Nervous Nellie builders who are sitting on unsold inventories could be the next target of crafty con men looking to defraud lenders, says a Georgia prosecutor. Ditto for worried home owners who can't sell their ranches, at least not for the price they need.

But whoever plays along could wind up in jail.

Mortgage fraud is conservatively estimated by the FBI as a $1.2 billion a year "business," perhaps even the new favorite among drug traffickers and career felons who can make millions without worrying that a rival mobster will put a gun to their heads or a cop will push their faces into the sidewalk.

But David McLaughlin, an assistant attorney general in Atlanta, thinks the worst is yet to come. With the number of unsold houses building every day, he says its only a matter of time before fraudsters turn their attention to sellers, including builders. The scam he sees works like this:

A builder has finished several houses but been unable to sell them. He's getting anxious because not only have sales slowed but prices are starting to decline when he's approached by a buyer who proposes a happy outcome. Not only will the buyer take the houses off the builder's hands, he'll pay $100,000 more per house than the builder is asking. All the builder has to do is kickback the extra hundred grand to the buyer after closing.

Bite, according to McLaughlin, who says his goal is to put people in prison, and you're an accomplice to a felony, at least in the Peach State. "If you are kicking back money, that is an omission made with intent to defraud," he says.

Georgia has already arrested several builders on racketeering charges. In the latest case, Brian Dupree was charged along with nearly two dozen others with selling as many as 100 houses in the Milford Hills subdivision in Athens-Clarke County at inflated prices. Dupree, the alleged ring leader, is said to have built houses "all over the state."

According to the arrest warrants, the supposed co-conspirators "had a part in this systematic, fraudulent inflating of property values in Milford Hills, obtaining fraudulent appraisals and loan applications."

The case is an example of a new "get tough" attitude in the mortgage community as well as among law enforcement officials at all levels. The Dupree gang was turned in by a lender who was asked to fund the fake sales. Georgia is the only state which has codified the act of mortgage fraud as a crime, punishable by up to 20 years in prison, but at least five others -- New Jersey, Utah, Colorado, Oklahoma and California -- are considering similar legislation.

At the federal level, meanwhile, the FBI is urging lenders to file reports of suspicious activities, even if they are not required to do so by law, in hopes of building a data base so they can stay at least one step behind the criminals. However, it is currently going after only the worst offenders, those who perpetrate schemes involving multiple houses.

Published: June 28, 2006

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When Lew Sichelman first started writing about housing in 1969, he was the youngest real estate writer in the country. Now, 37 years later, he's one of the oldest -- and most decorated. He has been rated the top housing columnist in the country by the National Association of Realtors as well as by his peers in the National Association of Real Estate Editors. Indeed, NAREE has recognized his work on numerous occasions. One year - due to his advancing age, he can't recall which one - he earned top honors in the annual NAREE Journalism Contest in three out of the four major writing categories. It was the first time one writer has won so many NAREE awards in a single year. Known for his ability to make even the most difficult topics understandable, Sichelman also has been honored by the National Association of Home Builders and the Mortgage Bankers Association. He began providing in-depth coverage of and consumer-oriented information about housing and housing finance at the Washington Daily News, where he was real estate editor. He held that same position for nine more years at the Washington Star, which purchased the News in 1972. The Star, a so-called "writer's newspaper" which also had the misfortune of being an evening paper, was put out of its misery in 1981, and Sichelman, who had begun self-syndicating his column in 1978, decided to become a full-time columnist. Today, his column, "The Housing Scene," is distributed by United Media to newspapers throughout the country. He also is on the staff of National Mortgage News, an independent newspaper which is considered the bible of the mortgage business. And he writes for numerous other publications, including MarketWatch.com, where he answers readers questions once a week, Sports Illustrated (don't ask), RealtyTimes.com, BigBuilder and others. Sichelman is married, the father of five and grandfather of eleven.