Florida, now saddled with the nation's highest level of mortgage fraud, once offered a program to reimburse people scammed by rogue mortgage brokers -- the money coming from licensing fees.
Today, those fees total $24.7 million -- but victims of mortgage fraud can't get a penny of it.
State regulators killed the victim program with no public debate more than a decade ago -- despite warnings that mortgage fraud was on the rise -- leaving borrowers in Florida among the most vulnerable in the country, The Miami Herald found.
While 47 states have protections for people who are scammed, including guaranty funds and insurance that covers fraud, Florida has no such provisions.
That means thousands of people fleeced by mortgage brokers are left to fend for themselves, despite millions of dollars in the state's regulatory trust fund -- money that goes to cover salaries and benefits for regulators, including trips to conferences at five-star resorts.
"You're telling me the state no longer pays people if they're defrauded? I think it's deplorable, " said Gerald Linker, one of the last to collect from the fund a decade ago when he was ripped off by his mortgage broker.
Linker won a court judgment against the broker, but couldn't collect because the broker had disappeared. So he turned to the state to collect $20,000 in 1997.
Even industry leaders, whose members typically pay higher licensing fees to states that reimburse fraud victims, support the protection funds.
"If you want to have something that in a relatively short period of time can help consumers, " said Marc Savitt, president of the National Association of Mortgage Brokers, "the best way to do that is a guaranty fund."
While other states have been creating programs to help mortgage fraud victims recover lost money, Florida has never tried to revive the reimbursement fund, even though the state agency is flush with a surplus of millions.
Florida now accounts for one of every four fraudulent mortgage applications in the country, according to the Mortgage Asset Research Institute.
The fraud rate has continued to climb in recent years, with thousands of borrowers gouged with illegal fees or duped into signing away the deeds to their homes.
Mary Taylor, 63, of Brandon, fell victim to a broker who promised to help her use the equity in her house for badly needed renovations, then stole $22,000 in loan proceeds. Taylor, who recouped $7,000 from the lender, said she would apply for state funds to help recover the rest.
"They could refund what I lost; I wouldn't want a dime more, " she said.
When Florida's fund was created in 1977, then-state Comptroller Gerald Lewis called it "a necessity in order to provide more effective regulation and to prevent future losses to Floridians."
As consumers and their lawyers learned of the fund, the number of claims increased over the years. It paid out $43,749 in 1978. As mortgage fraud took off in the late 1980s, so did payouts from the fund, rising to $555,195 in 1990 and more than tripling to $1.8 million in 1991.
In 1990, a task force convened by the Legislature reported to Comptroller Lewis that there were serious problems with the fund. Worst of all, it was running out of money.
The rules also forced victims to hire a lawyer and go through the expense of a civil suit before filing a claim, which favored investors and borrowers who could afford to hire attorneys.
The task force recommended keeping the fund, but streamlining the process and putting a priority on claims from people who borrowed money to buy their home.
In response, Lewis thanked the task-force members for their expertise and "public spirit, " but warned that some of their recommendations would not be followed.
The special fund once hailed by Lewis as a great benefit to fraud victims was on the way out.
CHANGING THE LAW
By early 1991, Lewis' director of finance, Randall Holland, was helping to rewrite the state's mortgage broker law. It didn't change much, except for the sudden appearance of four sentences that effectively killed the Mortgage Brokerage Guaranty Fund.
Broward County mortgage broker Robert Lurer -- who served on the task force and helped Holland rewrite the law -- said he distinctly remembers that Holland wanted to kill the program.
"I remember Randy saying, 'Is it really a function of government to protect people from mortgage fraud by giving repayment to them?' I said, 'Yeah.' "
Interviewed recently from his home in Los Angeles, Holland said he hasn't thought about mortgage regulation in 15 years since leaving Tallahassee to make his living as a professional poker player.
He said he doesn't remember exactly who composed the lines that killed the trust fund, but acknowledged, "I worked on it a lot. I did a lot of drafting myself."
The changed bill passed both houses of the Legislature in 1991 with barely a mention, getting exactly 65 seconds of discussion on the Senate floor.
"We've made a few necessary changes based on the advice of the comptroller and the action of the committee, " declared Sen. W.D. Childers, D-Pensacola. "And there is nothing controversial whatsoever about the act."
It passed 37-0.
Then-Comptroller Lewis has not responded to repeated phone calls and e-mail messages requesting comment for this report.
Lurer said he is still troubled by the change. "If it was for budget reasons, I would have understood, " said Lurer, a mortgage broker for 41 years. "But the industry was willing to pay for the fund. The regulators were saying, 'No, we'll do away with it.' "
In the ensuing years, Florida went through a land boom that tripled the number of brokers in the state -- and raised the state's mortgage fraud rate to the highest in the country.
As other states experienced increases in mortgage fraud, lawmakers in those states, including Texas and Oklahoma, began to respond with reimbursement programs for victims.
Other states, like California, had already established their own guaranty funds to help allay the crisis.
By 2006, the vast majority of states were relying on two consumer protection measures: guaranty funds or surety bonds, which require brokers to buy private insurance to cover fraud. Florida has neither.
In Texas, state regulators assess a $20 fee when brokers first get their license, and every two years when they renew. Payouts are capped at $25,000 a claim.
"With a guaranty fund, we have a ready source of cash" for defrauded borrowers, said Doug Foster, commissioner of the Texas Department of Savings and Mortgage Lending.
Even in Florida, many other professions have guaranty funds: stockbrokers, builders, even auctioneers.
In the past four years, the Securities Guaranty Trust Fund paid out more than $1.2 million to investors defrauded by stockbrokers.
"Others have a guaranty fund. Why can't we?" Lurer said.
In fact, the money is already there. When state mortgage regulators dismantled the guaranty fund in 1991, they did not reduce license fees. Instead, they actually raised them.
In 1990, the fee for a first-time mortgage broker's license was $150, plus a $10 assessment for the victims fund. The next year, the assessment disappeared, but the base fee went up to $200 -- where it remains today.
When the housing market skyrocketed a few years later, state mortgage regulators were awash in cash.
In August 2000, the fund for which licensing fees are collected had $2.7 million on hand. By August 2007, the balance had soared more than tenfold, to $28.6 million. Today, the fund stands at $24.7 million.
Don Saxon, the outgoing commissioner of the Office of Financial Regulation, needs legislative approval to spend that money. Since he took the job in 2003, he has asked for nearly $4 million to hire new staff members, almost $7 million to give raises to employees, and more than $18 million for computer upgrades, budget records show.
But records show that he has not asked for a penny to reimburse mortgage fraud victims. In the same period, Florida's rate of mortgage fraud has climbed steadily, and has been the worst in the nation for the past two years, according to the Mortgage Asset Research Institute.
Saxon, who did not respond to requests for interviews, is set to leave office Sept. 30. He resigned under pressure after The Miami Herald published a series of reports revealing that his office approved thousands of people for mortgage-broker licenses despite criminal histories.
Beyond the money that pays for salaries and operations, license fees also pay for regulators' travel expenses as they routinely fly across the country for conferences.
Robert Tedcastle, former chief of the OFR's mortgage section, expensed more than $39,000 of travel since July 2003, state records show. Last September, he spent a week at an industry conference in a New Mexico spa famous for "Embrace Yourself Body Wraps" and "Juniper Berry Pedicures."
OFR bureau chief Andrew Grosmaire expensed $31,300 over the same period, including a September 2004 conference for collection agency regulators in Jackson Hole, Wyo.
The agency's deputy commissioner, Owen Hager, expensed more than $23,000. In June 2007, he flew from Tallahassee to Palm Beach for a weeklong convention at The Breakers, a five-star hotel.
In written responses to questions from The Miami Herald, OFR spokeswoman Kathleen Kight said the bulk of the office's travel is for examinations and enforcement actions. She did not explain the specific trips to resorts, other than to say that OFR people routinely attend professional conferences and seminars. "Travel is an integral part of the job performed by the office, " she wrote.
The office did not say why there was no effort by regulators in the past decade to revive the guaranty fund or create other remedies to help scammed consumers recoup their money.
In her prepared statement, Kight said federal legislation signed in August requires that states implement some measure, which could include a guaranty fund. She said the OFR is now reviewing the matter.
State Rep. Scott Randolph, D-Orlando, who has proposed mortgage reform legislation, said the agency should have created a remedy, especially when fraud was exploding.
"To think that we have absolutely nothing in place -- nothing -- to help people who are victims from outright fraud and criminal abuse, it is an outrage, " Randolph said.
Rep. Jennifer Carroll, R-Jacksonville, said she was surprised that the state did not have a recovery program for victims, but said the lack of any such program became a problem only when the fraud rate soared.
"If the housing market didn't go bust, we wouldn't be having this discussion, " said Carroll, chairwoman of the financial institutions committee, who thinks brokers should be insured for fraud.
Lurer, the veteran mortgage broker who tried unsuccessfully to save the victims fund more than a decade ago, said that keeping the program running would have helped alleviate many of the problems today.
"They went against the recommendations of the industry, " he said, and now people are suffering."