The easiest tactic is to rely on the broker contract. Its provisions commonly require an originating broker to indemnify the investors against losses. With fraud as brazen as what was perpetrated in this case, the contractual obligation squarely is on the loan brokerage in the vast majority of contracts.

Although an action based upon fraud is not as easy to prove as an action based upon a broker contract, it is the more devastating of the civil-litigation strategies. If fraud is proven by the lender, licenses are lost -- or worse.

During one case litigated in Los Angeles, the judge gave a warning to a loan-broker defendant while encouraging a quick settlement of the dispute. The judge said that the plaintiff's allegations of mortgage fraud were serious and that it could warrant referring the issue to the district attorney to have the proper defendants criminally prosecuted.

The case settled.

So where does this leave us? A novice real estate investor who recently quit his $50,000-per-year job clearly is not qualified to take on $2.2 million of real estate debt. And yet, Serin is proof that these loans are being made.

Who is responsible? Loan officers who "play the game," crafty borrowers or both? Are originators doing their job by playing along? Or is there a moral imperative that accompanies loan origination?

What is certain is that there are civil and criminal legal ramifications for loan misrepresentations. These ramifications can lead to fines and penalties with far-reaching consequences.

C. Robert Simpson is CEO and senior legal counsel of Investors Mortgage Asset Recovery Co. LLC (IMARC). He is a leading authority on the prevention, detection and recovery of mortgage-loan fraud. Simpson consults with mortgage lenders on issues related to quality control and prevention of mortgage fraud, speaks at national and regional mortgage conferences, and has served as an instructor at the FBI's Financial Institution Fraud Seminar. Reach Simpson at (949) 486-0161, bsimpson@mortgagefraud.com or www.mortgagefraud.com.

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