Editorial shorts: Budget cuts will cost taxpayers a tool against mortgage fraud

By MICHAEL O. FREEMAN

Last update: March 28, 2008 - 6:25 PM

Imagine witnessing a bank robber make off with thousands of dollars. You do your civic duty and dial 911. The police will come, talk to witnesses, take fingerprints, collect security video. If the case is solved, the robber will be prosecuted.

Now, imagine a sheriff's foreclosure sale of a house bought by a straw buyer, who has made no payments, financed through a mortgage broker, who lied and gave false financial information to the lender, and appraised by an appraiser who inflated the market value of the house. In this fraud, the seller, straw buyer, broker and appraiser combine to steal hundreds of thousands, if not millions. Imagine dialing 911.

The foreclosure sale is not an emergency. It is often difficult to figure out who took what money and who now holds the loss. But, aside from the stolen money, the foreclosed house becomes a blight on the neighborhood. The empty house may be taken over and used for drug dealing and worse. Neighboring property values decline. Tax base erodes.

Minnesota's Financial Crimes Task Force recently announced that, because of proposed state budget cuts, it will stop investigating mortgage fraud. That is a loss. Initially, the task force investigated financial fraud rings operating across a number of cities and counties. It put together cases against ringleaders.

When mortgage-fraud cases surfaced, the task force was uniquely situated to investigate. It knew how to put together complex cases involving multiple crimes by financial fraud rings. It was in a position to help already strapped local police.

A recent Housing Preservation Project study showed that 25 percent of the foreclosure sales in north Minneapolis in 2006 involved mortgages that had been in place less than a year, and 5 percent of the foreclosures in the 55411 ZIP code involved people who had three or more claimed owner-occupied residences foreclosed. The statistics strongly suggest straw buyers were involved.

The problem is not limited to central cities. Even when properties were in Minneapolis, the task force pursued fraudulent actors into suburbs where their operations were often located.

The experience and support the task force offered was invaluable to local police. Make no mistake: Fewer investigative resources and less experienced investigators means narrower investigations of fewer targets. Smart gang members and drug dealers (fortunately a small percentage) actually switched to mortgage fraud as a lower-risk, higher-reward enterprise. Proposed cuts increase the odds that crime pays while property values in neighborhoods plummet.

Already strapped police and prosecutors have stepped up. The Hennepin County Attorney's Office has redeployed experienced prosecutors, and the Hennepin County Board has provided an additional designated mortgage-fraud prosecutor. The Hennepin County Sheriff's Office provided investigative assistance. Struggling suburban police made investigators available as they could. The Minneapolis Police Department will provide three additional experienced investigators to handle Minneapolis mortgage-fraud cases. The state must do its part.

State funding for the Financial Crimes Task Force is essential to holding criminals accountable, even if there is no 911 call.

Michael O. Freeman is the Hennepin County attorney.

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