The case against Mile High Capital Group (MHCG) involves a colorful cast of characters, each of whom has an intriguing background of his own. In this installment of Mile High Monday, we introduce you to the key players, including the founder and former CEO of MHCG, Fredric “Rick” Dryer.

Fredric “Rick” Dryer is the creator of and speaker on the popular Right Place Right Time Real Estate Investment Strategies™ seminars, which have drawn tens of thousands of eager real estate investors to venues from Los Angeles, San Diego, and San Francisco to Boston, Philadelphia, and Washington DC. Rick also co-hosted a popular online talk show called Real Estate Wealth: Myths, Facts & Strategies with Gary Eldred, in which Gary and Rick offer listeners advice on how to successfully invest in real estate.

Throughout his 30-year career, Dryer has been involved in several different areas of real estate investing, including government lease-backs, subdivision development, land development, apartment development, and condo conversions. In recent years, he began to focus his interests on long-term investments, specifically the purchase of individual homes (attached and detached) in order to rent them out to establish cash flow while the properties appreciated. Dryer specialized in identifying high-growth areas and developing rental properties on the outer boundaries of these areas where they would be in high demand.

In 2000, Dryer launched MHCG to develop his own rental properties. He soon realized, through his Right Place Right Time seminars, that a market existed for the types of properties he was developing: a market that consisted of investors who wanted to purchase rental properties for current cash flow and the opportunity to cash in on long-term appreciation. By 2002, MHCG started developing properties specifically for the purpose of selling these properties to investors.

According to Dryer, in 2004, he realized that he needed assistance in running MHCG and that his true passions were centered in his Right Place Right Time Seminars and in working directly with investors. To achieve his goals, he decided to bring someone else on board to manage land acquisitions and property development.

Over the past 20-plus years, Dryer has had more than his fair share of run-ins with the law. In 1983, he pleaded no contest to criminal securities law violations in Wisconsin. According to court records, in one case, Dryer formed a limited partnership to buy a plot of land. He then misrepresented the deal to his partners and diverted a substantial amount of the money invested to his own use. He was sentenced in January, 1984 to four years’ probation on one count of fraud and four years probation (two concurrent two-year probationary periods) on two counts of selling non-exempt securities.

Dryer claims that he was the victim of an over-ambitious prosecutor in Wisconsin by the name of Phil Feigin, who happens to resurface in Colorado years later to further haunt Dryer (see below).

Shortly after pleading no contest to security violations in Wisconsin but prior to his sentencing, Dryer moved to Colorado. Within four years (in 1987), he was in legal trouble again. This time, he pleaded no contest to ten counts of securities fraud in Boulder County in connection with the sale of promissory notes. He was sentenced to eight years’ probation and ordered to pay restitution of $89,100.

From 1987 until 2000, Dryer appears to have been free and clear of legal troubles. In 2000, he launched MHCG, and by 2005, he was back in trouble as investors began filing complaints against his company. On August 23, 2006, the legal problems became official when a 2006 Denver County Statutory Grand Jury handed down its indictment of Fredric R. Dryer, Richard J. Darrow, and Jeffrey Dietz on 58 counts, including racketeering, conspiracy to commit securities fraud, securities fraud, conspiracy to commit theft, and theft. Since this time, nine more counts have been added for a total of 67.

Dryer has pleaded not guilty on all counts.

RICHARD J. DARROW

Richard J. Darrow managed MHCG’s sister company RPS (Replacement Property Solutions, Inc.). RPS acted as a “qualified intermediary” for tax-deferred 1031 Exchanges. With a 1031 exchange, you can exchange one investment property for another without having to pay taxes on the capital gains from selling the first property, assuming the properties are of “like kind.” Think of it as a rollover for real estate investments. Although RPS was a separate company, distinct from MHCG, it handled many of the 1031 exchanges for clients who wanted to exchange their current properties for MHCG investment properties.

Darrow has a felony conviction under his belt. In 1999, he pled guilty to fraud and motor vehicle theft, striking a plea bargain in which he agreed to share his knowledge of identity theft with law enforcement. Darrow also shared his knowledge of identity theft with a national audience on a CBS News special called “The Identity Thief Preys on Unsuspecting Victims,” in which Darrow is referred to as an “identity thief extraordinaire.”

Darrow has pleaded not guilty on all counts related to the indictment.

ANDREW MCFAUL

In January of 2005, Andrew McFaul took on the role of COO (chief operating officer) of MHCG. This was only about a year after McFaul had his run-in with the law. In 2002, McFaul was building a home in the Crested Butte area in Gunnison County, Colorado. According to court records, he became upset with the contractor, High Mountain Concepts, and related subcontractors. Out of spite, he took various tools and other implements from the contractor and subcontractors without their knowledge.

Unbeknownst to the contractor and subcontractor, McFaul had a secret room built into his house, a panic room of sorts, in which he hid the tools and other implements he had taken. When law enforcement officers searched the premises, they discovered not only the stolen property, but also two “short shotguns.” This resulted in an additional charge of possession of illegal weapons. McFaul’s attorney negotiated a plea agreement in which McFaul was required to pay restitution to the victims of the theft in the amount of $36,393.00 and perform 192 hours of public service.

According to his petition to plead guilty, McFaul states that he completed school through the 12th grade plus two years of college. Given his criminal record and somewhat limited education, one may wonder what qualifications Dryer thought McFaul had to justify hiring McFaul, placing him in the position of COO, and later allegedly selling the company to him. Was McFaul really qualified? Did Dryer simply make a poor business decision? Or was Dryer intentionally placing McFaul in a position in which he could make McFaul the “fall guy?” What did Dryer know about McFaul or what didn’t he know about him that may have prevented the losses incurred by trusting investors?

JEFFREY DIETZ

Jeffrey Dietz is more than just the person who took over as CEO and Executive Vice President of MHCG after Dryer resigned as CEO in 2005. Dietz is also McFaul’s brother-in-law.

According to McFaul and Dietz, Dryer was the sole person responsible for the fraud [the fraud, that is, that is alleged to have occurred at MHCG]–Dryer handed responsibility over to the two men just as the problems started becoming apparent in order to set them up as the fall guys. According to Dryer, MHCG was in fine shape until McFaul and Dietz took over–through their mismanagement, duplexes failed to be built and delivered to investors as promised. Dryer’s job at this time was primarily devoted to promotion and sales. McFaul and Dietz were responsible for making sure the product was delivered.

Dietz has struck a plea bargain with the Denver district attorney in exchange for cooperating with authorities in the case against Dryer.

PHIL FEIGIN

Phil Feigin is currently Andrew McFaul’s attorney. If the name sounds familiar, it should. This is the same Phil Feigin who prosecuted Rick Dryer in Wisconsin. When MHCG started having legal problems, McFaul did a little research and found that Feigin had moved from Wisconsin to Colorado. McFaul then placed Feigin on retainer to represent him in the case.

NICK SABARDIN

Nick Sabardin is the president of Convergent Acquisitions & Development, Inc., a Charlotte, North Carolina-based company that develops and sells rental properties to real estate investors (much like MHCG). Sabardin graduated from the prestigious Sorbonne University in Paris, France, before spending several years as a business consultant to some of France’s largest corporations. He completed his education by earning an MBA here in the United States, with an emphasis on technology and marketing. He flew as an Airline Transport Pilot under the US Airways colors for five years after graduation, and eventually fell in love with the Charlotte area. He is an experienced real estate investor.

Dryer currently serves as a consultant for Convergent and other companies in North Carolina. Sabardin is one of Dryer’s most avid advocates. He believes that the evidence will show that Dryer is completely innocent and that McFaul and Dietz ran MHCG into the ground. Following Dryer’s investment strategies, Sabardin is committed to building a company that achieves what MHCG failed to achieve; that is, develop and manage rental properties for investors that provide current cash flow along with opportunities for future investment returns as the properties appreciate.

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Editor’s Note: The following commentary is provided by Larry Rubinoff, branch manager of a Clearwater Beach, Florida office of Mortgage Lending Direct, a dba of MLD Mortgage, Inc. Mr. Rubinoff’s opinions are his and his alone and do not necessarily reflect the views of Flipping Frenzy’s proprietor or editors.
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As we look forward to a new year and reflect back on the one just past, we must ask ourselves, “What ever happened to our American way of life?”

The email headline for Originator Times on the December 26, read: “Mass Layoffs, Rampant Fraud, and More - The Top Stories of 2007.” Indeed, a very frightening headline.

The “Mass Layoffs” referred to put many innocent, hard working people out of work. (Read my November 21st guest blog entry, “Homeowners Aren’t the Only Ones Hurt by the Mortgage Meltdown” here on Flipping Frenzy). These are just some of the casualties of this crisis. This fraud for greed is what has hurt so many honest, hard working Americans.

“Rampant Fraud” as the Originator Times headline reads, oozed from every level of our society–from the naive to the highly educated to knowledgeable corporate executives. The extent of the fraud committed has no equal in our history. It was truly “Greed Gone Wild,” an epic we will be watching for years to come.

I believe we are winning the war on fraud. I still believe that the majority of us in the real estate industry are good, hard working, honest people. But for those relative few who have harmed the whole, I advocate the best way to fight this is to make the guilty pay stiff penalties and then publicize it, as the Originator Times does in the following article:

ABN AMRO To Pay $41 Million For HUD Fraud

Office of the Comptroller of the Currency announced a more than $41 million settlement against mortgage giant ABN AMRO Mortgage Group for falsifying documents in tens of thousands of loans insured by the Federal Housing Administration (FHA). This landmark agreement represents that largest monetary settlement of an enforcement action in FHA’s history.

“Mortgage giant,” ABN AMRO falsified documents. But who are the people who knowingly allowed this practice to occur? Whoever they are, they must be held accountable for their actions as individuals. Where was senior level management? Twenty-eight thousand loans are in question here, and the article speaks only of several underwriters and a handful of others. Fraud of this magnitude could not have happened without upper management’s knowledge and direction.

ABN AMRO Holding N.V. is the parent company of the ABN AMRO consolidated group of companies. It provides a range of financial services on a worldwide basis, including consumer, commercial and investment banking. Its group structure comprises: seven Client business… (more information about ABN can be found by clicking here).

ABN AMRO is truly a giant. Its stock stayed constant even with this announcement. I have heard no mention of any actions taken against senior management, but surely they must have been well aware of what was going on.

Keith E. Gottfried, HUD’s General Counsel said, “This action demonstrates our steadfast and enduring commitment to making sure HUD’s programs are administered in accordance with the letter and intent of the law and are free from fraud and abuse.”

A settlement so insignificant to such a large corporation with no consequences for breaking the “letter and intent of the law” by any individual has no meaning.

In another Originator Times story, entitled “Originator Allegedly Takes ABN AMRO For Over $2 Million,” the pot seemingly calls the kettle black. Here, ABN reportedly takes action against 149 properties, making the perpetrators pay back the money they scammed, and rightfully so. But this is just a civil suit, not a criminal suit. I believe that the perpetrators should also be held accountable for the crime they committed. In the same way, the executives at ABN AMRO who facilitated fraud against HUD should also pay a price for their criminal actions.

There is no excuse for fraud of any kind or to any extent. We must fight this problem from the top down. While other individuals are being criminally charged and convicted and receiving sentences of 20 years and even “life,” the ABN AMROs of the world get off clean. Is defrauding the government (HUD) and all taxpayers a lesser crime than defrauding individuals? Greed has overtaken our sense of responsibility at all levels–even government.

As the New Year unfolds, we will see more stories of fraud from the past but fewer in the future. With the spotlight on fraud in real estate and the continuing effort to prevent it, the mortgage industry will cleanse itself. The programs allowing the fraud are no longer available, and lenders are raising their standards on underwriting loans and requiring underwriters to do their job and not turn a blind eye. Our focus now should be on fixing this huge problem we have and restoring the great American middle class.

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• Officials Falling Behind on Mortgage Fraud Cases (The New York Times): The number of mortgage fraud cases has grown so fast that government agencies that investigate and prosecute them cannot keep up, lenders and law enforcement officials have said. Reports of suspected mortgage fraud have doubled since 2005 and increased eightfold since 2002. Banks filed 47,717 reports this year, up from 21,994 two years ago, according to statistics from the Federal Bureau of Investigation and the Financial Crimes Enforcement Network of the Treasury Department. In 2002, banks filed 5,623 reports.
• Legislature must place legal curbs on ‘rescue’ practice: The bank was threatening to foreclose on Lonnie Davis’ El Cerrito home. One day, the 76-year-old retired school custodian got a postcard in the mail from someone offering 11th-hour help. But what seemed like a life preserver would drag Davis and his wife, Dorothy, to rock bottom faster than a pair of cement boots. Lonnie Davis not only lost the home where he had lived more than half of his life, the person he trusted to help him wound up being the new owner. The Davises were victims of a legal but deceptive mortgage lending practice euphemistically referred to as a “foreclosure rescue.” The “rescuer” takes advantage of a person’s desperation and financial naivete to convince him to sign over his deed. The “rescuer” offers to pay the distressed homeowner’s delinquent payments, which allow him to stay in his house, then gives him a new loan. A lot of people don’t realize that they will no longer own the property. Once the title has been transferred, the rescuer takes money out of the house by refinancing. Real estate fraud investigators call that “equity stripping.”
• When Receiving Cash Back at Closing is Legal: As real estate brokers, we are often told that “As long as the information is presented on the HUD statement, the transaction is legal.” What happens in almost all situations such as the scenario presented here, is that the professionals involved create two HUD statements-one for the closing and another that is sent to the bank or they camouflage the $80,000 junior lien or a recently created obligation of the seller. In other words, all is not being fully disclosed.
• Parent Company of Mercantile Bank takes Real Estate Fraud-related hit in Florida: The holding company of Mercantile Bank in Florida expects a $32 million provision for credit losses in the current fourth quarter, in part because of loan problems in Florida. That’s up substantially from the $10.5 million provision in the third quarter of 2007 and $8.8 million provision in the fourth quarter of 2006. The company also said it has revised downward its expected recovery of loans in a real estate fraud scheme in North Carolina.
• Minnesota man sentenced in mortgage-fraud scheme: The crime of mortgage fraud continues to be a priority with the United State’s Attorney’s Office as the first defendant in the LHS mortgage fraud case–involving a Prior Lake woman, a Credit River Township man and a Minneapolis man–was sentenced in federal court today in Minneapolis. Mario Augustin Lewis, 37, of Minneapolis was sentenced to serve four-and-a-half years in prison and ordered to pay $437,814.41 in restitution.
• Long Beach Mortgage Rep Faces Five Years in Prison: John Ngo, 27, of Dublin, California, pleaded guilty before United States District Judge William B. Shubb to lying under oath before a federal Grand Jury in connection with an on-going mortgage fraud investigation. The case is the product of an extensive investigation by the Federal Bureau of Investigation and Internal Revenue Service-Criminal Investigation. Several other individuals have been indicted in connection with this investigation and those charges remain pending.
• New Year, New Consumer Scams: It has been a tough year for consumers. With housing prices falling and the subprime-mortgage mess raging on, we won’t blame you if you’re looking forward to a fresh start in 2008. Better watch out: The financial woes and natural disasters of 2007 have armed scammers with plenty of new tricks — or resourceful spins on old ones — aimed at separating you from your cash. Here the five most treacherous scams to watch out for in 2008.

I was discussing the mortgage meltdown with a colleague the other day, when we encountered an interesting question: Who do mortgage originators (brokers and loan officers) represent? Do they represent themselves, the lenders whose products they sell, or the borrowers?

As a REALTOR, my relationship with my clients is clearly delineated. I have a fiduciary responsibility to the buyer or the seller I represent. (The term “fiduciary” simply means that I must represent my client’s best interests.) In a case of dual representation, Realtors are expected to treat both parties fairly and equitably.

A professional’s responsibility varies according to the profession and the specific role the person plays. A stock broker, for example, is supposed to sell investments to clients that are in the clients’ best interests. Someone who sells cars, however, is responsible for acting on behalf of the dealership, not the person who’s buying the car. Condemning a car salesperson for trying to sell the buyer additional optional features the buyer didn’t really need would be insane.

In real estate transactions, fiduciary responsibility is not always so clearly defined, and I believe this is at the root of many problems in the industry. For example, is an appraiser (paid by the buyer) responsible to the buyer or to the bank who uses the appraisal to deny or approve a loan? In the best of all possible worlds, the appraiser’s job is to provide an accurate appraisal of a home’s value, but in the real world, this doesn’t always happen. At the direction of a homeowner, loan officer, or real estate agent, the appraiser may inflate the appraisal, fooling the lender into approving a loan it would otherwise deny.

The fiduciary responsibility of mortgage brokers and loan officers is even fuzzier. Like a car dealer, a loan officer is merely selling a product supplied by the lender. Like an investment broker, however, the loan officer has some responsibility not to saddle the borrower with an overly risky loan. As you can see, the role that the broker or loan officer plays between the lender and borrower is clouded in ambiguity.

I believe that this ambiguity led to many of the problems leading up to the mortgage meltdown. In some cases, loan officers were overly ambitious in representing the borrower’s interests, which resulted in mortgage fraud. In other cases, loan officers who were overly eager to sell the lenders’ products pushed risky loan products (subprime mortgages) on unwary borrowers. Ironically, by acting solely on the behalf of either the borrower or the lender, these loan officers served neither party. Both lenders and borrowers got stuck with bad loans.

Some states have passed legislation that gives mortgage brokers and loan officers fiduciary responsibility to borrowers, but that addresses only one half of the equation. Brokers and loan officers also have to protect the interests of lenders.

I don’t intend to make mortgage brokers and loan officers the scapegoats in the mortgage meltdown. There’s plenty of blame to go around. Real estate agents, appraisers, title companies, Wall Street, the Federal Reserve, legislators, politicians, and homeowners all share the blame. Unfortunately, mortgage brokers and loan officers play the role of gatekeepers and are saddled with an inordinate amount of responsibility. They must serve two masters in a way that is in the best interest of both parties.

Perhaps mortgage brokers and loan officers need to stop thinking about their vendors and their clients and think in more abstract terms. Instead of selling products from lenders or representing borrowers as clients, maybe they need to be committed to making good loans. In many ways, the relationship needs to be governed by the same rules that apply to dual representation in the real estate industry — if it’s not a good deal for everyone involved, then it’s not a good deal. As an added incentive, perhaps brokers and loan officers should have their compensation tied to the success of the loan rather than receiving a commission on each sale.

Has anyone ever heard of Armando Montelongo? For the uninitiated, along with his wife–Veronica Montelongo–and a few helpers, Armando Montelongo’s work as a real estate investor / flipper is featured on the A&E Television Network’s reality show, “Flip This House,” which can been seen on Saturday evenings at 9:00 p.m. Eastern/8:00 p.m. Central on A&E. According to the A&E website, “Flip This House” is an hour-long “docu-soap” that follows the sometimes painful efforts of three real estate developers in New Haven, CT; San Antonio, TX; and Atlanta,GA, where “…each boasts a team of characters that buys homes, renovates them, then flips them for a profit.”

The Montelongos head up the San Antonio contingent, and like other reality TV personalities, Armando Montelongo appears to be looking to leverage his new found fame via the Internet. Some Internet marketing “gurus” even refer to him as “Armando Montelongo, the Internet millionaire,” but you need to take such endorsements with a grain of salt. Internet endorsements are often indirectly paid for through “affiliate” marketing; that is, one business financially rewards another for delivering paying customers.

I recently received the following report from a Flipping Frenzy reader who claims that Armando Montelongo’s company is essentially ripping him off:

“I answered a radio ad for free dvd for flipping houses. It was Armando Montelongo’s Flip and Grow Rich. I gave them my credit card# for shipping. They sent a package of books and cds and dvds. All of which I had 30 days to return. I called and got a Return Authorization Number. I also got a receipt post card from the Post Office. Yet 3 months later I am seeing charges of $86.55 on my credit card statement. I have called them to no avail.“

It doesn’t take much looking around to find Armando Montelongo. Each of these sites…

• BuyFlipItNow.com
• ArmandoMontelongo.com
• Armando-Montelongo.com
• iBuyHousesFlorida.us
• MontelongoHouseBuyers.com

… eventually leads to the same pitch (captured below, sans video):

Opening shot: Montelongo drives a beautiful Mercedes Benz automobile toward the camera–presumably the car is his own, secured via all the money he makes flipping houses and teach others how to do the same. Notice that he’s driving through an industrial office park–again, presumably he has an office here, and you’ll be able to afford one here too if you follow his advice.

Scene continues: Armando Montelongo exits his car…

… and says the following, word-for-word:

“Hi, I’m Armando Montelongo from America’s #1 Hit real estate reality Show, Flip This House San Antonio. Right now I am filming my third season of Flip This House, and guess what, I’m looking for a new eager intern to teach my multi-million dollar real estate secrets to. So if you’re excited and you want to learn about real estate from the absolute best, for totally free, and get an amazing education at no expense to you, simply fill out the form below and I’ll be contacting you to see if you can qualify to be my new eager intern. Fill out the form below, and you could be my new real estate millionaire.”

Taking a look at each of Armando Montelongo’s sites, it’s easy to see why someone may choose to question his tactics:

• Nowhere on any of his sites is there a telephone number
• Many of his sites are packed with Google AdWords–a common tactic used by so-called Internet marketing gurus to generate additional revenue
• There is no mention anywhere of a money-back guarantee for any of his courses, products or services
• His video states he is looking for an intern but there’s no application, job description, or even a hint about who might qualify

On the surface, it would appear Armando Montelongo is preying on the get rich quick hopes of what low level Internet marketers call the “business opportunity” consumer. We’ve all seen “Biz Opp” advertisements, haven’t we? They can be found in the classified section of newspapers and on Craigslist, and they look an awful lot like these:

• Earn $5,000 a WeekWorking From Home!
• Get Real Results Fast! $250,000 1st Year! Not a Trick!
• $$ Make $2000+ per week… EVERY WEEK! $$
• Hottest Opportunity Ever (No Cold Calling)!!
• Get 100 Internet sites for $8,995. Retire Early! Call 1-800-XXX-XXXX.

To be fair, I sell my own real estate investment training via books, including Flipping Houses For Dummies (published by Wiley Publishing), Protect Yourself from Real Estate and Mortgage Fraud (published by Kaplan), Foreclosure Investing For Dummies(published by Wiley Publishing), and Mortgage Myths: 77 Secrets That Will Save You Thousands on Home Financing (published by John Wiley & Sons). The big difference may be that I present real estate investing in a more realistic light. I am always careful to warn prospective investors that investing in real estate requires hard work and carries real risks (and who knows, maybe Armando Montelongo does the exact same thing, but when he uses language like “…you could be my new real estate millionaire,” one seriously has to wonder). Some people–especially those looking to get rich quick–just don’t have the mindset, resources, and support network in place to be successful at flipping houses.

Like Mr. Montelongo, I too have had my fair share of real estate failures, and I’m not one to hide or run away from them either. I tip my hat to Armando for telling it like it is (this statement can be found online via another one of his promotional videos):

When you see me on television, you get to see my successes. What you don’t see is all of the failures that I have had before I started flipping houses. It’s very easy to share your success, but much harder to share your failures with the world. However, I believe in being dirt honest and by doing so, I believe that sharing my failures will actually help you be more successful.

To be clear, I am not saying that Armando Montelongo is a person of questionable character or a real estate guru. I don’t know him personally, nor have I purchased any of his products or thoroughly reviewed his system. Who knows–perhaps he received some poor advice on positioning himself online. Maybe he himself got taken in by an Internet marketing guru who told him that this is how it’s done online. I can only ask the question: Is Armando Montelongo a real estate guru? Is the experience of the Flipping Frenzy reader mentioned above a universal one or an isolated incident?

If you or someone you know has ordered or purchased products or services from Armando Montelongo, please leave a comment to let us know about your experience.

Despite all the chaos associated with Real Estate and Mortgage Fraud, I hope everyone reading this message is able to have a safe and happy holiday season.

From Ralph R. Roberts, CRS, GRI and the many people who make FlippingFrenzy.com possible.

On August 23, 2006, Chief Judge of the Denver County Statutory Grand Jury issued a 58 count indictment charging Fredric R. (”Rick”) Dryer, Richard J. Darrow, and Jeffrey Dietz with 58 counts, including racketeering, securities fraud, and theft. Later, additional counts were added. The December 14, 2006 version of the indictment contains an additional 8 counts, primarily addressing losses of investors who filed claims after the original indictment. Since that date, one additional count has been added for a total of 67.

[I invite you to read the indictment--from Colorado's Department of Regulatory Agencies (DORA)--by clicking and downloading the following file: Mile High Capital Group Indictment.pdf.]

According to the first count, Dryer, Darrow, and Dietz are charged with racketeering–operating an illegal business for personal profit. The businesses named in the indictment are Mile High Capital Group, Ltd and Replacement Property Solutions, Inc. According to the indictment, Dryer, Darrow, and Dietz, “did unlawfully, feloniously, and knowingly conduct or participate, directly and indirectly, in the enterprise through a pattern of racketeering activity….”

The second and third counts are related to conspiracy to commit a crime, in this case, two crimes–securities fraud and theft. On both counts, the indictment charges that Dryer, Darrow, and Dietz, with the intent to promote or facilitate the commission of the crime… unlawfully and feloniously agreed with each other and persons known or unknown to the Grand Jury that one or more of them would engage in conduct which constituted that crime or an attempt to commit that crime, or agreed to aid the other person or persons in planning or commission or attempted commission of that crime, and an overt act in pursuance of the conspiracy was committed by one or more of the conspirators.

Pages 9 to 12 of the indictment are of particular interest, because they contain the facts of the case supporting counts 1-3.

The remaining 63 counts describe specific cases in which investors have filed claims of being cheated out of $15,000 or more by Mile High Capital Group and RPS.

Some visitors to FlippingFrenzy.com have expressed curiosity about why I have chosen to investigate this case and present my findings on Mile High Monday. After all, the state of Colorado has already performed a thorough investigation and decided that the evidence is sufficient to indict Dryer, Darrow, and Dietz. Hundreds of victims are already well aware that they have lost money and are convinced that they have been scammed. And the media, particularly the L.A. Times and the Denver Business Journal, have already reported extensively on the case. So, what reason could I possibly have for doing my own independent investigation?

Truth be told, this case was not even on my radar when the indictment was issued. I knew of Rick Dryer and his Right Place Right Time investment seminars but had never met him until we did the radio spot together. Once I began looking into his background and after talking with Convergent Acquisitions and Development president Nick Sabardin, I found the case to be fascinating and decided to present it to FlippingFrenzy.com readers.

Sabardin is convinced that Dryer has been railroaded, and he would like to see Dryer’s name cleared. At this point, I have an open but skeptical mind, and I want to independently examine the evidence for myself before passing judgment. Not all people who are indicted are guilty. I thought that this would be a fascinating case study for my readership, however it turns out.

Another reason I am calling attention to this case is because of Dryer’s association with Convergent Acquisitions and Development. If Dryer is guilty of the charges filed against him, then investors in Convergent Acquisitions and Development should know about it. Likewise, if Dryer if free of guilt, this should clear the minds of prospective investors and make them more confident of doing business with Convergent.

Unfortunately, hundreds of people collectively lost millions of dollars, but I want to make sure the truth is told, and I think readers will find the story and the characters involved fascinating.

• Fraud Seen as a Driver In Wave of Foreclosures: Skyrocketing foreclosures are a testament to how easy it was to borrow from mortgage lenders in recent years. It may also have been easy to steal from them, to judge from a multimillion-dollar fraud scheme that federal prosecutors unraveled here in Atlanta. The criminals obtained $6.8 million in mortgages from Bear Stearns Cos., including a $1.8 million mortgage to Calvin Wright, a New Yorker who told the investment bank that he and his wife earned more than $50,000 a month as the top officers of a marketing firm. Mr. Wright submitted statements showing assets of $3 million, a federal indictment alleged. In fact, Mr. Wright was a phone technician earning only $105,000 a year, with assets of only $35,000, and his wife was a homemaker. The palm-tree-lined mansion they purchased with Bear Stearns’s $1.8 million recently sold out of foreclosure for just $1.1 million. Bear Stearns, meanwhile, posted the first quarterly loss in its 84-year history as it wrote down $1.9 billion of mortgage assets yesterday.
• No solutions for borrowers who are ‘upside down’: Martinez said struggling borrowers have flocked to his office asking for help. Martinez started as an insurance adjuster/investigator more than a decade ago, but began investigating real estate fraud two years ago and suddenly found himself bombarded with cases.
• Fraud and bubbles: Like a horse and carriage: Here’s what’s interesting: It seems likely that a big part of the run-up in housing values may also have been a result of fraud. Demand was inflated by fraudsters making bids on homes that they couldn’t afford — and lenders who were lending based on fraudulent misrepresentations. How big of a role did mortgage fraud play in inflating home prices? It’s impossible to know but now that the frauds are being exposed, we’re seeing home prices dropping precipitously. And without mortgage fraud, there are fewer people with the resources to scoop up homes.
• Realtors reassure peninsula buyers: Kenai Peninsula real estate agents reacted Wednesday with strong words and public assurances in the wake of U.S. Grand Jury fraud indictments handed down Dec. 13 against nine individuals and one corporation in the Anchorage real estate market. According to U.S. Attorney Nelson P. Cohen, the accused allegedly engaged in “a widespread, three-year scheme” cheating 13 banks and home loan mortgage companies. In all, 57 different loan transactions netted more than $1.7 million in profits and cost financial institutions over $1 million to date.
• $3 million bond set for Evergreen president: Bond was set at $3 million cash this morning for Evergreen Corporation President David B. Willan. Willan, 37, was among 17 people named on Thursday in a 147-count Summit County indictment in connection with a two-year investigation into Akron-area mortgage fraud.

  

  Willan, who appeared before Common Pleas Magistrate John H. Shoemaker, was charged with a first-degree felony for engaging in a pattern of corrupt activity, aggravated theft, mortgage fraud, money laundering and other alleged offenses. Authorities said Willan was being held at the the county jail this afternoon in lieu of the $3 million cash bond.

• The Real Mortgage Fraud: Nothing is more fun than doing noble deeds with someone else’s money, and right now, Democrats are getting ready for a rollicking good time. Contemplating the subprime mortgage problem, with numerous borrowers unable to pay their debts, the party’s presidential candidates and congressional leaders have a simple solution: Fleece the lenders.
• Realtor gets 20 months in prison for mortgage fraud: A Rockford Realtor was sentenced to 20 months in prison this afternoon for his role in falsifying documents to help Hispanic families qualify for loans backed by the Federal Housing Authority. Cesar Arenas was the fourth person sentenced in the five-person mortgage-fraud ring that operated from 2001 through 2003 and the second to receive prison time. Rhonda Torossian, the loan officer in the scheme, was sentenced Monday to 20 months in federal prison.
• Guest Opinion: More must be spent to stop mortgage fraud: The Arizona Department of Financial Institutions investigates mortgage fraud cases before referring them to the Arizona Attorney General’s Office for prosecution. The department relies on money from a revolving fund to initiate and fund its investigations, but that money has an annual cap of only $50,000. This amount is inadequate and has not been raised in at least 10 years.
• Banks in England crack down on mortgage fraud: Banks are seeking to crack down on mortgage fraud as evidence mounts of a rise in the number of fraudulent borrowers. Abbey and Lloyds TSB are among the banks reporting a surge in the volume of potentially fraudulent mortgage applications. The Council for Mortgage Lenders is also cracking down, working with police to investigate the possibility that organised criminals are operating in the market. “We are identifying two or three times as many cases of possible fraud as we did in the first part of this year,” said Steve Williams, risk director at Abbey.

In response to my recent blog posting, “High Profile Realtor Caught in the Crosshairs of Cash-Back-at-Closing,” a newly licensed associate broker from Washington state e-mailed me asking whether a cash back at closing deal could ever be legal. His question applied to the following scenario:

1. The seller is facing foreclosure and his highly motivated to sell.
2. The buyer has good credit, a suitable down payment, and a desire to make a deal.
3. The home is listed and has been appraised at $480,000.
4. The seller is willing to discount the home by $80,000. (The seller loses some equity in the home but dodges the foreclosure bullet and saves part of his credit in the process.)
5. Instead of purchasing the home for $80,000 less, the buyer agrees to pay the full price of $480,000 with the agreement that the seller will pay back an “incentive” at closing of $80,000. This would give the buyer the necessary funds to fix up the property.
6. The buyer delivers a real cash down payment that is proven to be in his bank account prior to the purchase, as per the bank’s requirements.
7. The bank has approved the loan based on its own appraiser’s evaluation and receives a suitable down payment of 5-20% depending on the loan requirements.

The broker then followed up with a couple excellent questions: “How can this be inappropriate or wrong if the seller takes a loss but is happy with the deal? Where is the harm if all is fully disclosed, and the bank is not put at any risk?”

Consumers and professionals often justify such deals by claiming that the true market value of the home shows that the bank is receiving sufficient collateral. However, the true market value of the home is the lesser of the appraised price or the actual price paid for the property. In this case, the true market value of the property is not $480,000. It is actually the price the seller is willing to accept–$400,000. Presenting to the bank that the actual sales price is $480,000 is misleading and constitutes fraud.

As real estate brokers, we are often told that “As long as the information is presented on the HUD statement, the transaction is legal.” What happens in almost all situations such as the scenario presented here, is that the professionals involved create two HUD statements–one for the closing and another that is sent to the bank or they camouflage the $80,000 junior lien or a recently created obligation of the seller. In other words, all is not being fully disclosed.

This is obviously a deceptive practice designed to mislead the bank into approving a loan it would otherwise reject. If you have to create two HUD statements–one for the closing table and one for the lender or one that is camouflaged in some way to justify a transaction, then what you are doing is illegal. If the HUD was a person then it could be accused or indicted as a co-conspirator.

I know of only a handful of situations in which receiving cash back at closing is legal:

• You refinance your mortgage to cash out some or all of the equity in your home.
• Your agent agrees to refund a portion of his or her commission at closing.
• The buyer makes a deposit into the escrow fund, obtains a 100% loan, and then receives a credit back. This isn’t considered cash back at closing, because it is the buyer’s own money.

Other than scenarios such as these, cash back at closing deals are unethical and illegal.

Now you might argue that illegal acts such as these are victimless crimes, but they do have the potential of causing harm. Consider the following:

• The buyer’s mortgage payment is higher than it needs to be, making it more difficult for the buyer to afford and more likely that the buyer will ultimately default on the mortgage.
• The bank approves a loan for $80,000 more than the true market value of the home. If the bank must foreclose on the home in the future, it may not be able to sell the home for enough money to cover the remaining balance of the debt.
• The inflated sales price influences the prices of homes in the same area, making housing in the area less affordable and boosting property taxes.

As you can see, there are good reasons behind the rules and regulations that govern real estate transactions. When we begin to bend those rules under the false assumption that nobody is getting hurt, we compromise the very integrity of the real estate industry and damage the industry on which we make a living.

Rick Dryer is more than your average real estate investment guru. A typical real estate investment guru sells training in an attempt to teach people how to build wealth by investing in real estate. Dryer not only provided training, but he also built investment opportunities for his clients. In fact, his credentials in this regard were strong, because his intellectual property evolved from his real life business.

In 2002, Dryer launched Mile High Capital Group, LLC (MHCG)–a builder and developer of single-family homes, at the time specializing in mountain building. It was only in late 2002, when Dryer was approached by out of state investment clubs looking for a reputable Colorado builder/developer that the business model changed. Dryer didn’t think mountain properties were suitable for income property, so he began to research what would work.

Over the next two years, MHCG evolved into a builder of just such properties. Its reputation grew. Infinity Broadcasting sent its program directors to ask MHCG to sponsor its Rich Dad Poor Dad Real Estate Workshops, with Dryer as the main speaker with Robert Kiyosaki. Dryer’s research and experience evolved into what was to become his Right Place Right Time Real Estate Investment Strategies syllabus.

MHCG grew with Dryer’s reputation. The company planned to develop subdivisions around the country on the edges of high-growth areas where demand for rental properties was expected to be high. MHCG would then sell the rental properties to investors. The plan was to make it easy for real estate investors to purchase revenue-generating properties.

(Above: Gary Eldred, Ph.D, and Rick Dryer)

As far as real estate investment gurus go, Dryer had a track record and reputation that was good and getting better. Typical real estate investment gurus charge thousands of dollars for information that’s worth no more than about $50. They pitch risk-free, get-rich-quick schemes. They encourage people who are in no position to invest in real estate to become full-time investors. Most of these gurus are not successful real estate investors themselves–if they could make millions in real estate, they would not be spending their time pushing seminars.

Dryer is different. His “Right Place Right Time Real Estate Investment Strategies” are well known in the industry, and he has a very public record of accurate predictions about emerging markets and trends. He became a popular and frequent speaker at Robert Kiyosaki’s “Rich Dad Poor Dad” real estate investor workshops around the country before starting his own workshops. He knows his stuff and is careful to remind people that investing in real estate carries risk. Dryer seems like the real thing, and MHCG seemed like a legitimate company offering genuine real estate investment opportunities.

Through his seminars, Dryer promoted MHCG to attendees, and they were eager to buy these rental properties. The risk seemed negligible. After all, Dryer had a proven system in place for identifying areas where rental properties would soon be in high demand. His system was so successful, in fact, that many celebrities had bought into the program–celebrities with big names, such as:

• Gary Eldred, PhD, author of Investing in Real Estate and professor of Trump University
• Richard Florida, PhD author of The Rise of the Creative Class and professor in the School of Public Policy at George Mason University
• Richard Karlgaard Publisher of Forbes magazine and author of Life 2.0
• Dan McCabe, Esq., CES of the Investment Exchange Group
• David Bach, New York Times and Wall Street Journal best-selling author of The Automatic Millionaire; Start Late, Finish Rich; and the entire Finish Rich series
• Mark Victor Hansen New York Times and Wall Street Journal best-selling co-author of the Chicken Soup series

Having these big names involved added to the company’s credibility, and the list of customers began to grow as investors spread the word to their friends and relatives of Dryer’s Right Place seminars. Though it was a great forum for MHCG, Dryer was always careful to separate the company and the products from his Right Place information.

Money was pouring in. Under the direction of founder and CEO Rick Dryer, MHCG had risen from its humble beginnings to become a $150 million real estate business in just five years. According to court documents, MHCG had over a quarter billion dollars in sales by 2005.

Unfortunately, the product being sold was never delivered.

What happened? Why wasn’t the product delivered? What most of the attendees of the Right Place Right Time Seminars knew, because it was mentioned in virtually every seminar, Dryer no longer ran MHCG, though he remained titular CEO until the end of June 2005. Operations, that is the building and delivery of the product, had been turned over to Andy McFaul, COO starting January 2005, and his brother-in-law, Executive Vice President Jeffry Dietz. I will tell you more in the next Mile High Monday.

• Nightmare on Highbury Court: A dispute over bricks led to bankruptcy, eviction, jail and fractured lives; first of two parts. Life was good for Roland and Marie Dreilich in the summer of 1999. In their mid-30s at the time, they’d already purchased two homes, taking advantage of the booming real estate market of the 1990s to acquire equity and move up the housing ladder.
• Real estate lawyers asleep at the fee switch: Most puzzlingly of all, is the fact that real estate fraud is actually less prevalent today, than it was when Bill 152 was a glint in the McGinty government’s eyes. Over the past two years, lawyers and title insurers have put into place far more stringent controls and fraud has declined accordingly.
• Mortgage meltdown linked to fraud: The desire to make a “quick buck,” along with extremely lax lending practices, are considered to be among the chief reasons for the recent decline in the nationwide mortgage and housing markets, according to a Utah title company executive.
• Grandview man gets one year for mortgage fraud: The second of three defendants in the mortgage fraud scheme involving former Kansas City Councilwoman Saundra McFadden-Weaver was sentenced Thursday to one year in federal prison. Ricky Hamilton, 53, of Grandview, also was ordered by U.S. Chief District Judge Fernando Gaitan of the Western District of Missouri to pay $144,234 in restitution.
• Stock Market & Stocks: Fraud a Major Concern as Economy Worsens: The people who pay the price for Wall Street abuse need to know what to do if they have been victims of Wall Street or mortgage fraud and abuse, what to do to protect themselves so they can live now, sustain and grow for a secure future, and other steps they can take to best prepare for what we believe is the inevitable recession.
• FBI Launches Mortgage Fraud Task Force in the Nation’s Capital: The FBI is launching a mortgage fraud task force in its Washington field office, joining a widening net of state and local investigators digging into the market crisis. Investigators are seeking to uncover evidence of overvalued home appraisals, shoddy lending practices and alleged irregularities in the packaging and sale of groups of loans that were marketed to ordinary investors, state investment funds and big Wall Street banks.
• Foreclosure Fraud: Freddie Mac Warns Borrowers with Video Dramatization on ‘YouTube’: Can a custom made video posted to YouTube keep troubled borrowers from losing their homes to fraud artists? Freddie Mac aims to find out. One of the nation’s largest investors in residential mortgages, Freddie Mac decided to produce an Internet video dramatizing a common foreclosure fraud scheme after a new survey found one in four delinquent borrowers go to the Internet before their bank or lender for information about avoiding foreclosure. Freddie Mac’s anti-fraud video can be found at http://www.youtube.com/AvoidFraud.
• Six face federal indictments in Provo, Utah mortgage fraud scheme: Six people have been indicted on federal charges for an alleged mortgage fraud scheme that inflated the value of high-end homes in an affluent Provo neighborhood. Prosecutors say the six formed a network of mortgage brokers, investors, real estate agents, appraisers, straw buyers and escrow agents to fraudulently obtain loans secured with property worth less than the loans.
• In Modesto (Calif.), Fraud Destroyed The American Dream For Many: The terms of the loans may have been unusual. But for many of the immigrants who signed up for them, they were simply a way to afford the $300,000 and $400,000 new homes along streets with names like Rancho Encantado and a litany of saints.
• Lousy credit? Buy somebody else’s: The Bush administration came up with one fix for some sub-prime borrowers who are in trouble. A San Diego company offers another: Buy a better credit score. With one or more of the “seasoned primary accounts” that TradeLine Solutions Inc. began selling this week, the company’s website says, you can “dramatically increase your credit score” for as little as $1,199.

As a part of a comprehensive strategy he says will “protect, preserve and promote the American dream of homeownership,” U.S. Senator Christopher Dodd yesterday introduced legislation to help put an end to the abusive and predatory lending practices that have sent nearly a million Americans into foreclosure and put just as many more in danger of losing their homes.

The Homeownership Preservation and Protection Act of 2007, which is cosponsored by no less than a dozen of Dodd’s counterparts in the Senate, enjoys support from the National Community Reinvestment Coalition (NCRC), the National Association for the Advancement of Colored People (NAACP), the American Association of Retired Persons (AARP), and the Center for Responsible Lending, among others. From the way the Bill reads today, the Homeownership Preservation and Protection Act of 2007 will:

1. Establish new protections for all borrowers. It will prohibit brokers from steering prime borrowers to more expensive subprime loans, create a fiduciary duty for mortgage brokers towards borrowers, and provide for a duty of good faith and fair dealing toward borrowers for all lenders.
2. Establish new protections for subprime borrowers and borrowers who get nontraditional mortgages. It will require a real analysis of the borrowers’ ability to repay the loan. The bill prohibits prepayment penalties and Yield Spread Premiums (YSPs) on these loans, and requires that these loans provide a net tangible benefit to the borrower.
3. Provide strong remedies to make sure these standards are met. It will allow state attorneys general enforce the provisions of the law, and does not preempt state law.
4. Provide for limited liability for holders of a mortgage made in violation of law, whether it is the original lender or a subsequent investment trust. Unlike current law, which puts the burden on the borrower to find the party responsible for causing the harm, the legislation allows the borrower to go directly to the current mortgage holder for a cure.

   The U.S. House of Representatives has already passed a similar measure. H.R. 3915, which was approved by House members on a part-line vote on November 15, essentially calls for the following:

   1. Prohibits steering incentives to mortgage originators, including incentive compensation and any yield spread premium based on, or varying with, the terms of a residential mortgage loan.
   2. Prohibits mortgage originators from steering any consumer to a residential mortgage loan that is not in the consumer’s interest (loans with predatory characteristics).
   3. Sets forth licensing and registration requirements for mortgage originators.
   4. Requires creditors to determine, based on verified and documented information, that a consumer has a reasonable ability to repay the loan, according to its terms, and all applicable taxes, insurance, and assessments.
   5. Prohibits creditors from extending credit for residential mortgage loans that involve refinancing of a prior residential mortgage loan unless the creditor determines that refinancing provides a net tangible benefit to the consumer.
   6. Sets forth defenses to foreclosure.
   7. Revises requirements governing prepayment penalties (it essentially prohibits lending without due regard to repayment ability).

   Clearly, there are differences in both pieces of legislation. Inman News reports Dodd’s bill “would require loan servicers to implement loss mitigation strategies before initiating foreclosure proceedings against borrowers,” and would “require lenders to follow existing federal guidelines for subprime and nontraditional mortgage loans, and lower the threshold for loans to fall under even stricter requirements for high cost mortgages as defined by the Home Ownership Equity Protection Act, or HOEPA.”

   But like legislation approved by the House on Nov. 15, Dodd’s bill would limit the “assignee liability” of investors who buy securities backed by mortgage loans, protecting them from class-action suits by borrowers, Inman reports.

   On the House side, H.R. 3915, creates a national registration system for mortgage originators and requires background checks, fingerprinting, education and testing; whereas Dodd’s the bill introduced by Dodd in the Senate includes no such provision, Inman also reported.

   Inman’s analysis of Dodd’s legislation also reveals the following: “Absent from both bills is language advocated by mortgage lenders and the Bush administration that would create uniform national standards for mortgage originators preempting state laws, in order to eliminate what critics say is a patchwork of regulations that varies from state to state. Without a uniform standard, states would be allowed to adopt stricter rules for lenders not regulated at the federal level.”

   Kieran Quinn, Chairman of the Mortgage Bankers Association (MBA) expressed concerns yesterday about Dod’s proposal. In a prepared statement, she said:

   “The introduction of this bill is an important development as it will jumpstart the debate in the Senate over how to prevent a reoccurrence of the current troubles facing the mortgage market. We are still reviewing the specific language in the bill, but there are several provisions that concern us deeply. Senator Dodd’s bill does not provide a uniform national standard to protect consumers from predatory lending, a step we feel is necessary to ensure a smooth and efficient marketplace. Further, we are troubled by the bill’s ‘duty of care’ and assignee liability requirements.

   For its part, the NCRC shot back with a prepared statement of its own. John Taylor, NCRC President & CEO:

   We support Senator Dodd’s bill aimed at improving the regulation of the housing market to ensure that working families are able to secure and sustain homeownership. If passed in its present form, Senator Dodd’s bill will create strong accountability measures among brokers, lenders and Wall Street investors and will protect American families from unfair and deceptive lending practices.

A 60-year-old Washington, DC man has been sentenced to nearly six years in federal prison for engaging in what the FBI says was a scam to obtained money by selling–or offering to sell–homes he did not own. George A. Cowser’s scam netted over $1 million. He was order to pay nearly $560k in criminal penalties and $30k in victim restitution. Following his incarceration, Cowser will have to serve three years of supervised release, during which time he cannot buy, sell or list any property, or open any credit lines or engage in any financial transactions over $5,000.

According to the indictment, between May of 2005 and March of 2006, Cowser devised a scheme to defraud homeowners, buyers, and a mortgage company by making false and fraudulent pretenses, representations, and promises. The purpose of the scam was clear–to sell or attempt to sell real estate in the District of Columbia that Cowser claimed to own or was his to sell by virtue of a particular company’s (Reverse Properties, Inc.) interest in the property.

Neither Cowser nor Reverse Properties, Inc. owned any of the properties, had an independent claim of ownership to the properties, or had any contract to sell the properties on behalf of their true owners. Even though Cowser knew he did not own the properties, he signed sales contracts and closed on the transfer of the properties for significant personal profit.

In one sale, Cowser used a forged deed to claim ownership of a home in the 1300 block of West Virginia Avenue, NE. Amazingly, he succeeded in selling the property to three separate individuals, obtaining money from all three, and actually engaged in two separate closings to two separate people in the same week! Because of the closings, Cowser or his corporate designee received over $540,000, some of which was used to purchase a new car.

Cowser also attempted to fraudulently sell at least two other houses, one in the 1200 block of Orren Street, NE, and the other in the 1300 block of W Street, SE. He did so by signing fraudulent quit claim deeds and recording the quitclaim deeds with the D.C. Recorder of Deeds. He then obtained money from the purported buyers, unbeknownst to the true homeowners. In both cases, the sales did not successfully close. Nevertheless, the FBI says the buyers were not able to recover all of their money and that the true owner of one of the homes had her personal property damaged, including antique furniture, when it was moved out of her house without her knowledge during the attempted sale.

As part of his scam, Cowser claimed that he owned dozens of properties throughout the District of Columbia, even though, in truth, he didn’t own any, and wasn’t even a registered real estate agent. During its investigation, the government discovered that prior to his arrest, Cowser had executed at least 14 forged quit claim deeds to various properties throughout the District of Columbia; each of the forged deeds contained a forged signature of the true owner of the property. Although Cowser did not record these particular deeds, he did use them to defraud other investors out of some serious money.

NOTE: Here’s a different take on last Monday’s blog entry… if you’re wondering who the actual players are in this seemingly sorted affair, read on:

No doubt about it, investors involved with the Mile High Capital Group (Denver, Colorado) lost millions of dollars. They put down earnest money on residential duplex properties, most of which were never built. The Mile High Capital Group sold a product that it failed to deliver, and investors lost a lot of money. Rick Dryer, founder and former CEO of Mile High is currently under indictment on 67 felony charges ranging from theft to securities fraud for his involvement in an alleged real estate Ponzi scheme.

Dryer has pleaded not guilty on all of the charges, and is scheduled to appear in Denver District Court in February of 2008. Clearly, someone is guilty of wrongdoing here, but which (if any) laws were broken, by whom, and for what purpose are still a mystery.

Shortly after my book “Protect Yourself from Real Estate and Mortgage Fraud” (co-authored with attorney and noted mortgage fraud expert Rachel Dollar) hit the bookstores, Kaplan’s public relations department contacted me. They informed me of an opportunity to promote the book via a talk show called “Real Estate Wealth, Myths Facts and Strategies”, a spin-off of Real Estate Dialogues with Rick Dryer and Professor Gary Eldred, the best selling author and head of curriculum at Trump University Real Estate Dialogues with Rick Dryer and Professor Gary Eldred. I was shocked to learn of the indictments against Dryer when I “googled” him prior to the show. I also learned that he had moved to North Carolina where he was hosting his popular “Right Place Right Time Real Estate Investment Strategies” and working as a consultant for a company called Convergent Acquisitions and Development Inc. in Charlotte, among others. He also has a home in Colorado.

I had known of Rick Dryer and his seminars for some time. I also knew of his very public record of accurate predictions as to emerging markets and trends. If there is anyone whose knowledge of real estate would seem to empower investors to earn millions in real estate, Rick Dryer would be such a person. So when I heard the rumors about millions stolen from Mile High investors, I was stunned. After all, why would a successful real estate investor, a multi-millionaire, need to steal money?

I discovered that Convergent has two things in common with Mile High. First, it acquires rental properties for investors, which is basically the same service that Mile High offered investors. Secondly, it had had great success in following Rick Dryer’s “Right Place Right Time” principles.

I called Convergent president Nicolas “Nick” Sabardin (pictured on the right) to find out more about what was going on and about Dryer’s involvement with the company. Sabardin was very cooperative; he believed anyone who looks into this will help in clearing Dryer’s name. He welcomed my interest, and thought an independent analysis would be fantastic. He offered to help in anyway he could. Shortly thereafter, my assistant and I flew to Charlotte to meet with Sabardin.

After a couple meetings, Sabardin aroused my curiosity. He and his company have an impeccable reputation. He is a Sorbonne graduate, a former airline pilot, and an MBA. He had had his lawyers do a complete background on Dryer before hiring him. What he told me, which I confirmed, made me had become fascinated with the Mile High case.

Here was a company that had over a quarter billion in sales and 45 million in cash flow, and records showed that Dryer was on the receiving end of only $50,000 in cash. If this was a case of real estate and mortgage fraud, someone was doing an excellent job of laundering the money. Where did all that money go? Why did Dryer leave Mile High? And why were clients like Convergent enjoying such success? Is Rick Dryer a criminal mastermind or the fall guy for clever con artists who used him as an unwitting accomplice, as Mr. Sabardin believes?

Over the course of the next several months, I will be independently reviewing the Mile High case myself and posting my findings, most every Monday, under the “Mile High Monday” header here on FlippingFrenzy.com. Through my posts, I hope we will all be able to discover the truth about Mile High Capital Group. From its very beginnings, through the trial, to the very end, when the judge or jury reads the verdicts… if it ever gets to trial. I invite you to tune in to what may be the unveiling of one of the most complicated and sinister corporate real estate cons of our times. But is Rick Dryer mastermind or victim? Stay tuned.

The American Red Cross estimates that more than 300,000 homes were destroyed by Hurricanes Katrina and Rita, while an additional 145,000 had major damage. Earlier this year, wildfires in Southern California consumed over 1,600 homes and other structures, threatened 68,500 more, and displaced over 500,000 people.

These are truly natural and national disasters, but in some ways they are dwarfed by the man-made disaster that is currently afflicting the housing industry. For the third-quarter of 2007, Realty Trac reported more than 446,000 foreclosure filings, including default notices, auction sale notices, and bank repossessions. That places U.S. homeowners on the track to getting booted out of nearly two million homes in a single year. For the people losing their homes in foreclosure, the loss is no less devastating than losing a home to a fire or flood. In some cases, the experience is even more tragic–after all, those families who lose their home to foreclosure don’t get an insurance settlement; they don’t have money to rebuild.

Nearly two million families are going to lose their homes to foreclosure, yet the President’s plan does nothing to help those families whose homes are already on fire. Look closely at yesterday’s announcement and you’ll see that the President’s plan won’t help anyone whose home is already in foreclosure or who has missed even one mortgage payment.

When we saw those images of Southern California burning and the floodwaters from hurricanes Katrina and Rita, we didn’t hesitate as a nation to send rescue personnel and resources to those areas. We should take the same approach with the current mortgage meltdown and foreclosure epidemic. Real families are hurting from this national disaster. We shouldn’t make matters worse by only helping those whose homes are being threatened by the preverbal fire. Millions of homes are on fire right now, and sadly the President’s plan is going to allow them to burn to the ground.

On the heels of news from the Mortgage Bankers Associations that the the delinquency rate for mortgage loans now sits at its highest since 1986, President Bush today announced what the White House is spinning as a major initiative to “limit the rise in foreclosures that would have negative consequences for our economy” (said differently, the President’s plan targets the estimated 1.2 million American homeowners who can afford their mortgages at the current rate, but not at the higher interest rate that their adjustable-rate loans are about to reset to).

First up on the President’s plan: “FHA Secure.” A program that gives the FHA greater flexibility to offset refinancing to homeowners — to offer refinancing to homeowners who have good credit histories but cannot afford their current payments. In just three months, according to the President, the FHA has helped more than 35,000 people refinance. And in the coming year, the FHA expects this program to help more than 300,000 families.

Next up: “HOPE NOW Alliance.” in August, President Bush asked members of his Cabinet to work with trade associations, lenders, loan servicers, mortgage counselors and investors (including American Financial Services Association, American Securitization Forum, Assurant, Inc., Bank of America, CCCS Atlanta, Inc., Citigroup Inc., Consumer Bankers Association, Consumer Mortgage Coalition, Countrywide Financial Corporation, Fannie Mae, The Financial Services Roundtable, First Horizon National Corporation, Freddie Mac, GMAC ResCap, Homeownership Preservation Foundation, Housing Partnership Network, The Housing Policy Council, HSBC North America Holdings, Inc., JPMorgan Chase & Co, National City, NeighborWorks America, Mortgage Bankers Association, Option One Mortgage, PMI Mortgage Insurance Co., Securities Industry and Financial Markets Association, State Farm Insurance Companies, SunTrust Mortgage, Inc., Washington Mutual, Inc., Wells Fargo & Company.) on an initiative to help struggling homeowners find a way to refinance. HOPE NOW, according to the President, is an example of government bringing together members of the private sector to voluntarily address a national challenge — without taxpayer subsidies and without government mandates.

According to the President, representatives of the HOPE NOW Alliance plan to help homeowners who will not be able to make the higher payments on their sub-prime loan once the interest rates goes up — but only those who can at least afford the current, starter rate. HOPE NOW members have agreed on a set of industry-wide standards to provide relief to these borrowers in one of three ways:

1. By refinancing an existing loan into a new private mortgage
2. By moving them into an FHA Secure loan
3. Or by freezing their current interest rate for five years

Lenders, President Bush says, are already refinancing and modifying mortgages on a case-by-case basis. With this systematic approach, HOPE NOW says it will be able to help large groups of homeowners all at once. This will bring relief to more homeowners more quickly, says President Bush. The HOPE NOW Alliance estimates there are up to 1.2 million American homeowners who could be eligible for their assistance.

Finally, according to the President, the federal government is taking several regulatory actions to make the mortgage industry more transparent, reliable and fair (sorry, no catchy name for this program). President Bush says later this month, the Federal Reserve intends to announce stronger lending standards that will help protect borrowers. At the same time, HUD and federal banking regulators said to be taking steps to improve disclosure requirements — so that homeowners can be confident they are receiving complete, accurate and understandable information about their mortgages.

As the federal government take these steps, President Bush indicated that the Department of Justice will continue to pursue fraud in the banking and housing industries — so we can help ensure that those who defraud American consumers face justice.

So there you have it. This is how President Bush and members of his Cabinet intend to stop foreclosure-related bleeding in the housing market and save our current economy. While homeowners with good credit scores are going to be able to refinance their loans (with some lenders reportedly ready to waive prepayment penalties), the millions upon millions of Americans with poor credit — regardless of why the have a low credit score — and many of those American’s already facing foreclosure, are most likely going to be bounced to the curb.

While response to the President’s plan is sure to be swift, you yourself may be wondering how all of this impacts you (that is, if you are currently facing foreclosure or rent a property that is facing the same). For more on that, I am going to quote an often reliable source, BusinessWeek:

Can you get your mortgage payments lowered because of the bailout?

It depends. If you’ve got an adjustable-rate mortgage, you may qualify under certain conditions. If you’ve got a standard mortgage with a fixed interest rate, you’re not affected.

Which adjustable-rate mortgage holders are affected?

Only a small group. To qualify, you need to have received your loan sometime between Jan. 1, 2005 and July 31, 2007, and you need to be facing a reset of your interest rate sometime between Jan. 1, 2008 and July 31, 2010. If you’re within this range, you may be eligible to have your interest rate frozen, so you can keep your current, lower rate for five years.

Who qualifies within that range?

The bailout is really designed for homeowners who could run into trouble if their mortgage payments are raised sharply and face the prospect of losing their homes. If you’re well enough off that you can afford the higher mortgage payments after a reset, you won’t qualify. And if you’re in bad enough shape that you can’t handle the current low interest rate, you won’t qualify. For example, if you’ve already fallen behind on your mortgage payments, you’re not eligible for the rate freeze.

Do you need to live in your home to qualify?

Yes. The plan excludes people who don’t live in the homes for which they have mortgages so that speculators can’t benefit.

Why is there going to be a bailout?

Bush, Paulson, and the Administration are concerned about the fallout from the housing slump. If many people fall behind on their mortgages and have to give up their houses, there will be a series of negative repercussions. First, tens of thousands of Americans could be forced to leave their homes. They would lose whatever equity they had. Consumer spending more broadly would likely slow, hurting the economy overall. In addition, home prices could fall even more quickly than they are now. That could hurt consumer confidence well beyond those people directly affected.

Is the bailout going to be enough?

It depends on your definition of enough. The deal will add some stability to the housing market, but it won’t stop all the problems in the troubled sector. The same day Bush unveiled his plan, the Mortgage Bankers Assn. said that foreclosures had reached a record high in the third quarter. The share of mortgages that have entered foreclosure hit 0.78% in the quarter, up from the previous high of 0.65% set in the previous quarter. At the same time, delinquencies for all mortgages rose to 5.59%, from 5.12%, in the second quarter. None of the people who are delinquent or facing foreclosure will be helped by the plan.

Questions, comments, concerns? Please click on the “Comments” link below and let’s get some dialogue started on this one. We have a lot of experts that read and comment on a daily basis, as well as a lot of homeowners in need of help!

In the never-ending saga of acts that lead to foreclosure and real estate and mortgage fraud, piggybacking off of someone else’s credit in order to raise the score of your own, has to be one of the most dangerous acts the wannabe homeowner can commit. I’ve said it before and I’ll say it again: these piggybacking schemes are another type of mortgage fraud.

Anyone who applies for a home loan using a piggybacked credit score is lying to the lender–claiming to have a better credit history than they really have. Sadly, because federal regulation doesn’t prohibit the practice, the lender is fooled into making a decision to approve a loan based on false information.

Be careful of companies like this.

Even though this company appears to be based out of Canada, there are plenty of similar boiler room operations here in the United States, and one of our responsibilities is to protect the American Dream, and one of those dreams is the American Dream of Homeownership. If we begin to turn the other way when people are committing obvious fraud, we place the entire system at risk. Homes will cost more money, loans will become even more less accessible, and someday our children and grandchildren will no longer be able to afford their own homes.

Credit enhancement companies who engage in this sort of activity claim that they are not breaking any laws. But no matter what they say, using trickery and schemes to beat the system will eventually catch up with all of us, and we will get stuck with the bill–somebody always does.

Borrowers need to earn credit scores that honestly reflect their ability to pay back a loan, not fraudulently manipulate authorized user credit card accounts.

1. Sorry for not mentioning this in my original post, but fortunately, Fair Isaac Corp. (the company that computes the most commonly used credit scores) is fighting back by announcing that its next version of the FICO score will no longer consider certain types of credit card accounts, closing a loophole that currently allows strangers to coattail on a cardholder’s good credit. See “Fair Isaac combats credit manipulation,” for more details.
2. Also, it’s interesting to note that I only found out about the company referenced above because they shot me an unsolicited email message touting their ability to “remove negative items from credit for a couple hundred bucks.” Had I never received their spam–which I’m sure was sent to millions of people–I never would have known about them. Regardless of how I heard about them, I find it absolutely ridiculous that they’ve chosen to copyright their website “2004 - 2007″ when a “whois” search reveals that the site itself is less than 30 days old.
3. Finally, if you’re interested in hearing me speak about the dangers associated with authorized user credit card accounts, listen to my interview with Nicole Hamilton, author of the popular blog “Just Ask Nicole” and President of Credit Hour, a Michigan-based credit education company that specializes in helping you “get smart about your credit.” Nicole teaches courses to consumers to help them improve their credit, and is well versed on the problems associated with people who use boosted credit scores to obtain home loans.

According to Realtor Lori Polin, she was totally unaware that what she was involved with consisted of real estate and mortgage fraud. If ignorance of the law was an appropriate defense, she could be off the hook. Unfortunately it’s not. According to a recent story in the St. Petersburg Times entitled “Unsigned letter accuses agent of mortgage fraud” Polin was allegedly involved in classic cash back at closing schemes.

Here’s how a cash back at closing scheme works:

• The buyer pays more for a property than it’s worth, and the seller agrees to kick back the surplus cash to the buyer at the closing.

On its surface, cash back at closing seems to benefit everyone involved. The buyer pockets some extra cash. The seller unloads his house at or near the asking price. The real estate agent gets a bigger commission. The loan officer chalks up another successful loan. And the lender stands to earn more interest over the life of the loan. Everybody wins.

Or so it seems.

Unfortunately, as with most deals that seem too good to be true, cash back at closing schemes are just another way of scamming someone–in this case, the lender, who’s fooled into loaning more money than the collateral used to secure that loan is worth. If the borrower defaults on the loan (which is almost a sure thing in cash back at closing schemes), then the lender can’t recover the money by selling the property.

Cash back at closing also:

• Inflates housing values, making housing less affordable
• Artificially raises property taxes
• Hurts honest real estate agents because they lose business to dishonest agents who offer cash back deals
• Stimulates foreclosure and destroys neighborhoods that begin to buckle when homeowners default on the inflated loans

With cash back at closing, what may have seemed like a win-win situation leaves plenty of losers in its wake.

According to an anonymous letter distributed to the press and many of Polin’s colleagues, Polin artificially inflated the prices of nine homes in Tampa and North Pinellas, so buyers could get larger loans. In most cases, the homes were mortgaged for approximately $100,000 more than their true market value, and if the allegations prove true, then these transactions definitely fall into the category of cash back at closing. The perpetrators need to be brought to justice. The question is, did Lori Polin do anything wrong?

Polin firmly believes she is innocent, because, in her own words, “All these deals were put together by attorneys and title companies and lenders.” All she did was list and sell the homes. Some of the evidence, however, makes it look as though Polin could not possibly be unaware of what was going on.

In the case of Iris Alfonso, for example, Alfonso’s house had been on the market for several months when Polin allegedly asked if she would accept a reduced price of $449,900. Shortly thereafter, Alfonso received a purchase contract offering her $540,000 for her home. Why would any buyer offer a seller $90,100 more than the seller was willing to accept? The only possible answer is cash back at closing.

According to Polin, she simply listed the homes for sale. What the buyer and seller agree to has nothing to do with her, according to Polin. If the reported incidents did occur, a law was clearly broken. As the FBI clearly states (emphasis mine):

“It is illegal for a person to make any false statement regarding income, assets, debt, or matters of identification, or to willfully overvalue any land or property, in a loan and credit application for the purpose of influencing in any way the action of a financial institution.”

Whether or not Polin broke the law and is guilty of conspiring to commit fraud is up to law enforcement and the courts to decide. Whatever the outcome, this case highlights the need for real estate and mortgage fraud training in the real estate and mortgage lending industries. Attorneys and law enforcement agencies could also benefit from such training programs. Time and time again, I hear about professionals who should know better becoming involved in fraudulent transactions. Some are willing accomplices or even ringleaders. Others are unwilling accomplices or victims who are simply abused by savvy con artists. By receiving the proper training, these professionals can help defend themselves, their clients, and the housing industry from those who are committed to destroying the American Dream of homeownership.

To learn more about the dangers associated with cash back at closing and other common and not so common real estate and mortgage fraud scams, pick up a copy of one of my latest books, Protect Yourself from Real Estate and Mortgage Fraud: Preserving the American Dream of Homeownership

No doubt about it, investors involved with one particular Rocky Mountain-based real estate investment firm lost millions of dollars. They put down earnest money on residential duplex properties, most of which were never built. The firm sold a product that it failed to deliver, and investors lost a lot of money. The firm’s founder and former CEO is currently under indictment on nearly 70 felony charges ranging from theft to securities fraud for his involvement in an alleged real estate Ponzi scheme.

The Rocky Mountain-based firm’s founder and former CEO has pleaded not guilty on all of the charges and is scheduled to appear in court in early 2008. Clearly, someone is guilty of wrongdoing here, but which (if any) laws were broken, by whom, and for what purpose are still a mystery.

Shortly after my book Protect Yourself from Real Estate and Mortgage Fraud (co-authored with attorney Rachel Dollar) hit the bookstores, my publisher’s public relations director contacted me. She informed me of an opportunity to promote the book via a talk show about real estate investing that was a spin-off of another show co-hosted by the firm’s founder and former CEO. When I “googled” his name prior to the show, I was shocked to learn of the indictments against him.

During my research, I also learned that he had moved to North Carolina where he was hosting his own popular real estate investment seminar and working for a real estate company in Charlotte as well as for other companies.

I had known of this former CEO and his seminars for some time. I also knew of his very public record of accurate predictions as to emerging markets and trends. If there is anyone whose knowledge of real estate would seem to empower investors to earn millions, this guy would be such a person. So when I heard the rumors about millions stolen from his company’s investors, I was stunned. After all, why would a successful real estate investor, a multi-millionaire, need to steal money?

I did an informative and interesting interview with the former CEO and his co-host, which is offered by podcast to subscribers. The show was scheduled to debut on XM Satellite, too, but XM pulled the plug on the show after receiving calls from a reporter. That apparent violation of its contract will be the subject of another column.

As I was checking into the background of the new company for which the former CEO was working as a consultant, I discovered that it has two things in common with the Rocky Mountain-based real estate investment company. First, it acquires rental properties for investors, which is basically the same service that the Rocky Mountain-based firm offered investors. Secondly, it had had great success in following the former CEO’s investment principles.

I called the southeastern-based company’s president to find out more about what was going on and about the former CEO’s involvement with the new company. The company’s president was very cooperative; he believed anyone who looks into this will help in clearing the former CEO’s name. He welcomed my interest, and thought an independent analysis would be fantastic. He offered to help in any way he could. Shortly thereafter, my assistant and I flew to Charlotte to meet with him.

After a couple meetings, the new company’s president had aroused my curiosity. He and his company have an impeccable reputation. He is a Sorbonne graduate, a former airline pilot, and an MBA. He had had his lawyers do a complete background on the former CEO before hiring him. What he told me, which I confirmed, made me become fascinated with the Rocky Mountain case.

The Rock Mountain-based firm had over a quarter billion in sales and $45 million in cash flow, and records showed that its founder and former CEO was on the receiving end of only $50,000 in cash. If this was a case of real estate and mortgage fraud, someone was doing an excellent job of laundering the money. Where did all that money go? Why did the founder leave his company? And why were clients with the new company enjoying such success? Is this former CEO a criminal mastermind or the fall guy for clever con artists who used him as an unwitting accomplice, as the president of the new company believes?

Over the course of the next several months, I will be independently reviewing the case myself and posting my findings, most every Monday, under the “Rocky Mountain Monday” header here on FlippingFrenzy.com. Through my posts, I hope we will all be able to discover the truth about Rocky Mountain-based firm and its founder and former CEO–from the company’s very beginnings, through the trial, to the very end, when the judge or jury reads the verdicts… if it ever gets to trial.

I invite you to tune in to what may be the unveiling of one of the most complicated and sinister corporate real estate cons of our times.