Foreclosure Scams Up as 'Piranhas' Circle

FBI adds offices to battle foreclosure fraud amid exponential rise in complaints

ByABC News
February 26, 2009, 3:43 PM

MIAMI, Feb. 27, 2009 — -- It was $3,500 Nickie Struthers couldn't afford -- but desperate to stave off foreclosure, the 45-year-old and her fiance, Dr. Dan Howard, a surgeon, scribbled their signatures on the check they thought would yield salvation.

She handed the check to someone she'd done business with in the past, a mortgage broker-turned-foreclosure rescuer. But months went by, and the broker seemed to disappear. He had promised to modify her loan, she said, "but he wouldn't take our phone calls, e-mails, nothing. I never thought this would happen."

Struthers, of Bradenton, Fla., a Tampa exurb that, like many Sun Belt communities has seen home prices soar, then sink, may be among an estimated tens of thousands of Americans apparently duped into either signing checks or signing over their homes to potential foreclosure fraudsters -- though in Struthers' and Howard's case, the man they dealt with insisted to ABC News that he is not a scammer.

ABC News has obtained documents from the state of Florida attorney general's office indicating an exponential rise in complaints, from nine in November 2008 to 227 this month alone. New data from the California attorney general's office show a 26-fold increase in complaints from this time last year.

"Anytime the federal government puts federal relief funds available, we find there's a percentage of that money that will succumb to fraud activity," said Sharon Ormsby, the FBI's chief financial investigator, in a telephone interview.

The FBI has set up 35 task forces in its regional offices around the country to battle mortgage fraud.

But the number of Americans defrauded is soon likely to be too overwhelming for any agency to process, said Angie Moreschi of the Consumer Warning Network, a consumer watchdog group.

"You've got that $75 billion out there in housing aid, and that's going to bring the scam artists out of the woodwork," she said. "They are going to be like piranha circling the kill."

And the pool of potential prey -- families facing foreclosure -- could swell to 3 million, and those underwater could be double that, according to RealtyTrac.

In some cases, said Moreschi, the shady mortgage brokers who hawked those unaffordable mortgages are the same people offering to help them modify their loans and stay afloat.