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.