitted the false loan applications to lenders to obtain financing for the purchases of the properties in the names of the “investors.” In some instances, Dean submitted fraudulent loan applications for the same “investor” to purchase multiple properties as their ‘primary residence’ in a short period of time.
Based on the materially false loan applications, lenders funded loans at high interest rates for the “investors,” yielding large transactional fees and premiums for Dean. Donaldson and Dean, as the licensed loan originator and mortgage broker respectively, knew that as a result of these sales, the seller who sold his or her home to the “investor” had lost control of their home; could not afford the new mortgage loan with higher payments and interest than they were originally paying; and could not qualify for a refinance.
Faced with the higher mortgage interest rates and payments, the “investors” and homeowners were forced to use their personal savings and credit card accounts to make mortgage and rent payments, respectively, until they were no longer able to do so. Despite his previous assurances, Donaldson only used a small amount of the equity from the sale of the homes to assist with the payments and the loans went into default. Thirteen of the homes have been foreclosed upon and foreclosure proceedings against three other homes are ongoing.
As a result of the scheme, lenders made over $4.7 million in mortgage loans based on the fraudulent loan applications, and have so far lost at least $944,223.91. Dean and Donaldson’s scheme also caused the homeowners to lose between $1.2 million and $1.4 million. More than 20 victims were defrauded by Donaldson and Dean.
Donaldson pleaded guilty to his participation in the scheme and was sentenced to 41 months in prison on March 8, 2012.
First, the moral (ethical) obligation to do the right thing
Second, to earn the trust bestowed on you as a professional by all your customers; buyers, sellers, lenders, etc.
Third, to act in a manner that preserves not only your integrity but the integrity of the real estate transaction
The “Deep Pockets” theory- in this fraud the lenders and sellers are looking for recovery. You and your underwriter will be on the list. Your only defense will be that you did everything possible to protect them. Even if you did you’ll still likely be sued on some theory of negligence.
Loss of your underwriter- high claims and/or policy defense losses and having a fraud occur in your shop make cancellation a real possibility
Your reputation- most of your customers will just remember that you closed the transactions where there were fraud losses
You will be put in the position that, “Being right has nothing to do with it.”
Ethics implicitly regulates areas and details of behavior that lie beyond governmental control.
What could the agent have done to prevent or, at least, reduce this loss?
Mortgage broker office was his home. Unusual. Vet the mortgage broker
Distressed properties have higher risk of fraudulent activity. Scrutinize transaction for fraud.
Foreclosures or threatened foreclosures and “rescue plans”. Scrutinize. Desperate people do desperate things.
Beware investors.What is market?Do you know investor?Does it make sense?
Homeowner “buyback”. Seller may mention it. Seller staying in house he sold. All red flags.
Family members as investors. Did title agent get several files in the same name? Why?
Second mortgages recorded shortly before sale? Mortgage broker is second mortgage lender? Title agent would have seen recorded documents with that information. Major concern for fraud.
Title agent disbursed funds to mortgage broker to pay off second. Suspect fraud. If check endorsement on cancelled check had been inspected, may have shown going to questionable account.
Mortgage application is almost always in closing file. How many properties has the buyer stated was their primary residence? Clear indicator of mortgage fraud.
Same “investor” customers over and over
Is mortgage broker new to title agent? Why? Who referred and why?
Mortgage broker may be bringing in other mortgage brokers
“Not my problem. The lender should have caught that.”
“But they were my best customer.”
“They had so much money.”“Oh, mortgage brokers always stretch things a little. That’s just how they do business.”
Selective ignorance- if I ignore it I won’t have to deal with it
Greed- I don’t want to lose the income. If I raise the issue I may lose the transaction AND the customer
Fear of confrontation- I just don’t want to confront these people
Fear of being wrong- I don’t think this is right but I’m not sure. I don’t want to get sued.
I don’t want anyone to think I am a snitch
First, investigate. Follow your instincts. If it doesn’t feel right, it
probably isn’t.Scrutinize the closing file, especially the mortgage
loan application and similar documentsReview other files for this broker and/or buyer. Do
they contradict each other on things like the permanent residency question
Contact your in-house or outside counsel for guidanceRefuse to close or stop the transaction if fraud is
evident or suspected.Contact your underwriter for guidance. All
underwriters are sensitive to fraud and will assist you.Contact the lender if you have questionable
circumstances.Notify the appropriate criminal authorities if you
suspect criminal activity.
Translation- do not think…. “If I just keep my head down and my mouth shut maybe it will all turn out OK.”
Ethics are the standards that govern the conduct of a person, especially a member of a profession.
Ethics implicitly regulates areas and details of behavior that lie beyond governmental control.
It is your judgment and your integrity that will make the difference.
Thanks for listening
Lynn W. Wilburn, PresidentWilburn Investigations, Inc.
1980 Post Oak, Blvd. Suite R2BHouston, TX 77056
713-629-2222www.wilburninvestigations.com