A former mortgage broker was sentenced to 78 months in federal prison for a fraud scheme that involved buying houses in some of Southern California’s most ritzy neighborhoods and selling them to fake buyers at inflated prices.

Mark Alan Abrams of Los Angeles was also ordered Friday to pay more than $41 million in restitution to two federally insured banks.

Abrams, 49, had pleaded guilty to bank fraud, conspiracy to commit bank fraud and loan fraud, making a false statement on a tax return and obstruction of justice.

In issuing the sentence, U.S. District Court Judge Dean D. Pregerson noted that Abrams’ willingness to defraud banks, utilize credit information belonging to unknowing victims and compel employees to participate in the scheme was “particularly evil.”

Abrams and his business partner, Charles Elliott Fitzgerald, bought homes in neighborhoods like Beverly Hills, Bel Air, Malibu, La Jolla and Carmel, and then used fraudulent appraisal information to resell them for inflated amounts to fake buyers who purchased the properties with loans, prosecutors said.

Fitzgerald, a real estate developer, was sentenced last year to 14 years in federal prison. He had pleaded guilty to conspiracy to commit bank fraud and loan fraud, running a continuing financial crimes enterprise, money laundering, obstruction of justice and three counts of bank fraud.

The pair recruited the borrowers, repeatedly lied about the homes’ value and ran escrow companies to promote the scheme, according to prosecutors.

Over three years, Lehman Brothers Bank funded 80 loans worth $137 million — $50 million more than what was actually needed to pay for the homes, prosecutors said.

Fitzgerald and Abrams reaped millions of dollars from the inflated loans and passed kickbacks on to their associates through commissions.

When Lehman Brothers sued Fitzgerald and others involved in the scheme in April 2003, Fitzgerald hid his assets and fled the country.

He lived in Samoa until being extradited to Los Angeles in December 2006.

A total of 11 real estate professionals have been convicted of federal charges related to the scheme.

Suspects may find themselves behind bars living rent free thanks to nationwide mortgage fraud arrests.

Members of the Financial Fraud Enforcement Task Force released the results of a nationwide dragnet, “Operation Stolen Dreams,” which targeted mortgage fraudsters throughout the country and is the largest collective enforcement effort ever brought to bear in confronting mortgage fraud. The White Collar Crime Committee of the National Association of Chiefs of Police obtained relevant documents describing this enormous operation.

The sweep was organized by President Barack Obama’s interagency Financial Fraud Enforcement Task Force, which was established “to lead an aggressive, coordinated, and proactive effort to investigate and prosecute financial crimes.”

Starting on March 1 through June 17, Operation Stolen Dreams has involved 1,215 criminal defendants nationwide, including 485 arrests, who are allegedly responsible for more than $2.3 billion in losses. Additionally, to date the operation has resulted in 191 civil enforcement actions, which have resulted in the recovery of more than $147 million, according to the Federal Bureau of Investigation.

“From home buyers to lenders, mortgage fraud has had a resounding impact on the nation’s economy,” said FBI Director Robert S. Mueller, III. “Those who prey on the housing market should know that hundreds of FBI agents on task forces and their law enforcement partners are tracking down your schemes and you will be brought to justice.”

Unlike previous mortgage fraud sweeps, Operation Stolen Dreams focused not only on federal criminal cases, but also on civil enforcement, recovering money for victims and increasing cooperation with state and local partners.

The operation was conducted in conjunction with the Department of Justice — including the FBI, U.S. Attorneys Offices, the U.S. Trustee Program, and other components — as well as the Department of Housing and Urban Development, the Department of the Treasury, the Federal Trade Commission, the Internal Revenue Service, the U.S. Postal Inspection Service, the U.S. Secret Service, the National Association of Attorneys General, and the National District Attorneys Association.

The President’s Financial Fraud Enforcement Task Force includes representatives from a broad range of federal agencies, regulatory authorities, inspectors general, and state and local law enforcement who, working together, bring to bear a powerful array of criminal and civil enforcement resources, according to officials.

MORTGAGE FRAUD REPORT

According to the Federal Bureau of Investigation’s 2009 Mortgage Fraud Report, released today, mortgage fraud suspicious activity reports referred to law enforcement increased 5 percent to 67,190 during fiscal year 2009.

It’s estimated that $14 billion in fraudulent loans originated in 2009. The total dollar loss attributed to mortgage fraud is unknown.

Other key findings presented in the report include:

There are more than 2.8 million properties with foreclosure filings, a 120 percent increase from 2007 to 2009. The Las Vegas area reported the most significant rate of foreclosures, with more than 12 percent of housing units there receiving a foreclosure notice.

The top 10 states ranked by the number of foreclosure filings per housing unit were California, Florida, Arizona, Michigan, Nevada, Georgia, Ohio, Texas, and New Jersey. In April 2010, one in every 386 housing units received a foreclosure filing.

Prevalent mortgage fraud schemes in fiscal year 2009 include loan origination, foreclosure rescue, builder bailout, equity skimming, short sale, illegal property flipping, reverse mortgage fraud and loan modifications. Emerging trends include fraud involving economic stimulus plans/programs, property theft/fraudulent leasing of foreclosed properties and tax-related fraud.

Kenneth Cowden relied on digital photographs and a flair for creative fiction to write up $137 million worth of false property appraisals over five years.

For a while, Cowden, 58, formerly of Coraopolis, used the identification of a dead man to continue the scam, according to federal court papers. Then he doctored photos on a computer to make dog-eared houses appear stellar to lenders.

In the process, Cowden, a midlevel player, contributed to a huge mortgage fraud problem across the United States. The fraud, which the FBI estimates has cost $7 billion since 2005, helped lead to the greatest economic downturn since the Great Depression, experts said.

“(Cowden) and guys like him all over the country, in conjunction with Wall Street, really caused the biggest recession most of us will see in our lifetimes,” said Mark Maddox, an Indianapolis lawyer representing investors who lost money on bad loans.

Nationwide, the FBI opened 1,571 mortgage fraud causes last year, compared to 136 in 2004. Convictions of 338 criminals in 2008 brought $1.1 billion in restitution and seizures worth $477 million.

Federal prosecutors in Western Pennsylvania have been among the busiest, ringing up more cases than in any district except South Florida, where once-hot real estate has been devastated by mortgage fraud.

Prosecutors here won 58 convictions in the past two years, said Acting U.S. Attorney Robert Cessar. Seven cases are pending, two defendants are on the run, and another died while awaiting trial.

“I don’t think there’s any doubt that we had a significant problem here,” said Assistant U.S. Attorney Brendan Conway, who oversees mortgage fraud prosecutions in Western Pennsylvania.

Cowden’s claims

When federal agents knocked on Cowden’s door in May 2005, it was as if he had been waiting for them. He handed over 29 boxes of appraisals, e-mails and correspondence. He gave agents access to his computer and tape-recorded conversations with brokers.

He worked with 15 to 20 brokers and used the names of seven appraisers, according to federal court documents and interviews with prosecutors. For a while, Cowden used the name and state identification of Raymond Faber, who had died.

Another time, the Pennsylvania Department of State caught Cowden paying a licensed appraiser $2,000 a month to use his name and identification. The agency fined Cowden $15,000 and revoked the appraiser’s license.

Collecting a regular fee of $400 per appraisal, Cowden most often “stretched,” or falsely inflated, values by at least $20,000 and sometimes much more, according to an FBI affidavit. After going through Cowden’s garbage, an agent found an appraisal that noted a prior sale of $35,000 in June 2004 and a value for the same property at $110,000 the next year.

To back up the claims, Cowden altered digital photographs, prosecutors said. He made a mobile home look like a ranch-style house by adding grass to cover up concrete blocks holding it up. At other times, he removed fire damage and deleted awnings to make businesses look like homes.

In one year, he made more than $255,000 but did not file income taxes, a court filing states.

After pleading guilty to conspiracy and tax evasion, Cowden could have faced up to five years in prison. Instead, prosecutors sought leniency from U.S. Judge Joy Flowers Conti because of his cooperation. Cowden provided “extraordinary cooperation,” Conway said.

Cowden is serving nine months in a halfway house in Tampa and will spend 45 months on probation. Under the conditions of his punishment, he can leave for work at the Postal Service and religious services.

He was ordered to pay 10 percent of his income toward restitution of nearly $1 million — $947,196 to National City Mortgage Company and $12,166 to Bank of America Home Loans. Spokesmen for PNC Bank, which purchased National City in December 2008, and Bank of America declined to comment.

Neither Cowden nor federal Public Defender Michael Novara would comment for this story.

Culture existed

“It’s the same old story: Everybody wants to make as much money as they can,” said Downtown attorney Stanton Levenson, who represents a defendant in another case.

With the Federal Reserve keeping interest rates low, banks had easy access to cash for lending, said a Pennsylvania Department of Banking spokesman. By packaging loans for resale, banks limited their risks, Cessar said.

In that environment, unscrupulous mortgage brokers found it easy to submit false statements for loans, said Julie Halferty, associate division counsel in the FBI’s Pittsburgh office and former head of the agency’s mortgage fraud task force in Phoenix.

“My perception is that it was almost like a herd mentality,” she said. “It spread by word of mouth. Everybody knew you could do it, and housing prices kept going up, so there was seemingly no risk.”

That carefree lending culture no longer exists, said David Bleicken, Pennsylvania deputy banking secretary. Lenders require more detailed information before making loans, and mortgage brokers must be licensed by the state.

By Andrew Conte

A mortgage broker and real estate closing agent in the Twin Cities have been indicted in federal court for allegedly orchestrating a mortgage fraud scheme that resulted in a $2.5 million loss for financial lenders. The indictment, which was filed earlier today in U.S. District Court in St. Paul, charged Fawaz Mahmoud Wazwaz, age 33, address unknown, and Genevieve Marie McCullough, age 32, of Inver Grove Heights, with one count of conspiracy to commit mortgage fraud by commercial carrier and interstate wire, six counts of mortgage fraud through interstate wire, and one count of mortgage fraud through use of commercial interstate carrier.

The indictment alleges that from 2004 through 2006, the defendants conspired to defraud mortgage-lending institutions out of money. During that time, Wazwaz was employed as a loan officer, primarily at Commonsense Mortgage, Inc., a mortgage brokerage business in Shoreview. In his professional capacity, he originated mortgage loans by finding borrowers, preparing loan applications for those borrowers, and submitting those applications to lenders. McCullough, on the other hand, was employed as a real estate closer with two different title companies during this time period. At both companies, she prepared and oversaw the closing of real estate transactions.

The object of the defendants’ alleged conspiracy was to recruit straw buyers to purchase homes in the Twin Cities at inflated prices. The money to pay for those homes was acquired from area lenders, purportedly based on fraudulent loan applications. When loan proceeds were made available at transaction closings, portions of those funds were reportedly distributed to Wazwaz and others involved in the conspiracy. The indictment states that between January 24 and September 15, 2005, the defendants participated in the fraudulent purchase of 14 residences in Minneapolis, four in St. Paul, and one in Fridley, totaling approximately $2.5 million in losses to financial lenders.

To accomplish this fraud, Wazwaz allegedly arranged for an unindicted appraiser to prepare appraisals supporting the inflated home prices. He also purportedly caused lenders to receive false loan applications. Moreover, he reportedly provided down payments to straw buyers without disclosing that assistance to the lenders. Finally, according to the indictment, he arranged for McCullough to close the real estate transactions.

For her part, McCullough allegedly provided false documents, including false HUD-1 settlement statements, to the lenders and routinely violated the settlement instructions in those documents. She also purportedly closed the fraudulent real estate transactions for above-average fees, which she retained. Furthermore, the indictment states she disbursed some of the mortgage loan proceeds, usually the amounts over and above the true sale prices, to Wazwaz, the straw buyers, and others. In addition, she allegedly disbursed to her co-conspirators portions of the loan proceeds actually meant to go to the property sellers.

If convicted, the defendants face a potential maximum penalty of five years in prison on the conspiracy charge and 20 years on each mortgage fraud count. All sentences will be determined by a federal district court judge.

On May 4, 2010, Taleb Wazwaz pleaded guilty for his role as a straw buyer in this fraud scheme. Specifically, he pled to one count of conspiracy to commit mortgage fraud by interstate wire.

This case is the result of an investigation by the Federal Bureau of Investigation and is being prosecuted by Assistant United States Attorney David J. MacLaughlin.

A Charlotte appraiser is the 15th person who has agreed to plead guilty in the “Waxhouse Investigation,” a long-running federal mortgage fraud case involving pricey new Mecklenburg and Union county subdivisions.

Clinton Bruce Darden was the owner of ValuEstimators Inc. and an appraiser for Mortgage Fraud Cells No. 2 and 3, according to federal court documents. Darden faces up to five years in prison and a fine of up to $250,000 for one felony count of mortgage fraud conspiracy.

Participants in the fraud agreed to buy homes at one price from builders, arranged buyers at a higher price and then lied to get mortgages at the higher level, according to court documents filed last week. Prices were generally inflated by $200,000 to $500,000. At closing, the difference between the two prices was shared by cell members.

Darden’s offenses occurred from January through July 2007 in Union County, according to court documents, which don’t provide specifics of his role. Appraisers - who attest to the value of a property - would be key players in such a mortgage fraud. Darden is the first appraiser named in the Waxhouse investigation, which netted its first plea agreement in November 2008.

Federal prosecutors have identified at least five “cells” and negotiated plea agreements with participants including attorneys, builders, a notary, a loan officer and a Los Angeles man who was a so-called “straw buyer” for Cell 2.

Darden could not be reached. His Charlotte attorney, Joe Ledford, declined comment.

By Stella M. Hopkins

Appraisal Fraud can also occur when the homeowner, seller or purchaser physically alters an “honest” appraisal using methods such as digital editing

A form of mortgage fraud, whereby the value of a home is deliberately appraised above its market value. The overstated value obtained through Appraisal Fraud is commonly used to:

* Help a seller get a better price than the market would warrant
* Help a buyer get financing because the mortgage amount could be much less than the appraised value of the home
* Help a homeowner get a preferable refinance, or home equity loan

Appraisal fraud can occur when an appraiser is in on the scam, and dishonestly overstates the value of the property. It can also occur when the homeowner, seller or purchaser physically alters an “honest” appraisal using methods such as digital editing.

Appraisal fraud, is one of the most common types of mortgage fraud. To protect themselves from this, banks will often set up the appraisal themselves when doing a mortgage or refinance. Homeowners and prospective homeowners should be just as careful, and make sure that they have an independent second opinion whenever they are going to make a decision based on somebody else’s appraisal.

If you have been a victim of a scam, you need not despair. There are websites to which you can submit your complaint such as:

1. The www.Scamchecker.com/blog

This website, www.ScamChecker.com/blog, is created for visitors to learn about almost all scams that they may encounter on the internet. There may be more scams out there but this site should be a convenient starting point.

2. The www.Scamchecker.com

This website, www.Scamchecker.com is the voice of those victims who are not powerless. They can Report this website for their experience and they will submit it to all major search engines within 30 minutes.

For anyone who assumed that the toughened real-estate appraisal rules imposed on the mortgage market last year would mean less monkey business in home valuations, here’s a shocker: Fraudulent appraisals soared in 2009, according to a lending-industry study released this week, and they now represent the fastest-growing form of home loan fraud.

The Mortgage Asset Research Institute found that, while overall incidences of loan fraud rose last year by 7 percent, the share of frauds involving property valuations increased 50 percent. MARI, a service of data company LexisNexis, collects information from more than 600 wholesale mortgage lenders who account for the vast bulk of loans originated in the country. Once a year, MARI reports its findings on fraud trends to the Mortgage Bankers Association.

Although the biggest source of mortgage fraud last year was intentional misinformation submitted by borrowers on their applications — bogus Social Security numbers or data on income, employment and assets — distorted valuations came in second. In previous annual reports, appraisal problems were far less prominent. As recently as 2006, just 16 percent of all mortgage fraud cases involved skewed property valuations. By 2008, 22 percent of reported fraud involved bad appraisals, whereas last year, that number rose to 33 percent, according to MARI.

The surge in appraisal shenanigans came despite the nationwide imposition of restrictions last year that were designed to limit interference in real estate valuations and to improve their accuracy. As of May 1, 2009, mortgage giants Fannie Mae and Freddie Mac prohibited loan officers and brokers from selecting appraisers, and effectively encouraged lenders to use “appraisal management companies” that assign appraisers from their own networks nationwide.

The new rules, known as the , stoked immediate controversy among mortgage brokers, appraisers, home builders and real-estate brokers. Critics charged that because management companies pay rock-bottom compensation to appraisers — often as little as $175 for an assignment that previously made them $350 to $450 — the new rules encouraged the use of inexperienced people, who frequently were not familiar with local market conditions.

Critics also charged that management companies forced appraisers to turn in their work within unrealistically short deadlines, even if they had to cut corners on quality and thoroughness.

Citing widespread evidence submitted by members about lowball and incompetent appraisals, the National Association of Realtors waged a lobbying campaign to persuade Congress to put the rules imposed by Fannie and Freddie on ice for 18 months. Congress has not acted on the matter.

Bill Garber, government affairs director for the Appraisal Institute, the largest trade group representing the industry, said the surge in bad appraisals last year “demonstrates what happens when lenders hire appraisers solely based on low prices and quick turnaround times.”

“This should send a loud signal to lenders to hire ethical and competent appraisers” if they want to avoid fraud in their loans, Garber said.

Freddie Mac spokesman Brad German offered a different view. Because the MARI study made no specific reference to the rule changes by Freddie and Fannie or to the use of appraisal-management companies, “we see no connection between [the code] and appraisal fraud.” Fannie Mae officials declined to comment.

Jeff Schurman, executive director of the Title/Appraisal Vendor Management Association, which represents the appraisal management industry, had no immediate comment on the findings, pending a review of the data.

The fraud report covered every major type of valuation method lenders use to underwrite mortgages, including traditional appraisals, electronic valuations and broker price opinions supplied by real estate agents, among others.

The biggest game fraudsters play: messing with or fabricating the information on “comparables” that form the basis of most appraisal reports. Rather than selecting nearby properties with broadly similar physical characteristics and recently recorded selling prices, bad appraisers typically come up with houses and characteristics that better fit their purposes.

Sometimes, they just left out the negatives. A hypothetical example: The property they were valuing was located near a busy and noisy highway or railroad tracks that would normally depress its value significantly. No problem. Poof — the appraisal report could omit those issues.

What did fabrications like these achieve? Primarily custom-tailored property valuations that were often off-base by 15 to 30 percent or more and allowed the sales contract and loan application to be approved. This, in turn, left lenders holding the bag when the mortgage went sour, raising losses and making the national foreclosure crisis even worse.

Kenneth Harney, WSJ

United States Attorney A. Brian Albritton announces that U.S. District Judge Henry Lee Adams, Jr. yesterday sentenced Barry C. Westergom (age 60, of Jacksonville) to four years in federal prison for conspiracy to commit wire and bank fraud. The court also ordered restitution in the amount of $866,141.62 and entered a money judgment for $100,000, the amount that Westergom had obtained from the fraud. Westergom had pleaded guilty on October 8, 2009.

According to court documents, during 2004 and 2005, Westergom’s co-conspirator, Juan Carlos Gonzalez, contracted to purchase about 55 houses. Gonzalez retained Westergom, who was a licensed real estate appraiser, to appraise most of the properties. Westergom then fraudulently inflated the appraisals, valuing each property at a significantly higher price than the negotiated purchase price. Westergom knew that Gonzalez intended to submit the appraisals to lenders in support of mortgage loan applications in which the inflated appraisal value was listed as the purchase price. The lender was not informed that the price listed in the transaction documents was higher than the actual price negotiated with the seller. Gonzalez also submitted fraudulent financial documents and information, including altered bank statements and payroll records, to the lenders in support of the loan applications.

At each closing, Gonzalez received the difference between the loan amount, which was based on the inflated appraisal, and the actual purchase price, and Westergom received commissions and fees.

Westergom’s plea agreement details one transaction in which Westergom, acting as a buyer’s agent for Gonzalez, negotiated with a seller to purchase a house for $490,000. Westergom then fraudulently appraised the house for $625,000. Gonzalez submitted first and second mortgage loan applications for the house reflecting a sales price of $625,000. Gonzalez also submitted altered bank account statements showing significantly larger cash balances in the account than actually existed. The lender approved the loans and, at the closing, Gonzalez received $134,000, which was listed on closing documents as an “Assignment of Contract Fee.” Westergom received $12,250 as a broker’s fee and $550 as an appraisal fee.

The conspirators’ fraudulent acts resulted in lenders extending more than $29,272,000 in first and second mortgage loans. Westergom received a total of about $100,000 in commissions and fees. Gonzalez received $6,296,303.65 from the scheme.

Gonzalez pleaded guilty to a conspiracy charge and was sentenced to seven years in federal prison on November 5, 2009.

The case was investigated by the Federal Bureau of Investigation and was prosecuted by Assistant United States Attorney Arnold B. Corsmeier. It was brought as part of the Middle District of Florida’s Mortgage Fraud Surge, a joint effort by the U.S. Attorney’s Office for the Middle District of Florida, the Federal Bureau of Investigation, Tampa and Jacksonville Divisions, and numerous other federal, state, and local law enforcement agencies. The Surge focused intensive investigative and prosecutorial resources on the mortgage fraud crisis that plagues middle Florida and has contributed to the current economic situation nationwide. The Surge accelerated mortgage fraud cases to bring perpetrators to justice quickly and provide maximum deterrence, and it was the first step in an ongoing effort to prosecute mortgage fraud of all types throughout the Middle District. For more information on the Middle District of Florida’s Mortgage Fraud Surge, please contact Steve Cole, Public Affairs Officer for the United States Attorney’s Office.

Federal Authorities Announce Significant Regional Federal Mortgage Fraud Investigations and Prosecutions Coinciding with Nationwide “Operation Malicious Mortgage” Takedown

SACRAMENTO, Calif.—United States Attorney McGregor W. Scott, FBI Special Agent-in-Charge Drew Parenti; and Internal Revenue Service–Criminal Investigation Special Agent-in-Charge Scott O’Briant announced today a number of significant events that have occurred here in the Eastern District of California as part of the United States Department of Justice’s nationwide takedown, “Operation Malicious Mortgage.”

These cases have arisen out of the efforts of the Eastern District of California Mortgage Fraud Task Force, which was created as a result of a significant increase in reported mortgage fraud. Members of the task force include representatives from the United States Attorney’s Office, the Federal Bureau of Investigation, the Internal Revenue Service- Criminal Investigations, the Department of Housing and Urban Development, the United States Bankruptcy Trustee’s Office, and the California Department of Real Estate. The task force allows for a more targeted, coordinated approach in prioritizing the massive volume of referrals being made to federal and state agencies.

Mortgage fraud cases in the Eastern District of California include:

United States v. Joy Johnson et al.

Nine defendants were charged by complaint Tuesday with mail fraud, money laundering, and related offenses in connection with a “cash back to buyer” mortgage fraud scheme that occurred between May 2006 and September 2006. The defendants charged are JOY JOHNSON, 33; ELIZABETH CARRION, 38; husband and wife LENIN and CARMEN GALEANO, 32 and 30; ANGELITO EVANGELISTA, 40; husband and wife CLARISA and CRIS ANG, 43 and 46; CRIS’ mother LYDIA ANG, 71; and CORY WHALEN, 31. All defendants are from Solano County. The defendants purchased 12 houses in Solano County. In all but one of the transactions, the real estate agent was JOHNSON. The real estate transactions were designed to allow the sellers to credit defendants “money for repairs” at the close of escrow. The purchase prices were substantially inflated from the list prices, and the increases were then credited at the close of escrow to fictitious businesses controlled by the defendants. The defendants by and large did not use the funds they received for repairs on the properties. Instead, the funds were used to pay the mortgage payments on the properties and for living expenses. In addition, the loan applications contained false information about employment, income, assets, real estate owned, and/or occupancy status. Eleven of the homes have either been foreclosed upon or have had notice of defaults recorded against them. The
amount of loss attributed to these defaults has not been determined, but it is anticipated the
lenders will sustain losses in excess of one million dollars. This case was investigated by the FBI
and IRS-Criminal Investigation. The case is being prosecuted by Assistant United States
Attorney Courtney Linn.

United States v. Villegas

MELISSA VILLEGAS, 29, of Natomas, was arrested Monday in Sacramento, charged with lying to federal agents. According to the complaint, she had been involved in transactions that were the subject of a mortgage fraud investigation, including paying money to a suspected straw buyer. During the course of the investigation, VILLEGAS falsely stated that she had not paid any money to this other person whom investigators believed to be a straw buyer in a mortgage fraud scheme. This case is being investigated by the FBI and IRS-Criminal Investigation. The case is being prosecuted by Assistant United States Attorney Russell Carlberg.

United States v. Ahmad et al.; United States v. Bridge; United States v. Blanford;
and United States v. Ngo

Seven defendants are facing charges or have been sentenced arising out of a “straw buyer” mortgage fraud scheme. IFTIKHAR AHMAD, 36; MANPREET SINGH, 24; and JOSE SERRANO, 44, each from Stockton, California, were indicted on October 25, 2007, for mail fraud. AHMAD and SERRANO were also charged with money laundering. Between 2003 and 2005, the defendants engaged in a scheme to defraud in connection with residential real property purchases primarily in the Stockton area. AHMAD, through I & R Investment Properties, fraudulently sold 10 houses to straw buyers, obtaining in excess of $1.5 million. AHMAD pleaded guilty on April 28, 2008 to mail fraud and money laundering. SERRANO pleaded guilty on April 17, 2008, to mail fraud. SINGH pleaded guilty on March 31, 2008, to mail fraud. All three are scheduled to be sentenced on August 25, 2008. Also arising out of the AHMAD investigation, four other defendants have been charged in separate cases, discussed below.

WILLIAM T. BRIDGE, 41, of San Francisco, California entered a guilty plea Monday to one count of filing a false tax return and three counts of paying illegal kickbacks to a loan coordinator at Long Beach Mortgage between 2003 and 2006. BRIDGE, a loan broker, admitted that in each of those tax years, he derived more than $10,000 from criminal activity involving fraudulent loans funded by Long Beach Mortgage on houses purchased in Sacramento and Stockton. The total tax loss to the United States for those tax years exceeded $1,000,000. BRIDGE also pleaded guilty to paying illegal kickbacks to a loan coordinator at Long Beach Mortgage in violation of the Real Estate Settlement Procedures Act of 1974 (RESPA). BRIDGE paid a loan coordinator working for Long Beach Mortgage more than $120,000 between July 2003 and March 2007, in exchange for the loan coordinator using his position at Long Beach Mortgage to process fraudulent loan applications submitted by BRIDGE. He is scheduled to be sentenced on September 2, 2008.

PAUL BRIDGE, William’s brother, who is also a loan broker, was charged Tuesday with paying kickbacks in violation of RESPA.

JOEL BLANFORD, 40, of San Ramon, Calif., was indicted on June 12, 2008, on six counts of mail fraud and one count of conspiring to engage in money laundering. From April 2003 through October 2005, BLANFORD, while working as a sales representative for Long Beach Mortgage, participated in a scheme to defraud that company. BLANFORD allegedly paid a Long Beach Mortgage loan coordinator in cash and checks to falsify documents, provide false verification of borrowers’ employment or professional licensing status, and to turn a blind eye to fraudulent representations contained in loan applications and other documents submitted to Long Beach Mortgage. In each of the years 2003, 2004, and 2005, the indictment alleges that BLANFORD received, before taxes and payroll deductions, more than $1,000,000 in commissions and other compensation from Long Beach Mortgage. The indictment further charges that between April 2003 and October 2005, he conspired with others to engage in money laundering in order to conduct financial transactions to promote the carrying on of the fraud scheme and to conceal and disguise the nature and source of the payments to the loan coordinator.

JOHN NGO, 27, of Dublin, California, was charged with lying under oath before a federal grand jury. He pleaded guilty on December 17, 2007, and is scheduled to be sentenced on July 14, 2008. NGO admitted that between September 2001 and May 2006, he worked as a Senior Loan Coordinator at Long Beach Mortgage, a subprime lender of residential real property that is now a subsidiary of Washington Mutual. NGO was responsible for validating and verifying loan application information, including employment information, submitted by loan applicants. In September 2007, NGO testified under oath before a federal grand jury investigating a mortgage fraud scheme in the San Joaquin County area. He was asked whether a mortgage broker had given NGO any money. NGO falsely testified that the broker had not given him any money. In fact, records later obtained from Bank of America showed that between July 2003 and March 2007, NGO received in excess of $100,000 in checks and bank transfers from the mortgage broker. NGO admitted in his plea agreement that most of the payments were to ensure that fraudulent loan applications were processed and funded. NGO also admitted he received payments from Long Beach Mortgage sales representatives to push applications through the funding process. He knew many of these applications were fraudulent, and he and others took steps to “fix” applications by creating false documents or adding false information to the applications or the loan file.

These cases were investigated by the FBI and IRS-Criminal Investigation, and are being prosecuted by Assistant United States Attorneys Benjamin Wagner and Courtney Linn.

United States v. Charles Head

CHARLES HEAD, 33, of Los Angeles, California, was the leader of a nationwide “foreclosure rescue” scam, netting approximately $6.7 million in fraudulently obtained funds taken from 47 homeowners, nearly all of whom were located in California. On February 28, 2008, a federal grand jury indicted Head and 15 other defendants with violations of mail fraud, conspiracy to commit money laundering and related offenses. The defendants are alleged to have used straw buyers to replace victim homeowners on the titles of properties without the homeowners’ knowledge. These straw buyers were often friends and family members of the defendants. Once the straw buyer had title to the home, the defendants immediately applied for a mortgage to extract the maximum available equity from the home. The defendants then shared the proceeds of the ill-gotten equity and the “rent” that the victim homeowners paid them. Ultimately, the victim homeowners were left without their home, equity, and with damaged credit ratings.

On March 13, 2008, the grand jury returned a second indictment in the HEAD case against seven defendants, including four not charged in the first indictment. “Head Two” involved an “equity stripping” scheme, netting approximately $5.9 million in stolen equity from 68 homeowners in states across the nation. This time CHARLES HEAD allegedly altered the scheme by recruiting strangers via the Internet to act as straw buyers. Under this new scheme, he would receive approximately 97% of the stolen equity. His “sales agents” and employees, and the other defendants, would receive the remaining 3% of equity.

The following defendants were charged in the “Head One” indictment: CHARLES HEAD; JEREMY MICHAEL HEAD, 30, of Huntington Beach, California; ELHAM ASSADI, aka Elham Assadi Jouzani, aka Ely Assadi, 30, of Irvine, California; LEONARD BERNOT, 51, of Laguna Hills, California; AKEMI BOTTARI, 28, of Los Angeles; JOSHUA COFFMAN, 29, of North Hollywood; JOHN CORCORAN, aka Jack Corcoran, 52, of Anaheim; SARAH MATTSON, 27, of Phoenix, Arizona; DOMONIC McCARNS, 33, of Brea, California; ANH NGUYEN, 36, of Los Angeles; OMAR SANDOVAL, 32, of Rancho Cucamonga, California; XOCHITL SANDOVAL, 29, of Rancho Cucamonga; EDUARDO VANEGAS, 28, of Phoenix; ANDREW VU, 39, of Santa Ana; JUSTIN WILEY, 28, of Irvine; and KOU YANG, 32, of Corona, California. The following defendants were charged in the “Head Two” indictment: CHARLES HEAD, JOHN CORCORAN, KOU YANG, each also charged in “Head One,” as well as KEITH BROTEMARKLE, 42, of Johnstown, Pennsylvania; BENJAMIN BUDOFF, 41,
of Colorado Springs, Colorado; DOMONIC McCARNS, 33, of Brea; and LISA VANG, 24, of
Westminster.

This case was investigated by the FBI and IRS-Criminal Investigation, and is being prosecuted by Assistant United States Attorneys Laura Ferris, Rob Tice-Raskin, and Ellen Endrizzi.

United States v. Santa et al.

MARIA SANTA, 33; VIRGIL SANTA, 35; and CANDIT SAVA, JR., 26, all of Sacramento, were charged by complaint on March 17, 2008. The complaint alleged that beginning in November 2006, MARIA SANTA and SAVA prepared and submitted loan applications containing false statements as to employment and monthly income, and other false information, of a straw purchaser in order to purchase houses in the name of the straw purchaser. The complaint further alleged that MARIA SANTA and SAVA committed identity theft by using a victim’s identity to purchase property. The case was investigated by the Internal Revenue Service-Criminal Investigation and the California Department of Real Estate, and is being prosecuted by Assistant United States Attorney Matthew Stegman.

SENNETT H. SWIFT, 25, of Sacramento, was sentenced on April 29, 2008, to 15 months in prison on charges of bank fraud and money laundering. He pleaded guilty on January 15, 2008. SWIFT, who was not a licensed loan broker, defrauded two homeowners and the corresponding lenders by fraudulently refinancing two homes, the goal of which was to receive substantial loan broker commissions. To accomplish this fraud, the defendant solicited the two homeowners and falsely told them that they would receive loans with favorable terms, such as a low adjustable rate that would not increase above a certain rate cap. He also falsely led homeowners to believe that their prepayment penalties on their existing mortgages would be rebated by the defendant. Actually, SWIFT knew that the rate caps were much higher than promised, and never intended to rebate the prepayment penalties. Additionally, in one of the cases, SWIFT submitted a forged loan application and forged documents to the lender. Further, the loan application contained false information such as inflated wages. The case was investigated by the Federal Bureau of Investigation and the Internal Revenue Service–Criminal Investigation and was prosecuted by Assistant United States Attorney Matthew Stegman.

The above charges, except those to which defendants have already pleaded guilty, are only allegations and the defendants are presumed innocent until and unless proven guilty beyond a reasonable doubt. The maximum statutory penalties for mail fraud is 20 years in prison and a fine. The maximum statutory penalty for money laundering is 10 or 20 years in prison and a fine. The maximum statutory penalty for bank fraud is 30 years in prison and a fine. The maximum statutory penalty for identity theft is 15 years in prison and a fine. The maximum statutory penalty for lying to a federal agent is five years in prison and a fine. The maximum statutory penalty for perjury before a grand jury is five years in prison and a fine. The maximum statutory penalty for filing a false tax return is three years in prison and a fine. The maximum statutory penalty for a RESPA violation is one year in prison and a fine. The actual sentence, however, will be determined at the discretion of the court after consideration of the Federal Sentencing Guidelines, which take into account a number of variables and any applicable statutory sentencing factors.

MICHAEL CASSADEI, age 53, of Schenectady and Galway, New York, was arrested December 14, 2002 following the unsealing of a five-count indictment by a federal grand jury in Albany.  The arraignment took place also today on the charges before United States Magistrate Judge David R. Homer in Albany. Cassadei was released with conditions.

The indictment alleges that defendant Cassadei, doing business as AAA Allstate Appraisal Services, violated Title 18, of the United States Code, Sections 1344(1), (2) and 2 by participating with others in a complex mortgage fraud property-flipping scheme by making and causing to be made materially false and fraudulent misrepresentations to a federally-insured financial institution.

By using his own appraisal business to generate misleading appraisals in support of the residential properties, Cassadei sold through nominees certain loan applications, down payments, seller-held second mortgages, and HUD-1 forms, and , and through whom he obtained the bulk of the proceeds of the resulting mortgage loans. All of the properties, which were located in Albany and Schenectady, went into foreclosure and caused significant losses to the financial institutions which held the mortgages.

The indictment further charges that Cassadei tampered with a witness by instructing the witness to lie to a federal agent who participated in the investigation. (An indictment is merely an accusation and the defendant is presumed innocent unless and until proven guilty.)

If convicted, Cassadei faces a maximum sentence of up to thirty years of imprisonment, a period of up to five years of supervised release, and fines of up to one million dollars on each of the four counts of bank fraud in the indictment, and up to twenty years of imprisonment, a period of up to five years of supervised release, and a fine of up to $250,000 on the witness tampering charge.

The federal and state agencies involved in this investigation include The case is being investigated by the Office of the Inspector General of the United States Department of Housing and Urban Development, the Albany Division of the Federal Bureau of Investigation, the Internal Revenue Service, Criminal Investigation Division, the United States Postal Inspection Service, the New York State Police Special Investigations Unit, and the New York State Banking Commission.

The case is being prosecuted Assistant United States Attorney Joshua S. Vinciguerra.

Predatory lenders employ many of the same illegal tactics found in other write-ups here on Flipping Frenzy. Loan officers, for example, may obtain inflated appraisals to get the homeowner a higher loan or will falsify income information to qualify the borrower for a mortgage.

Rather than doing those things to help the borrower, predatory lenders are simply out for themselves. Their actions rarely have any tangible benefits for borrowers and often saddle homeowners with loans they cannot afford. Loan officers—as you’re about to read—sometimes simply use borrowers to engage in a type of fraud I like to refer to as fraud for commissions.

Recently, one Flipping Frenzy reader came forward to share her experience with predatory lending and fraud for commission.

My name is Kim Sikorski, and in 2000 I was living in a one-bedroom apartment in New Baltimore, Michigan, when a local builder began construction on the Aspen Glen Condominiums right outside my front door. I remember thinking to myself how nice they looked and wished that someday I could own a home like that. Fast forward three years and I did.

To be honest, I wasn’t sure I could buy anything. I made ok money for a single person but I wasn’t sure it’d be enough to actually buy a home. To get the process started, I went to talk to a man named Dave Piccinini at Lira Financial in Clinton Township., MI (David Piccinini Inc. dba Lira Financial; 16600 18 Mile Rd.; Clinton Township., Michigan 48038). He was a friend of my boss, Ralph Bianchi, so I thought that I would be able to trust him.

I told Mr. Piccinini where I was looking to live and gave him the information he needed to check my credit report and get things started. A few weeks later I received a call from Stephen Tyree, the Lira Financial loan officer assigned to my application. Mr. Tyree called to tell me that my credit was good and I qualified to purchase one of the Aspen Glen condos with a mortgage at 6 ¼% (which for me translated into a monthly of $912.00). Before long, I went ahead and signed the purchase agreement and then started picking out carpet, countertops, tile color, etc. From my perspective, I was in the process of living the American dream of home ownership; I was buying my own home and I couldn’t be happier.

On August 27, 2003, I closed on my condo at the Mt. Clemens MI, office of Greco Title Co. To my surprise, neither Stephen Tyree or Dave Piccinini were present. It was there–at the closing–that I first found out that I was placed into an adjustable rate mortgage (ARM) that was only fixed for two years.

At the time, I only had a few days left to move out of my apartment, so I went ahead and signed all the documents and looked forward to moving into my new home. For me, the closing was a exciting day in my life. My mom and sister were even there by my side, taking pictures along the way.

The next day I talked to Dave Piccinini at Lira Financial and asked about the adjustable rate mortgage without escrow. Mr. Piccinini told me not to worry because in two years we would refinance and be able to set up escrow for my property taxes (which, by the way, were not included the first time). Eventually, I started having trouble keeping up with the taxes, and once again talked to Dave Piccinini about the situation. As he did before, Mr. Piccinini told me not to worry, that the taxing authority couldn’t do anything about it until I was four tax bills behind, and that by then we will have refinanced and paid off the back taxes, and set up escrow before that happens.

Based on Dave Piccinini’s recommendation, I went ahead as planned. About a week or so before I was supposed to close, my mortgage company at the time, Homecomings Financial, paid the back taxes (to protect their interest) and put me into forced placed escrow, which added to my principle and interest payment. My monthly payment went from $912 to $1,280 overnight.

When I called Dave Piccinini at Lira Financial, to tell him what happened, he told me this wasn’t a problem because we would just add it to the new mortgage. Just before closing I went to Mr. Piccinini’s office where I learned for the first time that he had placed me into a interest-only mortgage. I was told that my new mortgage was at 8%, 30-year fixed interest. I immediately told the staff in Mr. Piccinini’s Lira Financial office to stop all paperwork and please have Dave Piccinini call me himself as I was not aware of the interest-only loan (just like I was not aware that I was placed in an adjustable rate mortgage the first time around).

Long story short, I never heard from Dave Piccinini until he called about six months later to tell me that I owed him $350.00 for the appraisal done on my condo. I told him I was not paying him for the appraisal because I did not close with him, and we have not spoken since.

So my interest rate went up and I paid the difference for a year, but with my rate to go up a point or so a year with a ceiling of 12 ½ %, I knew I could not keep it up, so I went to see Stephen Tyree (my original loan officer at Lira Financial) who was now with Keystone Mortgage in Shelby Township, Michigan (45679 Village Blvd, Shelby Township, Michigan 48315). While it’s true that I originally knew Stephen from my association with Dave Piccinini, Stephen had refinanced my girlfriend’s mortgage and she was very happy with the results. I told Stephen the situation I was in—which he was well aware of—and asked for his help. He said he would see what he could do and get back with me. In the meantime, he had me fill out a credit application and give him permission to check my credit report. He also had me sign lots of blank forms saying we had to see what we could do and fill those in later.

When Stephen Tyree called me back he told me it was going to be tough to help me but that he felt he could get it done. He asked me if I had any savings, which I did not, and told me that having a savings account with at least three to six months worth of mortgage payments would show reserves and help me get approved. Stephen Tyree asked me to ask someone with money in their own bank account to add my name to their account to make it look like I had some savings, so I did. I asked my father to do this for me, and despite feeling it was not a very good idea–but wanting to help and not see me lose my home–he did. Stephen also told me that getting my condo to apprise for what we needed was going to be difficult but he thought he knew an appraiser that could get it done. Obviously, looking back, these should have been red flags. I know I should have never signed those papers.

On October 16, 2006, I closed on the refinance with an 80-20 mortgage. The 1st for $112,320 with an interest rate of 7.5% and a payment of $1,047.99 and the 2nd for $28,660 with an interest rate of 9.75% and a payment of $252.44. The total of both is $1,300.43, which I could not afford but I did what I thought I should to save my home.

In about March or April of 2007 I started calling Indy Mac to make them aware of my situation and that I was falling further and further behind on my payments. I talked to several people but no one really had any suggestions for me. They did thank me for calling and making them aware but offered no help other than trying to refinance again with a lower interest rate.

Ultimately, I was told Indy Mac could not lower my interest rate due to the fact that they technically did not own my mortgage any longer. With a payment of $1300.43 plus association dues of $160.00 a month come October 2007, I could no longer afford to pay my mortgage. I had put my condo up for sale by owner in May of 2007 (I thought I would rather sell it then lose it). But nothing. I was advised from Indy Mac that I could sell it in a short sale but the property must be listed with a real estate agent for at least 90 days. I listed the property in October 2007 and did not have even one person look at it. My condominium complex is not completed (the builder has about four more buildings to construct), and prices for new units identical to my own have dropped to $99,000. Why would anyone look at mine for $145,000.00 when they can build a new one for $99,000?

In January 2008 I came home from work to find a letter on my door from Trott & Trott, the law firm representing IndyMac, stating that my property had gone into foreclosure, was going to a Sheriff’s sale at the end of February, and that I had six months from 2/29/08 to redeem my property or be out.

And so there you have it—that’s were I am as of today. Most of my conversations with both Dave Piccinini at Lira Financial and with Stephen Tyree formally at Lira and now with Keystone Mortgage, were based on trust. Like many new homeowners, I did not know anything about mortgages and put all my trust in the people who did. I thought they were working with my best interest at heart.

Expecting the worst, hoping for the best!

~ Kim Sikorski, Michigan

In reviewing Kim’s account of what happened, a number of items jump off the page as being sure signs of predatory lending and fraud for commissions. For example, after contacting Kim and reviewing her situation a little closer, I was able to determine the following:

• Kim’s loan officer had her “sign lots of blank forms” and told her that he had to first “see what we could do and fill those in later.” In real estate fraud forensics, we call this ‘backing into the documents.’ With signed forms (that contain blank fields) in hand, a loan officer is able to manipulate the borrower’s loan documents to fit his commission-related needs.
• Kim’s loan officer artificially inflated her income in order to help her qualify for her loan. This of course is against the law.
• As noted by Kim above, her loan officer worked with an appraiser to secure an inflated appraisal on Kim’s property, thus allowing her to qualify for a higher loan that translated into a higher commission for the loan officer. Here again, the loan officer and appraiser broke the law.
• As Kim already pointed, she was encouraged to borrow her father’s assets, which everyone should know by now is a highly improper way of determining one’s actual worth and ability to repay a loan. Any real estate industry professional that advises someone to borrow or rent assets is more likely than not up to no good.
• Her loan officer promised to refinance Kim into a fixed loan within two years. Legally, no one can make that type of promise to a homeowner.
• As you read in Kim’s account, when she arrived for the very first closing of her life, she learned that she had been placed into an adjustable rate mortgage that was only fixed for two years. When mortgage brokers and loan officers present the borrower with a product, specifying the terms, and then change the terms just prior to closing, that is called “bait and switch” and it makes the loan highly suspect and questionable.

While many federal and state laws are aimed at preventing predatory lending, it’s not always easy to spot it when it occurs. If after reading Kim’s story, you’re left wondering if you are a victim of predatory lending, review the following list of common predatory lending practices:

1. Refinancing a mortgage repeatedly within a short period of time and charging higher than normal loan origination fees each time.
2. Selling a high-cost, high-interest loan to a borrower who would qualify for the lower-cost, lower-interest loan that the same lender offers.
3. Being asked or instructed to sign an application or documents containing blanks that the loan officer says he will fill in later.
4. Convincing loan applicants to borrow more than they can reasonably afford to pay back.
5. Pressuring loan applicants into accepting high-risk loans such as interest-only mortgages and loans with unusually high prepayment penalties.
6. Providing “products” that are nonexistent or offer no benefits.
7. Selling high-interest loans to borrowers based on ethnicity or nationality rather than their credit history or financial situation.

Loan officers (and to be fair, Realtors also) are often paid on commission. The more loans the sell, the more they make. In many cases, loan officers can earn even higher commissions by selling high-cost loans and additional products and services. In other words, the motivation to make money sometimes eclipses a loan officer’s responsibility to follow the rules.

The rules that real estate industry professionals—including loan officers—are supposed to follow stipulate the parameters for approving and underwriting a home loan. Although the stipulations may seem overly restrictive to some, the rules are in place for a reason—to make sure that the homeowner/borrower can afford their monthly payments and continue to live the American Dream of Homeownership.

The FBI just released a comprehensive new report on real estate and mortgage fraud, and, as you might expect given everything we talk about here on Flipping Frenzy, it isn’t a pretty picture. The information contained in the report can get quite technical, with plenty of charts, graphs, and hard numbers. Regardless, it’s worth the read–see “The 2007 Mortgage Fraud Report.” Among the Report’s key findings:

1. Real Estate and Mortgage Fraud is clearly on the rise. Although there is no central way to track the total extent of the problem, the FBI received 46,717 Suspicious Activity Reports related to real estate and mortgage fraud last year—compared to 35,617 in 2006 and just 6,936 in 2003. Only 7% of these reports documented an exact dollar amount in terms of losses, but even so, the total loss from this 7% was $813 million. The FBI’s caseload has also escalated. By the end of fiscal year 2007, the Bureau was handling just over 1,200 real estate and mortgage fraud investigations—a 47% increase from 2006 and a whopping 176% increase from 2003.
2. The downward trend in the housing market will continue (see forecasts provided by the Mortgage Bankers Association in the report), providing further incentive for shady real estate industry insiders to look for dishonest ways to turn a profit and growing opportunities for scam artists to prey on vulnerable homeowners.
3. The subprime lending crisis is a contributing factor to real estate mortgage fraud, both directly and indirectly. Subprime loans, designed for people with poor or limited credit histories, now represent more than 13% of all outstanding loans–double the percentage of five years ago. These high-interest, high-risk loans contributed to the 2.2 million foreclosures filed during 2007, up 75% from 2006. The trouble actually began when home prices were rising a few years ago, leading to relaxed lending practices throughout the industry and the exaggeration of assets by industry insiders and borrowers under their charge anxious to qualify for loans, both of which contributed to fraud.
4. The top 10 hotspots nationwide for mortgage fraud in 2007, carefully mapped from multiple public and private sources, were:
   
   1. Florida
   2. Georgia
   3. Michigan
   4. California
   5. Illinois
   6. Ohio
   7. Texas
   8. New York
   9. Colorado
   10. Minnesota

   Other states significantly affected include: Arizona, Maryland, Utah, Nevada, Missouri, Indiana, Tennessee, Virginia, New Jersey, and Connecticut. The north-central region of the United States had the largest share of fraud, followed by the west and southeast regions.



5. The latest mortgage scams run the gamut: from builder-bailout schemes where developers unload excess inventory through financial trickery, to foreclosure rescue schemes that trick homeowners into signing over the deed to their house; from seller-assistance scams that use false appraisals to sell homes, to identity theft that leads to home equity credit lines being opened and drained.

The FBI’s report also briefly recounts the agency’s own response to the problem, including the Bureau’s participation in the Department of Justice’s Mortgage Fraud Working Group, through which the agency says it is helping to identify large-scale real estate industry insiders and criminal enterprises conducting systemic real estate fraud

The purpose of the The 2007 Mortgage Fraud Report is to provide insight into the breadth and depth of real estate and mortgage fraud crimes in the United States. The report updates the 2006 Mortgage Fraud Report and addresses current fraud projections, issues, and hot spots (as noted above). The objective of the report, according to the FBI, is to provide FBI program managers with relative data to justify real estate and mortgage fraud investigative and preventive resources and for investigators to identify real estate and mortgage fraud activity.

A lot of Flipping Frenzy readers take the time to contact my office with their own suspicions surrounding real estate and mortgage fraud. One such reader, Lisa D. from Michigan, recently gave us permission to share her experience with the rest of our readers.

See if you can spot the fraud:

My husband Peter and I got married in 2002 when we were both 23-years old. Peter had a Bachelor’s degree in Fine Arts and was student teaching. We lived with my parents for a while and then moved into an apartment of our own. I previously worked waitressing a couple nights a week to help make ends meet. Peter eventually secured a job as a teacher at the local county jail. His pay was solid and steady, and he also went back to school to get his teaching license.

With our little family growing, we started looking around for a house we could afford (apartment living was fine but we needed more room). We finally came across the perfect house: A quaint little home in the town where Peter grew up. Since the home was in a state of foreclosure, we thought we might have a good chance to get the house at a discount. We tried to get approved through a traditional loan but were unable to. So we went through a private company and secured a land contract instead, and by Christmas of 2003 we were settling into our first new home.

We lived in the house for a year when Peter started hearing commercials on the radio for Rock Financial–a Quicken Loans Company. The company’s spokesperson promised to qualify people for a mortgage they could afford. We called Rock Financial, made an appointment, and got a really good feeling from our sales representative. He was a very nice man who seemed eager to help us get into a loan with a lowered interest rate. He was charismatic and told us not to worry about a thing.

At the time, after paying on our mortgage for a year and Peter having been at his job longer, Peter’s credit score was improving (it was in the 680’s). That was an important thing for us because my credit was blemished from uninformed college spending. We knew it would be important to keep Peter’s credit healthy so we could at least rely on it while we worked to correct mine.

The sales representative at Rock Financial was able to get us approved for a loan rather quickly. He arranged for an appraiser to come out and do an appraisal on our house and property, which they appraised at $135,000. Our sales representative wasn’t sure that he could get us straight into a 30-year fixed loan, so we started out with an adjustable and had to take out a second mortgage for $12,000 to help pay off some bills.

When we arrived at the closing, we learned that our Rock Financial sales representative was not able to be there. Two ladies that worked for Rock Financial were there instead to go over the closing materials. To say they rushed us through the closing process would be an understatement. We pretty much just signed paper after paper were they told us to do so. When we left, I told Peter I didn’t feel good about what had just happened; I felt rushed and uniformed, and Peter agreed. Together, we called our sales rep at Rock Financial and told him what had happened and how we felt. He apologized profusely and offered to come to our house and go over anything and explain everything we did not understand. We said that we didn’t want him to have to do that; talking to him put us at ease. A few days later we received a package from the sales rep that included a nice popcorn bowl from Crate & Barrel and a $5 Blockbuster Video gift card. That confirmed in our minds what a great guy the Rock Financial sales representative really was.

Our mortgage payment at this time was $720.94 (4.124%) with an adjustable rate mortgage and our payment on our second mortgage was $254 (5.75%), interest only. We felt that this was a good deal. Originally, we had paid $904.00 on our land contract. Even though our payment was a little higher we were able to pay some bills off and also build a garage. Peter and some of his friends built the garage, and we felt blessed to still be in this perfect little home of ours but at a manageable cost.

A year later we started hearing the commercials on the radio again from Rock Financial saying that interest rates were on a rise and homeowners with adjustable rate mortgages should consider a fixed loan. Peter called the sales rep to see what he could do about getting us a fixed loan. We had bought a used truck in 2004 and our payments were $359 a month, and since we were falling behind in the payments, our Rock Financial sales rep said we could take our more money on our second mortgage and that he could get us a fixed rate on both. All he needed, he said, was to get an appraisal on our home for $158,000. Accordingly, the Rock Financial sales rep sent out an appraiser who saw the new garage and the few minor updates that we had done in the past year, and lo and behold, the home appraised for $158,000. This was especially great news seeing that we bought the house for $114,000. We took out more money on our second mortgage to bring the loan to $34,000, and used the money to pay off bills and pay down other debts. Our Rock Financial sales rep got us into a fixed rate of 6.25% on our first mortgage and 5.25% on our second mortgage. Our payments went up to $771.19 on our first mortgage and $148.75 interest only on our second mortgage.

Shortly afterwards, we started having a difficult time coming up with our payments. Not having enough money and having to use credit cards that we had paid off with our second mortgage money back was getting us nowhere.

We called our Rock Financial sales rep who indicated that he wasn’t sure what he could do but that he would look into it and get back with us.

When the sales representative called back, he said that he could help us but only if the house appraised in the $170’s. Knowing our neighborhood as we do, we were apprehensive. A comparable house next door to our own–a two-bedroom with an asking price of $150,000–was on the market for nearly two years. When it finally sold, it fetched only $120,000 or thereabouts. But to our excitement, our appraisal came back at $178,000. The Rock Financial sales rep said we could get some money back on our second mortgage raising the loan amount to $45,000 and our interest rate to 12.8%.

While we were nervous about the interest rate and our payment, our Rock Financial sales representative assured us that using the money we’d get back to pay down our credit cards and giving it three to six months, he would be ale to lower the interest rate on the second mortgage considerably. So we went on to do that and felt an immediate sense of relief.

Several months had past and the new payment of $501.00 on our second mortgage and $1,049.90 on our first mortgage, got us into the same predicament of using credit cards for daily expenses. Peter called Rock Financial to see if enough time had passed to get our interest rate lowered on the second mortgage. Unfortunately the sales rep we’d been dealing with since day one no longer worked there and the person Peter spoke with said there was nothing he could do for us because our credit was so damaged and our debt too high. We were devastated. I had always worked through all these years at night so I could stay home with the kids during the day. I had to start picking up more shifts. I began working five to six nights a week, leaving little time for Peter and I to even see one another. Peter would come home from work and I would leave to go to work as soon as he did.

Long story short, we stopped paying on our credit cards with the thinking being that the most important bill was our house. All of our credit cads are now in collections with one of the credit card companies placing a lien on our house. We have creditors calling daily, but there is nothing to give them. We are not sure how much longer we will be able to keep our heads above water let alone save for our children’s future.

Our worst fear is having to walk away from a house we love so much and put so much time and energy into, but we also feel there may be no other answer. Our dream home has now become a nightmare that we may just have to walk away from, but with such bad credit I’m not sure we’d even be approved for a local apartment.

~ Lisa D.

From what you read, were you able to spot the fraud? If not, read on.

The first thing that should raise the hair in the back of your neck is that the loan officer at Rock Financial placed Peter and Lisa into multiple loans with the promise he would refinance and consolidate them into one fixed rate loan. The problem here of course is that situations change and no one can ever guarantee that you can refinance at a later date in time. This tactic is known as “churning,” like stock and brokerage accounts. Sadly, some mortgage loan officers insure repeat business by placing people into loans that require refinancing or have larger or rising interest rates. When the time comes and the borrower doesn’t qualify, it’s not the loan officer left holding a note they cannot afford to make payments on. In Lisa and Peter’s case, the loan officer did refinance the loans. He did so three to four times in 24 months and made about $17,000 in refi commissions.

Next, in order to get loans approved, some loan officers jack up the borrowers assets to give the false impression that the borrower is more solvent than actually is the case. Other times, a good loan officer gone bad may increase the homeowner’s income to get them qualified. Most often though—and this was the case with Peter and Lisa—the loan officer uses a known appraiser and simply tells said appraiser what s/he needs the value to come in at in order to get the borrower qualified.

Notice too that Peter and Lisa were not required to present any cash at closing. While this is not a problem, per se, when homeowners don’t have to pay the refi costs out of pocket, it is much easier to churn the loans. Instead of coming out of pocket with the dollars, the loan officer uses the house’s equity to pay himself, and the homeowner simply sees it as another number on a settlement statement.

You may think trusting your loan officer is a good idea—as did Peter and Lisa—but at a core level, your loan officer is not your friend. Sure, legally, a loan officer has an obligation to uphold the law and operate within certain guidelines and commonly accepted practices, but not all loan officers—or anyone else who is party to a real estate transaction—operates with integrity. When a loan officer works in coordination with an appraiser—as was the case at Quicken’s Rock Financial—any benefit to you is temporary at best.

New York’s Attorney General, Andrew Cuomo, today announced that the nation’s two largest purchasers of home loans, Fannie Mae and Freddie Mac, have entered into cooperation agreements requiring them to only buy loans from banks that meet new standards designed to ensure independent and reliable appraisals. The new rules prohibit mortgage brokers from selecting appraisers and lenders from using their own staff to conduct valuations for any home loans Fannie Mae and Freddie Mac purchase. The agreements–which were signed by the New York Attorney General, Fannie Mae, Freddie Mac and their federal regulator, the Office of Federal Housing Enterprise Oversight (OFHEO)–also create an independent organization to implement and monitor new home appraisal standards.

With the agreement now in place, Fannie Mae and Freddie Mac have positioned themselves to become leaders in transforming the mortgage industry. Now, national banks have a clear choice: immediately adopt the new code and clean up appraisal fraud in the real estate industry or stop doing business with Fannie Mae and Freddie Mac.

Fannie Mae and Freddie Mac, which purchase roughly 60% of all home loans originated in the United States, have agreed to the following:

1. Establishment of the “New Home Valuation Protection Code,” which creates requirements governing appraisal selection, solicitation, compensation, conflicts of interest and corporate independence, among other reforms. Under the new Code:

• Mortgage Brokers will be prohibited from selecting appraisers
• Lenders will be prohibited from using “in-house” staff appraisers to conduct initial appraisals
• Lenders will be prohibited from using appraisal management companies that they own or control.

2. Banks will be required to adhere to New Home Valuation Protection Code. Beginning January 1, 2009, Fannie Mae and Freddie Mac will require that lenders represent and warrant that appraisals related to mortgage loans originated on or after January 1, 2009 conform to the code or they will not be purchased.
3. Formation of the “Independent Valuation Protection Institute,” a new organization which will implement and monitor the New Home Valuation Protection Code. The Institute, which will be funded with $24 million from Fannie Mae and Freddie Mac, will also:

• Establish a complaint hotline for consumers nationwide to call if they believe the appraisal process has been tainted or if they have been harmed by appraisal fraud.
• Serve as a contact for appraisers themselves if they believe their independence has been compromised. These complaints will be handled confidentially to protect appraisers from retaliation. The Institute will mediate complaints, or can forward them to the appropriate federal or state law enforcement agency or regulator.
• Report publicly on its activities to the New York Attorney General and OFHEA on a bi-annual basis.
• Appoint a Board of Directors which must be approved by both the New York Attorney General and OFHEO.

As everyone hopefully knows by now, the integrity of the mortgage system largely depends on independent appraisals. Again and again, investigations find that real estate industry insiders put pressure on appraisers to drive up the value of loans just to make a quick buck. The new standards, and the new independent monitor, can begin to erase the problem from the industry.

The mortgage meltdown and resulting foreclosure epidemics are an American crisis that will require the united efforts of all citizens of the United States to come together and resolve. Professionals in the real estate and mortgage lending industries need to stop paying homage to the almighty dollar and limitless profits of those good years and hunker down with homeowners to get through these hard times. As I see it, this is the only hope we have to keep the American Dream of homeownership alive.

Fortunately, a large majority of professionals in the real estate and mortgage industries are trustworthy and dedicated to the long-term health of their businesses and careers. Unfortunately, too many professionals are focused entirely on their own short-term interests.

Recently, one of the true blue professionals in my industry called my attention to a situation in Arizona in which she suspects rampant fraud is taking place. She is an honest, well-informed real estate agent who is dedicated to doing her part to clamp down on fraud in the real estate industry, which she loves. She has witnessed other professionals, driven by greed, become involved in cash back at closing schemes that are designed to stimulate the sales of condos by providing buyers with $18,000 to $40,000 in cash (undisclosed to the lender) following closing.

To further hide what was really going on, the people involved in this alleged scheme adjusted it so the cash back would not be paid as a lump sum but paid out in installments in the form of guaranteed rental payments. This tactic did not fool our whistleblower. She tells her story here.

I am writing this because of my concern regarding all of the mortgage loan fraud that has been in the media specifically in the past year.

You are about to read my experience over the past year and what I believe to be a sophisticated case of loan fraud.

My background

I first started in the industry as a RE/MAX receptionist in 1990, since which time I have acquired over seven years experience in the new home arena, over seven years in the resale arena, and three years in the corporate office of a mortgage company.

January 2007

I interviewed for a position the first business day of the New Year and started the following week. I was excited as this gave me an opportunity to explore a whole new area within the new homes arena.

The community, Sunscape Villas, Scottsdale, AZ consisted of 442 units. Sales of the units began in early 2006, and over 210 units were closed on from May to Dec 2006.

Developer/Seller – Partners:

• Crown - California company
• MCZ Centrum - Chicago company

Sales and Marketing by:

• Urbis Properties, Cheryl King, Owner (Licensed)

We were told to get ready as they were in the process of finalizing a special program for one of their power brokers who worked with a lot of investors. We weren’t given much detail only that it was a program similar to what they were doing Landmark on Central (4750 N Central, Phoenix, AZ) that helped sell and close over 70 units. Landmark was Cheryl’s prior community, in the final stages of close out. The Developer/Seller was Crown (out of California) one of the partners at Sunscape Villas.

March 2007

The details had been ironed out and they were ready to launch the new program. A sales meeting was scheduled to go over this program along with two other similar programs that were going to be offered to different groups.

It was stressed to all of us the importance of these programs not getting out to the general public as they were only being offered to the select groups. Making matters worse, the three groups each had different deals set up and no one could know about the other.

Power Broker No. 1 - Moser & Perry

• Greg Moser, Realty Expert (Licensed)
• Jay Perry, Estate Planner (unlicensed)
• Moser & Perry’s Preferred (only) Lender: House 2 Home (Mike Low, Owner)

The program was set up to allow the investors to cash flow for the first couple of years. Two days after close of escrow an Option to Purchase agreement would be drawn up by Urbis and sent to the office of Moser and Perry for Buyer’s (now owner’s) signature and bank wiring instructions. The office of Moser and Perry returned signed Option and wiring instructions to Urbis who would forward on to Seller (Crown/MCZ Centrum) for a pre-determined amount (8-21% of purchase price) to be wired into the Buyer’s (now owner’s) bank account. All parties knew there was never the intent for the property to be (re)purchased per the agreement.

Editor’s Note: This was just a way to kick back money to the buyer under the guise of paying for an option to purchase the property from the buyer, when nobody had any intent of ever purchasing that property from the buyer.)

Greg Moser was set up on a graduated co-broke: 6% for the first 25 sold, 7% for the second 25 and 8% for everything thereafter. He felt confident that he could sell between 70 and 100 units.

The sales staff was instructed that there would be nothing in the purchase contract nor would there be anything in writing regarding the Option given to the buyer. They were told just to refer any/all questions from the Moser clients back to Greg Moser or Jay Perry, all sales needed to do was show the property and print out the contracts.

We were given strict instructions that this agreement COULD NOT be signed until two days after close of escrow. In addition we were told that since this happened outside of closing, neither the real estate broker nor the title company needed to know, as well as this ‘incentive’ was not to be disclosed to the appraisers coming to the sales office for comps of recent closings.

I recalled reading an article on AZ Central.com about Cash Back at Closing, I began questioning if this could be done. I forwarded a copy of the article to the Urbis team. (I had forwarded a few helpful articles before that). After several discussions around the office, a point was made to let everyone know that this was not the same thing as what was written about on AZ Central. We were assured that the attorney’s had looked at the agreement and said that it was legal. A gal in our office was mid-way through her real estate licensing classes and Cheryl King suggested she asked the instructor, which she did and was told that they couldn’t do that. When told what she had learned, Cheryl King brushed it off as not being explained the right way.

Having been in the industry for a number of years, I understood the mechanics of the Option to Purchase. This was not the way I recalled seeing this used in the past. I started to question my knowledge base, but, I didn’t push the issue. After all, who was I to question the corporate attorney or Cheryl with her MBA and paralegal background?

I wasn’t the point person for Urbis and the Option Agreements, as Cheryl had taken on three new listings, two of which I was in charge of the entire contracts & closings process, so I was very busy with those duties. It was out if sight, but never far from my mind.

Being a reader of all things real estate related, I’ve gained valuable insight through out the years. I always make sure I can back up what I’m saying in writing via various publications, statutes, and disciplinary orders. People in my office have referred to me as “a walking real estate encyclopedia,” and Cheryl gave me the nickname “Sherlock” and would come to me frequently to find out this and confirm that, as she was beginning to trust that I knew what I was talking about.

Summer 2007

MCZ Centrum had bought out Crown, making MCZ/Centrum the sole seller / developer for Sunscape. Roles and responsibilities that had been handled through Crown in California had been moved to various people / departments at MCZ/Centrum in Chicago. Shortly thereafter, Moser was informed that certain heads at Centrum were not comfortable with the Option program currently being offered, and it was just a matter of time before they pulled the plug on it.

Moser threw a fit, he was not happy. The Option program was what he was selling (40+ had already closed). Several contracts had been printed and were out to the buyers, and he believed many more were on the horizon. He didn’t understand why they would go back on their word and not let him continue selling under the program exactly the way it was. He had held many seminars, generated from his (and House 2 Home Lending’s) regular talk radio spot on real estate investing, which aired on Wednesdays at 4:00 p.m. on 1100 KFNX-Phoenix).

Then came all the talk of loan fraud becoming a felony starting in September. The change in events piqued my interest into revisiting my original feeling of this not being legal. Why would they stop something that was obviously selling condos? Why was this program never rolled out at the other Urbis listing? Was it possible it was not as legal as everyone was lead to believe? EQR, new Urbis listing, a publicly traded company would have nothing to do with it.

Would this have anything to do with loan fraud becoming a felony in Arizona?

In mid-August, we were informed that the Option program had ended and we were rolling out a new program — Master Lease, Lease Subsidy, Rent Guarantee — it changed names several times as it was being drawn up. I felt a little bit better about this program at first, because at least the title company knew about it as they’re who connected Cheryl with Noteworld.

When the Rent Guarantee program was rolled out, the only difference was instead of the buyer getting a lump sum payment back from the seller after close of escrow, the lump sum payment was going to Noteworld and they would in turn distribute monthly installments to the buyer for 12 or 18 months depending on the terms.

Sunscape had over 30 resale properties listed for sale on the MLS, some of which had been on the market as long as I had been with Urbis. It was apparent that the developer’s pricing was factored in when setting the resale pricing. The majority priced lower than the sales office advertised price – not a single unit had sold.

The Sales office closed 84 units in 2007 (36 under the Option program, 25 under the Rent Guarantee program, and 23 advertised public program); thelast public deal closed on August 10. Not a single Sunscape re-sale sold despite being priced lower during the same time frame.

Leading me to explore further, I looked at other condo’s in our same zip code. According to MLS data there were 43 comparable condos (non Sunscape) that closed from Oct 1, 2007 – Jan 21, 2008 in zip code 85251. The average price per sq. ft. for a one-bedroom/one-bath/was $168 (ours $244 & $276); the average price per sq. ft. for a two-bedroom/one-bath was $171 (ours $276-$325); and, the average price per sq. ft. for a two-bedroom/two-bath was $163 (ours $289).

Needless to say, Sunscape is showing all of the classic signs outlined in the many articles that I had been reading for the past year. We are the only community in zip code 85251 (probably the entire valley) that didn’t see property values decline over the past year.

The appraisers were not informed that 73% of the 2007 Sunscape closings included a non-disclosed cash back after closing ($18,000 to $40,000) given to the buyer.

I originally thought NONE of the appraisers were aware of the of the program, until I discovered one of the two appraisers sent to Sunscape to do all of the appraisals for House 2 Home Lending purchased a property at Landmark on Central under the program. The Owner of House 2 Home, Mike Low, his son Justin Low, his brother Andy Low purchased several units at Landmark under the program.

The final piece of this horrible puzzle has begun with the foreclosures (three are currently scheduled for trustee sale, which were bought under the original Option program with cash back given back to the buyer after close of escrow).

I understand from everything that I have read that it can sometimes take years for these cases to unfold and difficult to prove. I hope that all of the information that I have compiled over the past year will help in expediting the process and stop this before it goes any further.

Ruth Lamb

When you see rampant mortgage fraud like this being committed by the very professionals that we trust to do the right thing, it becomes very difficult to place faith or trust in our fellow Americans or to trust the systems we have in place to protect us. In this case, the perpetrators are being rewarded, not only with increased commissions from selling properties with inflated values, but we also see the companies they work for rewarding them for their supposed achievements.

Until this stops and we get serious about policing our industry and shutting down the fraud, it will continue to chip away at the very foundation of our industry. It will generate distrust among our clients and potential clients and eventually lead to the demise of the industry on which all of us earn a living and feed our families.

We need to begin to follow this whistleblower’s lead and, like her, have the tenacity to follow through and put the fraudsters out of business for good!

A U.S. District Judge in Florida has sentenced a former mortgage broker to seven years in prison and ordered him to pay more than $2.3 million in restitution for his role in a mortgage fraud scheme that racked up more than $17 million in fraudulently secured loans. Justin D. Barker, 31, of Jacksonville, Florida, who was sentenced earlier this week in the Middle District of Florida, was also ordered to forfeit $4,419,024.15, jointly and independently with other conspirators.

According to court documents, Barker’s scheme operated in 2005 and 2006 when he negotiated the purchase of residential real estate properties, either on behalf of himself personally, on behalf of a company he controlled, or on behalf of a third-party buyer. Barker, his company, or the buyer would then enter into a purchase and sale agreement with the seller of the property in question. Barker then retained a licensed real estate appraiser to appraise the property at a significantly inflated price. The appraiser would appraise the property at the price Barker requested, using inappropriate comparable properties and other fraudulent methods to obtain the price requested.

At the closing on the properties in question (more than 40 in total), Barker or his company would receive the difference between the loan amount, which was based on the inflated appraisal, and the actual purchase price, usually described with terms such as “assignment fee” or “payoff of second mortgage” that did not exist. This difference was the proceeds of the fraud.

During the course of the scheme, fraudulent loans totaling about $17.7 million were obtained on more than 40 properties. These loans would not have been approved but for the fraud. To recover some of these illicit proceeds, the government seized from Barker the following items:

• 2004 Bentley Continental
• 2007 Cadillac Escalade
• 2002 BMW 745Li
• 2005 Chaparral 330 Signature 36′ boat
• 1997 19′ Wellcraft boat
• 2006 and 2001 Yamaha motorcycles
• 2-carat loose diamond
• 1-carat diamond necklace
• .5-carat diamond necklace
• Diamond stud earrings
• Two Movado watches

Barker’s co-conspirator in the case, a title agency manager named Robert W. Hulbert Jr., pleaded guilty to the same charges and was sentenced this past December to three years in prison.

A Dearborn Heights, Michigan, tax accountant has been sentenced serve five years in prison and ordered to pay more than $11 million for his role in a mortgage fraud scam that defrauded lenders nearly $22 million in loses. Kalil Khalil, 36, according to court documents and information released by the United States Attorney for the Eastern District of Michigan, admitted that during a 2½-year period beginning in January 2001, he participated in the preparation of fraudulent loan applications and related documents that were submitted to mortgage lenders. Each of Khalil’s loan packages was fraudulent in one or more of the following ways:

• The purpose of the loan was not to buy or refinance a residence
• The borrower described on the application was not the true borrower
• The description of the borrower’s employment was false
• Documents purporting to substantiate the borrower’s employment (W-2 Forms, check stubs) were bogus
• The appraisal was inflated and forged
• Title to the property was not free and clear
• The title company purporting to guarantee clear title was merely a name used by Khalil and his codefendant, Tariq Hamad, to carry out the scheme
• Photographs were included that depicted a property other than the property identified in the loan application

Many of Khalil’s fraudulently prepared loan packages were approved and the loan proceeds were wired from the mortgage lenders, which were located outside of the State of Michigan, to bank accounts controlled by Khalil and Hamad that were located in metropolitan Detroit in the names of straw title companies. Khalil used most of the fraud proceeds to buy and sell stocks.

In addition to his prison sentence and order to pay approximately $11.1 million restitution to mortgage lenders and a legitimate appraisal company whose name he used on bogus appraisals, Khalil received a three-year term of supervised release following his exit from prison. He also agreed to forfeit his interest in bank and securities accounts containing about $300,000 that were seized by the government as part of its investigation.

Khalil’s codefendant, Tariq Hamad, 37, of Dearborn, pleaded guilty to one count of wire fraud in December 2006 and was sentenced in September 2007 to 9 years’ imprisonment and ordered to pay restitution in the amount of $11.4 million. The judge in the case, U.S. District Judge David M. Lawson, noted that he would have imposed a similar term of imprisonment on Khalil had it not been for Khalil’s substantial cooperation with the government in unrelated investigations being supervised by the U.S. Attorney’s Office.

Some mortgage fraud cases will not be criminally prosecuted!: Amid all the anguish arising from the swelling volume of home foreclosures in and around Stockton, California, there has been much talk about real estate fraud. But most of the complaints cannot be criminally prosecuted, representatives of the San Joaquin County Office of the District Attorney said yesterday.

Foreclosure vultures prey on Portland, Oregon, homeowners: As national foreclosure rates hit their highest levels ever, people calling themselves “foreclosure consultants,” are filling Craigslist, billboards and mailers with offers to “save your home.” Detective Liz Cruthers, who investigates white-collar crimes for the Portland, Oregon, Police Bureau, says she’s spending much of her time learning the intricacies of “mortgage rescue fraud” and chasing down the bad guys.

Utah seeks stiffer penalties for real estate fraud: A Utah legislative committee is recommending the passage of a bill aimed at increasing criminal and civil penalties against people involved in mortgage fraud. The Senate Business and Labor Standing Committee on Tuesday unanimously approved SB134 for further consideration by the state Legislature.

FBI targets mortgage fraud in Hawaii: The FBI has opened multiple mortgage fraud investigations in Hawai’i as a result of the fallout from the nation’s subprime mortgage crisis, the bureau’s director said yesterday. FBI Director Robert S. Mueller III, speaking to reporters on a stopover following a trip to Asia, confirmed the subprime mortgage mess has reached Hawai’i.

Countrywide accused of mortgage fraud: Already burned in the subprime mortgage meltdown, lending giant Countrywide Financial Corp. is now under investigation in Florida for possible unfair and deceptive trade practices, state officials said Thursday. Officials say they have received more than 150 formal complaints about Countrywide since setting up a mortgage fraud hotline last year.

Arrest made in Erie, Pennsylvania, real estate fraud case: A key figure in an ongoing federal investigation into suspected mortgage fraud in the city of Erie, Pennsylvania, will plead guilty to fraud and money-laundering charges. The U.S. Attorney’s Office in Erie on Thursday filed criminal charges against Frank Kartesz II. Kartesz, 39, is accused of one count each of mail fraud and criminal conspiracy to commit mail fraud, wire fraud and bank fraud. The government alleges he was part of a scheme in which he and others bought run-down houses and sold them at artificially inflated prices. Most of the buyers were low-income people who knew little about the home-buying process.

Illinois mortgage broker in jail for selling credit histories: Homeowners already worried about with a slumping real estate market and tighter restrictions on home loans should look to the case of an Illinois mortgage broker as another cautionary tale.

Georgia real estate appraiser sentenced to prison for mortgage fraud: After submitting fraudulent appraisals on incomplete houses as part of a mortgage fraud scheme, a Georgia real estate appraiser has been sentenced to prison.

A U.S. District Judge in Georgia has sentenced a Decatur, Georgia real estate appraiser for his role in a multi-million dollar scheme to defraud mortgage lenders through fraudulent appraisals that reflected completed construction. Darryl Cooper, 27, received a one year, six month sentence in federal prison to be followed by three years of supervised release, and was ordered to pay restitution in an amount equal to that which he stole–$4.7 million.

According to the U.S. Attorney for the Northern District of Georgia, Cooper’s sentence was reduced substantially due to his cooperation in the investigation. Cooper pleaded guilty in November of last year on a charge of mortgage fraud conspiracy. Cooper’s appraisals supported fraudulent loans for purchases in the names of so-called out-of state investors of incomplete homes from builder and coconspirator Jeffery Teague, who in October of last year was sentenced to serve nearly 16 years in jail and was ordered to pay more than $7.5 million in restitution.

Cooper was recruited by Teague, who ran a company called Value Homes Ltd., to prepare fraudulent appraisals reflecting photographs and $5 million in appraisal valuations for 15 completed houses in the Greenleaf subdivision of Forsyth County, Georgia, when Teague had clearly not completed the construction of those homes. A California lender relied on Cooper’s fraudulent appraisals, which reflected completed construction, to make the $4.7 million in loans. Many of the borrower/purchasers from California, New York and Florida also relied on the Cooper’s appraisals, rather than inspecting the properties before closing on their loans.

While Georgia’s reported fraud cases dropped significantly through the first quarter of 2006 (compared to the same quarter in 2005), the state’s real estate and mortgage fraud woes are well documented. Georgia was the undisputed leader in fraud rates from 2002 through 2005, and continues to rank in the top five of virtually every major fraud index, and has an increasingly high number of foreclosures–which as everyone should know by now is caused in-part by real estate and mortgage fraud.

A Denver, Colorado Grand Jury returned a 62-count indictment late last week against a man accused of scamming scores of investors who bought troubled properties and were later forced into foreclosure. Kenneth Germain, born December 12, 1943, is charged with one count of violating the Colorado Organized Crime Control Act, one count of theft, and 60 counts of securities fraud.

From Shawn Patrick at 9News.com:

Prosecutors say Germain scammed dozens of people into buying foreclosed properties from the U.S. Department of Housing and Urban Development and then kept the money for his own benefit. An arrest warrant has been issued for Germain and the Denver District Attorney’s Office says he has made arrangements to turn himself in to authorities in the next few days.

The indictment lists 60 victims with 167 properties involved in the alleged scam. Among the victims is Lisa Downing, owner of Vision Quest Entertainment, a local talent agency. Downing says her life savings and her son’s college savings are now gone, while her credit is ruined.

“I can’t get a loan. I may never be able to get a loan as long as I live,” said Downing. Downing figures she owes more than $2.5 million in loans for nine properties she bought across the metro area. Downing is not only experiencing financial heartache, but emotional stress since the investigation began 15 months ago.

“I was suicidal. My life was over,” said Downing.

Investigators say Germain acted as a property manager for a company he ran known as EQ Invest. The indictment alleges Germain promised investors he would fix up the foreclosed homes, and eventually rent them to suitable tenants, after investors put down 5 percent. Prosecutors say Germain also pledged to make the mortgage payments until selling the properties. Instead, investigators say Germain left his co-investors with the bills.

Downing claims the homes were overvalued in appraisals by anywhere between $40,000 and $90,000.

According to the indictment, Germain pocketed the money to pay for taxes, his personal mortgage payments and to spend at liquor stores.

Downing shakes her head in disgust when talking about Germain profiting from her life’s savings. “I worked so hard, raised my son as a single mom, built a savings to put him through college, and it was over. I don’t have the energy to rebuild it again,” said Downing. Still, Downing says she is lucky to be able to pay part of what she owes to try and save her credit, knowing other victims have lost their retirement savings and more. Many have defaulted with foreclosures on their records, and their credit, like Downing is now ruined.

“People have been divorced, they’ve become sick during this, it’s just unbelievable ruin,” said Downing.

Germain’s business affairs were run through other companies as well, including:

While promoting the real estate sales to the investors, he made the following material misrepresentations:

1. That he had never been sued: He had!
2. That he had never declared bankruptcy: He did!
3. That he had never taken money from the company: He did!
4. That he would repair the properties: He didn’t!
5. That he would make the mortgage payments, regardless of whether the properties were generating rent: He stopped making payments in August of 2006!
6. That he would enroll rental tenants in a program that would make them credit worthy so that they could buy the properties they were renting: This never happened!

Click here to read the entire indictment against Germain.