Equity Skimming Fraud

February 24, 2004

By SAM GARCIA

Speaking at a servicing conference in San Diego last week, John Dupuy — special agent in charge for the criminal investigation unit of HUDs Office of Inspector General — talked about equity skimming.

In addition to multifamily equity skimming, Dupuy’s tenure with the agency includes stints in single family loan fraud, community development block grant embezzlement, and violent crime cases in public housing.

He said he has seen what he calls foreclosure counselors and credit repair entities that approach sellers who are in distress, and take over their properties.

“They will have an assumption of the loan, promising that they will not be liable anymore for the payments,” said Dupuy, who was speaking at a bankruptcy session at the annual servicing conference for the Mortgage Bankers Association of America.

He said that the government has seen cases in Chicago involving hundreds of properties at one time. The cases involve VA- and HUD-insured loans.

The special agent noted that the suspects will cause these people to file bankruptcy — in some cases without the individual’s even being aware that the bankruptcy is being filed.

The targets of the investigations are sometimes rent house investors, collecting the rental income while not making mortgage payments during the bankruptcy stay. According to Dupuy, many of the leads the Inspector General investigates are referrals from bankruptcy trustees who discover possible cases of mortgage fraud. He works with the FBI, the Postal Inspection Service and the U.S. Attorney’s Office in the investigations of the cases. In addition to the foreclosure counselors and credit repair companies, “the other folks which engage (in mortgage fraud): mortgage lenders, mortgage brokers, real estate brokers, and appraisers, which engage in loan origination fraud,” Dupuy said. Mortgagors are not usually the targets of the fraud cases.

special agent John Dupuy