Michigan Attorney General Mike Cox today announced that his office has filed charges against seven individuals at the forefront of a major mortgage fraud operation in Southeast Michigan.  The charges resulted from a year-long investigation by the Michigan Mortgage Fraud Task Force and included efforts from the Michigan State Police, U.S. Secret Service, and the Attorney General’s office. 

“Mortgage fraud is a serious threat to Michigan’s economy, killing jobs and hurting residents’ pocketbooks,” said Cox.  “By committing wide scale fraud, these defendants have contributed to the declining home market that is ruining family finances.”

Arraigned today is Eddie Zaben, 39, of Dearborn.  Zaben is charged with one count of continuing criminal enterprise (racketeering), a 20-year felony, and eight counts of false pretenses over $20,000, each a 10-year felony.  The joint investigation revealed Zaben used his business, MYA’s Investment Group, LLC, to perpetrate large scale mortgage fraud.  The scheme involved the financing of at least eight Wayne County homes in 2006 and 2007. 

For each property, a straw buyer was recruited and asked to sign the closing papers.  Zaben presented fraudulent mortgage applications on their behalf containing falsified employment and income information.  Records indicate that some or all of the proceeds disbursed at the closing went to Zaben.  As a result of the scheme, each of the properties has been foreclosed or is in the process of foreclosure.

Six others were charged earlier for crimes including ID theft, false pretenses, and uttering and publishing: Dagoberto Reyes, 53 of Detroit, Evelyn Santana, 53 of Union City NJ, Mohamed Beydoun, 27 of Detroit, Memoud Makky, 29 of Dearborn, Ali Hassan Haidous, 25 of Dearborn and Balil Hashem, 26 of Dearborn. 

Zaben was arraigned this morning in the 19th District Court in Dearborn before Judge Hultgren.  The court imposed a $20,000 personal recognizance bond and Zaben is next due in court for a preliminary examination scheduled for July 31.   Other arrests could come shortly.

“I would like to thank the Michigan State Police and the Secret Service for their hard work over a significant period of time to help build this serious case,” said Cox. 

Attorney General Mike Cox has made prosecuting mortgage fraud a priority for his office.  In 2008, Cox created a mortgage fraud unit and teamed up with the Michigan State Police and other law enforcement agencies to tackle the problem.  In the last six months alone, Cox has charged 12 people with mortgage fraud-related offenses.  Cox’s office has also held seven mortgage foreclosure forums to help families stay in their homes during these difficult times.

A federal bill to improve enforcement of mortgage fraud, securities fraud, financial institution fraud, and other frauds related to federal assistance and relief programs, has been passed by the United States Senate by a majority of 84-4. Senate Bill 386 (S.386) extends the reach of federal fraud laws into mortgage lending and directs nearly $250 million dollars to federal agencies charged with investigating and prosecuting people and institutions who commit real estate and mortgage fraud.

Similar legislation is pending in the U.S. House of Representatives. Both the Senate and House must agree on a final version of the legislation before it can be signed into law, which President Obama is expected to do.

S. 386 broadens the coverage of current laws against financial crimes, including fraud affecting mortgages. Once signed into law by the President, it would authorize the appropriation of $245 million for each of fiscal years 2010 and 2011 for the Department of Justice (DOJ), the Postal Inspection Service, and other federal agencies to investigate and prosecute violators of the bill’s provisions. For each of those years the bill would authorize:

• $75 million for the FBI
• $90 million for offices of the United States Attorneys and the DOJ criminal, civil, and tax divisions
• $30 million for the Postal Inspection Service
• $30 million for the Inspector General for the Department of Housing and Urban Development
• $20 million for the United States Secret Service

S. 386 also would amend certain provisions of the False Claims Act (FCA), which allows private individuals with knowledge of past or present fraud committed against the government to file claims against federal contractors.

Metro Dream Homes (also known as Metropolitan Grapevine LLC, POS Dream Homes, and POS DH LLC) had all the trappings of success — its top officials lived lavish lifestyles, kept a fleet of chauffeur-driven cars, and donated generously to charities. And it used slick marketing to sell its “Dream Homes Program,” which promised to pay homeowners’ mortgages in return for an up-front fee that would be invested in profitable business ventures.

But the dream turned into a $70 million nightmare for more than a thousand investors — among the latest victims of real estate and mortgage fraud.

According to federal grand jury returned on April 22, 2009, and unsealed today, the five people behind Metro Dream Homes and the bogus mortgage payment program — Andrew Hamilton Williams, Jr., 58, of Hollywood, Fla., founder and owner of MDH; Michael Anthony Hickson, 46, of Commack, N.Y., the chief financial officer; Isaac Jerome Smith, 46, of Spotsylvania, Va., the president; and Alvita Karen Gunn, 31, of Hanover, Md., the vice president of operations — were actually running an elaborate deception… one eventually unraveled through the cooperative efforts of federal and state law enforcement agencies.

Here’s how the scam worked:

• Between 2005 and 2007, victims were persuaded into investing at least $50,000 with Metro Dream Homes, either by refinancing their existing homes or buying new homes at inflated prices.
• Investors were told not to worry about high mortgages because Metro Dream Homes would pay their future monthly payments and pay off their mortgages within five to seven years using returns on the homeowner’s original investment. Then the homeowner and Metro Dream Homes would own an equal interest in the home.
• Victims were told that their $50,000—not including an administrative fee of up to $5,000—would be used to fund investments in automated teller machines, flat-screen TV displays that carried commercial advertisements, and Touch-N-Buy electronic kiosks that sold telephone calling cards and other items.
• To make the scam seem more legitimate, the company marketed its program through live presentations at posh hotels in Washington, D.C.; Baltimore; and even Beverly Hills, California.

In the end, it was a classic Ponzi scheme: the proceeds from later investors went to pay the mortgages of earlier investors. The ATM machines, flat-screen TVs, and electronic kiosks never generated any meaningful revenue, federal prosecutors contend.

And the bulk of the money? It lined Williams’, Hickson’s, Smith’s, and Gunn’s pockets — with $200,000-a-year salaries, luxury cars, and travel to major sporting events like the Super Bowl.

By the time law enforcement shut down Metro Dream Homes, homeowners had invested about $70 million. When Metro Dream Homes stopped making the mortgage payments, the homeowners were left holding the bag. The defendants, meanwhile, are facing long prison terms for multiple counts of fraud, conspiracy to commit money laundering, and other charges.

The two owners of a Roseville, Minnesota, real estate company have been sentenced in federal court for mortgage fraud in connection with a scheme involving 162 properties, principally in north Minneapolis, and mortgage proceeds of approximately $35 million. Last week in Minneapolis, MN, U.S. District Court Judge Joan Ericksen sentenced Jonathan Helgason, 46, of Chisago City, and Thomas Balko, 38, of Rogers, MN, to to eight years in prison and seven years in prison respectively.

According to their plea agreements, Jonathan Helgason (a licensed real estate agent) and Thomas Balko were the owners of numerous companies, including TJ Waconia, Total Title LLC, Complete Real Estate Services, Inc. and CityWide Management, LLC and Investor’s Warehouse LLC (the TJ Group).

From approximately 2005 to 2007, Helgason and Balko executed a scheme to defraud and to obtain money by means of false and fraudulent pretenses. Using the TJ Group, Helgason and Balko purchased approximately 162 properties throughout the Twin Cities metropolitan area. They would then resell the property within a few weeks to an investor who would purchase the property, sight unseen, at a price set by Helgason and Balko without negotiation, oftentimes $20,000 to $60,000 more than TJ Group had paid.

According to the plea agreements, people were told by Helgason and Balko that the investors were simply lending their credit to TJ Waconia. In exchange for lending their credit, the investors would receive a kickback payment of about $2,500 and a promise of an additional payment after two years when the TJ Group was to repurchase the property from the investor.

Through the scheme, the defendants perpetrated a fraud on the lenders who were led to believe that the investors were the actual owners of the properties, when, in fact, the investors’ ownership was in name only. During the two-year period during which the investor owned the property, the TJ Group was responsible for all payments and maintenance on the property. In some instances, Helgason and Balko also provided investors with funds to pay the buyer’s portion of the property purchase price and worked with others to provide lenders with false loan applications on behalf of the investors so that they would qualify for the loan, according to the plea agreements.

The two men, on behalf of the investors, obtained approximately $35 million in mortgage proceeds to purchase the properties from the TJ Group. Ultimately, the scheme collapsed, and the TJ Group did not repurchase the properties or continue making payments to the investors in order to pay their mortgages. The investors were left owning properties with mortgages that exceeded their property’s market value.

At the sentencing hearing held last week, Minneapolis City Council President Barb Johnson and Mike Christienson, Director of the Minneapolis Department of Community Planning and Economic Development both testified regarding the significant impact suffered by the city and the community as a result of the fraud.

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The FBI and U.S. Attorney’s Office today announced plans to ramp up efforts to identify and prosecute real estate and mortgage fraud in Oregon. As part of this multi-agency effort, a dedicated e-mail address and telephone tip line have been established to enable the public to report mortgage fraud.

Oregonians can send tips to the FBI at mortgagefraudtips.portland@ic.fbi.gov or call (503) 273-5813.

The FBI says a special Federal Mortgage Working Group in Oregon operating since 2007 continues to tackle the real estate and mortgage fraud issue on multiple fronts. Most FBI investigators assigned to mortgage fraud are working major cases involving multiple suspects, multiple borrowers, and millions of dollars worth of fraudulent loans. Many of these cases involve the falsification of income, liabilities, or employment on applications and/or falsification of appraisals. The task force is also focusing on emerging trends, as analysts predict an even higher number of foreclosures in the future.

Emerging Trends

Foreclosure Rescue Schemes: One of the biggest concerns for consumers now comes in the form of unscrupulous foreclosure specialists. In some cases, desperate homeowners sign over the deed to their home to these so-called specialists, believing that they can stay in the home, make rent payments, and eventually re-purchase their property. In many cases, the rent payments that are supposed to go to the mortgage company never get sent. The specialist simply pockets the payments and any extra fees. The home continues into foreclosure, and the homeowner loses even more money.

Short Sale Scams: A second emerging trend according to the FBI involves short sales scams. In this instance, a buyer purchases a home with no intention of making payments. Oftentimes, additional funds are included in the loan for improvements. The buyer pockets that money and informs the bank several months later that the house will foreclose. The buyer presents a possible pre-foreclosure buyer. This second fraudster makes a deal with the lender to purchase the home below the current loan amount. The lender agrees, not knowing that the mortgage payments were deliberately not made to fabricate a short-sale situation. Sometimes, the new buyer or previous homeowner will damage the house to prove its lower worth. After the deal closes, the fraudster repairs the damage, gets the home appraised at a higher level, and re-sells it for a profit.

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R. Alexander Acosta, United States Attorney for the Southern District of Florida, Michael Fithen, Special Agent in Charge, U.S. Secret Service, Miami Field Office, Daniel W. Auer, Special Agent in Charge, Internal Revenue Service, Criminal Investigation, Duncan Foster, Chief of Police, Coral Springs Police Department, and Sheriff Al Lamberti, Broward Sheriff’s Office, announced that Peter Affatati, 39, of Coral Springs, FL, was sentenced to 13 years in prison in federal court in West Palm Beach for his role in a multi-million dollar mortgage fraud scheme. Affatati was also ordered to pay restitution in the amount of $8.8 million.

Specifically, Peter Affatati was charged with and pled guilty to orchestrating a $40 million mortgage fraud scheme that involved more than 50 residential mortgages, most of them in South Florida. Affatati used nominee purchasers/straw buyers to purchase the homes, then used his company, Assurance Title, to falsify the straw buyers’ employment, income, and asset information to qualify them for large mortgages from institutional lenders.

Upon the funding of the mortgage, Affatati diverted a large portion of the proceeds for his personal benefit.

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The State of Florida unveiled a new website today designed to help homeowners avoid real estate and mortgage fraud-related scams. The website, Florida Mortgage Fraud, provides homeowners and their loved ones with access to current investigations, complaint forms, and tips to identify and avoid a number of different types of real estate and mortgage fraud, including foreclosure rescue fraud.

“Companies and individuals are taking advantage of our homeowners in these tough economic times by preying on their financial situations,” said Florida’s Attorney General, Bill McCollum, in announcing the launch of the website. “If we can increase consumer education and empower people to spot scams and avoid them in advance, we can help decrease the number of victims targeted by this fraud.”

Homeowners can use the site to obtain information about active litigation involving companies the State of Florida has taken action against and can download affidavit forms to fill out if they feel they have been victimized by one of the companies on the list. You can also use the site to access a list of investigations being conducted by the Attorney General’s Mortgage Fraud Task Force to see if a particular company is currently being scrutinized.

The website also features answers to frequently asked questions about real estate and mortgage fraud, consumer tips, and a list of warning signs that a company or an individual might be engaging in foreclosure rescue fraud. Additional resources are also available, including a link to a new Florida Bar website containing information for attorneys and consumers on legal training, housing help workshops and clinics being held in Florida, and information concerning the Florida Bar Lawyer Referral Service and qualified legal aid agencies throughout Florida.

In 2007, Florida’s Attorney General initiated an agency-wide Mortgage Fraud Task Force to address the issues of mortgage and foreclosure rescue fraud. Since then, the Task Force has filed six lawsuits, has settled with seven companies, and is actively investigating more than 50 additional companies under the Foreclosure Rescue Fraud Prevention Act, which took effect October 1, 2008. The Task Force has also reviewed information pertaining to the business practices of more than 200 foreclosure rescue businesses.

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Dustin Thompson, 30, and Sean McLaughlin, 29, were indicted on April 8, 2009, on four counts of Wire Fraud and one count of Conspiracy to Commit Wire Fraud as a result of their involvement in a cash back at closing mortgage fraud scheme in Arizona. Thompson was arrested on March 13, 2009 in Las Vegas on a criminal complaint and has been detained pending trial. McLaughlin received a summons to appear in federal court on the charges.

The case against the pair is based on an investigation which alleges that from October 19, 2005, through June 5, 2007, they conspired to commit mortgage fraud in the Phoenix area. Thompson and McLaughlin submitted mortgage loan applications on behalf of buyers, that included friends and family members, containing false information. Following the funding of the loans, Thompson and McLaughlin received cash back at closing that they used for personal expenses and to perpetuate the scheme. Most of the homes purchased during the conspiracy have since foreclosed.

A conviction for each count of Wire Fraud and Conspiracy to Commit Wire Fraud is punishable by a maximum term of 30 years in prison, a $1,000,000 fine or both. The investigation in this case was conducted by the Federal Bureau of Investigation and the Internal Revenue Service, Criminal Investigation Division. The prosecution is being handled by Kevin M. Rapp, Assistant U.S. Attorney, District of Arizona, Phoenix.

The Federal Trade Commission (FTC) has stepped up its efforts in the battle against real estate and mortgage fraud. As I reported in September of 2007 (see “FTC Issues Warning on Mortgage Lenders Ads“), the FTC has long had its eye on deceptive practices within the real estate industry, so it comes as no surprise that the Commission today announced a massive crackdown on suspected fraud and deception by loan modification companies.

The FTC, which administers a wide variety of consumer protection laws, is seeking to halt the proliferation of mortgage relief scams—which, Flipping Frenzy readers know, targets distressed and vulnerable homeowners who are delinquent on their mortgage payments or facing foreclosure—through increased law enforcement, consumer outreach, and close coordination with federal, state, and non-profit partners.

Watch FTC Chairman Jon Leibowitz explaining today’s development:

Specifically, the FTC announced law enforcement actions against five loan modification and foreclosure rescue operations using what it calls “deceptive tactics to market their mortgage modification and home foreclosure relief services,” including firms that marketed their services by giving what the FTC calls “the false impression they were affiliated with the federal government.” Today’s move brings to 11 the number of loan modification and mortgage foreclosure rescue scams brought down by the FTC in the last year.

The FTC also announced today it has sent warning letters to 71 companies who may be deceptively marketing loan modification or foreclosure rescue services. The FTC identified these companies through a nationwide review of Internet and other advertisements and warned these companies that their ads may violate federal law.

The FTC’s five law enforcement actions target what’s what the Commission believes to be perpetrators of mortgage-related scams. According to the FTC, these schemes typically operate in the following way.

• First, they use terms like “guarantee” and “97% success rate” to mislead consumers about the mortgage modification or foreclosure relief services they can provide
• They charge up-front fees for these services—fees legitimate nonprofit organizations do not charge
• They use copycat names or look-alike Web sites to appear to be a nonprofit or government entity
• Often, after collecting the fee, these companies do little or nothing to help consumers, contends the FTC

In each case described below, the FTC is seeking or has already obtained a temporary restraining order to halt the company’s alleged illegal conduct:

• Federal Loan Modification Law Center (FedMod). FedMod markets mortgage loan modification and foreclosure relief services to homeowners who are in financial distress, delinquent on their mortgages, or in danger of losing their homes to foreclosure. According to the FTC’s complaint, FedMod charges consumers from $1,000 to $3,000 in fees for these services, much of which must be paid up-front, but fails in numerous instances to obtain the promised loan modifications. In radio advertisements, the FTC alleges, FedMod induces homeowners to call its toll-free number by misrepresenting that it is part of or affiliated with the federal government, although it is not. According to the complaint, FedMod often fails to answer or return consumers’ calls or provide updates about the status of their loan modifications, and assures consumers that negotiations with their lenders are proceeding when, in fact, little or no effort has been made to contact the lender.
• Bailout.hud-gov.us. According to the FTC’s complaint, defendant Thomas Ryan used a foreign Internet registrar to falsely register two sites – bailout.hud-gov.us and bailout.dohgov.us. The sites were used to entice financially strapped consumers to seek mortgage loan modification services under the guise that the services were associated with, or were actually, the U.S. government, including HUD and the Treasury Department. The FTC alleges that the defendant misled consumers nationwide. A federal district court granted the FTC’s motion for a temporary restraining order which required the Internet Service Provider (ISP) hosting the sites to immediately remove them from the Internet. The FTC and the defendant stipulated to a preliminary injunction prohibiting him from holding himself out as an agency of any U.S., state, or local government, or as being affiliated with any such agency.
• Home Assure d/b/a Expert Foreclosure. In this case, the FTC alleges that the defendants promise consumers facing imminent home foreclosure that they can stop the foreclosure, regardless of the amount the consumer owes his or her lender. The defendants are charged with falsely claiming that they have special relationships with lenders, have helped thousands of consumers avoid foreclosure, and will provide a 100 percent satisfaction money-back guarantee. They typically charge consumers an up-front fee of $1,500 to $2,500 but, the FTC alleges, do little or nothing to help them avoid foreclosure and fail to give refunds when foreclosures are not stopped.
• Hope Now Modifications LLC and New Hope Property LLC d/b/a New Hope Modifications LLC. On March 24, the FTC announced two related cases alleging that the defendants misled consumers about their ability to provide mortgage loan modification and foreclosure relief, and misrepresented that they were affiliated with or part of the HOPE NOW Alliance, the non-profit, HUD-endorsed organization that is a broad-based coalition of credit and home ownership counselors, lenders, and other mortgage market participants. In each case, the court issued a temporary restraining order with an asset freeze and set dates for a preliminary injunction hearing. The New Jersey Attorney General also filed state court actions against both sets of defendants, and those cases are in litigation.

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When I first read about John Pistole’s Congressional testimony before the House Committee on the Judiciary, I figured I’d take an hour or so to read through his testimony myself and summarize it for readers here on Flipping Frenzy. Little did I know that Pistole, who currently serves as the FBI’s Deputy Director, would have so much to say.

Rather than attempt to summarize Pistole’s remarks about real estate and mortgage fraud’s role in our current economic tsunami, here is the Deputy Director’s comments in full (emphasis/bold is of my own doing):

John S. Pistole

April 1, 2009

Good morning Mr. Chairman, Ranking Member, and Members of the Committee. I want to thank you for the opportunity to testify before you today about the Federal Bureau of Investigation’s (FBI) efforts to combat mortgage fraud and other financial frauds. Much the same as the Savings and Loan (S&L) Crisis of the 1980s crippled our economy, so too has the current financial crisis. Many of the lessons learned and best practices from our work during the past decade, such as the Enron investigation, will clearly help us navigate the expansive crime problem currently taxing law enforcement and regulatory authorities.

In the late 1980s and early 1990s, the United States experienced a similar financial crisis with the collapse of the savings and loans. The Department of Justice (DOJ), and more specifically the FBI, were provided a number of tools through the Financial Institutions Reform, Recovery and Enforcement Act of 1989 (FIRREA) and Crime Control Act of 1990 (CCA) to combat the aforementioned crisis. As stated in Senate Bill 331 dated January 27, 2009, “in the wake of the Savings and Loan crisis of the 1980s, a series of strike forces based in 27 cities was staffed with 1000 FBI agents and forensic experts and dozens of federal prosecutors. That effort yielded more than 600 convictions and $130,000,000 in ordered restitution.”

However, today’s financial crisis dwarves the S&L crisis as financial institutions have reduced their assets by more than $1.2 trillion related to the current global financial crisis compared to the estimated $160 million lost during the S&L crisis. Mortgage and related corporate fraud were not the sole sources of the current financial crisis; however, it would be irresponsible to neglect mortgage fraud’s impact on the U.S. housing and financial markets.

As the FBI’s Assistant Director for the Criminal Division testified in 2004 before the House Financial Services Sub-Committee:

“If fraudulent practices become systemic within the mortgage industry and mortgage fraud is allowed to become unrestrained, it will ultimately place financial institutions at risk and have adverse effects on the stock market. Investors may lose faith and require higher returns from mortgage backed securities. This may result in higher interest rates and fees paid by borrowers and limit the amount of investment funds available for mortgage loans.”

He also noted that the FBI supported new approaches to address mortgage fraud and its effects on the U.S. financial system, to include:

• a mechanism to require the mortgage industry to report fraudulent activity, and
• the creation of “Safe Harbor” provisions to protect the mortgage industry under a mandatory reporting mechanism.

What has occurred has been far worse than predicted. Mortgage fraud and related financial industry corporate fraud have shaken the world’s confidence in the U.S. financial system. The fraud schemes have adapted with the changing economy and now individuals are preyed upon even as they are about to lose their homes. But what is mortgage fraud?

Although there is no specific statute that defines mortgage fraud, each mortgage fraud scheme contains some type of material misstatement, misrepresentation or omission relied upon by an underwriter or lender to fund, purchase or insure a loan.

The FBI delineates mortgage fraud in two distinct areas: 1) Fraud for Profit; and 2) Fraud for Housing. Fraud for Profit uses a scheme to remove equity, falsely inflate the value of the property or issue loans relating to fictitious property(ies). Many of the Fraud for Profit schemes rely on “industry insiders”, who override lender controls. The FBI defines industry insiders as appraisers, accountants, attorneys, real estate brokers, mortgage underwriters and processors, settlement/title company employees, mortgage brokers, loan originators, and other mortgage professionals engaged in the mortgage industry.

Fraud for Housing represents illegal actions perpetrated by a borrower, typically with the assistance of real estate professionals. The simple motive behind this fraud is to acquire and maintain ownership of a house under false pretenses. This type of fraud is typified by a borrower who makes misrepresentations regarding the borrower’s income or employment history to qualify for a loan.

The FBI compiles data on mortgage fraud through Suspicious Activity Reports (SARs) filed by financial institutions and through the Department of Housing and Urban Development (HUD) Office of Inspector General (OIG) reports. The FBI also receives complaints from the industry at large.

While a significant portion of the mortgage industry is void of any mandatory fraud reporting and there is presently no central repository to collect all mortgage fraud complaints, SARs from financial institutions have indicated a significant increase in mortgage fraud reporting. For example, during Fiscal Year (FY) 2008, mortgage fraud SARs increased more than 36 percent to 63,173. The total dollar loss attributed to mortgage fraud is unknown. However, 7 percent of SARs filed during FY 2008 indicated a specific dollar loss, which totaled more than $1.5 billion. Only 7 percent of SARs report dollar loss because of the time lag between identifying a suspicious loan and liquidating the property through foreclosure and then calculating the loss amount. As of February 28, 2009, there were 28,873 mortgage fraud SARs filed in fiscal year 2009.

Fraud Trends

The current financial crisis has produced one unexpected consequence: it has exposed prevalent fraud schemes that have been thriving in the global financial system. These fraud schemes are not new but they are coming to light as a result of market deterioration. For example, current market conditions have helped reveal numerous mortgage fraud, Ponzi schemes and investment frauds, such as the Bernard Madoff scam. These schemes highlight the need for law enforcement and regulatory agencies to be ever vigilant of White Collar Crime both in boom and bust years.

The FBI has experienced and continues to experience an exponential rise in mortgage fraud investigations. The number of open FBI mortgage fraud investigations has risen from 881 in FY 2006 to more than 2,000. In addition, the FBI has 566 open corporate fraud investigations, including matters directly related to the current financial crisis. These corporate and financial institution failure investigations involve financial statement manipulation, accounting fraud and insider trading. The increasing mortgage, corporate fraud, and financial institution failure case inventory is straining the FBI’s limited White Collar Crime resources.

Although there are many mortgage fraud schemes, the FBI is focusing its efforts on those perpetrated by industry insiders who are part of organized enterprises engaged in Mortgage Fraud for Profit. Industry insiders are of priority concern as they are, in many instances, the facilitators that permit the fraud to occur. The FBI utilizes SAR data to help identify fraud schemes perpetrated by insiders. However, SAR data does not capture suspicious activity identified by the entire mortgage industry. Requiring the entire industry to report suspicious activity would give us a more complete data set to exploit. The FBI is engaged with the mortgage industry in identifying fraud trends and educating the public. Some of the current rising mortgage fraud trends include: equity skimming, property flipping, mortgage identity related theft, and foreclosure rescue scams.

Equity skimming is a tried and true method of committing mortgage fraud and criminals continue to devise new schemes. Today’s common equity skimming schemes involve the use of corporate shell companies, corporate identity theft and the use or threat of bankruptcy/foreclosure to dupe homeowners and investors.

Property flipping is nothing new; however, once again law enforcement is faced with an educated criminal element that is using identity theft, straw borrowers and shell companies, along with industry insiders to conceal their methods and override lender controls.

Identity theft in its many forms is a growing problem and is manifested in many ways, including mortgage documents. The mortgage industry has indicated that personal, corporate, and professional identity theft in the mortgage industry is on the rise. Computer technology advances and the use of online sources have also assisted the criminal in committing mortgage fraud. However, the FBI is working with its law enforcement and industry partners to identify trends and develop techniques to thwart illegal activities in this arena.

Foreclosure rescue scams are particularly egregious in that fraudsters take advantage and illegally profit from other individuals’ misfortunes. As foreclosures continue to rise across the country, so too have the number of foreclosure rescue scams that target unsuspecting victims. These scams include victims losing their home equity or paying thousands of dollars in fees, and then receiving little or no services, and ultimately losing their home to foreclosure. The FBI is again working with our law enforcement and regulatory partners along with industry partners to target, disrupt and dismantle the individuals and/or companies engaging in these fraud schemes.

Proactive Approach to Financial Frauds

The FBI has implemented new and innovative methods to detect and combat mortgage fraud. One of these proactive approaches was the development of a property flipping analytical computer application, first developed by the Washington Field Office, to effectively identify property flipping in the Baltimore and Washington areas. The original concept has evolved into a national FBI initiative which employs statistical correlations and other advanced computer technology to search for companies and persons with patterns of property flipping. As potential targets are analyzed and flagged, the information is provided to the respective FBI field office for further investigation. Property flipping is best described as purchasing properties and artificially inflating their value through false appraisals. The artificially valued properties are then sold at a higher price to an associate of the “flipper” at a substantially inflated price. Often flipped properties go into foreclosure and are ultimately repurchased for a fraction of their original value.

Other methods employed by the FBI include sophisticated investigative techniques, such as undercover operations and wiretaps. These investigative measures not only result in the collection of valuable evidence, they also provide an opportunity to apprehend criminals in the commission of their crimes, thus reducing loss to individuals and financial institutions. By pursuing these proactive methods in conjunction with historical investigations, the FBI is able to realize operational efficiencies in large scale investigations.

In December 2008, the FBI dedicated resources to create the National Mortgage Fraud Team at FBI headquarters in Washington, D.C. The Team has the specific responsibility for all management of the mortgage fraud program at both the origination and corporate level. This Team will be assisting the field offices in addressing the mortgage fraud problem at all levels. The current financial crisis, however, has required the FBI to move resources from other white collar crime and criminal programs in order to appropriately address the crime problem. Since January 2007, the FBI has increased its agent and analyst manpower working mortgage fraud investigations. The Team provides tools to identify the most egregious mortgage fraud perpetrators, prioritize pending investigations, and provide information to evaluate where additional manpower is needed.

Partnerships

One of the best tools the FBI has in its arsenal for combating mortgage fraud is its long-standing partnerships with other federal, state and local law enforcement. This is not a new tool employed by the FBI. Collaboration, communication, and information-sharing have long been a proven solution to the nation’s most difficult crimes. In response to a growing gang problem, for example, the FBI stood up Safe Streets Task Forces across the country. In response to crimes in Indian Country, the FBI developed the Safe Trails Task Force Program. In response to this new threat, the FBI stood up Mortgage Fraud Task Forces across the country.

Presently, there are 18 mortgage fraud task forces and 47 working groups in the country. With representatives of federal, state, and local law enforcement, these task forces are strategically placed in areas identified as high threat areas for mortgage fraud. Partners are varied but typically include representatives of HUD-OIG, the U.S. Postal Inspection Service, the Internal Revenue Service, FinCEN, the Federal Deposit Insurance Corporation, as well as State and local law enforcement officers across the country.

While the FBI has increased the number of agents around the country who investigate mortgage fraud cases from 120 Special Agents in FY 2007 to currently over 250 Special Agents as of February 28, 2009, this multi-agency model serves as a force-multiplier, providing an array of resources to adequately identify the source of the fraud, as well as finding the most effective way to prosecute each case, particularly in active markets where fraud is widespread. We are pleased to report that the model is working.

Last June, for example, we worked closely with our partners on “Operation Malicious Mortgage” – a massive multiagency takedown of mortgage fraud schemes involving more than 400 defendants nationwide. That operation focused primarily on three types of mortgage fraud: lending fraud, foreclosure rescue schemes, and mortgage-related bankruptcy schemes. Among the 400-plus subjects of “Operation Malicious Mortgage”, there have been 164 convictions and 81 sentencings so far for crimes that have accounted for more than $1 billion in estimated losses. Forty-six of our 56 field offices around the country took part in the operation, which has resulted in the forfeiture and/or seizure of more than $60 million in assets.

In addition to the effort placed in standing up mortgage fraud task forces, the FBI is one of the DOJ participants in the national Mortgage Fraud Working Group (MFWG), which DOJ chairs. The MFWG represents the collaborative effort of multiple Federal agencies and facilitates the information sharing process across the aforementioned agencies, as well as private organizations. Together, we are building on existing FBI intelligence databases to identify large industry insiders and criminal enterprises conducting systemic mortgage fraud.

The FBI is also a member of the President’s Corporate Fraud Task Force which is comprised of investigators from the Securities and Exchange Commission, the Internal Revenue Service, the U.S. Postal Inspection Service, the Commodity Futures Trading Commission, and the FinCEN. The purpose of the Corporate Fraud Task Force is to maximize intelligence sharing between membership agencies and to ensure the violations related to corporate fraud are appropriately addressed. The FBI also participates in the Securities and Commodities Fraud Working Group, a national interagency coordinating body established by DOJ to provide a forum for exchanging information and discussing violation trends, law enforcement issues and techniques. In addition, since April 2007, FBI headquarters personnel have met with representatives from the Securities and Exchange Commission once a month to coordinate the respective Corporate Fraud inventories focused on the current financial crisis and to share intelligence.

Industry Liaison

In addition to its partners in law enforcement and regulatory areas, the FBI also continues to foster relationships with representatives of the mortgage industry to promote mortgage fraud awareness. The FBI has spoken at and participated in various mortgage industry conferences and seminars, including those sponsored by the Mortgage Bankers Association (MBA).

To raise awareness of this issue and provide easy accessibility to investigative personnel, the FBI has provided contact information for all FBI Mortgage Fraud Supervisors to relevant groups including the MBA, Mortgage Asset Research Institute, Fannie Mae, Freddie Mac and others. Additionally, the FBI is collaborating with industry to develop a more efficient mortgage fraud reporting mechanism for those not mandated to report such activity. The FBI supports providing a “safe harbor” for lending institutions, appraisers, brokers and other mortgage professionals similar to the provisions afforded to financial institutions providing SAR information. The “ Safe Harbor” provision would provide necessary protections to the mortgage industry under a mandatory reporting mechanism. This will also better enable the FBI to provide reliable mortgage fraud information based on a more representative population in the mortgage industry.

Lenders are painfully aware that fraud is affecting their bottom line. Through routine interaction with FBI personnel, industry representatives are aware of our commitment to address this crime problem. The FBI frequently participates in industry sponsored fraud deterrence seminars, conferences and meetings which include topics such as quality control and industry best practices to detect, deter, and prevent mortgage fraud. These meetings play a significant role in training and educating industry professionals. Companies share current and common fraud trends, loan underwriting weaknesses and best practices for fraud avoidance. These meetings also increase the interaction between industry and FBI personnel.

Additionally, the FBI continues to train its personnel and conduct joint training with HUD-OIG and industry on mortgage fraud. As a training model, the FBI seeks industry experts to assist in its internal training programs. For example, industry has assisted training FBI personnel on mortgage industry practices, documentation, laws and regulations. Industry partners have offered to assist the FBI in developing advanced mortgage fraud investigative training material and fraud detection tools.

Conclusion

Mr. Chairman, the FBI remains committed to its responsibility to aggressively investigate significant financial crimes which include mortgage fraud. We will continue to work with the Office of Management and Budget, and the Congress to ensure that adequate resources are available to address these threats. To maximize our current resources, we are relying on intelligence collection and analysis to identify emerging trends to target the greatest threats. We also will continue to rely heavily on the strong relationships we have with both our law enforcement and regulatory agency partners.

The FBI looks forward to working with you and other members of this committee on solving this serious threat to our nation’s economy. Thank you for allowing me the opportunity to testify before you today. I look forward to taking your questions.

This is the kind of story you’d expect to hear about on April Fools Day, but sadly it’s true. Michigan’s Office of Financial and Insurance Regulation (OFIR) has ordered an entity claiming to be a mortgage company to cease and desist from doing business. OFIR believes Southfield, MI-based Capita Management Group, through its website, www.capitamanagementgroup.com (which has since been shut down by OFIR has contacted Godaddy.com), was as a legitimate mortgage company in an attempt to steal consumers’ money and identity. The fraudulent company encouraged customers to apply for loans by providing personal information including social security and financial account numbers.

“OFIR will continue to make it our business to put these fake companies out of business,” OFIR Commissioner Ken Ross said. “Michigan consumers need to be on the lookout for these classic advance loans scams, where they are lured into paying upfront fees for services they never get in return.”

OFIR found that Capita was not licensed under the state’s Mortgage Brokers, Lenders and Servicers Licensing Act.

To find out if a mortgage company in Michigan is licensed to do business in the state, contact OFIR toll-free at 877-999-6442 or visit the agency’s website www.michigan.gov/ofir and click “Who We Regulate.”
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To update a story I wrote on May 29, 2008 (”Real Estate Fraud and the Real Estate Investor: Banks can be victims too!“), Omni Financial Services Inc., the bank holding company for Omni National Bank, is now officially operating under a mandatory regulatory oversight plan put into place by the Federal Reserve Bank of Atlanta.

For anyone interested in diving deep into this one, here’s the exact text from the written agreement between the Federal Reserve Bank of Atlanta and Omni Financial Services, Inc.:

UNITED STATES OF AMERICA
BEFORE THE
BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM WASHINGTON, D.C.

Written Agreement by and between

OMNI FINANCIAL SERVICES, INC.
Atlanta, Georgia

and

FEDERAL RESERVE BANK OF ATLANTA
Atlanta, Georgia

Docket No. 09-022-WA/RB-HC

WHEREAS, Omni Financial Services, Inc., Atlanta, Georgia (“Omni”), a registered bank holding company, owns and controls Omni National Bank, Atlanta, Georgia (the “Bank”), a national bank, and various nonbank subsidiaries;

WHEREAS, it is the common goal of Omni and the Federal Reserve Bank of Atlanta (the “Reserve Bank”) to maintain the financial soundness of Omni so that Omni may serve as a source of strength to the Bank;

WHEREAS, Omni and the Reserve Bank have mutually agreed to enter into this Written Agreement (the “Agreement”); and

WHEREAS, on March 16, 2009, the board of directors of Omni, at a duly constituted meeting, adopted a resolution authorizing and directing Stephen M. Klein to enter into this Agreement on behalf of Omni, and consenting to compliance with each and every provision of this Agreement by Omni and its institution-affiliated parties, as defined in sections 3(u) and 8(b)(3) of the Federal Deposit Insurance Act, as amended (the “FDI Act”) (12 U.S.C. §§ 1813(u) and 1818(b)(3)).

NOW, THEREFORE, Omni and the Reserve Bank agree as follows:

Capital Plan

1. Within 30 days of this Agreement, Omni shall submit to the Reserve Bank an acceptable written plan to maintain sufficient capital at Omni, on a consolidated basis, and the Bank, as a separate legal entity on a stand-alone basis. The plan shall, at a minimum, address, consider, and include:

(a) The consolidated organization’s and the Bank’s current and future capital requirements, including compliance with the Capital Adequacy Guidelines for Bank Holding Companies: Risk-Based Measure and Tier 1 Leverage Measure, Appendices A and D of Regulation Y of the Board of Governors of the Federal Reserve System (the “Board of Governors”) (12 C.F.R. Part 225, App. A and D) and the applicable capital adequacy guidelines for the Bank issued by the Bank’s federal regulator;

(b) the adequacy of the Bank’s capital, taking into account the volume of classified credits, concentrations of credit, allowance for loan and lease losses (“ALLL”), current and projected asset growth, and projected retained earnings;

(c) the source and timing of additional funds to fulfill the consolidated organization’s and the Bank’s future capital requirements;

(d) supervisory requests for additional capital at the Bank or the requirements of any supervisory action imposed on the Bank by its federal regulator;

(e) the requirements of section 225.4(a) of Regulation Y of the Board of Governors (12 C.F.R. § 225.4(a)) that Omni serve as a source of strength to the Bank; and

(f) procedures for Omni to: (i) notify the Reserve Bank, in writing, no more than 30 days after the end of any quarter in which Omni’s consolidated capital ratios or the Bank’s capital ratios (total risk-based, tier 1 risk-based, or leverage) fall below the plan’s minimum ratios; and (ii) submit simultaneously to the Reserve Bank an acceptable written plan that details the steps Omni will take to increase its and the Bank’s capital ratios above the plan’s minimums.

Accounting Policies and Procedures

2. Within 30 days of this Agreement, Omni shall submit to the Reserve Bank acceptable written accounting policies and procedures for the consolidated organization that are designed to enhance the accounting controls over Omni’s books and records and to ensure the accuracy of Omni’s books and records, which shall, among other things include, but not be limited to:

(a) A separate general ledger system which shall track Omni’s assets and liabilities, and shareholders’ equity separately from the Bank’s; and

(b) segregation of and physical control over Omni’s assets separate and apart from the Bank’s assets.

Affiliate and Insider Transactions

3. (a) Omni shall take all necessary actions to ensure that the Bank complies with sections 23A and 23B of the Federal Reserve Act (12 U.S.C. §§ 371c and 371c-1) and Regulation W of the Board of Governors (12 C.F.R. Part 223) in all transactions between the Bank and its affiliates, including, but not limited to, Omni, and its nonbank subsidiaries. Omni shall maintain a written record of each transaction between Omni, its nonbank subsidiaries, and the Bank and make such record available for subsequent supervisory review.

(b) For the purposes of this paragraph, the terms: (i) “transaction” shall include, but not be limited to, the transfer, contribution, sale or purchase of any Bank asset, the direct or indirect payment of any Omni expense or obligation, the direct or indirect assumption of any Omni liability, the payment by the Bank of a management or service fee of any nature to Omni, or any extension of credit by the Bank to Omni, including overdrafts; and (ii) “extension of credit” shall be defined as set forth in section 215.3 of Regulation O of the Board of Governors (12 C.F.R. 215.3).

4. (a) Omni shall not, directly or indirectly, enter into, participate, or, in any other manner, engage in any financial transaction with any of Omni’s or the Bank’s current or former executive officers, directors, principal shareholders or related interest thereof without the prior written approval of the Reserve Bank.

(b) Any request for prior approval shall be accompanied by adequate documentation that provides details of each proposed transaction, including a full description of the proposal, the purpose(s) of the transaction, the amounts involved, the benefits to be derived by the Omni, the Bank, or the current or former executive officer, director, principal shareholder or related interest thereof and such other matters that may be pertinent to the proposed payment or transaction to assist the Reserve Bank’s review of each proposal.

(c) For the purposes of this paragraph, the terms: (i) “director,” “executive officer,” “principal shareholder,” and “related interest” shall be defined as set forth in section 215.2 of Regulation O of the Board of Governors (12 C.F.R. 215.2); and (ii) “financial transaction” shall include, but is not limited to: an extension of credit; the use of Omni’s credit card for personal expenses; the payment of money; the transfer, sale or purchase of any asset; a contract; or Omni’s payment of any obligation of Omni’s or the Bank’s current or former executive officers, directors, principal shareholders or related interest thereof. Notwithstanding the foregoing definition of “financial transaction,” for the purposes of this paragraph, “financial transaction” shall not include the payment of fees and salaries to executive officers and directors and the reimbursement of expenses provided that similar types and amounts of payments have previously been made and fully documented on Omni’s books and records.

Compensation

5. (a) Omni shall not, directly or indirectly, increase salaries, bonuses, or directors’ fees, or make any other payments, including, but not limited to, reimbursement of expenses or payment of indebtedness, to or on behalf of any of Omni’s directors or executive officers without the prior written approval of the Reserve Bank.

(b) Notwithstanding the provisions of this paragraph, Omni does not need to obtain the prior written approval of the Reserve Bank for the reimbursement of reasonable expenses that aggregate no more than $500 per month for each executive officer, provided that such reasonable expenses are incurred in performing routine duties, which have been adequately documented and reported on Omni’s books and records.

Dividends and Distributions

6. (a) Omni shall not declare or pay any dividends without the prior written approval of the Reserve Bank and the Director of the Division of Banking Supervision and Regulation of the Board of Governors (the “Director”).

(b) Omni shall not directly or indirectly take dividends or any other form of payment representing a reduction in capital from the Bank without the prior written approval of the Reserve Bank.

(c) Omni and its nonbank subsidiaries shall not make any distributions of interest, principal, or other sums on subordinated debentures or trust preferred securities without the prior written approval of the Reserve Bank and the Director.

(d) All requests for prior approval shall be received by the Reserve Bank at least 30 days prior to the proposed dividend declaration date, proposed distribution on subordinated debentures, and required notice of deferral on trust preferred securities. All requests shall contain, at a minimum, current and projected information on Omni’s capital, earnings, and cash flow; the Bank’s capital, asset quality, earnings, and ALLL; and identification of the sources of funds for the proposed payment or distribution. For requests to declare or pay dividends, Omni must also demonstrate that the requested declaration or payment of dividends is consistent with the Board of Governors’ Policy Statement on the Payment of Cash Dividends by State Member Banks and Bank Holding Companies, dated November 14, 1985 (Federal Reserve Regulatory Service, 4-877 at page 4-323).

Debt and Stock Redemption

7. (a) Omni and any nonbank subsidiary shall not, directly or indirectly, incur, increase, or guarantee any debt without the prior written approval of the Reserve Bank. All requests for prior written approval shall contain, but not be limited to, a statement regarding the purpose of the debt, the terms of the debt, and the planned source(s) for debt repayment, and an analysis of the cash flow resources available to meet such debt repayment.

(b) Omni shall not, directly or indirectly, purchase or redeem any shares of its stock without the prior written approval of the Reserve Bank.

Compliance with Laws and Regulations

8. (a) In appointing any new director or senior executive officer, or changing the responsibilities of any senior executive officer so that the officer would assume a different senior executive officer position, Omni shall comply with the notice provisions of section 32 of the FDI Act (12 U.S.C. § 1831i) and Subpart H of Regulation Y of the Board of Governors (12 C.F.R. §§ 225.71 et seq.).

(b) Omni shall comply with the restrictions on indemnification and severance payments of section 18(k) of the FDI Act (12 U.S.C. § 1828(k)) and Part 359 of the Federal Deposit Insurance Corporation’s regulations (12 C.F.R. Part 359).

Progress Reports

9. Within 30 days after the end of each calendar quarter following the date of this Agreement, the board of directors shall submit to the Reserve Bank written progress reports detailing the form and manner of all actions taken to secure compliance with the provisions of this Agreement and the results thereof, and a parent company only balance sheet, income statement, and, as applicable, a report of changes in stockholders’ equity.

Approval and Implementation of Plan, Policies, and Procedures

10. (a) Omni shall submit a written capital plan and accounting policies and procedures that are acceptable to the Reserve Bank within the applicable time periods set forth in paragraphs 1 and 2 of this Agreement.

(b) Within 10 days of approval by the Reserve Bank, Omni shall adopt the approved capital plan and accounting policies and procedures. Upon adoption, Omni shall promptly implement the approved plan and policies and procedures, and thereafter fully comply with them.

(c) During the term of this Agreement, the approved capital plan and accounting policies and procedures shall not be amended or rescinded without the prior written approval of the Reserve Bank.

Communications

11. All communications regarding this Agreement shall be sent to:

(a) Mr. Robert D. Hawkins
Assistant Vice President
Federal Reserve Bank of Atlanta
1000 Peachtree Street, N.E.
Atlanta, Georgia 30309-4470

(b) Stephen M. Klein
Chairman and CEO
Omni Financial Services, Inc.
Six Concourse Parkway, Suite 2300
Atlanta, Georgia 30328

Miscellaneous

12. Notwithstanding any provision of this Agreement, the Reserve Bank may, in its sole discretion, grant written extensions of time to Omni to comply with any provision of this Agreement.

13. The provisions of this Agreement shall be binding upon Omni and its institution- affiliated parties, in their capacities as such, and their successors and assigns.

14. Each provision of this Agreement shall remain effective and enforceable until stayed, modified, terminated, or suspended in writing by the Reserve Bank.

15. The provisions of this Agreement shall not bar, estop, or otherwise prevent the Board of Governors, the Reserve Bank, or any other federal or state agency from taking any other action affecting Omni, the Bank, any nonbank subsidiary of Omni, or any of their current or former institution-affiliated parties and their successors and assigns.

16. Pursuant to section 50 of the FDI Act (12 U.S.C. § 1831aa), this Agreement is enforceable by the Board of Governors under section 8 of the FDI Act (12 U.S.C. § 1818).

IN WITNESS WHEREOF, the parties have caused this Agreement to be executed as of the 16th day of March, 2009.

Signed by Stephen M. Klein
Chairman and CEO, Omni Financial Services, Inc.

Signed by Robert D. Hawkins
Assistant Vice President,
Federal Reserve Bank of Atlanta

According to the FDIC’s latest Summary of Deposits for Omni National Bank (June 30, 2008), the bank’s holding company, Omni Financial Services, Inc., had $846,839,000 in customer deposits in 10 offices spread across five different states (Georgia, Florida, Illinois, North Carolina, and Texas). Capital Bank, a subsidiary of Capital Bank Corporation, acquired Omni’s four branches in Fayetteville, North Carolina in mid-December, 2008.

Omni National Bank is now participating in the FDIC’s Transaction Account Guarantee Program. Under that program, through December 31, 2009, all of the Bank’s noninterest-bearing transaction accounts are fully guaranteed by the FDIC for the entire amount in the account.

Finally, according to numerous comments left here on FlippingFrenzy.com, many home owners and investors who became acquainted with Omni National Bank through Delroy Davy are still searching for answers and justice in their quest to recover from their business dealings with Delroy Davy.

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I recently received the below question from someone who reads one of my other blogs–KeepMyHouse.com. In short, without going into too much detail, I think Flipping Frenzy readers–especially those of you who closely follow Countrywide–might appreciate knowing about this:

Question: We are a disabled couple who had a serious re-model which had to be done—-we were Countrywide customers, and never late with a payment. They made us come back 4 times in 4 years to get the funds, and they falsified our income. (I have the documents.) Now, they are sending me notices of ‘intent to accelerate’ and will not tell me what will happen if I cannot pay them the entire amount. They knew we were on fixed incomes, but went ahead each time as if we had all the money in the world. What can I do to?

Answer: Without knowing more, it sounds like you may have a cause of action against Countrywide. I’m not an attorney, but you may want to speak with one about your situation.

If you do not pay and they accelerate the loan, that means you have to come up with the full unpaid principal balance plus delinquencies and costs. If you don’t pay; Countrywide can foreclose. Depending on what state you’re in, that can take the form of a judicial foreclosure or a non-judicial foreclosure. You should find out what the foreclosure laws are in your state and familiarize yourself with the timeline for these proceedings.

Another approach you can take is to hire a company to complete a fraud and predatory lending audit on your loan documents, income, etc. This will cost you some money up front, but if it proves what you expect it to, you can then use that information to contact Countrywide and hopefully secure a modification to truly affordable payments. This audit will also be advantageous should you need to pursue legal action or arbitrate a settlement. The “bad acts” and documentation supporting those bad acts will be important when an attorney is deciding whether or not you have a legitimate claim against Countrywide.

You can always take the inexpensive road first. Try qualifying for a loan modification by calling Countrywide.

Make sure you explain your financial situation and have your income and expenses available and organized before you call. The modification rules have changed a bit under the Obama Plan, so you might find yourself qualifying for help.

There are also some other programs that can help you reinstate and come current. Ask Countrywide when you call whether you can qualify for the HomeSaver Advance Program–a loan that can be used to cure delinquencies and reinstate. It won’t solve the payment problems if you can’t afford to make your monthly payment, but it may allow you to avoid an immediate foreclosure and give you some time to investigate other ways to keep your house.

What ever you decide, act quickly, there may be a temporary moratorium on foreclosures but that will not last forever.

The San Antonio, Texas, office of the Federal Bureau of Investigation (FBI) announced today the establishment of a telephone hotline to receive complaints from the public regarding allegations of real estate and mortgage fraud.

As Flipping Frenzy readers know all to well, the FBI considers mortgage fraud to be a significant and growing crime which often affects unknowing consumers, and which has a direct impact upon the overall economic health of the U.S. economy. The collapse of the subprime mortgage market, as well as the recent economic downturn, has been met with a corresponding increase in fraud and schemes connected to mortgages and related transactions. The establishment of the San Antonio hotline will aid the FBI and by providing a direct line of alert should mortgage fraud be suspected.

If you suspect real estate or mortgage fraud in the San Antonio area, call the fraud hotline at (210) 650-6777.

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Stefan M. Guerra, 30, of Lee’s Summit, Missouri, and Daryle A. Edwards, 37, and Leon T. Jones, 42, both of Olathe, Kansas., have pleaded guilty in separate appearances before a U.S. Chief District Judge for their roles in a $12.6 million mortgage fraud scheme that involved 25 residential properties in Lee’s Summit and Raymore, Mo.

Guerra, Edwards, and Jones each admitted to participating in a conspiracy to defraud mortgage lenders from June 2005 to May 2007. They are among more than a dozen scammers who were involved in buying and selling new homes in the Raintree and Belmont Farms subdivisions in Lee’s Summit and the Eagle Glen subdivision in Raymore.

According to court documents, buyers purchased the homes at inflated prices, obtaining mortgage loans by providing false information to mortgage lenders, then kept the extra proceeds. The buyers created shell companies for the purpose of receiving those kickbacks from the builder, with kickbacks reaching up to $125,000 on each house.

In total during the course of the conspiracy, mortgage lenders approved 25 loans totaling more than $12.6 million. From that total, buyers received approximately $2.3 million without the lenders’ knowledge.

Stefan Guerra, a former mortgage loan officer at Midwest Equity Mortgage, admitted that he was involved in the purchase of one property and acted as a broker on 11 other properties involved in the conspiracy. The loans on the 12 properties totaled more than $5 million.

Leon Jones admitted he purchased a property in Lee’s Summit as part of the conspiracy, a purchase that involved Stefan Guerra. Jones also admitted that he made material misrepresentations upon which the lender relied in making the mortgage loans totaling $509,000. From the purchase of this property, unbeknownst to the lender, Leon Jones received approximately $50,000.

For his part, Daryle Edwards admitted that he purchased a property in Lee’s Summit as part of the conspiracy, and that he made material misrepresentations upon which the lender relied in making the mortgage loans totaling $410,000. Edwards used a false Social Security number, a false address and false employment, and falsely claimed that he would occupy the property. Darlye Edwards also admitted that he made false representations regarding the use of loan proceeds; Edwards received a $76,600 check payable to DAECO Construction, Inc., a company owned by Edwards, which was not disclosed to the mortgage lender or to the title company.

Co-defendant Ronald E. Brown, Jr., 39, of Gladstone, MO, pleaded guilty in early January of this year, to his role in the conspiracy. Brown, a self-employed insurance agent doing business as The Brown Insurance Agency in Kansas City, Kansas, obtained insurance for the properties that were purchased. After purchasing two false Social Security numbers for $10,000, Brown used the false Social Security number to purchase three properties in Lee’s Summit. In each case, Brown made material misrepresentations upon which the lenders relied in making the mortgage loans, which totaled $1,339,700. From the purchase of these properties, unbeknownst to the lenders, Brown received a total of $279,426.

Under federal statutes, Stefan Guerra, Leon Jones and Daryle Edwards are each subject to a sentence of up to five years in federal prison without parole, plus a fine up to $250,000 and an order of restitution. A sentencing hearing will be scheduled after the completion of a presentence investigation by the United States Probation Office.

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When a then 65-year-old Brooklyn, New York, woman sought the assistance of a foreclosure rescue firm, instead of helping her refinance and save her home, the much maligned Home Savers Consulting Corp. sold her home from under her. To add insult to injury, insolvent IndyMac, which is now controlled by the Federal Deposit Insurance Corp., issued the bogus mortgage on the home.

Now, the 69-year-old woman–Waver Brickhouse–has to convince the FDIC that her mortgage payments shouldn’t include an additional $150,000 added on by mortgage fraud. From yesterday’s edition of The New York Times:

Mortgage Fraud Case Poses Federal Quandary

By MICHAEL POWELL

Waver Brickhouse, gray-haired and soft-spoken, has come undone twice during the nation’s housing crisis.

In 2005, she fell behind on her mortgage payments and turned to a so-called rescue firm, which, court papers allege, tricked her into signing away the deed to her Brooklyn home. She says the company, Home Savers Consulting, secretly sold her home, with the help of a mortgage from IndyMac Federal Bank, and ran up huge new debts.

Now broke, deeply embarrassed and facing the loss of her small row house in the Brownsville neighborhood, Ms. Brickhouse, 69, faces a new problem. She must convince the Federal Deposit Insurance Corporation, which last year took control of IndyMac, now insolvent, that her mortgage payments should not include at least $150,000 tacked on by fraud.

To assume these new costs, she says, would break her in two.

“I’m going to drown in debt,” says Ms. Brickhouse, a retired city parks department worker, shaking her head. “I feel like it’s just a matter of time until I’m on the street with my children.”

F.D.I.C. officials say that they have no desire to put Ms. Brickhouse on the street and that they want to work out affordable payment terms. But Ms. Brickhouse’s lawyers say that the F.D.I.C.’s writ cannot extend to holding her responsible for a fraudulently created mortgage, and they have refused to disclose her finances until the agency drops its claim for the $150,000.

“Our position is that the mortgage with IndyMac is toilet paper — it has no legal standing,” said her lawyer Rick Wagner, litigation director with Brooklyn Legal Services Corporation A. “The law for 200 years is that no title can arise from a fraudulent act.”

Ms. Brickhouse has sued Home Savers, and her case underscores the conundrum facing the F.D.I.C. as it wades through thousands of troubled mortgages it has inherited from failed banks, 40,000 from IndyMac alone.

Tasked with renegotiating mortgages and cautious about preserving taxpayers’ dollars, the F.D.I.C. has tried to steer clear of making judgments about whether homeowners have fallen victim to fraud.

“Our position on stated income loans is that a lot of people say that someone else was responsible for the fraud,” Michael H. Krimminger, special adviser for policy in the office of the F.D.I.C. chairman, said in an interview. “It’s much more productive to get people to a position where they can stay in their homes, and to do that we must be able to verify what a borrower can afford.”

But Ms. Brickhouse’s case has a persuasive ring to it, not least because one of those engaged in the alleged fraud returned her deed and swore out an affidavit describing the scheme. In December, Mayor Michael R. Bloomberg invited Ms. Brickhouse to a press conference and vowed to forestall foreclosures in cases like hers.

Her story finds an echo in many working-class corners of New York City. The company accused of victimizing her, Home Savers Consulting, has been sued by homeowners in Brooklyn, Queens and Staten Island, and nearly every case alleges a similar pattern of deception: An owner behind on a mortgage turns in desperation to Home Savers, which secretly transfers the deed to a “straw buyer” with good credit who qualifies for a cash-out refinancing. Then, it is alleged, Home Savers drains the homes of equity.

Jessica Attie, co-director of the South Brooklyn Legal Services Foreclosure Prevention Project, estimates that Home Savers extracted at least $5 million in equity from the homes of people in a handful of her cases. Legal services lawyers have frequently forwarded information on Home Savers to prosecutors, but no criminal cases have been brought.

One of Home Savers’s founders, Garth Celestine, declined to address any detail of Ms. Brickhouse’s case. “We had a plan to help people,” he said on Thursday. “Maybe it did not always work.”

He said he would explain all of it in a book he is writing. Asked its title, he replied, “I’m thinking of calling it ‘No Good Deed Goes Unpunished.’ ”

Hundreds of new fraud claims like Ms. Brickhouse’s emerge every month. The F.B.I.’s most recent Financial Crimes Report estimates that mortgage fraud costs Americans $4 billion to $6 billion annually. The same report identifies New York State as a “Top 10 hot spot” for fraud, and notes that federal law enforcement is overburdened.

Last week, Sheila C. Bair, the F.D.I.C.’s chairwoman, called mortgage fraud “a significant problem” and warned that “scammers are moving into foreclosure prevention.”

Waver Brickhouse does not come by trust easily.

She grew up in the public housing towers of Brownsville, and her mother drilled it in her that survival depended on keeping to herself. She led a largely solitary life, going to work and church, and adopting four foster children.

In 1996, she took her life savings and purchased her first home. Slowly she became friends with a neighbor, Ophelia Fenner. When Ms. Brickhouse fell behind on her mortgage payments in 2005, Ms. Fenner suggested that Home Savers Consulting might help set her finances straight.

Ms. Fenner, court papers show, received a finder’s fee for guiding her friend to Home Savers, a fact that she did not disclose to Ms. Brickhouse.

Home Savers Consulting, and its principals — Mr. Celestine and Phillip Simon — are neither real estate agents nor mortgage brokers. They offered to refinance Ms. Brickhouse’s $213,000 home mortgage with the help of a “sponsor,” and to use the proceeds to pay her mortgage for a year. The breathing space would give Ms. Brickhouse time to pay off her debts. At year’s end, Ms. Brickhouse would resume her mortgage payments and Home Savers would take a small fee.

Recounting the arrangement, Ms. Brickhouse shakes her head. “I thought this would save me,” she said.

In May 2007, Ms. Brickhouse attended a meeting, according to court papers and a sworn affidavit. There was a representative from IndyMac Bank; Yolanda Millett, the straw buyer; Ms. Millett’s lawyer; and a Home Savers representative.

Ms. Brickhouse assumed everyone was there to help her; they were in fact selling off her house.

Ms. Millett received $8,000 to serve as the straw buyer, according to the court papers. On the spot, IndyMac gave Ms. Millett a $380,000 mortgage, allowing Home Savers to strip the home of $150,000 worth of equity.

Ms. Millett could not reached for comment.

A year later, Ms. Millett apparently had second thoughts. In August 2008, she swore out an affidavit that accused Home Savers of misleading Ms. Brickhouse at every turn. “She did not at any time believe that ownership of the subject property passed to me,” Ms. Millett stated in the affidavit, “and her intent was never to relinquish ownership.”

Ms. Millett returned the deed to Ms. Brickhouse. But Ms. Brickhouse’s travails had not ended.

About the same time, the F.D.I.C. took over IndyMac Bank. The agency now has responsibility for its assets, including its large mortgage portfolio.

F.D.I.C. officials asked Ms. Brickhouse to forward financial information so they could work out arrangements for her to pay some portion of the $380,000 mortgage. Ms. Brickhouse acknowledges that she is responsible for the $213,000 on her original mortgage. But she refuses to pay any part of the mortgage that she said was obtained through fraud.

Federal officials say they have no way of determining whether Home Savers Consulting committed fraud. And in any case, they add, IndyMac was not involved.

But court papers show that an IndyMac representative sat at the table as Home Savers orchestrated the secret sale.

“They knew that Home Savers had no legal standing whatsoever and yet said nothing,” said Mr. Wagner, Ms. Brickhouse’s lawyer. “IndyMac was writing out bad paper and they knew it.”

For now, F.D.I.C. officials say they are not looking to foreclose on Ms. Brickhouse’s home. But they have turned to a highly paid corporate lawyer who specializes in defending subprime lenders against class-action lawsuits to pursue the case with Ms. Brickhouse. “As the receiver for the bank and deposit insurer, we must balance our action with our duty to protect the depositors from the bank,” Mr. Krimminger said.

As for Ms. Brickhouse, she sits some nights and examines the documents she signed, and wonders at her naïveté. Recently, Ophelia Fenner apologized, saying she felt very bad.

“I told her, ‘So do I,’ ” Ms. Brickhouse said. “This almost cost me a house and a friendship, and I only had one of each.”

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Gerald Carti, a 62-year-old loan officer and owner of a filed mortgage New Jersey-based mortgage company, pled guilty last week to wire fraud conspiracy and money laundering conspiracy in connection with a mortgage fraud and property-flipping scheme involving rental properties in Paterson, NJ.

Carti, who ran US Mortgage Corp., was originally scheduled to go on trial May 4th, admitted conspiring with his co-defendants and several others to originate mortgage loans fraudulently and to launder proceeds of the loans for the four years between 2002 and 2005. Carti pleaded guilty before U.S. District Judge Jose Linares to one count of wire fraud conspiracy, which carries a maximum statutory penalty of 30 years in prison and a fine of $1 million, and one count of money laundering conspiracy, which has a maximum statutory penalty of 10 years in prison and a fine of $250,000.

Under the advisory U.S. Sentencing Guidelines, Gerald Carti now faces an actual sentencing range of between 46 and 71 months in prison. He will also be required to pay restitution to the victims, estimated at $1,030,745, not including interest. The guidelines are advisory only, and Judge Linares has discretion in imposing a sentence within, above or below the guidelines range.

Carti admitted that he conspired with Michael Eliasof, a former Paramus, NJ, real estate agent; William C. Colacino Jr., a now-deceased Garfield, NJ, attorney previously identified as an un-indicted co-conspirator; Melanie Gebbia, William C. Colacino Jr’s legal assistant; William Ottaviano, an appraiser; Frank Corallo, a former US Mortgage loan processor; co-defendant Renford Davis, of Paterson, and Hopeton Bradley, who jointly managed many of the Paterson properties involved in the scheme; and others. Eliasof, Gebbia, Ottaviano, Corallo, Bradley (who has since died) and one other conspirator have each pleaded guilty in connection with the scheme. A trial is scheduled to begin on May 4 for Davis and co-defendants Amer Mir, of Jersey City, NJ, and Frederick Ugwu, of Saddle River, NJ.

Gerald Carti admitted helping Michael Eliasof obtain mortgage loans for borrowers to purchase two- and three-family homes in Paterson, knowing that the borrowers would be putting no money down to purchase the properties. Carti also admitted permitting the borrowers to submit loan applications to US Mortgage falsely stating that they had made substantial down payments and allowing US Mortgage to fund the loans, even though the borrowers had not made any down payments. Carti then admitted that the closings of the loans took place at the law office of William C. Colacino Jr., then a Garfield municipal judge, and that Carti received as a commission 50 percent of the fees that US Mortgage received for each loan.

Carti also admitted that by April 2004, Residential Funding Corporation informed US Mortgage that some of the loans were part of a scheme involving Carti, Michael Eliasof and William C. Colacino Jr.

According to Carti, during a meeting concerning these allegations, M.M. and S.M., both senior officers at US Mortgage, were informed that the loans were no-money-down deals.

Carti stated that after the meeting, S.M. directed him to pay off the loans by refinancing them through new mortgage loans for the existing unqualified borrowers or reselling the Paterson properties, which Carti partly accomplished with Corallo’s assistance by originating new mortgage loans for some of the Paterson properties through US Mortgage.

According to Carti, S.M. insisted that these new mortgage loans be brokered, rather than funded and underwritten by US Mortgage. In addition, Carti admitted that he gave applications for mortgage loans for some of the properties to his co-defendant, Mir, a loan officer at Jersey City-based United Home Mortgage Co., who demanded bribes from others to ensure that the mortgage loans being sought were funded. Finally, Carti admitted that in 2002, S.M. told him he would receive a commission from American Title & Settlement Services, LLC, which S.M. controlled, for each mortgage loan that he referred to American Title for title insurance, and that he received these commissions through an entity called Dream On Enterprises, LLC.

Carti’s guilty plea is the latest step in an investigation by the U.S. Department of Housing and Urban Development Office of Inspector General (HUD-OIG), the FBI, the U.S. Postal Inspection Service and the IRS Criminal Investigations Division into fraudulent Federal Housing Administration-insured and conventional mortgage loans originated by various New Jersey mortgage companies, including US Mortgage and United Home Mortgage. The investigation has resulted in a dozen guilty pleas from New Jersey residents.

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Fredric “Rick” Dryer, who was accused of scamming investors out of millions of dollars in a massive real estate fraud scheme, has been sentenced to prison for 132 years by a Denver, Colorado, district court judge.

The Sixty-year-old Dryer was convicted in July of 2008 on 43 felony counts including racketeering, securities fraud and theft. He was indicted in 2006 with two co-defendants–Richard Darrow and Jeffrey Dietz–for using his companies, Mile High Capital Group and Replacement Property Solutions, to cheat scores of investors out of their money.

In addition to the 132-year prison term, Dryer was ordered to pay $3,426,460.08 in restitution.

Denver Chief Deputy District Attorney Joe Morales and Deputy District Attorney Kandace Gerdes took Dryer to trial last summer. Morales argued for a lengthy prison term, asking the Court for justice on behalf of each victim. Dryer’s 132 year sentence ranks among the longest in Colorado for a white collar criminal.

Dryer’s co-defendants pleaded guilty earlier. Richard Darrow, age 43, pleaded guilty to violating the Colorado Organized Crime Control Act and was sentenced to a suspended 20-year prison term that requires 2 years in the Denver County Jail and 10 years of probation. He has also been ordered to pay $1,150,000 in restitution.

Jeffrey Dietz, age 39, pleaded guilty to securities fraud and was sentenced to 2 years of probation and ordered to pay $990,406 in restitution.

For more on this story, please read Bob Mook’s excellent article “Mile High Capital founder Dryer sentenced to 132 years” in the Denver Business Journal.

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John Nicolo, 75, his wife Constance Roeder, 65, and David Finnman, 61, have all been sentenced for their roles in a real estate scam involving real property tax appraisal and assessment schemes. Last May, after a 10-week trial, a jury convicted Nicolo and Finnman with defrauding Eastman Kodak Company, IBM, Global Crossing, ITT Industries, Inc., and the taxpayers of Greece, New York, in connection with several real property tax appraisal and assessment schemes. Nicolo and Roeder were also convicted of numerous tax fraud counts. Nicolo was sentenced to 12 years in prison. Roeder received probation. David Finnman got a 21-month in sentence.

John Nicolo was convicted of three conspiracy charges, nine mail fraud counts, eight wire fraud counts, and twenty-one money laundering counts, while David Finnman was convicted of one conspiracy count, two mail fraud counts and two money laundering counts.

The charges stem from various schemes in which David Finnman, and later Mark Camarata, while working at Kodak, would hire John Nicolo, a real property appraiser, to perform real property appraisal services for Kodak in connection with many of Kodaks’s properties during the years 1997 through 2005. In return for hiring John Nicolo, David Finnman would receive money representing kickbacks from Nicolo. In addition to the kickbacks received by Finnman, the trial established that the Greece, NY, Town Assessor also received payments from Nicolo in connection with various property tax assessment matters involving property located in Greece.

While there were several schemes proven at trial, the largest scheme involved the Town Assessor accepting bribes in return for reducing the real property tax assessment for Kodak property located in Greece, NY. Kodak had property located in Greece known as Kodak Park. Based on the reductions the Town Assessor made to Kodak Park’s real property tax assessment, John Nicolo calculated the tax savings to Kodak over a 15-year period to be $31,527,168. They also calculated Nicolo’s fee from Kodak to be $7,881,798.00, which was 25 percent of Kodak’s projected tax savings.

Additionally, John Nicolo and Constance Roeder were convicted of conspiracy to defraud the Internal Revenue Service. Nicolo was convicted of nine counts of filing or aiding and abetting the filing of false income tax returns. Roeder was convicted of five counts of filing false income tax returns.

The indictment also contained forfeiture allegations against John Nicolo and David Finnman. The government seized over $12,000,000 dollars in assets during the investigation. The Honorable David G. Larimer has issued a preliminary order of forfeiture regarding the seized assets, and additionally imposed a forfeiture money judgment against Nicolo in the amount of $9.7 Million and against Finnman in the amount of $140,000.