Ann Fulmer, a lawyer and community activist, explains how mortgage fraud harms neighborhoods—including her own community outside Atlanta, Georgia—and what residents can do to stop it.

ROBERT V. WOLF: Hi. This is Rob Wolf, director of communications at the Center for Court Innovation. Welcome to another New Thinking podcast. Today I’m with Ann Fulmer who is a vice president at Interthinx, and she’s also the co-founder of the Georgia Real Estate Fraud Prevention and Awareness Coalition. And we just spent a couple of days in Washington D.C. at the Bureau of Justice Assistance at a focus group discussing the impact that foreclosures are having and mortgage fraud is having on communities around the country and various law enforcement and justice system responses. First of all, welcome.

ANN FULMER: Thank you. Glad to be here.

WOLF: Happy to have you here. You are a dynamic speaker and that’s one reason I invited you. And you’ve been doing some interesting work. I wanted to ask how mortgage fraud, which maybe people associate or think of as a white collar crime, think of it as something involving the financial world, how that actually impacts crime and impacts communities?

FULMER: Well, mortgage fraud is literally bank robbery without a gun. But it brings other crimes and other really negative effects into a community. When you have people who are acquiring properties and mortgages with the intent of taking money and not occupying the home or rent it out to people who are criminals—because a lot of times we see that, you know, it’s a way to launder cash—there’s a whole cascade of events that happen.

When you have inflated values, the tax assessments go up. People who move into the neighborhood later are going to pay more than the houses are really worth because on paper, in the real estate listings and in the tax digest, the properties look like they’re worth more. But because it’s bank robbery without a gun, these properties inevitably go into foreclosure. And foreclosures, as you know, have a negative impact on all the surrounding properties in the immediate vicinity. And then you have underwater borrowers. You have vacant houses; you have blighted houses. And as you know, vacant houses invite crimes like prostitution, vagrancy, arson, drug dealing, those kinds of things.

WOLF: Well, so tell me about your personal experience because I’m interested in how you as a community member became aware of this and actually became very involved in fighting it.

FULMER: Well, I’m a recovering lawyer. And I was at home on the mommy track after my children were born in a very high end – well, maybe not very high end, but a very nice neighborhood in the eastern suburbs at Atlanta. Yes, it was a suburban neighborhood. And back in 1996 we started noticing, and I started being told because I was involved with the community association, that people were buying houses in our community and walking away with a lot of money. And I thought how did they do that because I haven’t bought that many houses but I’ve always written a big check; what am I doing wrong? Over time I started to notice that houses in our neighborhood were selling twice on the same day and for hundreds of thousands of dollars on the second transaction.

WOLF: Wow.

FULMER: There were a couple of houses on my street that sold for about $300,000 more than they were worth at the time. And one of the things that—one of the houses was never occupied. So that’s what the FBI would call a clue. When you have somebody who’s paying too much money for a house and they don’t bother to move in, you might have a problem with mortgage fraud. The other house, which was directly across the street from that one, and that’s one of the reasons fraud is such a problem because they tend to cluster. And the other clue that I had was this house right across the street from the one that was never occupied, even though UPS was delivering packages, which turns out that they were delivering drugs to these houses and picking them up at night. The other house across the street was occupied, but the people moved in, in the middle of the night with the teeniest little—and this is like a 6,000 square foot house—so the teeniest little U-Haul you’ve ever seen and everything they owned they carried into this house was in 30-gallon trash bags.

Well, the next thing you know there’s kids from the school who are living in this now 600,000, 500, $600,000 house 12, 15 years ago who are going to our elementary school. And all of a sudden, the school’s asking me what do you know about your neighbors because here’s these kids, they live in a $600,000 house. Grandma, who is now a convicted felon, by the way, is driving a Jaguar or a brand new Jaguar, and these kids are on free lunch. What’s up with that? And because these things were happening and because of my work in the community people were telling me about other houses, I started to look into these transactions.

And I discovered this really very typical web of transactions where you have a few people who are buying a lot of houses all over. And I realized it wasn’t just, you know, the 20 or so houses that I ultimately identified in my neighborhood, but it was happening all over Atlanta. And as I kept trying to get someone to address the problem, which at first they wouldn’t do because I was dismissed as a bored housewife who needed a better hobby, I started finding out that it was happening – it wasn’t just Atlanta; it was all over the country.

WOLF: Now without going to too much detail, what’s the basic principle here? I mean this person moved in with trash bags and yet could afford this house. How did this person profit from this transaction?

FULMER: The people that moved in with the garbage bags were actually ex-cons who were friends of what we call the orchestrators. The orchestrators are the people who are the brains behind and who profit most from these transactions.

WOLF: I see.

FULMER: And they were recruiting people who were coming out of the Georgia prisons to act as what we call straw buyers to stand, to actually fill out the paperwork. So they were profiting because they were getting paid five to $10,000 per transaction that they lent their name to and showed up at the closing to sign the paper. And this particular group used a lot of identity theft too. So these guys were standing in for people in Michigan and in Florida who had no idea that they were buying overpriced property in Georgia.

The orchestrators are profiting because let’s say you have all – I’m not good with numbers so I’ll just use low simple numbers. But say you have a house worth $100,000. If you can flip it for $200,000 by getting a bad appraisal or a bad appraiser to say that it’s worth $200,000, then there’s a $100,000 profit there.

WOLF: Right.

FULMER: One of our cases the closing attorney was getting $4,000 per transaction under the table when the normal fee’s about $500. And these people were walking away with anywhere between $30,000 and $60,000 per transaction.

WOLF: So they don’t pay off the mortgage. These people do temporarily until the bank foreclosed or something.

FULMER: Like I said in the beginning, it’s bank robbery without a gun. There’s no intention to pay for the property.

WOLF: What’s interesting to me is how can community play a role in assisting law enforcement prosecutors, people who are attempting to address this problem. You as a citizen, you went ahead and you started …

FULMER: GREFPAC?

WOLF: Right. The Georgia Real Estate Fraud Prevention and Awareness Coalition. Maybe not everyone can do that, but maybe you can tell me what GREFPAC encourages people to do.

FULMER: Right. And with the banking crisis, one of the things that’s happened now is people who are in danger of being foreclosed or fallen victim to a whole new world of scams that are designed to take advantage of desperate borrowers like that.

I think that there’s a couple of things. One, when we’re talking about spotting fraud, people who are in neighborhoods are the canaries in the mine because you know when somebody gets a hundred thousand dollars more than their asking price. You know because you hear through the grapevine that somebody came in and, you know, the house is on the market and somebody made an offer, sight unseen. You hear these kinds of things, or that the seller got $75,000 back or that the borrower got a bunch of money back. So in that sense, you know, you can be the first eyes and ears for your law enforcement community.

One of the things community associations need to—can do—is cultivate relationships with law enforcement agencies because these crimes do bring in street level crimes. A lot of these houses get turned into meth labs. They get turned into “grow” houses so they’ve got a pot farm in the basement. If they’re not occupied, you have arsonists; you got prostitution; you got drug dealing; you got vandalism; you got fires – all this kinds of stuff.

WOLF: So it really behooves community members to inform themselves about this and for community groups to do it because it really can have a tangible impact on their very quality of life and their safety, public safety.

FULMER: Absolutely. And you need law enforcement to help you with that. But the other thing, the other side of the equation I think is education because one of the ways that my community ultimately shut down the flipping was by engaging the community in dialogue about what mortgage fraud is. We didn’t know the whole scope; we didn’t know the whole panoply of damages that were going to happen. But we started talking about what we were seeing. And one of the things we were able to do was to educate sellers so that they would be wary when somebody came in and made a weird offer. Instead of just saying “Wow, somebody wants to me a hundred thousand more than I’m asking, cool; where do I sign,” they would stop and they would ask. And we could say yeah, that’s a huge red flag for mortgage fraud.

We educated the realtors who farm our neighborhood because realtors like to have a specialty in an area. We worked with closing attorneys. We worked – I mean, basically, we made a whole lot of noise and said, “you know, not in our backyard.” But it really is a lot about education.

WOLF: Wow. Well, you know, I want to thank you so much for taking the time to talk to me. And it was a pleasure to meet you. Once again, I’ve been speaking with Ann Fulmer who’s a vice president at Interthinx and a co-founder of the Georgia Real Estate Fraud Prevention and Awareness Coalition. And I don’t know if you have a website or something that you might want to refer people to.

FULMER: Well, Interthinx is at interthinx.com and GREFPAC is at grefpac.org.

WOLF: Wonderful. This is Rob Wolf and thanks so much for listening.

February 2009