In order to give the reader of this article background on the scam and steps and precautions that could have been taken to guard against fraud, I’ve created a case study using passed frauds as examples. One television show that showcases scams and schemes of all sorts is American Greed, which airs on CNBC. In this article I’ve included a synopsis of a scam profiled in an episode and how the investors could have conducted due diligence on the opportunity being presented in order to raise red flags.
Early 2000 through 2006
Over 90 fraudulent mortgages totaling over 4 million dollars
Matt Cox, Rebecca Hauck
Matt Cox stole identities from homeless people and children and falsified documents in order to close on mortgages. He knew that homeless people were very unlikely to ever find out that someone had stolen their identify because they are very unlikely to apply for a loan. Children also made easy prey because he knew it would be years until the children would ever be old enough to apply for a loan.
After Matt purchased the house using his stolen identities and falsified documents he would take out multiple mortgages in quick succession and then run with the money. Because the loans were taken out so soon after the originally closing, real estate attorneys who closed the loans wouldn’t catch that there were multiple mortgages being taken out on the property due to a lag time it takes for the loans to be recorded on the deed.
Matt defrauded not only large banks, but also took advantage of two hard-money lenders who both lent him money in separate, transactions using the same house as collateral. The private lenders even did a title search and a background check.
During the course of the scams an ironic incident happened. These private lenders were acquaintances and actual ran into each other at a concert, started taking and came to the realization that they had lent money on the same property.
It is interesting that he wasn’t able to pull the off these extensive mortgage frauds himself. Matt’s m.o. was to pull in a vulnerable woman to help him. He looked for single mothers who had lots of debt from ugly divorces who he could coerce into participating in the fraud by lavishing them with exotic gifts and breast implants. Matt was able to finish reeling them in by telling them he would take care of them and their children for life.
Rebecca Hauck fell for Matt’s promises of a life filled with riches and luxury. He even convinced her to leave her son with her mother and travel abound the U.S. with him committing crime.
Hauck wasn’t Matt’s first female accomplice, but she stayed with him the longest and helped him perpetrate his mortgage scams in cities across the South including Atlanta, Mobile, Tampa Bay, and Tallahassee. Cox and Hauck were eventually dubbed The Bonnie and Clyde of Mortgage Fraud.
Hauck and Cox eventually split up. After hiding there for a year, she was caught in Houston, Texas. She was sentenced to 5 years in prison.
After running from the law for over 3 years and leaving several single mothers in his wake Matt was finally apprehended by Secret Service agents on November 16, 2006. Matt negotiated a plea deal and was sentenced to 54 years in prison and a fine of $2 million.
Stop Financial Pornography Due Diligence
This type of crime can be difficult to guard against. If someone is really out to defraud you they can do it if sufficient time isn’t taken to thorough research them. In order to transact business in a timely manner that it isn’t always this easy to conduct this kind of research, but I’m suggesting something the hard-money lenders could have done to see more red flags.
Get references from his past business associates. One of the 4 C’s of granting credit is Character. Banks, financial institutions, and even hard-money lenders utilize the credit report to tell them with whom they are dealing. However, if the fraudster won’t bother using a stolen identity with a bad credit score. If someone has stolen an identity and passed themselves off as that person, then you must verify through talking with passed business associates that this person is whom they claim.
*Author’s note: This story contains so many seedy details and twists I’m including a link to it on Wikipedia. http://en.wikipedia.org/wiki/Matthew_Cox