The Minnesota Financial Crimes Task Force has decided to stop taking mortgage fraud cases in a move that may or may not dent the state’s efforts to combat a widespread problem, depending on whom you talk to.

Either way, the decision speaks to the tough time law enforcement is having tackling a new breed of financial crime, one that has played a significant role in the nation’s foreclosure crisis and doesn’t fit neatly into traditional police beats. In fact, the U.S. Attorney’s office in Minneapolis is holding a special meeting today to discuss just how federal and state laws can be used together to better tackle mortgage fraud.

“If the task force can’t do it, then we need to reinvigorate this other task force to start coordinating cases,” said John McCullough, executive director of the Retailers Protection Association, which includes lenders. McCullough also is a member of the council that oversees the Minnesota Financial Crimes Task Force.

The “other task force” McCullough referred to is a group of federal investigators in the Twin Cities including the FBI that have been working on mortgage fraud with prosecutors in the U.S. Attorney’s Office.

As for the Minnesota Financial Crimes Task Force, its 17-member oversight council in January instructed the group to shut the door on mortgage fraud, saying the cases were so time-consuming they threatened to overwhelm the group. Chris Omodt, a Hennepin County Sheriff’s lieutenant who heads the task force, said he thinks crimes will go unchecked, but acknowledges it doesn’t have the resources.

Mike Siitari, Edina police chief and oversight council chairman, said the group needed to return to its original mission: identity theft and financial crimes such as credit card fraud and check fraud.

As for mortgage fraud, “We don’t have the staff or funding to address it,” Siitari said. “We have hundreds of cases of backlog.”

The financial crimes task force charged 301 people in 2,203 cases last year, according to its report to the Legislature this month. Only a handful of its cases focused on mortgage fraud, a problem the task force began looking into last year.

Yet Siitari calls mortgage fraud a “massive problem” that is being dumped on law enforcement. Everyone is looking at each other thinking, “Where does this go?” Siitari said. “There is no good answer right now. Who has the resources?”

Anoka County Attorney Bob Johnson, former chair of the oversight council, said mortgage fraud presents a major challenge for local law enforcement already close to capacity handling normal street crime. “This type of crime really taxes a decentralized criminal justice system and points out, frankly, its weaknesses,” Johnson said.

The financial crimes task force, which currently has nine investigators and operates on a $750,000 annual budget through the state Department of Public Safety, could see that amount reduced to $300,000 for fiscal 2009 under Gov. Tim Pawlenty’s proposed budget.

Three of the task force’s most experienced investigators — Sgt. Chris Abbas, Detective Jack Talbot and Sgt. Mark Johnston — left the task force in the past month. Talbot and Johnston said Abbas was ordered to leave and reassigned to the Minneapolis Police Department’s fraud and forgery unit. Abbas couldn’t be reached for comment.

The mortgage fraud decision was “a part” of their decision to leave, Talbot and Johnston said. They said they also were very frustrated by budget problems and how politicized the task force had become. Both were near retirement.

“We’re the Minnesota Financial Crimes Task Force and we’re not going to do mortgage fraud? Who is going to do them? It’s preposterous,” said Johnston.

Pawlenty’s office said it’s simply paring the task force budget back to prior levels. The task force “was never envisioned to deal with mortgage fraud,” Pawlenty spokesman Brian McClung said. He said the state already employs a team of investigators at the Commerce Department devoted to real estate crimes.

Nonetheless, it’s the wrong time to be cutting back on mortgage fraud efforts, said Sen. Satveer Chaudhary, DFL-Fridley, a member of the oversight council. Chaudhary said he doesn’t support the decision.

“In a worsening economy, financial crimes are only going to go up. If anything, we need to double our efforts, not diminish them,” Chaudhary said.

Pat Diamond, deputy county attorney in Hennepin County, said the task force’s decision will make it harder to thoroughly investigate cases in a way that gets them to trial. He said the task force was instrumental in three cases in which his office has filed multiple charges. The task force never handled mortgage fraud cases in Ramsey County.

Jennifer Bjorhus can be reached at 651-228-2146.