SCAM CITY: Nevada’s mortgage crisis

Nevada is built entirely on the ethos of separating people from their money. We pride ourselves on being sharper than the grifter, the con man. So, why do we need your stinkin’ government protection?

Housing sprawls across the Las Vegas Valley.

VEGAS INC Coverage

Richard and Lynn Surnock have a story to tell—and it’s one you may have heard before.

The retired musician and the legal secretary sold their Los Angeles-area home in July 2004 and moved to Henderson in search of a better climate for Lynn’s asthma. They made a healthy profit on the sale of the home they had purchased 36 years earlier for $25,000 and put a $200,000 down payment on a Green Valley house, bought a car and paid off their debt.

In early February, the Surnocks received a letter in the mail. It carried the logos of Great Western Business Services and Bank of America and informed the couple that Great Western had purchased their mortgage. The letter instructed the Surnocks to make their monthly mortgage payments to GWBS. At the bottom of the document was a section titled, “payment coupon,” a space to write down the amount enclosed.

“It just looked all fine and dandy. I thought nothing of it,” Lynn Surnock says. “We had so many banks in the past switch our loans."

She has some hard-earned street sense, having worked 37 years for the California Workers Compensation office, where she managed a staff of 12. Everything looked fine. She wrote a $2,700 check through her Wells Fargo account and mailed it to the address listed for a Great Western post office box. She was confident it was legitimate. The logos looked so real.

Two nights later the Surnocks were watching the local TV news. On the screen was a copy of a similar letter. The same Great Western and Bank of America logos, the same typeface, that familiar envelope. Lynn raised the volume. It was a scam, and the news report featured a victim and a law enforcement official. The next day the couple visited a Bank of America branch. A banker apologized but said nothing could be done. They were told to visit Wells Fargo to see if they could reverse the check. They raced to their bank branch.

“I take things at face value,” she says. “I’m too naive, I guess. I don’t think I’m going to get stung and hurt.”

Nevadans are strangled by the home mortgage crisis, hundreds of thousands of us stung by bad bank loans. Many of us willingly took those double-option ARMs or the firsts and seconds, with one serving as the down payment for mortgages we never should have received. They were destined to fail, written by major and not-so-major financial institutions.

Now we’re paying the price with at least 66,000 vacant units throughout the valley, the worst economy since the Great Depression and subdivision upon subdivision filled with people who are trapped beneath bad loans they could never afford. Our home values have collapsed. The personal wealth of our community is greatly diminished, slicing into every aspect of the economy.

Yet, ask neighbors and friends what they make of the “victims” of those bad loans, and many will tell you “those people” deserved what they got. “They should have known better,” goes the thinking. “What fool would have taken them?”

This is a region built on the grift, the promise of a big payoff. We pride ourselves on being just a little smarter than the next. You’re going to sting me? Don’t think so, buddy. Try to get one over on me? Never happen. Besides, I know the odds. It’s better to own the game than play it.

Such a uniquely Las Vegas attitude, it’s one that permeates all aspects of our lives. That guy at the four-way stop sign, he’s not getting the jump on me. The woman knocking at my front door, why bother to answer? Probably just wants something. It’s a buyer-beware state, and as independent Westerners we don’t need someone else’s protection.

“The ethos of the West is you’re left on your own. You have to be on the lookout yourself for those kinds of frauds,” UNLV sociology professor Rob Lang says. “The open range, freedom. The risk is you might hurt yourself. The plus is at least no one’s telling you how to live your life. That’s the trade-off. You didn’t come out here to have the nanny state follow you and wipe up after you.”

It’s genuinely challenging to work the consumer protection beat for Nevada state government. Offices are understaffed and overworked in a region that’s a rich target for organized crime syndicates, hucksters, con men, shakedown artists and crossroaders, an assorted collection of lowlifes and losers who see a potential mark in anyone who crosses their path. The casino cage is the draw. The cash nature of the business with billions of dollars annually flowing through it is a banker of choice for criminals.

“We’re in this weird crime vortex,” a state law enforcement official who requested anonymity says. “The international guys are here because of the way the money flows. It can flow more freely here because of the nature of the beast.” Federal and state laws are designed to prevent the use of those casino cages for laundering money, requiring all cash transactions of $10,000 or more be recorded. Yet, savvy men and women with a grasp of financial transaction regulations that would make an arbitrageur blush, easily navigate that maze.

Then-Gov. Jim Gibbons removed a layer of consumer protection in July 2009 when he defunded and later eliminated the Nevada Consumer Affairs Division. The anti-government, pro-business governor touted the move and its $2 million savings as a way to eliminate government duplication in tight budgetary times. The loss coincided with a significant jump in scams, particularly telemarketing, car repair, identity theft and home mortgages. The state attorney general’s office was forced to pick up much of the division’s responsibilities, and that couldn’t have come at a worse time in the state’s history. Whether during the 18-year population boom or the current economic collapse, Southern Nevada remains a target-rich environment, and the challenges have increased exponentially with the doubling of the region’s population to 2 million.

“We’ve never appropriately staffed my office or at the time the Consumer Affairs Division to take on consumer fraud. That has left a vacuum for consumers,” Attorney General Catherine Cortez Masto says. The daughter of a former Clark County commissioner who later headed the Las Vegas Convention and Visitors Authority, Cortez Masto says scams are cyclical.

A decade ago, telemarketing offices popped up overnight, promising to sell stocks, bonds and consumer goods for pennies on the dollar, failing to deliver and running off with tens of millions of dollars despite some high-profile prosecutions. Law enforcement and the Nevada Legislature clamped down, and they disappeared. Then it was home repair and swimming pool construction. Today, the telemarketers are back, promising to help people receive grant money, particularly from President Barack Obama’s federal stimulus plan. In return for upfront money and additional fees, they promise struggling businesses and individuals tens of thousands of dollars on the back end. In October, FBI agents working with other law enforcement agencies, including Cortez Masto’s office, raided three Las Vegas companies suspected of being involved in the con. The targets—Silver State Holding, SBA Consulting Services and Foundation Research Inc.—were the focus on multiple complaints on the Internet.

Many of today’s scams are multilayered and increasingly complex, with their operators having a foot in mortgage fraud as well as drug dealing, prostitution, identity theft and child pornography. The goal is to fish for targets, rip off someone as quickly as possible, close up shop and move on to the next target. In 2007, the Nevada Legislature passed a law requiring regulation and bonding of “foreclosure rescue companies” that were charging exorbitant amounts of money in return for the promise to help homeowners renegotiate monthly mortgage payments. Instead, an unknown number of Nevadans paid fees for services that were promised but never delivered.

To win the confidence of their unwitting marks, the bad guys showed them records of phone calls to lenders that in reality were never made and letters for relief that were never sent. Call it Mortgage Scam 1.0.

Within two years, those companies morphed into “loan modification specialists,” or Mortgage Scam 2.0. The new corporate structure allowed them to bypass the regulatory and bonding requirements. The game continued, and more Nevadans bled money and lost their homes. The 2009 Legislature changed the laws once again to counter, and the 3.0 Version has evolved into its newest iteration, the nonprofit businesses. They are clever, nimble and fearless. Most will get away with what they do, and for those who lack a conscience, the potential payoff is well worth the risk.

After all, Cortez Masto’s office has eight attorneys and nine investigators but could use twice as many to combat crime. Secretary of State Ross Miller’s office has four investigators and four auditors to investigate securities fraud. Both say they could easily double the size of their staff and keep them busy around the clock. But that staffing increase is unlikely in these times of fiscal austerity, and that too isn’t unnoticed by the grifters.

Lynn Surnock remembers the first time she saw the faces of Joseph Lawrence Yorkus and James Robert Bartczak. The men were named last month in a 12-count indictment filed in District Court in connection with the financial crime committed against the couple. She’s not certain what she expected con men to look like, but this wasn’t it.

“I thought they looked too dumb to do something like this. They looked like hoods," she said.

The charges against the men include conspiracy to commit theft, and theft obtaining money in excess of $250 to $2,500. Law enforcement officials argue that Yorkus and Bartczak operated a combination mortgage scam and massage parlor in a suite on South Rainbow Boulevard. The indictment says that they advertised on Craigslist to hire a property manager, who established articles of incorporation for Great Western Business Services, opened a bank account, obtained office space, established a toll-free number and set up a post office box. Investigators say the men typically interviewed young women and either steered them to the mortgage business, located in the front of the office suite, or a massage parlor in the back, depending upon a woman’s appearance and willingness to perform sexual acts.

She hasn’t read the indictment nor does she care to, but Lynn Surnock knows this much. The scam that targeted the couple has left her shaken and questioning her place in the world. At 68, she remains the practical one of the pair. She pushed to pay off the couple’s credit card debt. In fact, she wanted to buy their Henderson home outright. They had the money six years ago after selling their California home, but Richard advised against it. He’s the dreamer and the prototypical consumer, the sort who drive our economy. The couple ran up more debt but always paid their bills on time. So when that letter arrived from Great Western, Lynn was diligent and quickly replied by sending that $2,700 check. They asked Wells Fargo to cancel the check, but it was too late. It had been cashed.

She feels good about the response from Nevada regulators, particularly Cortez Masto’s office, but she remains wary of strangers. So does her husband. Their faith in others is a bit shaken, and they had to borrow money from two of their children to make their February mortgage payment to Bank of America. Bottom line? They feel lucky that they didn’t lose more money or their home, but they do feel as though something has changed in their lives.

“It made me feel really vulnerable,” Lynn says. “I was angry, really angry. I cried a lot. I guess we’re all vulnerable to something.”

This much is certain, the old Western ethos of the wise, range-wary individual battling for survival against all odds may have worked when this was a valley of no more than 30,000 people. But Las Vegas is an international city that draws opportunists of every caliber. We’ve become a de facto banker to drug dealers, gangsters and con men seeking to launder their earnings. We’re a target for international gangs from Asia to Eastern Europe and South America. The law enforcement challenges we face are no different from those in New York City, Miami, Los Angeles, Tokyo, Hong Kong or London. Yet, we’ve never embraced the reality that draws con men here. We’re a target of convenience. They have the means. We provide the fertile ground.

But Nevadans, particularly Southern Nevadans, have never fully acknowledged the reality of what we’ve become. And until Nevada law enforcement is given the resources it needs to do the job, there will be many more Lynn and Richard Surnocks. And no matter how street-wise or clever you are, you could be next. Believe it.

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  1. "The ethos of the West is you're left on your own. You have to be on the lookout yourself for those kinds of frauds," UNLV sociology professor Rob Lang says. "The open range, freedom. The risk is you might hurt yourself. The plus is at least no one's telling you how to live your life. That's the trade-off. You didn't come out here to have the nanny state follow you and wipe up after you."

    What kind of CLAPTRAP is this?
    Southern Nevada, which is home to most of Nevader's population, is nothing of the sort. Most of the current crop of residents came here for A JOB, or cheap housing, maybe to feed an addiction or 3, ANYTHING BUT looking for the "Old West" mentality.
    If there's a prevalent ETHOS at play here, I'd have to say it's "Get Rich or Die Trying", and I don't think most folks believe for a minute that they'll be one of the lucky few who perform the former before succumbing to the latter.

  2. Online gambling is a JOB KILLER for NEVADANS!!!

  3. "Nevadans are strangled by the home mortgage crisis, hundreds of thousands of us stung by bad bank loans."

    Berns -- you almost got it right.

    The bigger and ignored truth, which nearly all institutions seem to ignore, is the banks and their parasites raping this state with foreclosures rarely if ever own the very loans they foreclosed on. AG Masto ignores the big scammers -- every big bank is a culprit, no matter who's fronting for them -- and crows about shutting down some small fry. But she's like most government entities -- they refuse to take on the very banks this country bailed out, except for the occasional bone thrown to the public like her pathetic lawsuit against BofA and its foreclosure front, Recontrust.

    The rest of government, including the feds, put on a show of helping homeowners by promoting loan modifications which do little more than replace lost notes with new ones, and just keeps the funds flowing into the coffers of those same banks that screwed us all in the first place.

    Don't take my word for it, check it out @ http://www.forbes.com/feeds/ap/2011/04/1...

    The worst part seems to be how our institutions ignore the cure -- it's been right where it's always been for centuries, in the law of notes, today's form is found in UCC 3 (Nevada's equivalent being NRS 104, Article 3). And it would be nice to see some RICO used against them.

    Class dismissed for now.

    "If you're going to take my house away from me, you better own the note." -- Joe Lents (who hasn't made a payment on his $1.5 million mortgage since 2002) in Bloomberg's 2/22/08 "Banks Lose to Deadbeat Homeowners as Loans Sold in Bonds Vanish"

  4. Ah, yes, our current AG learned all about scamming the public at the foot of one of the best, her father, an accomplished conman who, because of his political prowess, finagled a cushy job at the LVCA. Hate to blame the victim, but as for being scammed, in some cases it's because the person scammed is greedy and rushes into a "deal" without thoroughly investigating it and those who propose it. Some like the aforementioned couple who sent a payment to the "new" mortgage holder are truly scammed. It is a "dog eat dog" world out there, folks!

  5. If I ever got such a letter, I'd be running it by someone at my local B of A office before sending the check to another company. Usually the previous bank will still take your payment, for a time anyway.
    I make my payments in person at B of A (Any branch will take it, even out of state). Very convenient, you can pay at the last minute if needed and know they got it in time.
    There should be very severe punishment for those involved in such scams. VERY severe.