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'Straw Buyer' Sentenced for Mortgage Fraud, Orange Bankruptcy Lawyers Note

March 10, 2009

The Department of Justice announced Feb. 23 (PDF) that it had successfully prosecuted a woman who participated in a mortgage fraud scheme. Manpreet Singh of Stockton was sentenced to six months of home detention, five years of probation and payment of $163,500 in restitution for acting as the "straw buyer" for a larger mortgage fraud enterprise. Singh played the role of a home buyer in two different home purchases, claiming income four to seven times higher than her actual income from working at a pizza restaurant. The true buyer, co-defendant Ifthikar Ahmad, paid Singh $15,000 for signing the fraudulent documents. The homes were eventually foreclosed at a loss of $163,500 to the banks.

It's clear how this scheme hurt the banks involved, which lost more than $150,000, but if you're not familiar with the interconnected mortgage financial system, it may be difficult to see how it harms individual consumers. However, for Buena Park bankruptcy and mortgage loan modification attorneys like us, the relationship is quite clear. The press release doesn't go into details about the scheme, but frequently, a home purchased through fraud is immediately rented out to an innocent renter. When the bank forecloses, which it inevitably will when the buyer doesn't make payments, that renter will be evicted -- often with no warning. And of course, the straw buyer's credit is destroyed by the foreclosure.

But the indirect effects of the scheme are more widespread, as students of the ongoing foreclosure crisis are finding out. Because foreclosure is inevitable, the scheme drives up foreclosures and raises the chance that the home will sit vacant, both of which drive down property values for honest homeowners. The rise in foreclosures makes banks less likely to lend, because they have less money and see a greater chance of default. And if the mortgage was securitized -- bundled into an investment -- that mortgage-backed security also loses value, harming the stock market as well. As we have seen, there are substantial further effects when this happens too often, resulting in a dramatic drop in the stock market, plunging home values and severe difficulties getting a loan.

At Howard Law, we have an active practice in helping clients negotiate for a mortgage loan modification that accurately reflects their ability to pay and the values of their homes. Mortgage fraud schemes like this one make it harder for our Hawaiian Gardens mortgage loan modification lawyers to help our clients by robbing them of home equity and making it harder to get a refinancing loan. In some cases, a transaction that homeowners could once have handled on their own now require intervention, pressure and negotiating skills from an experienced Orange County loan modification attorney.

If you're trapped in a bad loan by the foreclosure crisis, Howard Law can help. To set up a free, confidential consultation, please contact us online or call us at 1-800-872-5925.