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.

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

Spurred perhaps by yesterday’s U.S. Conference of Mayors meeting and press conference in the Motor City, today’s issue of The Detroit News has fairly solid coverage of the unmistakable connection between Real Estate and Mortgage Fraud and metro-Detroit’s foreclosure crisis.

From “Fraud deepens Michigan housing crisis — Metro Detroit’s foreclosure explosion linked in part to mortgage scams ,” by Ron French and Mike Wilkinson:

Danny Stokes used to sell drugs, before he discovered it was safer and more lucrative to sell mortgages.

Samer Fawaz and Bashar Farraj were students in a mortgage fraud class where they learned to inflate appraisals and bilk lenders. They murdered one of their fellow con men in their Sterling Heights mortgage office when the scheme began to unravel.

Nelson Sumpter served time for fraud in a scam that drew national media attention in 1994. That criminal record didn’t stop him from beginning a new career as a loan officer. He was recently indicted for fraud.
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Michigan ranks among the nation’s leaders in mortgage fraud, costing residents millions of dollars and adding thousands of homes to the region’s record number of foreclosures, a Detroit News investigation found. Here, scam artists found the perfect combination of eager, unsophisticated borrowers and lax regulation.

French and Wilkinson’s article has lots of interesting information, including the fact that mortgage fraud perpetrated against Michigan banks grew 150-fold over the last 10 years, from nine cases in 1997 to over 1,400 reported cases in 2006.

In a separate article penned by Wilkinson, we learn that foreclosures in one particular Shelby Township (Michigan) neighborhood have raised considerable suspicions:

In the Woodlands subdivision in Shelby Township, the homes come in two sizes: big and bigger. Three-car garages, tiled pools and circular driveways are common. The mortgages are supersized, too, and for some, living there requires the down payment of a life’s savings. But for a handful of folks, all it took was high-interest, no-money-down loans from financial institutions scattered across the country.

The Woodlands’ sales caught the attention of township officials, including the assessor. The prices were well above what other homes in the area were going for, averaging nearly 40 percent more per square foot.

The township sent the FBI a list of homes that had been sold at prices so high that the township wouldn’t use them as comparable sales, township Supervisor Ralph “Skip” Maccarone said. All seven of the foreclosed homes in the Woodlands were on that list. The FBI said it cannot confirm whether an investigation is ongoing. Mark Bowling, the FBI’s supervisory senior resident agent for Macomb, St. Clair and Sanilac counties, said his agents are actively working mortgage fraud cases throughout the county.

Click here for an interactive map detailing the foreclosures in The Woodlands of Shelby subdivision.

Alexander MacInnes of the Herald News interviewed me this week for a story about a Bergen County, NJ, Real Estate developer who for years exploited unsuspecting homebuyers while bribing city employees to direct tenants in the houses he managed. The developer, 63-year-old Michael Eliasof, pleaded guilty Wednesday to conspiracy to commit money laundering. He was charged with taking nearly $2.5 million in illegal proceeds from the sale of overvalued properties to buyers not qualified to purchase them. Eliasof, who will be sentenced in late-February of next year, is looking at 10 years in prison and up to $250,000 in fines (or twice the amount he gained from his criminal activity).

From the Herald News, courtesy of NorthJersey.com:

The circle of professionals Eliasof worked with included Garfield Municipal Judge William C. Colacino Jr., who was the closing attorney for dozens of deals Eliasof lined up with inexperienced buyers. Colacino was not in court Wednesday and has not been indicted. He declined to comment Wednesday.

Eliasof and 10 co-conspirators, including mortgage brokers, loan officers and appraisers, artificially inflated the values of properties throughout Paterson. They then falsified loan applications and income levels for those buyers whom Eliasof lured in with “no money-down” deals, according to the federal charges.

Eliasof, 63, admitted to controlling the profits and dispersing kickbacks to his lawyer and mortgage broker. In another example of his reach, Eliasof admitted in court Wednesday that he bribed Paterson Section 8 caseworkers to direct tenants in the houses he managed.

In March, 14 public employees from Paterson and Passaic County were arrested on charges of taking bribes from an unnamed property manager who was cooperating with federal investigators. U.S. Attorney Hope Olds, who is prosecuting those cases, said the witness started cooperating after being caught in a real estate scheme.

More from Alexander MacInnes and the Herald News:

National real estate experts said the description of the fraud that occurred in Paterson is a variation of either illegal house flipping or a deal called “cash back at closing” — a scheme in which money is transferred off the books between the parties involved.

Ralph Roberts, a Michigan Realtor and author of “Protect Yourself from Real Estate and Mortgage Fraud: Preserving the American Dream of Homeownership,” said there’s a reason this type of fraud exists.

“It’s extremely profitable,” Roberts said. “That’s why they do it. It’s easier than working.”

As lucrative as the deals are, they often falter and leave a distinct footprint on communities.

“They hurt the neighborhoods, they hurt the tax base, they the hurt schools,” Roberts said. “Imagine living across the street from the house that now sits vacant.”

Read MacInnes’ entire article: “Magnate guilty in housing scheme”

The first round of arrests warrants for people involved in mortgage fraud schemes brought in 11 people last week in Miami-Dade County, Florida, with two suspects still at large. At a press conference last Friday morning, Miami-Dade County’s Mayor, Carlos Alvarez, presented the cases where 11 individuals are suspected of committing mortgage fraud.

Those arrested thus far include:

• Realtor, Nester Camacho
• Closing Attorney, David Rodriguez
• Closing Attorney’s Secretary, Monica Zulauga
• Mortgage Broker, Jose Delgado
• Mortgage Broker, Xavier Abelardo,
• Seller and Broker’s Agent, Javier Abelardo-Navarrete
• Closing Agent, Luis Navarrete
• Investment Company Owner, Mariana Navarrete
• Straw Buyer, Fernando Prado
• Title Agent, Damaris Vallin
• Mortgage Broker, Tomas Tamayo

“Mortgage Fraud affects all of us as artificially inflated home values increase taxes making it unaffordable to live here,” said Mayor Alvarez. “On the flip side, when banks begin to foreclose on fraudulent mortgages and sell these properties far below their original value, the County’s tax base lowers. This may affect the level of services we are able to offer.”

To combat the problem, Alvarez recently created a Mortgage Fraud Task Force to pool together agencies and resources for a joint effort against mortgage fraud. Task Force members include representatives from the Miami-Dade Police Department, Miami-Dade County State Attorney’s Office, Florida Attorney General’s Office, Florida Department of Law Enforcement, State of Florida Department of Financial Services, the FBI, U.S. Attorney’s Office, and the Office of the Treasury.

Real Estate fraud is a substantial problem in Miami-Dade County with more than 200 reported incidents of mortgage fraud and an estimated $50 million in losses to lenders and other victims. A recent Florida State Statute, No. 817.545, went into effect, making it easier to crack down on mortgage fraud, making all parties involved in mortgage fraud subject to prosecution.

Mortgage Fraud Task Force Chair and Miami-Dade Police Department Chief Counsel Glenn Theobald said, “Committing mortgage fraud crimes in Miami-Dade just got a lot harder as we have law enforcement officials, prosecutors, lending experts and others bringing all resources to the table to ensure this mortgage fraud crime does not pay.”

Officials say in the coming months more fraudulent mortgage brokers, title agents, attorneys, appraisers and others will be brought to justice. Anyone who suspects deceitful mortgage practices in Miami-Dade County is encouraged to contact Miami-Dade County’s Economic Crime Bureau at (305) 994-1000.

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EDITOR’S NOTE (12/27/07): Because of the intense and often off-topic nature of many of the comments left for this blog entry, commenting has been turned off, and all unrelated comments have been deleted
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Every spring and summer, you are sure to spot stories in the press about shark attacks off the cost of Florida, Long Island, and California. You rarely see a story, however, about the loan sharks attacking homeowners all across the United States.

Many people believe that the current mortgage meltdown has been caused primarily, if not exclusively, by homeowners whose appetite for credit far exceeds their ability to repay their debts. This is far from the truth. Mortgage originators acting more like street toughs than representatives of lending institutions have contributed far more to the current crisis. Instead of acting as professionals, they have led homeowners out into the water and essentially bitten off their arms and legs.

Read this comment, which was left here on Flipping Frenzy just yesterday afternoon by Lisa Ashton, from Saunderstown, Rhode Island:

“I am a single mom of two kids–one in college, one in high school. I have raised my kids alone in my home for all this time. I have owned my home for 21 years, actually built it with my ex husband. I hold down three jobs currently to try and make ends meet. I am a registered nurse in a school system.”

“I refinanced my mortgage in April of 2006 with Aegis Lending Corporation. They did a ‘no doc’ loan and lied about how much I made to make a high mortgage amount work. I was trying to take out $25,000 to finance my daughter’s college needs at the time. They said I made enough to cover a $493,000 mortgage! In reality I earn only about $55,000. I now have house payments that eat up about 98 percent of my monthly income.”

“They also hired an appraisal company (Macloud Appraisers in Narragansett, RI ) who somehow agreed to appraise my home for $560,000 when the town only values my property at $320,000, and it would probably sell for about $400,000 on the market today.”

“To bring my interest rate down to 6.5 percent, Aegis charged me $30,893 in discount points at closing. That would have meant that their standard interest rate was 14 percent! What sort of ARM starts out at 14%?”

“Now you may wonder why I would agree to such an arrangement. Well, Aegis advised me to stop paying my mortgage while they were refinancing me, because it would screw up the payoff amount they received. Admittedly, I was naive in following their advice–I stopped paying my mortgage. After all, they had already approved my loan.”

“Aegis failed to provide me with a closing packet prior to the closing date to review. They didn’t even tell me what to expect in terms of a monthly payment. I discovered all of this on closing day, when I was already two payments behind on my existing mortgage. I realized that if I refused to sign for the new mortgage, I would be in big trouble with my previous mortgage company, so I signed the papers.”

“Aegis told me not to worry. Within six months, I could refinance with them again and lower my payment to $2918 per month. (I currently earn about $3600 take home.)”

“Instead of refinancing my loan, Aegis sold it within a week after closing to GMAC Mortgage company and then filed for Chapter 11 Bankruptcy. Now I was really stuck.”

“I have gone through all of my retirement ($30,000) and all of my savings ($15,000) and maxed out every credit card to stay current with my mortgage for this past year or so. No one will refinance me, and now since I’m so maxed out on credit cards, I’ve watched my credit scores plummet well over 100 points in the past four months.”

“GMAC has told me they will NOT work with me to help me out. I have called them for the past three months asking about some way to help me, so I don’t end up in foreclosure. They have told me that they rather have my home.”

“September 2007 was the first time in 21 years I’ve ever missed a payment on my home, and I’m just sick about it. I did receive something from the court stating I could file a claim against Aegis Mortgage–a ‘proof of claim’ form–but who knows how long that will take to work through the system. By that time, my children and I will have been evicted from our home.”

“So that’s my story. I can’t lose this home. I’ve worked so hard to keep it. It’s my children’s safety net. This is all they’ve known, and I can’t take it away from them. I won’t. But I don’t know what to do.”

This is just one story, but it is representative of what has been happening in every state in the Union–lenders preying on homeowners who have been duped into trusting the system and the professionals who run it. It is the equivalent of going into a doctor’s office and intentionally been diagnosed as having cancer. The “doctor” prescribes a host of expensive tests, medications, treatments, and therapies just to jack up your fees, and then flies out of the country when you’re money runs out.

When you seek the advice of any professional–a doctor, attorney, accountant, Realtor, or whoever–you expect that the person is going to give you accurate information and reliable advice. You do not expect the person to flat out lie to you.

We have to stop blaming homeowners for the current mortgage meltdown and start holding loan originators to the same standards we set for doctors and other professionals. We also need to start placing the blame where it belongs–not with the homeowners but with the loan originators who know better.

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EDITOR’S NOTE (12/27/07): Because of the intense and often off-topic nature of many of the comments left for this blog entry, commenting has been turned off, and all unrelated comments have been deleted
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A former licensed Real Estate appraiser and an appraisal coordinator for a real estate investment company have plead guilty for their respective roles in a conspiracy that defrauded hundreds of individual investors of over $50 million and banks of over $2 million.

Thirty-seven year-old William Page 37, of Old Bridge Township, New Jersey, pleaded guilty before a U.S. District Judge earlier this month to a one-count information charging him with conspiracy to commit mail fraud for creating materially false and misleading property appraisals and construction progress letters. The inflated appraisals were used to assure individuals that their investments in NJ Affordable Homes Corp., (NJAH) were secured by investment properties. The false construction progress letters falsely stated that renovations and improvements were made to investment properties and were used to fraudulently disburse investors’ funds from escrow.

Another defendant, John Morris 61, of Fort Lee, New Jersey, pleaded guilty to a one-count information charging him with conspiracy to commit wire fraud in connection with his role in a conspiracy to defraud mortgage lenders of at least $2 million. Morris oversaw the creation of fraudulent property appraisals that were sold by NJAH to straw buyers. Using the fraudulent appraisals, NJAH prepared fraudulent loan applications in the names of nominee buyers and sold the properties at inflated prices. The scheme left mortgage lenders with loans that were grossly under secured, and nominee buyers with outstanding mortgage loans in their names. Page and Morris are the fifth and sixth individuals associated with NJAH who have pleaded guilty in related investment and mortgage fraud schemes.

NJAH first came under scrutiny of the Securities and Exchange Commission, which obtained a restraining order against the company in September of 2005. NJAH subsequently was ordered into receivership and then bankruptcy by a federal judge. In March of this year, Michael Meehan, 47, of Belmar, NJ, pleaded guilty to his role in the conspiracy to defraud various lending institutions. In January, co-conspirator Katrina Arrington, 34, of Hillside, NJ, pleaded guilty to her role in the conspiracy, while co-conspirators John Kurzel, 55, of New Brunswick, NJ, and Lucesita Santiago, 37, of Woodbridge, NJ, both pleaded guilty to the same conspiracy charge for their participation in the mortgage fraud scheme in October of 2006.

At his plea hearing, William Page admitted that from 1998 through September 2005, he knowingly created materially false and misleading property appraisals that fraudulently inflated the value of properties that NJAH used to secure investor funds. The appraisals were used by NJAH to persuade individuals to make and retain over $100 million of investments made with the company. Page also admitted that he created materially false and misleading construction progress letters that were used to release investors’ money from an attorney escrow account.

At his plea hearing, John Morris admitted that from about March 2003 through September 2005, as NJAH’s appraisal coordinator, he participated in a conspiracy to defraud various mortgage lenders by submitting materially false and misleading property appraisals and altered photos of properties. The appraisals overstated the value of the properties and falsely claimed that the properties had substantial improvements such as new windows, bathrooms, electric wiring, plumbing and siding.

Remarkably, both Page and Morris are free on $25,000 unsecured bonds (both are scheduled to be sentenced on Monday, December 10, 2007). The charges to which Page and Morris pleaded guilty carry a statutory maximum penalty of five years in federal prison and a fine of $250,000.

In a follow up to Monday’s post about a Colorado Real Estate appraiser whose license was suspended over suspicion that she over valued properties, the appraiser in question, Julie O’Gorman, has hired an attorney and is denying claims that led the Colorado Division of Real Estate to pull her license. From the Northern Colorado Business Report:

O’Gorman denied the allegations in a statement issued Friday by her attorney, Daniel Foster. She is seeking a motion from the courts to stay the order until a hearing can be held. Foster’s statement indicates that many of the charges against O’Gorman date back to 2002 and that she has cooperated with the board during its investigation.

“It is unfortunate that the board has chosen this PR strategy in an attempt to damage Ms. O’Gorman’s professional reputation and to try and use her as a scapegoat for many industry-wide problems,” Foster wrote.

More on this story from the Greeley Tribune:

“It’s just been really hard on everybody here,” said Gloria Prim, a bookkeeper for Front Range Real Estate Consultants, of which O’Gorman is president and owner.

Prim said O’Gorman is not allowed to work nor is she allowed to visit her business during the suspension. A hearing has been scheduled for Aug. 2, but no hearing was held before the appraisers board issued a “summary suspension.”

Division of Real Estate Director Erin Toll said Friday the suspension was a rare move because it does not involve a hearing.

Appraisers work with mortgage brokers, real estate agents and other entities to determine how much a piece of property is worth. They compare similar properties and use various factors to come up with fair market prices, or valuations.

Toll said O’Gorman’s suspension was necessary because O’Gorman had been overvaluing property in the area. That leads to high foreclosure rates, she added.

But O’Gorman’s attorney, Daniel Foster of Denver, said Monday the suspension was an “absolute abuse.”

“They want to make an example of someone in order to try and show that they’re getting tough on any of the ills in this industry,” Foster said. “It’s easy to pick out a person and point your finger, make unsubstantiated allegations, and the best part is, they don’t even have to give you a hearing.”

He filed for an injunction to delay O’Gorman’s suspension pending a hearing, but he has not yet been scheduled to appear in court on the matter.

O’Gorman was told not to comment about the case.

O’Gorman’s situation clearly illustrates that there are two sides to every story. Rachel Dollar, the co-author of my next book (”Protect Yourself from Real Estate and Mortgage Fraud: Preserving the American Dream of Homeownership,” which is being published in August by Kaplan Publishing), is correct when she tells the readers of her blog that the information and notices contained on the Flipping Frenzy blog are intended to summarize recent developments in real estate-related fraud cases nationwide. The posts on Flipping Frenzy are presented as general research and information and are not intended, and should not be regarded, as legal advice or official rulings. Much of the information on this site–including that pertaining to O’Gorman–concerns allegations. All persons mentioned in our postings are presumed innocent, including O’Gorman, unless convicted of a crime.