New Frontiers’ Phony Mortgage Scam
To date, New Frontiers real estate group’s mortgage scam is one of the biggest real estate scams in Pennsylvania history. The real estate group used federal-backed mortgages and exaggerated the incomes of potential buyers to help them qualify for insured mortgages.
What makes this case particularly gut-wrenching is the fact that New Frontiers preyed on new buyers who were unfamiliar with the market. Let’s step back in time and unpack this treachery.
Real People Affected by This Scam
In 1984, Tammy Williams and Lynda Murray were 21, working part-time jobs that paid next to nothing. They were looking for a place to live and came in contact with New Frontiers. One of New Frontiers’ Brokers, John Porter, guaranteed that they could get a $24,050 government-backed mortgage to purchase half of a duplex in Upland, PA. Adjusted for inflation, that mortgage would be worth $61,840.08 today.
Mark Cain was another victim of New Frontiers’ real estate scam. He was living in Darby, PA, working as a restaurant dishwasher and earning $4 an hour (or about $10.29 today). He was trying to support his daughter and disabled wife, barely making ends meet. Cain came in contact with New Frontiers, who got him a $23,750 (equal to $61,068.68 today) mortgage for the other half of the same duplex into which Tammy Williams and Lynda Murray were planning to move.
New Frontiers’ intentionally left out that a buyer, who federal officials believe served as a "straw man" for the real estate group in the deal, had purchased the entire duplex for $5,500 before it was sold to Ms. Williams, Ms. Murray, and Mr. Cain.
These three victims of mortgage fraud were added to a long list of victims who purchased homes from New Frontiers between 1984 and 1987. The group had their scam down to a science: they would buy cheap property, make minimal repairs, and then find an inexperienced and low-income buyer to pay more than the property was worth. They also falsified documents to convince lenders to finance the “federally guaranteed” deals. New Frontiers made their money by charging Broker’s fees on each sale. The U.S. government agents who worked on this case reported it as a $2 million mortgage scam orchestrated by the Upland company, a parent company to New Frontiers.
While internet scams and wire fraud are more common forms of real estate scams today, mortgage scams are on the rise, according to CoreLogic.
“Fraudsters thrive in uncertain market conditions, where their activities are harder to detect and separate from legitimate investors who are also attracted to variable markets. Many economists predict a recession later this year or early next year, we can expect to see market variability in other regions and likely an increase in fraud as well,” said Ann Regan, Executive Product Management at CoreLogic.
New Frontiers' Fallout
In the end, the U.S. government charged New Frontiers with improperly brokering 100 federally backed mortgages that ended in foreclosures.
An affidavit from the FBI and Department of Housing and Urban Development (HUD) reported that New Frontiers violated HUD regulations by intentionally inflating the incomes of buyers to falsely qualify them for federal mortgages.
Porter and three other New Frontiers Brokers were sentenced to prison in 1990 after pleading guilty to conspiracy and filing false reports with HUD for government-backed mortgages in Pennsylvania.
Contrary to most real estate scams, their victims could not recoup their losses. Since the mortgages were insured by the federal government, taxpayer money paid off these loans once the buyers could no longer make payments. Ultimately, New Frontiers’ schemes cost taxpayers between $20,000 to $40,000 per property, or $2,000,000 to $4,000,000 total Adjusted for inflation, their scam would cost between $4,806,390.85 and $9,612,781.69 today.
Most Common Real Estate Scams
As a real estate professional, you are responsible for protecting your clients’ interests and should be aware of common real estate scams and schemes. Here are the five most common real estate scams to keep an eye out for:
1. Escrow wire fraud: Scammers claiming to work with your client’s title or escrow company will reach out to them with instructions on where to wire their escrow funds. Fraudsters will go to great lengths to enact this ruse, even setting up fake websites that appear similar to the title or lending company your client is working with, making their request seem like the real deal.
2. Loan flipping: Loan flipping occurs when a predatory lender persuades a homeowner to refinance their mortgage repeatedly, often borrowing more money each time.
3. Foreclosure relief: Homeowners who fall on hard times and get behind on their mortgage payments can become desperate to save their homes. Scammers will swoop in with offers of foreclosure relief to capitalize on homeowners’ vulnerability. In reality, they’re just collecting a large upfront fee with no real intentions of helping the homeowner.
4. Rental scams: Scammers post fake property rental ads on Craigslist or social media using photos from other listings to lure in unsuspecting renters. Fraudsters, who have no connection to the property or its owner, will ask for an upfront payment to let your clients see the property (or hold the money as a “deposit”).
5. Moving scams: Your client has found a new place to call home, and now they have to find a way to move all of their belongings. They might fill out a form for a moving company estimate, outlining all their items, and receive an estimate for $4,000 to ship them from their current home to their new one. Once this is done, the “company” will raise the estimate and corner your client into paying more to give their belongings back.
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