Philadelphia Federal Mortgage Fraud Charges: Flipping, Lending and Kickbacks

Philadelphia Federal Mortgage Fraud Charges: Flipping, Lending and Kickbacks

Mortgage fraud has become a major issue in Philadelphia and other cities across the country. With the housing boom of the early 2000s and easy access to loans, fraudsters took advantage by engaging in various schemes like property flipping, predatory lending, and kickbacks.

What is Mortgage Fraud?

Mortgage fraud refers to illegal activities intended to misrepresent information on mortgage loan applications. This can involve fabricating borrower income or assets to qualify for loans, concealing down payments, inflated property appraisals, identity theft, and more. Mortgage fraud can be committed by borrowers, lenders, appraisers, real estate agents, and others involved in real estate transactions.

Common Mortgage Fraud Schemes

Some of the most common mortgage fraud schemes in Philadelphia and elsewhere include:

• Property flipping – Buying distressed properties and reselling them quickly at inflated prices using fraudulent appraisals.
• Predatory lending – Putting borrowers into complex loan products like interest-only loans that they don’t understand and cannot afford.
• Kickbacks – Real estate and lending professionals demanding money or favors in exchange for services like approving loans, providing appraisals, or directing business.

The Fallout of Mortgage Fraud

The impacts of widespread mortgage fraud in a city like Philadelphia can be severe. It can lead to inflation of housing prices, increased foreclosure rates, property abandonment, plummeting tax revenues, and urban blight. For example, some neighborhoods in Philadelphia with high rates of fraud saw real estate values crash more than 70% when the housing bubble burst in 2008. The whole city still bears some of the scars from this period.

Efforts to Crack Down on Mortgage Fraud

Law enforcement has made efforts to crack down on mortgage fraud in Philadelphia in recent years:

• The U.S. Attorney’s Office in the Eastern District of Pennsylvania has prosecuted dozens of individuals for schemes involving property flipping, predatory lending, or kickbacks.
• FBI investigations in the city have targeted corruption and fraud among property appraisers, lawyers, loan officers, and real estate developers.
• Joint federal-state mortgage fraud task forces and working groups have been formed to better coordinate enforcement efforts.
• New consumer protection regulations like the Dodd-Frank Act have aimed to deter predatory lending and other abuses by financial institutions.

Recent Philadelphia Mortgage Fraud Cases

Some notable recent mortgage fraud prosecutions in Philadelphia include:

• In 2022, title company owner David Kaufman was sentenced to over 5 years in prison for conspiring with a Delaware County attorney to falsify mortgage records and flip properties at inflated prices.
• Developer Donald Peebles Jr. was indicted in 2022 for allegedly engaging in $10 million bank and mortgage fraud scheme involving Philadelphia properties.
• In 2021, Philadelphia sheriff Austin Lee was charged with taking kickbacks in exchange for steering properties sold at sheriff auctions to favored buyers.

Federal Charges and Penalties

Most major mortgage fraud cases are prosecuted at the federal level under statutes like:

• Wire fraud
• Loan or credit application fraud
• Bank fraud
• Mail fraud
• Making false statements

Those found guilty can face $1 million fines,30 years imprisonment, restitution, and forfeiture of assets. Harsh sentencing is done to deter other fraudsters.

Common Defenses in Mortgage Fraud Cases

Some defenses suspects might raise include:

• Lack of intent – Arguing the defendant did not knowingly commit fraud.
• Blaming co-conspirators – Alleging that others involved coerced or tricked the defendant.
• Statute of limitations – Charging that too much time has passed since offenses occurred.
• Pleading ignorance – Stating mortgage regulations are overly complex so violations were accidental.

However, prosecutors often have extensive paper trails, witness testimony, and other evidence that makes such defenses tough to succeed with.

What Needs to Be Done Moving Forward

Going forward, Philadelphia needs better consumer protections and oversight of real estate transactions. We also need adequate resources for law enforcement to monitor lending practices, detect fraud schemes quicker, and punish those responsible. Community groups have an important role to play too in educating homeowners and preventing them from being victims. Mortgage fraud exploits the most economically vulnerable among us, so there needs to be a coordinated effort across government, business, and nonprofit sectors to stamp it out.

The housing crisis last decade taught us we cannot take ethics in finance and real estate for granted. There are still improvements needed in transparency, accountability, and regulations among lenders and others in these industries. But through continued diligence and by reporting suspicious activities, Philadelphia can work to ensure fairness and integrity is upheld in home sales and loans.