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April 30, 2008

FBI and U.S. Attorney’s Office Indict Four for Mortgage and Insurance Fraud

The FBI, along with the U.S. Attorney’s Office for the Southern District of New York, announced today the filing of an indictment charging Dominick Devito and Robert Didonato with participating in a broad scheme to commit mortgage fraud, and Devito and Didonato, along with John Liscio and Louis Cordasco, Jr., with participating in an associated insurance fraud scheme. Devito was also also charged with obstruction of justice.

According to the indictment filed in Manhattan federal court:

From January 2002 through November 2004, Devito was the leader of a fraudulent real estate investment scheme, which had as its primary objective the purchase of multimillion-dollar residential properties in various communities in Westchester County–including Purchase, New York–with loans obtained through the submission of false and misleading information to banks and other lenders. Many of the loans were for amounts equal to or more than 100% percent of the property’s actual sale price, so that the defendants and their co-conspirators did not have to put any of their own money at risk in the transaction.

Devito identified properties for sale, orchestrated the purchase of the properties and performed construction work at the properties. Didonato was a residential real estate broker for Devito and other co-conspirators in their purchase of the properties, which were the subject of the scheme.

In order to further their scam, the defendants submitted to various federally-insured banks loan applications, contracts of sale, deeds, real estate transfer documents, title reports, and other documents which contained materially false or misleading information about the income, assets, existing debt and credit-worthiness of the borrower, the chain of title to the property, and the sale price of the home. They also indicated the borrower’s intent to reside in the property as a primary residence, when the properties were typically purchased for investment purposes.

Devito and Didonato cashed out on certain properties by taking additional private loans against the already fraudulently-inflated sale price of the properties. The proceeds of these loans–which were never repaid in full–were deposited in a bank account used for the benefit of Devito.

As a result of the their scheme to defraud, Devito and Didonato obtained millions of dollars in loan proceeds, enabling them to control certain properties that they otherwise would not have been able to purchase and finance. In addition, Devito and Didonato earned money from fees and commissions on the sale or re-financing of the properties. The banks, on the other hand, lost millions of dollars when the Devito and Didonato and their co-conspirators defaulted on mortgage payments and caused several of the properties to go into foreclosure.

In addition, from January 2003 through February 2005, Devito, Didonato, along with John Liscio and Louis Cordasco, Jr., engaged in a scheme to defraud insurance companies by submitting false and misleading insurance claims and supporting documents for water damage caused by broken pipes at several of the homes purchased as part of the mortgage fraud scheme.

John Liscio was a licensed insurance agent who sold insurance policies to the owners of the homes purchased in the scheme and helped Devito submit insurance claims for water damage. Louis Cordasco, Jr., working for a company that specializes in emergency clean-up services for water damage to residential homes, was responsible for performing emergency clean-up services for some of the homes that were damaged as part of the insurance fraud scheme.

In February 2005, Cordasco and Liscio also planned to break pipes at a home in Purchase, NY, in order to submit a false insurance claim for water damage.

The Indictment also charges Devito with obstruction of justice in connection with a 2003 proceeding in Manhattan federal court. Specifically, Devito submitted false and misleading information regarding the value of his assets and his personal net worth following his sale of a property in Purchase, New York.

All four are expected to be arraigned before a U.S. District Court Judge next Monday (May 5, 2008).

Posted By: Ralph Roberts @ 11:02 pm | | Comments (1) | Trackback |
Filed under: Arrest, Mortgage Fraud, New York

April 29, 2008

2008 Foreclosures Statistics

The latest foreclosure statistics from RealtyTrac are out, and the news isn’t very good. According to the Q1 2008 U.S. Foreclosure Market Report, which tracks foreclosure filings (including default notices, auction sale notices and bank repossessions), 649,917 properties were foreclosed upon during the first quarter of the year, a 23% increase from the previous quarter and a 112% increase from the first quarter of 2007. The report also shows that one (1) in every 194 U.S. households received a foreclosure filing during the quarter.

Foreclosure activity in the quarter increased on a year-over-year basis in 46 out of the 50 states and in 90 of the nation’s 100 largest metro areas, demonstrating that most regions of the country are seeing more foreclosures. In some areas there are also some unusual, non-market factors impacting the foreclosure numbers. For example, the city of Philadelphia in late March issued a temporary moratorium on all foreclosure auctions for April, and the city has since adopted a program that will delay foreclosure proceedings on owner-occupied properties until the owners have met face-to-face with lenders to attempt a loan workout plan that would prevent foreclosure.

While programs like those in Philadelphia are certain to have a positive long-term impact, they could be simply deferring another flood of foreclosures, and that could extend the length of time it takes the market to recover from the current downward cycle, in which we’ve already seen seven consecutive quarters of increasing foreclosure activity.

Q1_US_Foreclosure_Activity.png Click on the map to the left for a close up view of exactly where foreclosure-related activity is playing out across the United States. As you’ll see, one (1) in every 54 Nevada households received a foreclosure filing during the first quarter, the highest foreclosure rate in the nation and 3.6 times the national average. Foreclosure filings were reported on 19,595 Nevada properties during the quarter, up 3% from the previous quarter and up 137% from the first quarter of 2007.

Foreclosure filings were reported on 169,831 California properties during the first quarter, the highest total in the nation at a rate of one (1) in every 78 households — the nation’s second highest foreclosure rate. Foreclosure activity in California increased 32% from the previous quarter and was up nearly 213% from the first quarter of 2007.

Arizona documented the nation’s third highest state foreclosure rate, with one (1) in every 95 households receiving a foreclosure filing during the quarter. Foreclosure filings were reported on 27,404 Arizona properties during the quarter, up 45% from the previous quarter and up nearly 245% from the first quarter of 2007.

Foreclosure filings were reported on 87,893 Florida properties during the first quarter, the second highest state total and giving Florida the nation’s 4th highest foreclosure rate — one (1) in every 97 households received a foreclosure filing during the quarter. Foreclosure activity in the state was up 17% from the previous quarter and up 178% from the first quarter of 2007.

Colorado foreclosure activity increased 33% from the previous quarter and 78% from the first quarter of 2007, and the state’s foreclosure rate ranked No. 5 among the states. Foreclosure filings were reported on 18,996 Colorado properties during the quarter, a rate of one in every 110 households.

Other states with foreclosure rates among the top 10 were Georgia, Michigan, Ohio, Massachusetts and Connecticut.

April 28, 2008

State Foreclosure Prevention Working Group Issues Critical Report

Back at the beginning of February, Arizona Attorney General Terry Goddard said the mortgage industry “needed to reach out to more homeowners at risk of foreclosure if the nation’s housing crisis is to be brought under control.” Now, just three months later, Goddard isn’t letting up. Citing a new national report on subprime mortgages, Goddard last week said efforts of servicers and government officials to prevent foreclosures have increased but still fall short of the need to effectively respond to the foreclosure crisis and prevent millions of unnecessary foreclosures. The report, “Analysis of Subprime Mortgage Servicing Performance,” was issued last Tuesday by the State Foreclosure Prevention Working Group, a group of state Attorneys General and banking regulators working to prevent home foreclosures.

Major findings of the report include:

  1. Seven out of 10 seriously delinquent borrowers are still not on track for any loss-mitigation outcome. The number of borrowers in loss mitigation has increased, but it has been matched by an increasing number of delinquent loans.
  2. Data suggest that servicers’ loss-mitigation departments are severely strained in managing the current workload. The report noted that almost two-thirds of all loss-mitigation efforts started are not completed in the following month.
  3. Homeowners who do receive loss-mitigation help are most likely to receive some form of loan modification. The Working Group said such modifications are a solution that seems to offer better long-term prospects for successful resolution of problem loans. Many servicers are replacing their use of repayment plans in favor of loan modifications.

The State Working Group said it believes “more robust approaches to avoid preventable foreclosures are necessary.” The Working Group said servicers, investors and state officials should work together on:

  • Developing a more systematic loan work-out system to replace the intensive, individual, “hands-on” loss-mitigation approach. The Group says it continue to work with servicers to promote systematic solutions to modify loans in a more streamlined and efficient manner.

  • Slowing down the foreclosure process to allow for more work-outs. Targeted efforts to slow down subprime foreclosures may give homeowners and servicers more time to find solutions to avoid foreclosure, the report says. Many states have enacted or are considering such measures, according to the report.

The State Foreclosure Prevention Working Group began as a cooperative dialogue of state officials and mortgage servicers in September of 2007. Since October of 2007, the Working Group has been collecting data from the largest subprime mortgage servicers, with 13 of the largest 20 servicers participating, representing approximately 60% of subprime mortgage loans serviced. The Group is led by representatives of the Attorneys General of 11 states, including Arizona, California, Colorado, Iowa, Illinois, Massachusetts, Michigan, New York, North Carolina, Ohio and Texas); two state banking departments (New York and North Carolina); and the Conference of State Bank Supervisors.

For more info, read Analysis of Subprime Mortgage Servicing Performance (Warning: clicking on the preceding link will download a 30-page PDF file).

Posted By: Ralph Roberts @ 10:04 pm | | Comments (0) | Trackback |
Filed under: Arizona, Foreclosure, Mortgage Meltdown, State Foreclosure Prevention Working Group

April 26, 2008

Mortgage Broker, Title Attorney, and Loan Officer Sentenced in $37 Million Florida Mortgage Fraud Scam

Three real estate industry insiders have been sentenced in Florida for their roles in a humongous real estate fraud conspiracy. Richard Crowder, II, a former licensed mortgage broker and owner of America’s Best Mortgage Services, along with former title attorney Gary Mills (who owned Four Star Title) and a former Wachovia Bank loan officer (Karen Sullivan), all received stiff sentences on Wednesday from U.S. District Judge Jose Martinez. Crowder received nine (9) years’, while Mill and Sullivan received three years’ and eight months and four years’ and one month imprisonment, respectively. All three are scheduled to appear again in court on May 29 for a hearing to determine the amount of restitution they must pay to the victims in this case.

To carry out their scheme, mortgage broker Crowder identified residential properties, including luxury condominiums on South Beach in Miami, Florida, that were available for purchase. He then recruited buyers for the properties, representing that he could obtain 100% financing for their purchase. After finding a purchaser, Crowder would apply for equity lines of credit on their behalf with Wachovia Bank. To induce Wachovia to issue the equity lines of credit, Crowder and title attorney Mills prepared fraudulent HUD-1 settlement forms stating the buyers already owned the properties and also significantly understated the amount of the first mortgages on the properties. The fraudulent HUD-1 settlement forms were then given to Wachovia Bank loan officer Sullivan, who used the forms to facilitate the issuance of equity lines of credit from the bank.

Simultaneously, or shortly after obtaining the equity lines of credit from Wachovia, Crowder applied for the first mortgages on the properties. These applications overstated the buyers’ assets and income, and also included false verification of deposit forms prepared by Wachovia Bank loan officer Karen Sullivan. To further induce the lenders to issue the loans, title attorney Gary Mills prepared documents falsely representing that the buyers were using their own money for the down payments and closing costs. In fact, the buyers were using funds from the fraudulently obtained Wachovia equity lines credit or funds provided by mortgage broker Richard Crowder.

At the end of the day, Crowder, Mills and Sullivan caused the fraudulent purchase of 17 different luxury condominiums at The Continuum on South Beach and at The Point of Aventura using more than $37,000,000 in fraudulently obtained mortgage loans.

Posted By: Ralph Roberts @ 3:42 pm | | Comments (10) | Trackback |
Filed under: Attorneys, Florida, Mortgage Fraud, Real Estate Fraud, Trial

April 24, 2008

LendingTree Warns of Data Breach

Online loan referral service LendingTree has informed customers that some of their confidential data may have been leaked to a handful of lenders by company insiders. From LendingTree by way of Luke Mullins of U.S. News & World Report:

April 21, 2008

Dear LendingTree Customer:

We want you to know that some loan request forms our customers sent to LendingTree may have been seen by lenders without our consent. These lenders then used the forms to market their own mortgage loans to our customers. While we don’t believe that the forms were used for any other purpose, we want you to know what happened and what we did to correct this situation, as well as what you can do to monitor your credit records.

What Happened and What We Did

Recently, LendingTree learned that several former employees may have helped a handful of mortgage lenders gain access to LendingTree’s customer information by sharing confidential passwords with the lenders. When we learned of this situation, we quickly contacted the authorities, and LendingTree is helping with their investigation. We promptly made several system security changes. We also brought lawsuits against those involved.

Based on our investigation, we understand that these mortgage lenders used the passwords to access LendingTree’s customer loan request forms, normally available only to LendingTree-approved lenders, to market loans to those customers. The loan request forms contained data such as name, address, email address, telephone number, Social Security number, income and employment information. We believe these lenders accessed LendingTree’s loan request forms between October 2006 and early 2008.

What You Can Do

Again, we don’t believe any identity theft or fraudulent financial activity resulted from this situation. However, we suggest you get a free credit report. Look for any accounts you didn’t open and/or inquiries from creditors that you didn’t initiate. If you see anything you don’t understand, contact the credit bureau. If you see anything suspicious, you may want to file a fraud alert with the bureaus. For more information on how to do this, please refer to LendingTree’s Guide to Protecting Your Credit and Identity.

Where to Get More Information

We regret any inconvenience and apologize for any unwanted mortgage calls you may have received. For more information about this situation, and for more information on what you can do, please refer to the attached Questions & Answers.

Sincerely,

R.L. Harris

What do you think? Is this a simple case of old fashioned corporate espionage, idenity theft, or real estate fraud?

Posted By: Ralph Roberts @ 10:02 pm | | Comments (2) | Trackback |
Filed under: LendingTree

April 22, 2008

Foreclosure Assistance Solutions Ordered to Repay Washington Homeowners

Approximately 200 Washington homeowners who paid for a service they thought would help save their homes from foreclosure will receive partial refunds under a settlement announced yesterday by the Washington Attorney General’s Office. The homeowners each paid between $1,200.00 and $1,500.oo to Foreclosure Assistance Solutions LLC, of Clearwater, Florida. More than 70% of homeowners who signed up with Foreclosure Assistance Solutions ended up losing their homes anyway. The company went out of business in fall 2007.

From Washington State’s Attorney General, Rob McKenna:

“We believe Foreclosure Assistance Solutions used coercive tactics to pressure consumers into paying for a service they really couldn’t afford and then doing little or nothing to actually help those consumers save their homes,” Attorney General Rob McKenna said. “Today’s settlement puts some money back into the pockets of those who bought into the company’s false promise of hope.”

The Attorney General’s Office accused Foreclosure Assistance Solutions of violating the state’s Consumer Protection Act, Credit Services Organization Act, and Commercial Telephone Solicitation Act. According to the state’s complaint filed with the settlement yesterday, Foreclosure Assistance Solutions sent letters and postcards to consumers whose homes were in foreclosure. Some of the solicitations mimicked official government notices. The messages instructed the consumers to call the company for help.

More from the Attorney General’s Office:

“Foreclosure Assistance Solutions employees delivered a deceptive sales pitch to frighten consumers into believing they needed to act quickly. Homeowners who paid for the service were then presented with a contract that prohibited them from contacting the mortgage lender that initiated the foreclosure for any reason. And for consumers who paid Foreclosure Assistance Solutions with a credit card, the contract prohibited them from trying to dispute the charges by contacting their credit card provider before Foreclosure Assistance Solutions. Consumers who did would not receive a refund.”

Foreclosure Assistance Solutions did not admit to any wrongdoing in the settlement but agreed to pay $78,125 in restitution to Washington consumers, as well as $20,000 in attorneys’ fees. The settlement also includes injunctive provisions limiting how the company does business, should it offer services again in the future, as well as an additional $100,000 in civil penalties for failure to comply with the agreement.

Foreclosure Assistance Solutions will be providing the Attorney General’s Office with contact information for Washington consumers who purchased its services. The state will mail checks to eligible recipients within the next three months. The total restitution will be divided among all eligible recipients; individuals will likely receive $300-$500 each. Anyone who has questions about the settlement can contact the State of Washington Attorney General’s Consumer Resource Center at 1-800-551-4636 between 10 a.m. and 3 p.m. weekdays (Pacific Time).

In related news, the Texas Attorney General’s Office reached a settlement with Foreclosure Assistance Solutions and its operators earlier this month. A court agreed in September 2007 to freeze the defendants’ assets on conjunction with Texas’ investigation, and the company subsequently went out of business.

The Washington Attorney General’s Office introduced legislation this past legislative session to help protect homeowners from foreclosure rescue scams where the “rescuer” agrees to purchase a distressed property then sell or lease it back to the original homeowner. Washington House Bill (HB) 2791 takes effect June 12, 2008. The new law will require that the purchaser prove the homeowner is able to make the payments and provide a written contract with clearly disclosed terms. The new law also gives the homeowner the right to cancel the contract within five (5) business days, and also requires that the original homeowner receive at least 82% of the difference between the property’s fair market value and the underlying mortgage should the home be sold to a third party.

Posted By: Ralph Roberts @ 11:28 pm | | Comments (2) | Trackback |
Filed under: Foreclosure Fraud, Texas, Washington

April 21, 2008

Judge Dismisses Mortgage Fraud-related Class Action Lawsuit

A federal judge in Philadelphia, Pennsylvania, has thrown out a lawsuit against lenders who supplied funds to a mortgage broker who previously pled guilty to charges of mortgage fraud, finding that lenders are not obliged to monitor mortgage broker actions. The decision is a major setback for 842 victims of Wesley A. Snyder’s company, Personal Financial Management, who could have used the strategy to recover some of their losses, had it succeeded. The victims are said to have approximately $30 million in the scam.

The claim rejected by U.S. District Judge James Giles started in the fall of 2007, when a Fleetwood, Pennsylvania, couple–Douglas and Andrea Jones–filed a lawsuit, hoping to have it certified as a class action suit. According to paperwork filed with the court, defendants in the complaint included:

  • ABN AMRO Mortgage Group, Inc.
  • Chase Home Mortgage Corporation
  • Citimortgage, Inc.
  • Citicorp Home Mortgage Services, Inc.
  • Countrywide Home Loans, Inc.
  • Fifth Third Mortgage Company
  • Florida Capital Bank Mortgages
  • GMAC Mortgage Corporation
  • GMAC Mortgage Asset Management, Inc.
  • GMAC Mortgage Group, Inc.
  • HSBC Mortgage Corporation (USA)
  • Indymac Financial Services Corporation
  • Moorequity, Inc.
  • National City Mortgage, Inc.
  • nBank, N.A.
  • Provident Funding Group, Inc.
  • Saxon Home Mortgage
  • Saxon Mortgage, Inc.
  • Sovereign Bank
  • SunTrust Mortgage, Inc.
  • U.S. Bank, N.A.
  • Wachovia Mortgage Corporation
  • Washington Mutual Home Loans, Inc.
  • Wells Fargo
  • Home Mortgage, Inc.
  • John Doe Mortgage Companies

In their suit, Douglas and Andrea Jones alleged that several Pennsylvania companies, owned or controlled by Wesley Snyder, offered them Equity Slide Down Mortgages as part of what they say was a mortgage servicing Ponzi scheme. The Joneses said Snyder failed to monitor and supervise his companies, which did not credit them properly for payments and pre-payments of interest and principal on their mortgages. They further alleged that, following the bankruptcy of Snyder’s companies, the defendants in the case–the companies listed above–failed to notify them properly that they had taken over as servicing agents on the mortgage loans and demanded payments from them in amounts substantially higher than owed on the loans serviced by Snyder’s companies. The Joneses also claimed that each defendant was guilty of having committed numerous RESPA violations.

Specifically,the Joneses alleged that they applied for and closed on two separate Equity Slide Down mortgages through Snyder’s companies–one for each of their two properties–in 2002 and 2005, respectively. They alleged that at all times after closing they remitted their monthly mortgage payments to Snyder’s company and that they were current on all payments owed and had pre-paid a large portion of the principal balance by way of a large principal reduction payment made soon after closing.

They further alleged that in September 2007, after the bankruptcy filing of the Snyder’s company, they learned for the first time that SunTrust and Countrywide claimed to hold their respective mortgages and notes. According to the Joneses, SunTrust and Countrywide demanded payment for amounts that were duplicative and excessive and that failed to credit properly the payments and pre-payments they had made to the Snyder. The Joneses say that the Snyder’s companies were the “servicing agents” of each Defendant, as defined by the Real Estate Settlement Procedures Act (RESPA), and that Snyder’s companies were otherwise the Defendants’ agents under Pennsylvania agency law.

More specifically, the Joneses alleged that:

  1. Each defendant employed one or more of the Snyder’s companies to originate, close, and service all the mortgage loans at issue.
  2. Each Defendant knew the Joneses were making all mortgage payments to the Snyder Entities.
  3. Each Defendant knew it was sending all mortgage statements and federal tax forms to Snyder rather than to the Joneses.

In dismissing the suit, U.S. District Judge Giles said the Joneses’ recollections were trumped by documents they signed stating payments would be made to mortgage bank ABN Amro Mortgage Group, meaning, Snyder was not ABN’s agent and ABN had no duty to oversee him.

Posted By: Ralph Roberts @ 2:01 pm | | Comments (18) | Trackback |
Filed under: Countrywide, Mortgage Fraud, Pennsylvania, Ponzi Scheme, Real Estate Fraud, Trial

April 20, 2008

The Latest from the FBI on Mortgage Fraud

One day after warning the U.S. Senate about a tremendous surge in the FBI’s mortgage fraud investigations, FBI Director Robert S. Mueller, III, talked in more detailed terms about the growth in both corporate fraud and public corruption cases–including those involving Real Estate and Mortgage Fraud–at the annual conference of the American Bar Association’s Section of Litigation in Washington, D.C.

Despite limited resources, Mueller told conference attendees that the FBI’s corporate fraud cases have grown more than 80% since 2003. Last year, the FBI had more than 490 corporate and securities fraud convictions.

FBI_Mueller.png Mueller predicted that the problem will only worsen because of the “ripple effect of the sub-prime crisis and its impact on the credit market.” As Flipping Frenzy reported last Thursday, the FBI has identified 19 companies involved in corporate fraud matters related to the sub-prime lending crisis. According to Mueller, the Bureau is now actively investigating more than 1,300 mortgage fraud matters.

Mueller believes part of the problem is “rampant conflicts of interest in the corporate suites.” He told conference attendees that FBI investigations “further emphasize the need for independent board members, auditors, and outside counsel. Shareholders rely on the board of directors to serve as the corporate watchdog. …[But] board members are often beholden to the executives they are expected to oversee.

Acknowledging recent FBI missteps resulting from inadequate internal controls–and a new Office of Integrity and Compliance to identify risks before they become problems–Mueller said, “As we all understand, it is better for a company to self-report and remediate its own wrongdoing before the FBI and the Department of Justice become involved. Executives who let the situation escalate to the point of a sudden restatement—and a resulting loss of shareholder confidence–often do greater harm to the companies they are trying to protect than if they had exercised early intervention.

Mueller added that in his days as a defense attorney, he met a number of executives who could rationalize every bad decision, and warned that “it is a slippery slope from behavior that skirts ethical or legal boundaries to behavior that crosses the line completely.”

As we all know, the FBI works to combat corruption in the public sector–now its top criminal priority–because, as Mueller pointed out in his remarks, “democracy and corruption cannot co-exist.” As of today, the FBI has more than 2,500 open public corruption cases, an increase of more than 50 percent since 2003. During the past two years alone, more than 18,000 public officials have been convicted, according to the FBI’

The FBI,” Mueller said, “is uniquely situated to address public corruption. We have the skills to conduct sophisticated investigations. But more than that, we are insulated from political pressure. We are able to go where the evidence leads us, without fear of reprisal or recrimination.

Mueller wrapped up his remarks by adding, “In the end, it does not matter if the corruption is national or local. It does not matter if it is millions of dollars, or merely hundreds. There is no level of acceptable corruption. The violation of trust is the same. The damage to the taxpayers is the same.

Posted By: Ralph Roberts @ 12:35 pm | | Comments (9) | Trackback |
Filed under: FBI, Mortgage Fraud, Real Estate Fraud

April 18, 2008

Jonathan Helgason and Thomas Balko Guilty of Mortgage Fraud: Local Neighborhood Association Plays a Pivotal Role in Stopping Real Estate Fraud

Suspicions about illegal property flipping in north Minneapolis have led to a major bust and guilty plea. The owners of a Roseville, Minnesota, real estate company pleaded guilty earlier today in federal court to charges of real estate and mortgage fraud in connection with a scheme involving at least 162 properties, principally in north Minneapolis, and mortgage proceeds of approximately $35 million.

Concerns surrounding the scheme were originally aroused by sales that attracted the attention of a north Minneapolis neighborhood association. A Minneapolis City Council member brought the neighborhood association’s concerns to federal, state and county investigators, and soon, two more bad guys will be behind bars.

According to their plea agreements, Jonathan Helgason, 45, of Chisago, MN, a licensed REALTOR®, and Thomas Balko, 37, of Rogers, MN, a licensed appraiser, 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 2005 to 2007, the pair executed a scheme to defraud and to obtain money by means of false and fraudulent pretenses. Using the TJ Group, Helgason and Balko purchased more than 160 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 that the TJ Group had paid.

Helgason and Balko said that the investors were simply lending their good credit to TJ Waconia, in exchange for which the investor 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 them. Through the scheme, Helgason and Balko 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 ownership was in name only.

During the two-year period during which investors owned property, 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.

Helgason and Balko, on behalf of 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.

Posted By: Ralph Roberts @ 10:10 pm | | Comments (0) | Trackback |
Filed under: Flipping, Minnesota, Mortgage Fraud, Real Estate Fraud

April 16, 2008

The FBI’s Mortgage Fraud Probe Now Targets 19 Firms

We learned some interesting things today about the FBI’s probe into real estate and mortgage fraud at some of Wall Street’s top financial institutions. According to FBI Director Robert S. Mueller, III’s testimony before the U.S. Senate Committee on Appropriations, Subcommittee on Commerce, Justice, Science, and Related Agencies, the Bureau’s investigation of real estate fraud in the mortgage industry now encompasses 19 companies, up from 17 just one month ago. In Mueller’s own words:

  • “We’ve had a tremendous surge in cases related to the subprime mortgage debacle. We currently have almost 1,300 cases that have grown exponentially over the last several years and we expect them to grow even further.”
  • “We have also 19 cases involving institutions themselves where mortgage fraud may have contributed to misstatements and the like.”.

Mueller, who was testifying on Capital Hill in defense of the FBI’s budget request for 2009, also said that when the Bureau’s budget request was originally drafted, the subprime mortgage mess had not yet “grown to the point where we could see the extent of the surge,” and that he was not certain at this point when we can expect to see the extent of the surge.

Additional information, from Reuters:

Bureau officials declined to name any additional companies targeted in the probe. “We’ve always said it was a fluid number,” FBI spokesman Stephen Kodak said. “It could change at any time.” He said the bureau has publicly acknowledged only one company as involved — Doral Financial Corp (DRL.N: Quote, Profile, Research). A former Doral treasurer was indicted for investment fraud last month. He denied the allegations and the company declined to comment.

The largest U.S. mortgage lender, Countrywide (CFC.N: Quote, Profile, Research), also is under FBI investigation, authorities have said, although the FBI has declined to comment and Countrywide said it was unaware of any investigation. When the FBI disclosed its industry investigation, major investment banks Goldman Sachs (GS.N: Quote, Profile, Research), Morgan Stanley (MS.N: Quote, Profile, Research) and Bear Stearns Cos (BSC.N: Quote, Profile, Research) each said the government had asked them for information, but there was no confirmation of any FBI role. Beazer Homes (BZH.N: Quote, Profile, Research) said last year it had received a federal grand jury subpoena related to its mortgage business.

Posted By: Ralph Roberts @ 10:07 pm | | Comments (5) | Trackback |
Filed under: Countrywide, FBI, Mortgage Fraud, Mortgage Meltdown, Subprime Mortgages, Uncategorized

April 14, 2008

Ohio Rental Property Owner Guilty of Mortgage Fraud

Donald_F_Green.jpg A hedge fund-backed real estate speculator and rental property owner in Columbus, Ohio, is facing 35 years in prison for his role in a mortgage fraud scheme that fraudulently secured more than $2.6 million in mortgage loans. Donald F. Green, 48, pleaded guilty in U.S. District Court last Friday to one count of income tax evasion, one count of conspiracy to commit bank fraud and wire fraud, and one count of bank fraud.

According to Green’s plea agreement, Green bought houses usually in need of substantial repairs in distressed neighborhoods in Columbus, Ohio, in 2003 and 2004 at or near their true-market value. In 2003, Green developed a working relationship with Jonathan L. Boyd, a loan officer at Summer Tyme Mortgage. Boyd would recruit straw buyers to purchase Green’s properties using fictitious income numbers in order to increase their reported credit worthiness. Court documents also reveal that Boyd arranged for inflated appraisals of many of those properties by Darneil Gaither. All three–Green, Boyd, and Gaither–used false information to obtain approximately $2,651,200 in mortgage loans.

In 2004, Green sold similar houses to other straw buyers through a scheme set up by codefendants Aryeh Schottenstein, Jeffrey Lieberman and Shawn Griffin in an investment program with Stillwater Capital Partners. Stillwater paid Griffin substantial amounts of money to renovate these properties provided by Green, but Griffin failed to follow through on any renovations. Green received consulting fees on several of these deals yet failed to report the income on his tax returns.

Green also gave his tax preparer schedules of fictitious improvements made on many of the properties in order to reduce his capital gains profits and therefore his taxes on the sale of the properties. By not reporting all of his income, Green fraudulently avoided an additional tax due and owing of $100,332.97 for 2003, and $130,043.19 for 2004.

Green and the others were indicted in August, 2007. Charges are still pending against Boyd and Gaither. Schottenstein, Lieberman and Griffin have plea agreements pending.

Posted By: Ralph Roberts @ 1:31 pm | | Comments (2) | Trackback |
Filed under: Guilty Plea, Mortgage Fraud, Ohio, Real Estate Fraud, Straw Buyer

April 13, 2008

Wall Street’s Mortgage Product Design and the Design of the Titanic

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Editor’s Note: The following item was written for Flipping Frenzy by Dr. Gary Lacefield, a nationally recognized expert on fair lending and housing-related practices. Dr. Lacefield was a Senior Civil Rights Analyst, Investigator, and Conciliator for HUD, where among other accomplishments, he negotiated the 12 largest civil rights settlements involving housing providers in the agency’s history.
= = = = = = = =

The designers of the Titanic proclaimed it as greatest-and-safest ship ever built…”Unsinkable!” In a similar “safety statement,” Wall Street also proclaimed to the mortgage industry–and anyone else who would listen–that their mortgage-driven products for sale were “risk free” and “just as safe.”

  • The Titanic only carried 20 lifeboats which, if fully utilized, would have saved just 50 percent of its passengers. So that means that in a perfect’ situation, 50 percent still would have died even if they’d been able to get to the lifeboats that were available.
  • Wall Street’s plunge into the subprime mortgage-based securities world failed to price their products correctly, based–in hindsight–on the risk now realized with those products. It now appears that approximately 80 percent of the high cost loans in this country are in trouble of drowning because of the underlying borrowers’ inability to perform.
  • The designers of the Titanic claimed that the reason that they failed to carry an sufficient number of lifeboats was because ‘The White Star management was concerned that too many boats would sully the aesthetic beauty of the ship.’
  • Wall Street fell into the same trap: They were afraid that if they priced the risk of these boutique mortgage products appropriately, borrowers wouldn’t find them appealing.
  • The Titanic’s purported safety features and proclamations of “unsinkable” were based upon a design that relied on the improbability that several of its watertight compartments would never be compromised at the same time. The very incident that was not likely to happen did… on its maiden voyage.
  • Wall Street’s product underwriting guidelines were designed to ensure that the firms creating these securities would never be impacted because all of the risk was diverted to the originating lenders. Wall Street didn’t anticipate that their mortgage products were so poorly designed that the originating lenders would start to fail, with virtually zero buffer between them (Wall Street) and the borrower.
  • The Titanic’s quality assurance was seriously flawed, allowing trapped water to overflow from one airtight compartment to the next–its ultimate undoing.
  • Wall Street’s underwriting design allowed many borrowers to fall prey to the opportunities presented by the nature of the product. When the borrowers failed to perform, the overflow of defaulted loans spilled over from one company to the next, causing each of the smaller companies to close.
  • The Titanic served several classes of people, but was clearly designed for the wealthy. There were 325 First Class passengers on board during that fateful trip. But in order to underwrite the cost of the passage, they also sold steerage to second class (285) and third class (706) passengers. It’s no coincidence that more First Class passengers survived (202) than either second class (118) or third class (178) passengers.
  • Wall Street designed these specialty mortgage products for the First Class borrowers, but designed the products so that second and third class borrowers would be able to underwrite the programs. It’s no coincidence that more of the wealthy borrowers are less affected by the results of these programs compared to the impact suffered by the middle and lower income borrowers. Foreclosures and defaulted loans are at the highest number since the Great Depression.
  • The Titanic was staffed with a crew of 913 which represented about 46 percent of the total on board. Over 700 perished when the ship sank representing almost half of the casualties.
  • So far, over 165 lenders of size have “imploded” with at least another thousand, smaller mortgage companies and brokerages failing. Over 45,000 jobs have been lost in the mortgage industry in the past five months alone. Early (conservative) estimates indicate that there will be over $100 billion in credit losses. All of this carnage is a direct result of the availability and miscalculation of risk associated with the aforementioned mortgage products by Wall Street.
  • The Titanic tragedy was investigated by the government and changes were made within the industry to reduce the risk associated with ocean travel.
  • What do you think our government’s going to do about the mess created by Wall Street? A review of the government’s intervention in the last half century includes the creation of the following “bail-out” type programs for the housing sector:
    1. Since 1970 we’ve had the Emergency Home Finance Act of 1970.
    2. The Emergency Housing Act of 1975.
    3. The Emergency Housing Assistance Act of 1983.
    4. The Emergency Housing Assistance Act of 1988.

Based on historical data, it’s easy to see that financial crises recur on average, about once a decade–and apparently–so do emergency housing acts: It seems probable that, given the current mortgage credit related issues, the Fall of 2007 will bring about a new emergency housing act.

A year ago, it was common to say that while house prices would periodically fall on a regional basis, they could not on a national basis, because it hadn’t happened in the large U.S. market since the Great Depression. Oops! Housing prices are falling on a national basis, as measured by the S&P/Case-Shiller national index. Additional reports reflect the following:

  1. With excess supply and falling demand, it’s not terribly difficult to forecast further drops in house prices: The recent Goldman Sachs housing forecast points out “substantial excess supply” and that “credit is being rationed,” as well as projecting average house prices will fall 7% a year through 2008. This is along with projected falling home sales and housing starts, with some experts predicting “more than a 15% real drop in national home price indices.”
  2. The June 30, 2007 National Delinquency Survey of the Mortgage Bankers Association (MBA) reports:
    1. A total of 1,090,300 seriously delinquent mortgages
    2. Serious delinquency means loans 90 days or more past due plus loans in foreclosure
    3. Of the total, there are 575,200 subprime loans
    4. Subprime mortgages, which represent about 14% of mortgage loans, are 53% of serious delinquencies
    5. The survey reports 618,900 loans in foreclosure, of which 342,500 or 55% are subprime

  3. One constant of the mortgage finance world is that adjustable rate loans have higher defaults and losses than fixed rate loans within each quality class: The June 30, 2007 numbers illustrated through the (serious) delinquency ratios as follows:
    1. Prime fixed 0.67% Prime ARMs 2.02%
    2. Subprime fixed 5.84% Subprime ARMs 12.40%
    3. FHA fixed 4.76% FHA ARMs 6.95%
  4. (It’s worth noting that the particular problem of subprime ARMs leaps out of the numbers. Also notice that FHA and subprime serious delinquency ratios for fixed rate loans aren’t radically different. The FHA is predominately a fixed rate lender, whereas subprime is about 53% ARMs. The total range is remarkable: The subprime ARM serious delinquency ratio is over 18 times that of prime fixed rate loans.)

  5. A central problem is that during the boom the subprime market got very much larger than it used to be: In the years of credit overexpansion, it grew to $1.5 trillion in outstanding loans, up over 8 times from its $150 billion in 2000. So the financial and political impact of the subprime level of delinquency and foreclosure is much greater.
  6. The American residential mortgage market is the biggest credit market in the world, with about $10 trillion in outstanding loans:
    1. Residential real estate is a huge asset class, with an aggregate value of about $21 trillion, the single largest component of the wealth of most households
    2. A 15% average house price decline would mean a more than $3 trillion loss of wealth for U.S. households, which would be especially painful for those who are highly leveraged.
    3. Moody’s recently forecast that the “unexpectedly steep and persistent downturn” in the mortgage and housing sector would last until 2009.
  7. The interrelated series of problems stemming from the deflating housing and mortgage bubble will trigger a sharp decline in home prices: The related fall in home building that could lead to an economy-wide recession and carry with it the potential for a substantial decline in consumption, as well as a potentially serious decline in aggregate demand.
  8. With these risks on the horizon, experts are (predictably) encouraging the Federal Reserve to ease credit: The Fed–as well as other central banks–have already provided a significant amount of liquidity support to the panicky international credit markets. These markets continue to suffer from not knowing exactly who is in trouble from leveraged speculations in subprime securities and from great uncertainty about what such securities are worth:
    1. Many are calling on the Fed to lower the fed funds rate further: Lower short term rates make it cheaper to carry leveraged positions in securities unable to be sold at prices acceptable to the seller and help ease the panic.
    2. The severe problems with subprime mortgages and securities made out of them, related defaults and foreclosures, and falling house prices will continue well into 2009.
    3. Of subprime borrowers trying to refinance adjustable rate mortgages with resetting interest rates, the survey found that 64% of the subprime homeowners were unable to do so.
  9. President Bush, as well as numerous members of Congress and the FHA have suggested using the FHA as the means to create a refinancing capability for subprime mortgages: This makes sense because the FHA itself is—and has been since its creation in 1934—a subprime mortgage lending institution. Of course they didn’t call it that, but historically if you couldn’t qualify for a prime loan, you went to the FHA.

  10. The latest MBA survey shows that serious delinquencies for fixed rate FHA and subprime loans are similar:
    1. So are total past due loans: 14.54% of subprime loans are past due, as are 12.40% of FHA loans.
    2. The difference is in the foreclosure inventory: although both are far over the prime foreclosure ratio of 0.59%, the 5.52% for subprime is two and a half times the 2.15% for the FHA.
  11. The FHA, being itself the principal credit risk taker, logically has more ability to practice forbearance and loss mitigation: But with falling house prices, the amount the FHA could responsibly refinance is liable to be less than the outstanding principal owed on the subprime mortgage:
    1. Here the owners of these mortgages, typically investors in structured mortgage-backed securities (MBS) issued by a securitization trust, need to take a loss for the difference
    2. Investors in such speculative instruments should not be bailed out, and the loss in economic value has occurred already…it is a matter of its becoming a ‘realized haircut.’
  12. Putting this in the context of the evolution of the mortgage market: The Mortgage Bankers Association has reported that subprime mortgages grew from 2.4% to 13.7% of total mortgage loans between 2000 and 2006. But the proportion of prime loans also increased, from 72.6% to 76.6%.

    What went down? It was the market share of the government’s FHA (and much smaller VA) programs, which fell from 25.2% to only 9.7%. The combined share of subprime plus FHA-VA stayed more or less the same, but within that, subprime took a lot of market share away from the government alternatives.

In closing, from the October 12, 2007 issue of Daily Real Estate News

The study suggests that as home prices rose throughout the U.S. in the early 2000s, lenders grew more willing to let high-rate borrowers get bigger loans as measured against their annual incomes. In 2005, borrowers who were given high-rate mortgage to buy one-to-four-family homes were loaned 2.1 times their reported annual income. That was 4 percent more than regular borrowers received.

Posted By: Ralph Roberts @ 1:46 pm | | Comments (4) | Trackback |
Filed under: Dr. Gary Lacefield, Mortgage Meltdown, Subprime Mortgages

April 11, 2008

Idaho Fares Better Than Most Other States on Mortgage Issues

The director of the Idaho’s Department of Finance said this week that Idaho’s financial institutions are a “beacon of good news,” which is in stark contrast to the nation’s mortgage crisis. The state’s mortgage delinquencies are well within the range established over the last 20 years. In fact, Idaho’s annual delinquency figure was lower than that for 10 of the past 20 years (3.86% of total mortgages, compared with the nationwide number of 6.31%). The percentage of all Idaho mortgage loans reported as foreclosure-started for 2007, at 1.47%, was also within the range of the past 20 years, and is nearly half the 2.84% reported nationwide.

Contrary to the increasing number of news stories about large money center financial institutions (e.g. Bear Stearns) experiencing significant losses connected to mortgage defaults, Idaho’s banks are showing continued strength, with key performance indicators outpacing nationwide numbers. For example, in 2007, Idaho banks out-performed banks nationwide in loan and asset growth rates, and reported significantly smaller percentages for non-current loans and net charge-offs.

Maybe its time the rest of the nation took at how the 43rd state is handling its business. In January, Idaho became only one of seven states requiring that all new applications for mortgage licensure be processed through the new Nationwide Mortgage Licensing System (NMLS) and that existing licensees transition their current license information onto the NMLS by September 1 of this year. The NMLS is streamlining the licensing process for both regulatory agencies and the mortgage industry by providing a centralized and standardized system for mortgage licensing. NMLS is owned and operated by the State Regulatory Registry LLC, a wholly owned subsidiary of the Conference of State Bank Supervisors (CSBS). NMLS is a joint project of CSBS and the American Association of Residential Mortgage Regulators (AARMR) begun several years ago with the goals of improving supervision, streamlining compliance and enhancing consumer protection.

Posted By: Ralph Roberts @ 11:39 pm | | Comments (0) | Trackback |
Filed under: Idaho, Mortgage Broker Registration, NMLS

April 9, 2008

Texas Real Estate Agent Sentenced for Mortgage Fraud

A licensed real estate agent in Texas has been sentenced to serve one year and six months in federal prison for bank fraud and engaging in financial transactions with criminally derived property stemming from a mortgage fraud investigation. In addition to an 18-month prison term, U.S. District Judge Keith Ellison ordered John Turner Jr., 52, to pay a $2,000 fine and serve three years of supervised release upon completion of his prison term.

According to his plea agreement, Turner arranged for a straw borrower to purchase a residence in Houston, Texas. He amended the purchase contract, instructing the title company to disburse $62,000 of the loan proceeds to a remodeling company of the buyer’s choice, ostensibly for repairs and upgrades to be made at the residence. First National Bank of Arizona funded the $213,377 mortgage loan in November of 2006. At closing, Turner submitted a $62,000 false invoice in the name of First Class Construction Inc., for repairs and remodeling. The title company and First National Bank of Arizona were unaware that First Class Construction, Inc., was owned by Turner nor that the repairs and remodeling had not been done and would never be done.

Turner took the $62,000 check to a check cashing business where, after cashing the check, he received receiving 51 $1,000 money orders, a money order in the amount of $365, and $9,992 in cash.

Posted By: Ralph Roberts @ 11:12 pm | | Comments (1) | Trackback |
Filed under: Mortgage Fraud, Realtors, Straw Buyer, Texas

April 7, 2008

2008 Real Estate and Mortgage Fraud Losses Expected to Reach $2.5 Billion

Falling home prices and inappropriate mortgage underwriting have grabbed the headlines and much of the blame for mortgage credit woes in recent months. But the significant rise in mortgage fraud over the past 10 years is another important trend. New research from TowerGroup predicts that losses from real estate and mortgage fraud will reach $2.5 billion in 2008 and that comparable losses will continue for several years thereafter. The new research, titled “US Mortgage Fraud: Types, Trends, and Detection Tools,” examines the different types of fraud, characterizes the tools available to combat fraud schemes, and assesses likely future directions of mortgage fraud prevention services and products.

Related: FBI spokesperson, Stephen Kodak, tells New York Times News Service that 2008 is turning out to be a record-breaking year for real estate and mortgage fraud. Kodak says the FBI received nearly 30,000 suspicious activity reports so far for FY08. The 2007 fiscal year, Kodak reports, ended with 46,000 reports and 260 FBI-involved convictions.

Posted By: Ralph Roberts @ 10:01 pm | | Comments (0) | Trackback |
Filed under: FBI, Mortgage Fraud, Real Estate Fraud, Research

April 5, 2008

Lender Greed Eventually Goes Unrewarded

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Editor’s Note: The following item was written for Flipping Frenzy by Dr. Gary Lacefield, a nationally recognized expert on fair lending and housing-related practices. Dr. Lacefield was a Senior Civil Rights Analyst, Investigator, and Conciliator for HUD, where among other accomplishments, he negotiated the 12 largest civil rights settlements involving housing providers in the agency’s history.
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A respected and experienced attorney who spent his entire career helping consumers through the confusing and in most all situations daunting foreclosure process, visited my office one morning in an attempt to see if there was anything else he could do to help one of his clients. The attorney had been referred to me because of my “Pro From Dover” background and experience with the Real Estate Settlement Procedures Act (more commonly known as RESPA) and with the Fair Housing Act.

The attorney showed me a couple of documents from his borrower’s mortgage loan file to prove that his client had been “wronged” and should at least be entitled to the amount of the civil penalty–about $1,000–for a missing disclosure. My review of the file disclosed much more.

The borrower was an African American female who had challenged credit (her score was 532) but had been employed at the same job for about 22 years. She was a teachers assistant with a local public school district earning a gross monthly salary of $1,548. She also had a 12th grade education and a lifetime of working with elementary school students.

  • The lender was well known, originating loans in all 50 states and is affiliated with a Fortune 100 company.
  • The lender contacted this borrower and offered to refinance her home so that she could pay off some credit card debt she had accumulated.
  • Her original note of $171,000 was a fixed rate of 8.5% and her monthly PITI payments were under $700.
  • The loan officer asked for and received her pay stubs and her tax returns as evidenced by confirmation faxes and letters from the loan officer to the borrower. Therefore, the lender knew that the borrower grossed about $1550 per month.
  • The loan officer met with the borrower and presented a set of loan documents that showed that the new loan amount would be $243,000.
  • The borrower stated that she was given little time to review the documents but signed and initialed where she was instructed by the loan officer.
  • The borrower was surprised about the loan amount but the loan officer explained that the property appraised well and that she would have no trouble refinancing this note if the rates dropped.
  • The new loan closed in August 2005.

What the loan officer did not explain to the borrower was the following:

  1. The only way he could get her qualified was to ignore the borrower’s pay stubs and tax returns and qualify the borrower’s under a stated/stated loan program where the borrower did not have to prove or disclose her income.
  2. The borrower’s new loan was not a fixed rate loan but an adjustable rate loan (ARM) that started at a higher rate than she was already paying and grew to over 12.25 percent.
  3. The borrower’s new principle and interest payment alone was over $1298.92 which is more than her net take home from a pay check that grosses only $1548.
  4. The borrower was not aware that she was not escrowing her taxes and insurance.
  5. The lender made close to $20,000 on this loan.

When the borrower did not make her insurance payments, the lender “forced placed” insurance that was considerably higher than the insurance she had on her old note. When she could no longer make her mortgage payments, the lender started foreclosure proceedings, and that’s when she eventually contacted the attorney.

The original contact that I experienced with the lead attorney for the lender proved useless. Why? Because they (the in-house attorneys) said that the borrower must have committed fraud because they (the lender) could not possibly know what her income was because it was a stated/stated loan. When I confirmed that the loan officer had all of the borrower’s employment and pay data before placing her in a stated/stated product, and knew that the borrower would not be able to make the payments, they held to the “fraud by borrower” defense. However, after filing a HUD Fair Housing Complaint on behalf of the borrower, the lender was much more willing to come to the table and try to resolve the complaint.

Ultimately, the lender made a principle rate reduction of $68,000, and recast the note to a fixed rate of interest of 6% which resulted in a new principle and interest payment of $600 per month. In addition, the lender waived the 18 months of past due payments and forgave the $22,000 of taxes and insurance previously paid by the lender.

The borrower is now in a better position and will not lose her home.

Posted By: Ralph Roberts @ 7:01 pm | | Comments (21) | Trackback |
Filed under: Dr. Gary Lacefield

April 2, 2008

Cornelius Robinson and Four Others Convicted of Mortgage Fraud

The Assistant U.S. Attorney in the Western District of Texas recently scored one for the good guys when he successfully secured guilty verdicts in United States District Court against five people for their roles in a multi-million dollar mortgage fraud scheme.

Following a nine day trial that ended last Friday (March 28), an Austin, Texas jury convicted:

  • Cornelius Robinson, 47, of Austin, Texas, who was the leader and organizer of the fraud scheme. Robinson was convicted of conspiracy to make false statements related to a loan, conspiracy to commit wire fraud, five substantive counts of wire fraud, nine counts of false statements related to a loan, one count of aiding and abetting the receipt of commissions or gifts from loans by a bank employee, conspiracy to commit money laundering and seven counts of money laundering.
  • Licensed loan officer and mortgage broker Michael Breon, 39, formerly of Austin and a current resident of McKinney, Texas, and a straw purchaser. Breon was convicted of conspiracy to make false statements related to a loan, one count of wire fraud and one count of conspiracy to commit money laundering.
  • Sindu Sukumaran, 36, wife of Michael Breon and a straw purchaser. Sukumaran was convicted of wire fraud.
  • Marlon Nathan Torres, 45, of Hutto, Texas, a licensed real estate agent and buyer and seller of real estate in the Austin area. Torres was convicted of one count each of conspiracy to commit money laundering and money laundering.
  • Jeffrey Andre Wilkins, 46, of Austin, a cousin of Cornelius Robinson and a straw purchaser. Wilkins was convicted of one count each of conspiracy to make false statements related to a loan, conspiracy to commit wire fraud, false statement related to a loan, conspiracy to commit money laundering and money laundering.

Sentencing for all five–who were the last of 16 defendants indicted in January of this year by the Federal Grand Jury in Austin–is scheduled for June 20, 2008. Eleven co-defendants who pleaded guilty to related charges prior to trial are set for sentencing on June 6, 2008. The co-defendants include:

  • Silvia Seelig, 45, of Austin, and wife of Cornelius Robinson who during the conspiracy, was a licensed real estate agent and a straw buyer.
  • George H. Watson, 55, of Austin, a licensed attorney who specializes in real estate transactions. Watson served as the closing attorney on most of the real estate transactions described in the Indictment.
  • James Douglas Atwood, 51, of Austin, Cornelius Robinson’s uncle and a straw buyer.
  • Russell Snead, 43, of the Seattle, Washington area and a straw buyer.
  • Doris Ann Hill, 40, of Austin, a personal banker employed at Wells Fargo Bank. For a fee, Hill agreed to provide a false verification of deposit to loan underwriters in relation to three real estate transactions involving Snead.
  • Licensed real estate agent Julius Meyers Lofton, 45, of Austin, and a straw buyer.
  • Roy Rivers, 52, of Austin, and a straw buyer.
  • Danielle Guice Rosas, 40, of Austin, and a straw buyer.
  • Stanley Ma, 27, of Honolulu, Hawaii and a straw buyer.
  • Leonard Brown, 38, of Houston, Texas, who provided a false verification of employment in association with Onyx Consulting and Stanley Ma.
  • Straw buyer Leroy Williams, 46, of Austin.

From September 1999 until now, the defendants participated in a scheme to defraud mortgage lenders, including federally insured financial institutions, with regard to loans acquired to purchase 25 properties in the Austin and San Antonio, Texas areas. The scheme centered around the use of real estate flips. That is, the defendants purchased property at one price and would immediately sell, or flip the property to a straw buyer at a higher price. In doing so, the mortgage lenders were deceived as to the true nature of the transaction and the financial status of the straw buyer. The straw buyers did not make the subsequent monthly mortgage payments and all of the loans went into default and have been either foreclosed upon or are the subject of current foreclosure proceedings.

Posted By: Ralph Roberts @ 10:47 pm | | Comments (8) | Trackback |
Filed under: Mortgage Fraud, Real Estate Fraud, Texas

April 1, 2008

JPMorgan Chase: Preying on Cay Clubs Investors

If you’ve been following the reports on the Cay Clubs con, you’ve probably met Carisa and Craig Urban — two investors who got burned by Cay Clubs and one of its property managers, Phil Graham.

On Thursday, March 27, The Oregonian ran an article entitled “Chase mortgage memo pushes ‘Cheats & Tricks’,” in which reporter Jeff Manning exposes an incriminating memo that was being circulated amongst loan officers at JPMorgan Chase. The memo, called “ZiPPY Cheats & Tricks,” encourages loan officers to fudge facts and figures on loan applications, if necessary, to gain approval for loan applications that otherwise would be rejected by the bank’s automated underwriting system, ZiPPY.

zippycheatstricks2.jpg
(click above to see memo)

The main problem with this practice–in addition to being illegal–is that it deceived loan applicants into believing that they could easily afford payments on the loans for which they were applying. After all, most borrowers assume, “the bank certainly wouldn’t approve a loan if I couldn’t make the payments.” This is exactly what happened to Cay Clubs investors Carisa and Craig Urban, as they relate in their own words:

We are approaching the one year anniversary of our investment in a Las Vegas Cay Club condo, but there’s not much to celebrate. We have sunk into the real estate and mortgage fraud abyss like so many others. It has been a long and grueling process to find someone who will listen to our story, believe what we have said, and assist us in seeking justice.

We purchased our first investment property during the era of the “mortgage meltdown,” when mortgage fraud was on the rise. Recently, we came across a disturbing memo that has been linked to a former Chase Account Representative, Tammy Lish. According to JPMorgan Chase, this is not an official company memo, they do not condone the practices recommended in the memo, and they fired the Account Representative as soon as they discovered who was responsible for it. We don’t doubt any of these claims. From our experience with Chase, however, we do believe that the recommendation in this memo were common practice.

The memo provides detailed information on how to work around the company’s automated underwriting system – a system designed to function as a gatekeeper, rejecting loan applications when borrower do not meet the minimum requirements. Here are the recommendations that the memo contains:

  • Always select “ALTERNATE DOCS” in the documentation drop down.
  • Borrower(s) MUST have a mid credit score of 700.
  • First time homebuyers require a 720 credit score.
  • NO! BK’s OR Foreclosures, EVER!! Regardless of time!
  • Salaried borrowers must have 2 years time on job with current employer.
  • Self employed must be in existence for 2 years. (verified with biz license)
  • NO non-occupant co borrowers.
  • Max LTV/CLTV is 100%

The memo also provides step-by step instructions on how to gain favorable SISA (Stated Income, Stated Assets) findings; in other words, how to make an applicant’s income and assets look good on paper:

  1. In the income section of your 1003, make sure you input all income in base income. DO NOT break it down by overtime, commissions or bonus.
  2. NO GIFT FUNDS! If your borrower is getting a gift, add it to a bank account along with the rest of the assets. Be sure to remove any mention of gift funds on the rest of your 1003.
  3. If you do not get Stated/Stated, try resubmitting with slightly higher income. Inch it up $500 to see if you can get the findings you want. Do the same for assets.

We find it interesting that there were so many similarities between what the memo stated and what our loan officer from Chase Bank, Ross Pickard, actually did to us and numerous other investors who purchased Cay Club properties. Ross Pickard simply followed the #3 recommendation and plugged in inflated numbers for our income and assets to get the loan approved. That’s mortgage fraud, plain and simple.

He also labeled our purchase as a second home instead of an investment property. When we questioned him about it he said, “We can label it as a second home because with the Cay Clubs lease back agreement you would have possession of the property 2 weeks out of the year.”

In talking with other professionals, we have since come to question many aspects of this transaction. At the time, however, we believed we were working with a legitimate developer and a legitimate loan originator and lender. After all, JPMorgan Chase is no mom-and-pop operation. We approached the transaction believing we could trust these professionals. Cay Club Resorts also offered to waive our first year of HOA fees if we used their preferred vendor, Ross Pickard. I guess this shows our naivety and inexperience as first time investors.

As a result of this fraud, many of us are left struggling to pay mortgages we cannot afford–mortgages that no lender would have approved if it had been given accurate facts and figures. Moreover, we now owe mortgages on properties that are worth less than we owe on them. We can’t even refinance or sell our way out of trouble.

We know that an employee in the loss mitigation department from Chase Bank has been assigned to deal with Las Vegas Cay Club loans, but many owners do not qualify for deed in lieu of foreclosure or a short sale, which would enable us to get out from under these properties without losing any more money.

So where does that leave us? Stuck in the mortgage fraud abyss! The ZiPPY Cheats & Tricks memo is blatant proof that shady transactions were going on behind the scenes.

There is a task force currently looking into Ross Pickard’s bad practices, and it is only a matter of time before the truth comes out. Chase played a major role in the acts committed. Now it is time for Chase Bank to right its wrongs and the deceptive practices of its loan officers.

~ Carisa & Craig Urban

Fortunately, when fraud can be proven to have been committed on a loan application, the borrowers can file a RESPA (Real Estate Settlement Procedures Act) complaint and actually force the lender to renegotiate the terms of the loan. Carisa and Craig Urban have an open and shut case, proving that fraud was committed in approving and processing their mortgage loan.

Our fraud busting team is currently working with the Urbans’. We have carefully audited their loan application and highlighted the specific incidents of fraud that were committed and are in the process of filing a RESPA complaint on behalf of the Carisa and Craig. We fully expect justice to be served and the Urbans’ to receive some long awaited relief.

Posted By: Lois Maljak @ 7:11 pm | | Comments (14) | Trackback |
Filed under: Cay Clubs Resorts, Mortgage Fraud, Mortgage Meltdown, Real Estate Fraud