A cooling market exposes scams that cost the industry at least $606 million last year.
On Monday, a dejected Matt Cox stepped into federal court in Atlanta in handcuffs. His bogus real estate empire from Tampa, Fla., to Nashville, Tenn., lay in shambles.
Mr. Cox, a college-educated artist with a penchant for plastic surgery, is charged with bank and wire fraud for bilking as much as $25 million from banks in several schemes, including stealing the identities of homeless people and securing mortgages based on inflated appraisals, then walking away without paying a cent.
He is emblematic of the little-known shady side of the real estate business. When the market was booming and with reputations at stake as they marketed mortgage portfolios, huge lenders were loathe to publicize the fraud, especially since a rising market often erased their losses. But as the market cools and losses mount, lenders are becoming more open – and are taking more steps to detect fraud, analysts say. These moves are allowing prosecutors from Orange County, Calif., to DeKalb County, Ga., to expose hundreds of schemes that have wrecked individuals' credit scores, dotted neighborhoods with foreclosures, and left banks – as well as taxpayers – holding the bag for hundreds of millions of lost dollars.
"Boom periods provide very, very fertile territory for abuses and those abuses become very clear when the psychology of the market changes," says James Hughes, a policy analyst at Rutgers University.
Real estate fraud has now firmly emerged on the FBI's radar as the country's fastest-growing white collar crime – all, in essence, polite forms of bank robbery. Industry losses ran to at least $606 million last year, it says. And the Treasury Department's suspicious-activity reports are up 35 percent this year. The Internal Revenue Service's criminal case numbers in mortgage fraud have been doubling every two years through the first half of this decade.