The U.S. Department of Justice revealed today the filing of a federal lawsuit against a real estate brokerage doing business as RE/MAX East-West, alleging discrimination on the basis of race and national origin in violation of the Fair Housing Act. RE/MAX East-West is serves Illinois’ DuPage and Cook Counties, including the neighborhoods of Elmhurst, Lombard, Villa Park and Bensenville.

An undercover investigation of RE/MAX East-West conducted by the National Fair Housing Alliance (NFHA) found that the RE/MAX associate’s agents repeatedly steered potential white and Latino homebuyers to areas where their race predominated. According to NFHA, a RE/MAX East-West agent showed a Latino tester three homes in predominantly African-American and Latino areas, homes that were markedly less expensive than those she could afford, and told her that he did not have a lot of time for her. Conversely, the same agent showed a white tester nine homes, the majority of which were in predominantly white areas, and offered to show the tester many more homes in predominantly white neighborhoods as far as a 50 mile drive away.

One real estate agent, John DeJohn, also made illegal comments, NFHA says. He told a white tester, “I don’t care if you are a bigot. If we go to an area and you don’t like it, just let me know. I can’t be a bigot but you can be one.” In addition, DeJohn is said to have informed a white tester that the two homes they viewed together in a predominantly African-American and Latino area were “dumps” and “repos” even though he had told the Latino tester that one of those homes “might be good for you.” And while the white tester received
multiple follow-up calls subsequent to his appointment with the real estate agent, the Latino tester received none.

“That agents of RE/MAX East West were allowed to engage in such blatant discriminatory behavior is outrageous,” says Shanna L. Smith, President and CEO of NFHA. “It is sad to think of how much the community’s residential segregation can be attributed directly to their sales practices.”

The Justice Department’s action comes as a result of a complaint filed by NFHA with the U.S. Department of Housing and Urban Development (HUD). In August, 2005, HUD began an investigation and later found evidence that agents of RE/MAX East-West steered homebuyers based on race and national origin, made discriminatory statements, and treated individuals differently based on their national origin. After HUD issued a charge of discrimination, NFHA filed an election to have the case heard in federal court. As a result, the lawsuit was filed in the U.S. District Court for the Northern District of Illinois, Eastern Division by the Justice Department.

After NFHA filed its HUD complaint in 2005, HUD initiated an investigation based on NFHA’s findings and issued a charge of discrimination on June 9, 2008. The Justice Department then brought suit again RE/MAX East-West and John DeJohn in United States v. S & S GROUP, LTD. d/b/a REMAX EAST-WEST, through its successor in interest, S&W ELMHURST, LLC, also d/b/a REMAX EAST-WEST and JOHN DEJOHN (Case no. 08-CV-4099).

This investigation was part of NFHA’s multi-year, multi-city enforcement project to test for housing discrimination in real estate companies identified by HUD as having previously discriminated during its Housing Discrimination Study.

NFHA’s 12 city investigation found an 87% rate of racial steering and an almost 20% rate of denial for African-Americans and Latinos. The Fair Housing Act prohibits housing discrimination on the basis of race, color, national origin, religion, sex, familial status and disability.

The former mayor of Newark, New Jersey–Sharpe James (pictured to the left)–has been sentenced to serve two years and three months in federal prison, and fined $100,000, for his corruption convictions related to a scheme that enabled his girlfriend–Tamika Riley–to fraudulently obtain steeply discounted city-owned land and resell it for hundreds of thousands of dollars in profits. At the same hearing, Riley was sentenced to one year and three months in prison, and ordered to pay $27,000 in restitution, for convictions related to the same fraud, as well as fraudulent receipt of rental assistance she was not qualified to receive, tax fraud and tax evasion.

U.S. District Judge William J. Martini ordered James and Riley to surrender to the federal Bureau of Prisons on Sept. 15 to begin serving their prison terms. There is no parole in the federal system.

Following yesterday’s sentencings, the U.S. Attorney for the District of New Jersey–Christopher J. Christie–announced his intention to appeal the lenient sentences to the Third Circuit Court of Appeals. Christie had argued before Judge Martini and in a sentencing brief to the Court that, under the advisory U.S. Sentencing Guidelines, former Mayor Sharpe James faced a sentencing range as high as between 15.5 years to 19.5 years in prison. That range took into account James’ leadership role in the scheme to defraud Newark and its citizens, as well as other sentencing enhancements available in the Sentencing Guidelines.

For Tamika Riley (pctured above and to the right), the sentencing guidelines resulted in an advisory range of 8.8 years to 10.8 years in prison.

The U.S. Probation Department determined in its presentencing report and recommendations to the judge that Sharpe James faced a prison sentence of between 12.5 years and 15.5 years in prison, in accordance with the federal sentencing Guidelines, and that Tamika Riley faced 97 to 121 months in prison.

Given the disparity between the guidelines recommendations and the sentences imposed by Judge Martini, the U.S. Attorney’s Office intends to appeal the sentence. The sentencing guidelines, while advisory only, must be consulted by a sentencing judge and considered in formulating a sentence.

A jury convicted Sharpe James earlier this year on all counts against him, which included:

• Three counts of mail fraud related to the sale of the city lots to Riley
• One count of fraud involving a local government receiving federal funds
• One count of conspiracy to defraud the public of James’ honest services

For her part, Tamika Riley was convicted on:

• Three counts of mail fraud for her fraudulent receipt of housing rental assistance for which she was not qualified
• Two counts of tax fraud for failing to report the income she received from her sale of the Newark properties
• one count of corporate tax fraud; and one count of tax evasion.

The prosecution was built around the sale to Riley of municipally-owned properties in Newark. The properties, according to evidence and testimony, were steered to Riley by James, who had a long-running romantic relationship with her. Riley paid only $46,000 for a total of nine properties, and then quickly flipped the properties for more than $600,000.

Evidence at trial revealed that Sharpe James used his influence and power as both mayor and as a state senator to manipulate and control a city program designed to redevelop run-down properties in the city. The program was intended to enable experienced, financially sound and qualified developers to buy blighted lots and houses at substantially less than market rates on the condition that they rehabilitate the properties before re-selling them at market prices. With James’s help, Tamika Riley acquired the properties at cut-rate prices and resold them without any rehabilitation.

Tamika Riley had no real estate or construction experience and did not possess the financial wherewithal or backing required to participate in the program. She was, in fact, the owner of a failed Newark clothing store and had operated an entertainment and public relations firm that reported no income or assets on tax returns in 1999 or 2000, the years before she started flipping Newark properties.

According to trial testimony, throughout the period of their relationship and the property transactions benefitting Tamika Riley, Sharp James and Riley traveled and socialized together, shared hotel rooms and stayed in fine resorts, among other things. Testimony also revealed that James once directed his security personnel to purchase and install an air-conditioner in Tamika Riley’s Jersey City apartment. Riley also donated several times to James’ political campaigns.

The United States Attorney for the Middle District of Florida–Robert E. O’Neill–yesterday announced the return of a 47-count indictment against four real estate industry insiders, charging them with conspiracy, making false statements in connection with bank loans, a scheme to defraud seven FDIC insured banks, and money laundering.

The indicted defendants are:

• Neil Mohamed Husani, 38, formerly a resident of Sarasota, Florida, and owner and principal officer of Capital Force, Inc., an business which purportedly purchased and sold commercial real estate in Sarasota and Manatee Counties
• Michael A. Tringali, 46, a resident of Sarasota, owner and principal officer of G & T Land Development, an entity which purportedly purchased and developed commercial real estate, primarily in Sarasota and Manatee (FL) Counties
• John A. Yanchek, 48, a resident of Sarasota, and a practicing attorney licensed by the State of Florida.
• Larry P. Nardelli, age 49, a resident of Tampa, and a businessman associated with Elba International, LLC and other companies.

John A. Yanchek was arrested yesterday morning without incident. Michael A. Tringali and Larry P. Nardelli were expected to surrender to the authorities today, while Neil Mohamed Husani current whereabouts is said to be unknown.

The maximum penalty for a violation of conspiracy (18 U.S.C. §371) is five years imprisonment and a fine of $250,000. The maximum penalty for a violation of making false statements to a financial institution in connection with a loan (18 U.S.C. §1014) and bank fraud (18 U.S.C. §1344) is 30 years imprisonment and a $1,000,000 fine. The maximum penalty for a violation of a 1956 money laundering charge (18 U.S.C. §1956) is 20 years imprisonment and a $500,000 fine. The maximum penalty for a 1957 money laundering charge (18 U.S.C. §1957) is 10 years imprisonment and a $250,000 fine.

According to the allegations in the indictment, the defendants conspired to obtain approximately $82,790,000.00 in loans from seven financial institutions in the Tampa/Sarasota, Florida area by making false statements to those banks.

We talk about a lot of “constants” here on Flipping Frenzy (e.g., constant threads in real estate and mortgage fraud; the constant barrage of seemingly never-ending real estate and mortgage fraud cases; the constant denial by many in the real estate industry and elsewhere that real estate and mortgage fraud is that big of a problem; etc.). So today we’re joyous over the news out of Brooklyn, New York, of another “constant” development… namely, that one Emmanuel Constant–a Haitian national who, despite being convicted for crimes against humanity, has been living freely in New York since the mid-1990s–has been found guilty of six felony counts against him related to a mortgage fraud scheme.

(photo (c) 2007 Jesse Ward)

A Kings County, NY, Supreme Court jury found Emmanuel Constant guilty last Friday of fraudulently arranging millions of dollars in home loans for three Brooklyn properties. Constant, who has been convicted in Haiti, in absentia, for crimes against humanity, will remain in police custody. Sentencing will occur on September 10, 2008.

In an elaborate mortgage fraud scheme, Emmanuel Constant and other co-conspirators fraudulently arranged bank financing for the purchase or refinancing of three Brooklyn properties. After locating a property for sale and generating an artificially high appraisal value for the property, they would pay a straw buyer to get loans from mortgage banks to purchase the house at the inflated value. Constant and the co-conspirators would then divert the proceeds of the fraudulently obtained home loans to themselves. Many of Constant’s co-conspirators have been arrested, and some contributed to the testimony against him.

For part of the period of the mortgage fraud scheme, Emmanuel Constant, 51, served as the Suffolk County branch manager for D & M Financial, Inc., a New Jersey-based mortgage bank. In a separate conviction also prosecuted by the New York AG’s office, Constant served two years in prison for his involvement in the theft of over $1 million in mortgage funds from the fraudulent sale of a Suffolk County home. Constant completed serving this jail time on July 1, 2008.

Before being arrested for mortgage fraud, Constant, a native of Haiti, had been living freely in New York despite a 1995 federal immigration warrant and a 1995 federal deportation order. He was convicted in Haiti, in absentia, for crimes against humanity. He was the founder and commander of the Front Revolutionnaire Pour L’Advancement et le Progres d’Haiti, or “FRAPH,” which was dedicated to terrorizing and torturing political opponents of Haiti’s military regime.

The Kings County Supreme Court jury found Emmanuel Constant guilty of two class C felonies, two class D felonies, and two class E felonies. Sentencing will occur on September 10, 2008. Emmanuel Constant faces a maximum of 15-45 years in prison.

Editor’s Note: The following Guest Commentary was written exclusively for FlippingFrenzy.com by Larry Rubinoff, branch manager of a Clearwater Beach, Florida office of Mortgage Lending Direct, a dba of MLD Mortgage, Inc. Larry’s commentary is his and his alone and may not necessarily reflect the views or opinions of the management of FlippingFrenzy.com.

When he speaks in public, President Bush usually talks in a very measured tone. Yet late last week, at a private fundraising event in Houston, Texas, the President was more candid than ever before about the state of the U.S. economy:

“There’s no question about it,” President Bush said. “Wall Street got drunk (that’s one of the reasons I asked you to turn off the TV cameras) it got drunk and now it’s got a hangover,” Bush said last Friday, according to a video obtained by Houston’s ABC network affiliate, KTRK. “The question is how long will it [sic: take to] sober up?”

It is with those comments in mind that Guest Blogger Larry Rubinoff weighs in with the following:

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The Truth about Wall Street
By Larry Rubinoff

President Bush is right. Wall Street was drunk (with greed), and it opened the floodgates for the levees to burst, creating what can only be described as economic disaster of unprecedented proportions.

While drunk, Wall Street provided the vehicles for fraud, encouraged it and worse–closed a blind eye to it all the while profiting to the tune of hundreds of billions of dollars.

Not only are they complicit in the fraud we are learning about and fighting here through FlippingFrenzy.com, but Wall Street was instrumental in committing fraud against investors on a global scale… investors who bought the securities almost every mortgage was put into. Fannie and Freddie did the same. The rating agencies committed fraud by rubber-stamping each security issue “AAA,” never really looking at the integrity of the pools. Wall Street sold these securities knowing full well what the true worth and values of the pools were.

The government had full knowledge of what they were doing, and in fact, may have encouraged them to do so to keep our economy flourishing. This was, in fact, the case during the Great Depression.

President Bush admitted what many of us already knew, and that’s why he wanted the cameras turned off.

~ Larry Rubinoff

= = = =
Editor’s Note: You can read more of Larry Rubinoff’s thoughts and opinions on TheMortgageCorner.org
= = = =

Speaking to reporters by phone during this morning’s White House Press Briefing, White House spokeswoman Dana Perino said President Bush is now prepared to sign the American Housing Rescue & Foreclosure Prevention Act, H.R. 3221, which is expected to receive full Congressional approval by this time tomorrow. According the legislation, H.R. 3221 will help families facing foreclosure keep their homes, help other families avoid foreclosures in the future, and help the recovery of communities harmed by empty homes caught in the foreclosure process.

To shore up the housing market and ensure the availability of affordable home loans, H.R. 3221 would put a new, independent regulator in charge of housing Government Sponsored Enterprises (i.e., GSEs — Fannie Mae, Freddie Mac, and the Federal Home Loan banks), which is said to be vital to both the financial markets and homeowners. The new regulator is expected to be far better prepared than the current system is to quickly and effectively respond to issues affecting the safe and sound operation of Fannie Mae, Freddie Mac, and Federal Home Loan banks.

The centerpiece of the bill provides assistance to a large number of homeowners now in danger of losing their homes. Lower-cost government-insured mortgages–which Congressional leaders say come at no cost to the American taxpayer–will be offered if President Bush signs the Bill into law, but according to the Congressional Budget Office estimates, the plan could cost taxpayers around $25 billion.

Specifically, the American Housing Rescue & Foreclosure Prevention Act, H.R. 3221, includes the following provisions:

FHA Housing Stabilization and Homeownership Retention Act

1. Provides mortgage refinancing assistance to keep at least 400,000 families from losing their homes, to protect neighboring home values, and to help stabilize the housing market at no cost to American taxpayers.
2. Expands the FHA program so many borrowers in danger of losing their home can refinance into lower-cost government-insured mortgages they can afford to repay.
3. Protects taxpayers by requiring lenders and homeowners to take responsibility. This is not a bailout, legislators say; in order to participate, lenders and mortgage investors must take significant losses by reducing the loan principal.
4. In exchange for an FHA guarantee on the mortgage, borrowers must share any profit from the resale of a refinanced home with the government.
5. Contains critical protections for taxpayers’ dollars, including higher refinancing fees that establish a new FHA reserve to cover possible losses from defaults on these government-backed mortgages.
6. Only primary residences are eligible: NO speculators, investment properties, second or third homes will be refinanced.
7. Provides $180 million for financial counseling and legal assistance to help families stay in their homes.

Strengthening Regulations of the GSEs

1. Puts an independent regulator in place with what are said to be significant responsibilities and powers so that Fannie Mae and Freddie Mac can safely and soundly work to provide families with affordable housing.
2. The new regulator will have enhanced authority to raise capital standards, set strict prudential standards, including internal controls, audits, and to enforce these new standards and promptly take corrective action.
3. The new regulator will oversee, and can directly restrict, executive compensation at Fannie Mae and Freddie Mac.
4. Raises the GSE loan limits for single family homes to create more affordable mortgage loans for moderately priced homes by allowing GSE loans up to 115% of the local area median home price, and to make GSE loans effective in high cost areas by raising the permanent loan limit from $417,000 to $625,500.
5. Creates a new permanent affordable housing trust fund–financed by the GSEs and not by taxpayers–to fund the construction, maintenance and preservation of affordable rental housing for low and very low-income individuals and families nationwide in both rural and urban areas.

Backstopping Fannie Mae and Freddie Mac To Shore Up the Housing Market

1. Gives the Secretary of the Treasury the authority to increase the already existing line of credit to Freddie and Fannie for the next 18 months, as well as giving the Treasury Department standby authority to buy stock in those companies to provide confidence in the GSEs and stabilize housing finance markets.
2. Includes taxpayer protections directing the Treasury Department to take the following into account, when using these authorities: A) Taxpayers should be first in line for being paid back, before other shareholders; and, B) There should be restrictions on dividends for shareholders and on compensation for the executives of the GSE’s until taxpayers are fully reimbursed.
3. Strengthens oversight by requiring the Federal Reserve and Treasury to consult with the new regulator on issues concerning the safety and soundness of the GSEs and use of the standby authority.

Stabilizing Neighborhoods Hurt by the Foreclosure Crisis

1. Provides $4 billion in emergency assistance (CDBG Funds) to communities hardest hit by the foreclosure and subprime crisis to purchase foreclosed homes, at a discount, and rehabilitate or redevelop the homes to stabilize neighborhoods and stem the significant losses in home values of neighboring homes.
2. Foreclosed and rehabilitated homes would be sold or rented to moderate-income individuals and families–those whose incomes do not exceed 120% of the area median income. At least 25% of the funds would be targeted to house low-income and very low-income persons and families–those whose incomes do not exceed 50% of area median income.
3. Any profit from the sale, rental, rehabilitation or redevelopment of these properties must be reinvested in affordable housing and neighborhood stabilization.
4. Provides $180 million for pre-foreclosure counseling, to be distributed in grants by the Neighborhood Reinvestment Cooperation (NeighborWorks), with 15% targeted for low-income and minority homeowners and neighborhoods, and $30 million in grants for legal counseling to assist homeowners in foreclosure.

Preventing Future Abuses and Crises

1. Establishes a nationwide loan originator licensing and registration system that will set minimum standards for loan originator licensing substantially improving the oversight of mortgage brokers and bank loan officers.
2. Establishes improved mortgage disclosure requirements that will help ensure that mortgage borrowers understand their mortgage loan terms.

FHA Modernization

1. Expands affordable mortgage loan opportunities for families (many of whom would otherwise turn to subprime lenders) and for seniors through expanded access to reverse mortgages through Federal Housing Administration reform.
2. Raises FHA loan limits to create affordable mortgage loans for moderately priced homes by allowing FHA loans up to 115% of the local area median home price, and to make GSE loans more available in high cost areas by raising the permanent loan limit from $362,790 to $625,500.
3. Expands opportunities for seniors to tap into equity in their home through FHA reverse mortgage loans, by increasing the loan limit for the program, reducing and capping lender fees for such loans, and strengthening consumer protections limiting the sale of other financial products in conjunction with FHA reverse mortgage loans.
4. Prevents HUD from raising single family loan fees on lower and middle-income borrowers, and from raising loan fees on FHA rental housing loans.

Preserving the American Dream for Our Nation’s Veterans

1. Increases VA Home Loan limit, as was done in the stimulus package, for high-cost housing areas so that veterans have more homeownership opportunities.
2. Helps returning soldiers avoid foreclosure and stay in their home by lengthening the time a lender must wait before starting foreclosure, from three months to nine months after a soldier returns from service and providing returning soldiers with one-year relief from increases in mortgage interest rates.
3. Requires the Department of Defense to establish a counseling program for veterans and active service members facing financial difficulties and provides a moving benefit to servicemen and women who are forced to move out because their rental housing was foreclosed on.
4. Increases benefits paid to veterans with disabilities, such as blindness, to adapt their housing and allows the Veterans Administration to provide for improvements to homes of veterans with service-connected disabilities.

Tax Provisions to Expand Refinancing Opportunities and Spur Home Buying (H.R. 5720)

1. Provides $15 billion in tax benefits, including tax credits to first-time homebuyers, a real property tax deduction for non-itemizers, an additional $11 billion in mortgage revenue bonds for states, and improves access to low-income housing.
2. Gives first-time homebuyers a refundable tax credit that works like an interest-free loan of up to $7,500 (to be paid back over 15 years) to spur home buying and stabilize the market. The credit will begin to phase out for taxpayers with adjusted gross income in excess of $75,000 ($150,000 in the case of a joint return).
3. Provides taxpayers that claim the standard deduction with up to an additional $500 ($1,000 for a joint return) standard deduction for property taxes in 2008.
4. Temporary increase in mortgage revenue bond authority to allow for the issuance of an additional $11 billion of tax-exempt bonds to refinance subprime loans, provide loans to first-time homebuyers and to finance the construction of low-income rental housing.
5. Temporary increase in low-income housing tax credit and simplification of the credit to help put builders to work to create new options for families seeking affordable housing alternatives.

The Wall Street Journal reports this morning that President Bush’s support of the measure is a “dramatic split” for both Bush and congressional Republicans, many of whom the Journal says are “angrily opposed to the housing legislation, which they call a handout for irresponsible homeowners and unscrupulous lenders.” President Bush had voiced earlier objections to a provision that would give grants for local governments to purchase and refurbish foreclosed properties–a provision the White House feels amounts to nothing more than a bailout. But White House spokeswoman Perino said today that President Bush doesn’t feel this is the right time for a “…prolonged veto fight, but we are confident the President would prevail in one.”

The last seven day have proved to be quite fruitful in Colorado’s attempt to curb real estate and mortgage fraud. Around the same time Fredric “Rick” Dryer was found guilty on 44 out of 60 felony counts in a securities fraud case involving Dryer’s former company, Mile High Capital Group, LLC, another Denver, Colorado-based real estate con man was found guilty of ripping off the very people he once swore to help.

A jury in U.S. District Court in Denver has found Arvin Weiss, age 58, of Englewood, Colorado, guilty of mortgage fraud and witness tampering in a case involving Hispanic homebuyers (specifically, Weiss was found guilty of 16 counts, including eight [8] counts of mail fraud, five [5] counts of wire fraud, and three [3] counts of witness tampering).

The guilty verdict came after a 13-day trial before a Senior U.S. District Court Judge, where the jury deliberated for less than one day.

Arvin Weiss, who is currently is free on bond, faces five years in federal prison and/or a $250,000 fine per count of mail fraud and wire fraud. In addition, he faces 10 years in federal prison, and/or a $250,000 fine per count for witness tampering. A status conference is scheduled for October 22, 2008, at which time the judge will set a sentencing date.

Arvin Weiss was originally indicted by a federal grand jury in Denver on April 20, 2005. The indictment was superseded on September 27, 2007. The trial began on June 23, 2008.

According to the indictment, as well as facts presented during the government’s trial, from June 1998 through January 2002, Weiss ran a scheme that fraudulently obtained money and property from mortgage companies which funded federally insured loans. Weiss, a licensed real estate broker, bought and sold properties as Reserve Capital Funds, Inc.

Reserve Capital Funds acquired numerous single-family residences in the Denver area at low prices. Within a few months, and after some improvements had been made, Weiss resold the properties at substantially higher prices to unsophisticated low-income buyers. The buyers Weiss targeted were Hispanics who knew little or no English, many of whom were living in the United States illegally.

Many of Weiss’ Hispanic buyers did not understand the mortgage loan process, but wanted to purchase their own homes even though they could not legitimately qualify for mortgages. Weiss arranged for buyers to acquire mortgages insured by the Federal Housing Administration (FHA), so they could purchase homes his company owned. Knowing that the buyers he targeted could not afford to buy houses or legitimately qualify for home loans, Weiss allegedly arranged for false information about the buyers’ qualifications and the sources of their down payments to be provided to various mortgage companies and HUD, making it appear that the buyers were qualified to receive FHA insured loans when they were not.

Operating under the name of Fairfax Homes, Ltd., Fairfax Express Corporation, or just Fairfax (all of which Weiss controlled), Weiss would represent to prospective buyers that he had houses or could find houses the buyers could purchase, and that he and an assistant would take care of all the necessary paperwork. He also told buyers they would not have to make down payments using their own funds, despite a requirement by HUD to do so.

The buyers would provide their personal information directly to Weiss or an assistant. Weiss would then provide information about the borrowers, some of which was true, but material portions of which were false, to the mortgage companies and HUD, injecting false information about the borrowers’ qualifications when necessary to enable them to qualify for the loans.

Weiss would secretly provide the funds for the down payments for the borrowers to be presented by the borrowers at closing. Weiss signed numerous false certifications that he had not and would not pay or reimburse the borrowers for any part of their cash down payments.

Weiss usually sold his properties for two or three times what Reserve Capital Funds had recently paid for them. The buyers typically did not have the option of competitive pricing and did not contest his asking price, because they could not legitimately qualify for the loans. In some cases, Weiss did not disclose the true purchase price to the buyers until closing. In many cases, by encouraging the buyers to move into the properties rent free prior to closing, Weiss minimized the possibility that they would back out of their purchase agreements when they were informed of the properties’ true cost.

Updated: 7/21/08 / 10:16 p.m. ET

Criminal charges were filed earlier this week against Richard Allison, age 36, of Camp Springs, Maryland, in connection with an alleged mortgage fraud scheme prosecutors say falsely promised to help homeowners facing foreclosure keep their homes and repair their damaged credit.

According to the court filing, in October of 2005, Mr. Allison took a job with the Metropolitan Money Store in of Lanham, MD, where he provided legal services to Joy Jackson, her husband Kurt Fordham, Jennifer McCall, her husband Clifford McCall, their companies and others. Prosecutors say that from December 2005 through June 2007, Allison conspired with Jackson, Fordham, the McCalls, and others, operating through several companies–including the Metropolitan Money Store which was controlled by Joy Jackson and Jennifer McCall–in a scheme which fraudulently promised to help homeowners avoid foreclosure, keep their homes and repair their damaged credit.

Allison and the others would direct homeowners to allow title to their homes to be put in the names of third-party purchasers (i.e., straw buyers) for one year, during which time Jackson, Fordham, and the McCalls would help the homeowners obtain more favorable mortgages, improve their credit rating and eventually return title to their homes to them. This of course never happened.

Allison and his co-conspirators told the homeowners that the equity withdrawn from the properties would be used to pay the mortgage and expenses on their homes and to repair their credit.

Prosecutors say Richard Allison and his co-conspirators:

• Acted as straw buyers for the loans used to acquire the homeowners’ properties
• Made false statements as to the personal and financial information of the straw buyers on loan documents so they could qualify for mortgages
• Obtained fraudulently inflated loans on the properties in the straw buyers names
• Stripped away the bulk of the homeowners equity proceeds and converted that money to their own personal use
• Stopped making the mortgage payments on the homes, resulting in the homes being foreclosed upon

According to court documents, Richard Allison and his co-conspirators spent the money from the mortgage loan proceeds to pay monthly mortgage payments on properties already purchased, pay for their personal expenses, and divert cash to themselves. Also according to the charging document, in March of 2006, Allison agreed to be a straw purchaser for two properties; completed and signed mortgage and other loan documents for those properties which contained false financial and personal information; and, received a $10,000 check for each of the two transactions.

Richard Allison faces a maximum sentence of 30 years in prison and a $1 million fine for the conspiracy. No court appearance has been scheduled.

As an aside, The Washington Post earlier reported that a separate 25-count indictment was unsealed in June, alleging that Jackson, Fordham, and six others used money from another elaborate real estate scheme to pay for a “lavish lifestyle that included luxury cars, houses, jewelry, fur coats and travel.” According to the Post, the June indictment mentioned Jackson and Fordham’s wedding at a high-end hotel where music legend Patti LaBelle sang to more than 350 guests while dinning on expensive seafood drinking Cristal champagne. Jackson told friends that the wedding cost nearly $800,000, according to the first indictment.

Updated: 9:05 P.M. ET, July 17, 2008

According to reports out of Denver, Colorado, Fredric “Rick” Dryer has been found guilty on 44 out of 60 felony counts in a securities fraud case involving Dryer’s former company, Mile High Capital Group, LLC. From Bob Mook at the well-respected Denver Business Journal:

Dryer– the self-described multimillionaire, real estate guru and founder of Mile High — was found guilty on counts of violations of the Colorado Organized Crime Control Act, conspiracy to commit securities fraud, securities fraud and theft. He was found not guilty of 14 counts of securities fraud and two counts of theft.

Dryer sat expressionless as the verdicts were read. He faces a maximum sentence of 24 years for each criminal count.

Dryer was convicted of 44 felony counts including violating the Colorado Organized Crime Control Act (racketeering), securities fraud, and theft. The jury found him not guilty on 15 additional counts.

Dryer and two co-defendants were indicted in 2006, accused of duping hundreds of investors who invested in his companies, Mile High Capital Group and Replacement Property Solutions. Denver’s Chief Deputy District Attorney Joe Morales and Deputy District Attorney Kandace Gerdes prosecuted the case, which spanned 12 days of testimony and three days of jury deliberations. According to Morales, after the jury was discharged, Dryer, who had been out on bond, was led from the courtroom in handcuffs to be held in custody pending sentencing on September 12, 2008 at 1:30 P.M Mountain Time in Denver District Courtroom 10.

Dryer now faces from between eight to 528 years in prison under the watchful eye of the Colorado Department of Corrections.

Dryer’s two co-defendants pleaded guilty earlier. Richard Darrow, 43, pleaded guilty to violating the Colorado Organized Crime Control Act and was sentenced to a suspended 20-year prison term that requires two years in the Denver County Jail and 10 years on probation. He was also ordered to pay $1,150,048.00 in restitution. Jeffrey Dietz, 38, pleaded guilty to securities fraud and was sentenced to two years probation and ordered to pay $990,406.00 in restitution.

In 2000, Rick 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 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.

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 was different. His Right Place Right Time Real Estate Investment Strategies were well known in the industry, and he had a solid 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 seemed to know his stuff and was said to careful remind people that investing in real estate carries risk. Dryer seemed 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, including:

• 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 Dryer’s and his 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. 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, and today Dryer was found guilty of committing some pretty serious real estate fraud-related acts.