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

According to the indictment filed in Manhattan federal court:

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

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

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

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

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

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

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

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

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

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

The FBI calls it the “latest scam on the block,” but for years now we’ve been warning people and reporting about scam artists who steal your identity and then your home. Now, after years of reporting and writing about this sinister act, the FBI is stepping up its efforts to make homeowners aware of the horrible connection between identity theft and real estate fraud.

Here’s how the scam typically works:

(Image courtesy of the FBI)

It can get even more complicated than this, as we can see from a fresh case out of California that the FBI investigated with the Internal Revenue Service. A Downey, California, real estate industry insider pleaded guilty this week to federal fraud and money laundering charges, and in doing so, admitting her role in a $12 million real estate fraud scheme that targeted homeowners in default on their mortgages and falsely promised them help. Martha Rodriguez, 35, pleaded guilty to one count of mail fraud and one count of money laundering in relation to the scheme that ran from May 2003 until November 2005.

By pleading guilty, Rodriguez admitted that she and several co-schemers located victim homeowners through computerized databases that list homes going into foreclosure. Rodriguez promised victim homeowners that their homes would get refinanced. However, instead of obtaining refinancing, Rodriguez and the other defendants charged in this case submitted loan applications in the names of straw buyers who were purportedly buying the property. In some cases, the straw buyers were paid for the use of their personal information. In other cases, the defendants used personal information of people without their knowledge.

The loan applications for the straw buyers–which always contained false information–caused a series of lenders to fund mortgages that otherwise would not have been funded. The loan proceeds were used to pay off the loan in default, and the remaining proceeds were skimmed off by Rodriguez and her co-schemers.

Even though they were promised that they would keep their homes, the victim homeowners lost title to their homes. The lenders suffered losses when the straw buyers failed to make loan payments and the second loans went into default. The scheme targeted commercial lenders and more than 100 homeowners across the the southern part of Los Angeles.

The scheme was operated through Rodriguez’s real estate and escrow agencies, Silvernet Properties in Downey and Bellasi Escrow in Seal Beach.

As a result of her guilty pleas, Rodriguez faces a maximum possible sentence of 40 years in federal prison. Rodriguez has agreed to forfeit to the government her interest in five homes, a truck and approximately $900,000 in cash that was seized by the government around the time of her arrest.

Rodriguez was indicted with four co-defendants. One of them–Cynthia Valenzuela, a 24-year-old Downey resident–pleaded guilty last Friday to mail fraud charges. Rodriguez and Valenzuela are scheduled to be sentenced by is United States District Court in Los Angeles on August 20.

Three remaining defendants are scheduled to go to trial on July 10:

• Vladimir Stefanovic, 35, of Lancaster, CA (Martha Rodriguez’s common-law husband)
• Edward Seung Ok, 40, of Huntington Beach, CA
• Maria G. Juarez, 36, of Diamond Bar

There’s no telling why the FBI chooses to highlight one real estate fraud bust over another, but buried deep within a recent report about Operation Homewrecker–an extensive mortgage fraud investigation by the FBI and IRS–was a very telling piece of information. According to Drew Parenti, Special Agent in Charge of the FBI’s Sacramento office:

“Mortgage Fraud has recently been elevated to the FBI’s highest financial crime priority, and we are attempting to address the numerous reports of fraud within the real estate industry that have occurred across the country.”

Parenti went on to say that the FBI is focusing more attention than ever on industry professionals, the insiders “who have manipulated the mortgage loan process for their own financial gain.”

Parenti’s comments come on the heels of one of the FBI’s latest real estate fraud-related indictments. According to Assistant U.S. Attorneys Laura Ferris, Rob Tice-Raskin, and Ellen Endrizzi, who are prosecuting the case, the charges are broken out into two separate indictments, “Head One” and “Head Two.”

Two days ago, the FBI announced the indictment of 19 individuals for mortgage fraud-related offenses under Operation Homewrecker. The leader of the nationwide scam was Charles Head, 33, of Los Angeles, California, who targeted homeowners in dire financial straits, fraudulently obtaining title to over 100 homes and stole millions of dollars through fraudulently obtained loans and mortgages.

According to the trio of Assistant U.S. Attorneys prosecuting the case, a federal grand jury returned the first set of charges in a 13-count indictment against 16 defendants with violations of mail fraud, conspiracy to commit mail fraud, conspiracy to commit money laundering and other related offenses. “Head One” involved a “foreclosure rescue” scam, netting approximately $6.7 million in fraudulently obtained funds taken from 47 homeowners, nearly all of whom were located in California.

From January 2004 to mid-March 2006, the defendants contacted desperate homeowners, offering two options allowing them to avoid foreclosure and obtain thousands of dollars up-front to help pay mounting bills. If the homeowner could not qualify for the first option, which virtually none could, they would be offered the second option. Under the latter option, an “investor” would be added to the title of the home, to whom the homeowner would make a rental payment of an amount allegedly less than their mortgage payment, thereby allowing the homeowner to repair their credit by having the mortgage payments made in a timely fashion.

Unfortunately all of this was a scam. The defendants would recruit straw buyers as the investors and oftentimes these individuals would in fact replace the homeowners on the titles of the 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 would then share the proceeds of the ill-gotten equity and rent being paid by the victim homeowner. When the defendants ultimately would sell the home, stop making the mortgage payment, and/or pursue an eviction proceeding, the victim homeowner was left without their home, equity, or repaired credit.

The following defendants were charged in the February 28, 2008 “Head One” indictment:

• Charles Head, 33, of La Habra, California
• 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, California
• Joshua Coffman, 29, of North Hollywood, California
• John Corcoran, aka Jack Corcoran, 52, of Anaheim, California
• Sarah Mattson, 27, of Phoenix, Arizona
• Domonic McCarns, 33, of Brea, California
• Anh Nguyen, 36, of Los Angeles, California
• Omar Sandoval, 32, of Rancho Cucamonga, California
• Xochitl Sandoval, 29, of Rancho Cucamonga
• Eduardo Vanegas, 28, of Phoenix, Arizona
• Andrwe Vu, 39, of Santa Ana, California
• Justin Wiley, 28, of Irvine, California
• Kou Yang, 32, of Corona, California

On March 13, the federal grand jury returned a five-count indictment in “Head Two” against seven defendants, including:

• Charles Head, John Corcoran, Kou Yang, each also charged in “Head One”
• Keith Brotemarkle, 42, of Johnstown, Pennsylvania
• Benjamin Budoff, 41, of Colorado Springs, Colorado
• Domonic McCarns, 33, of Brea, California
• Lisa Vang, 24, of Westminster, California

“Head Two” involved an equity-stripping scheme that netted approximately $5.9 million in stolen equity from 68 homeowners in states across the nation. While still targeting distressed homeowners and defrauding mortgage lenders through the use of straw buyers, this time Charles Head altered the scheme so that he would receive approximately 97% of the stolen equity, while his employees, and the other defendants, would receive either the remaining 3% of equity or a salary from the fraudulently-obtained funding.

Instead of recruiting friends and family members as straw buyers, as in “Head One,” in “Head Two” the defendants recruited strangers via the Internet. They also used referrals from mortgage brokers to identify and solicit new victim homeowners. Beyond advertising on the Internet, the defendants also would send blast faxes to mortgage brokers throughout the United States and generate mass emails to potential victims. Through material misrepresentations and omissions, victim homeowners would be offered what appeared to be their last best chance to save their homes. Unfortunately, as in “Head One,” these victims also were left without their homes, equity, or repaired credit.

Following a two-week trial, a jury in federal district court returned guilty verdicts late Monday afternoon against Keith Garner, Gregg Savage, Shalonda Harris, all of Atlanta, Georgia, and Latesha Garner, of Durham, North Carolina, on charges of conspiracy to commit mortgage fraud and wire fraud related to $6 million in fraudulent real estate financing from SunTrust Mortgage Company over a ten week period in the summer of 2006.

According to court documents, Keith Garner, 48, solicited his daughter, Latesha Garner,27, a loan processor with SunTrust Mortgage, in the spring of 2006 to handle fraudulent loan applications submitted on behalf of straw borrowers recruited by the elder Garner and his co-conspirators. Because she was responsible both for verifying borrower employment and asset information as well as for approving closing documentation, Latesha Garner was uniquely positioned to defraud SunTrust Mortgage, which she did by falsely verifying borrower credentials and approving hundreds of thousands of dollars in false payoffs to her father.

Keith Garner paid Latesha $33,000–the equivalent of one year’s salary–across four transactions to facilitate his criminal scheme. He also enlisted the help of Susan Khodadad, a closing paralegal with several area real estate firms, to ensure that the false payoffs to Garner and his co-conspirators were included in SunTrust Mortgage’s loan documentation. Khodadad pleaded guilty to the conspiracy count of the indictment prior to trial and testified against her co-conspirators.

Focusing on the “Country Club of the South” and other high-end developments and subdivisions in the Atlanta area, Keith Garner and his fellow fraudsters acquired numerous properties in the name of their straw borrowers, often without the straw borrower’s consent. Each of the properties was accompanied by an inflated appraisal, which, in addition to the submission of false loan applications, enabled Garner to secure real estate financing from SunTrust Mortgage in excess of the fair market value of the properties. He then stole the “spread” between the inflated and fair market value of the properties primarily through Latesha and Khodadad, who ensured that SunTrust Mortgage either directly paid a bogus seller’s obligation or was never made aware that a substantial portion of seller’s proceeds was being paid to the defendants outside of closing pursuant to a criminal agreement with the seller.

Gregg Savage, 24, was convicted of realizing more than $830,000 in false profits in just seven days as a seller of two properties, from which he paid Keith Garner $200,000 for supplying the straw buyers. Shalonda Harris, 36, a licensed REALTOR, was convicted of receiving $66,000 from Keith Garner and Savage related to her role in locating properties and straw buyers on two indicted transactions.

Each faces a 20-year prison term and $250,000 fine on the conspiracy count of the indictment and a separate 20-year prison term and $250,000 fine on each of their wire fraud convictions. A sentencing date has not yet been scheduled.

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.

Investigators from Nevada’s Secretary of State office today arrested a 64-year-old Las Vegas man on 32 felony charges related to the fraudulent purchase of Las Vegas area homes. State officials served Matthew Marlon with an arrest warrant earlier today when he arrived at the home of two of his victims who were cooperating with investigators. Marlon, who is described as a local businessman, is scheduled for arraignment tomorrow morning at 7:30 a.m.

Marlon is currently facing numerous charges, including:

• Thirty-two (32) counts of offering a false document for filing or recording
• Two (2) counts of theft of property by false pretenses
• Two (2) counts of obtaining property by false pretenses from victims over the age of 60
• Five (5) counts of forgery

According to Secretary of State officials, Marlon targeted homeowners who were anxious or desperate to sell their homes. Using an alias, he would tell a homeowner that he would assume the responsibility of their mortgage in exchange for the deed to the home and, in some cases, a small amount of cash, sometimes as little as $200.00.

After taking physical possession of the home, Marlon would then rent the home to new tenants, collecting rent, but never paying the mortgage as he had promised the original homeowner. Homeowners would then find out after a few months had passed, that no payments had been made on the loan, which was still in their name.

Nevada officials believe Marlon used a series of fraudulently created corporations as part of the transactions, and made promises to his victims that were not made in the documents he presented for the victims to sign. He also told his victims that a real estate agent could not be involved in the transaction, and that he would take care of all the paperwork. To the unsuspecting victims, what Marlon presented was an opportunity to avoid looming foreclosure and a ruined credit rating.

State officials are continuing their investigation by working directly with the office of Nevada’s Attorney General. Homeowners should always be aware that if they sell their home but do not make sure that the mortgage is paid off as part of the transaction, they will still be obligated to pay the lender and the property will go into foreclosure. Using a reputable title company should assure that the mortgage is paid off by the buyer before title to your home is transferred. Most mortgages cannot be “transferred” to a new person without the lender’s written permission.

Some of the warning signs of potentially questionable or fraudulent mortgage deals include:

• You are asked to sign a deed or other papers, and the seller promises to pay off your mortgage, but no escrow is opened
• You are told that a real estate agent or title company “doesn’t need to be involved”
• You are told that the buyer will “take over the payments”
• The buyer tells you he will buy your house for the sum of the mortgages owing and an additional amount of money which he will pay in cash.

State officials are seriously concerned that the initial charges against Marlon represent just the tip of the iceberg. If you live in Nevada and believe you have been the victim of real estate or mortgage fraud, please contact the Nevada Secretary of State’s office at (702) 486-2440, or (775) 688-1855.

For more about this case, read the Criminal Complaint against Matthew Marlon.

• 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.

A 60-year-old Washington, DC man has been sentenced to nearly six years in federal prison for engaging in what the FBI says was a scam to obtained money by selling–or offering to sell–homes he did not own. George A. Cowser’s scam netted over $1 million. He was order to pay nearly $560k in criminal penalties and $30k in victim restitution. Following his incarceration, Cowser will have to serve three years of supervised release, during which time he cannot buy, sell or list any property, or open any credit lines or engage in any financial transactions over $5,000.

According to the indictment, between May of 2005 and March of 2006, Cowser devised a scheme to defraud homeowners, buyers, and a mortgage company by making false and fraudulent pretenses, representations, and promises. The purpose of the scam was clear–to sell or attempt to sell real estate in the District of Columbia that Cowser claimed to own or was his to sell by virtue of a particular company’s (Reverse Properties, Inc.) interest in the property.

Neither Cowser nor Reverse Properties, Inc. owned any of the properties, had an independent claim of ownership to the properties, or had any contract to sell the properties on behalf of their true owners. Even though Cowser knew he did not own the properties, he signed sales contracts and closed on the transfer of the properties for significant personal profit.

In one sale, Cowser used a forged deed to claim ownership of a home in the 1300 block of West Virginia Avenue, NE. Amazingly, he succeeded in selling the property to three separate individuals, obtaining money from all three, and actually engaged in two separate closings to two separate people in the same week! Because of the closings, Cowser or his corporate designee received over $540,000, some of which was used to purchase a new car.

Cowser also attempted to fraudulently sell at least two other houses, one in the 1200 block of Orren Street, NE, and the other in the 1300 block of W Street, SE. He did so by signing fraudulent quit claim deeds and recording the quitclaim deeds with the D.C. Recorder of Deeds. He then obtained money from the purported buyers, unbeknownst to the true homeowners. In both cases, the sales did not successfully close. Nevertheless, the FBI says the buyers were not able to recover all of their money and that the true owner of one of the homes had her personal property damaged, including antique furniture, when it was moved out of her house without her knowledge during the attempted sale.

As part of his scam, Cowser claimed that he owned dozens of properties throughout the District of Columbia, even though, in truth, he didn’t own any, and wasn’t even a registered real estate agent. During its investigation, the government discovered that prior to his arrest, Cowser had executed at least 14 forged quit claim deeds to various properties throughout the District of Columbia; each of the forged deeds contained a forged signature of the true owner of the property. Although Cowser did not record these particular deeds, he did use them to defraud other investors out of some serious money.

Christopher Rakel, 29, of St. Louis County, Missouri has been charged in a two-count indictment alleging a far-ranging scheme to defraud banks and mortgage lenders and money laundering. According to the indictment, Rakel, a mortgage broker with Tri-State Mortgage, facilitated the purchase of dozens of fraudulent real estate transactions, primarily in South St. Louis, during 2005 and 2006. Rakel would prepare fraudulent loan applications and other documents to assist buyers in obtaining millions of dollars in financing they could not otherwise obtain. The indictment alleges the mortgage fraud scheme involved dozens of properties, and a number of co-conspirators, including investors, mortgage brokers and appraisers.

Rakel was indicted by a federal grand jury on one felony count of conspiracy to commit bank, wire and mail fraud, and one felony count of money laundering. If convicted, he faces up to 15 years of imprisonment and $500,000 in fines.

Because of the sub-prime lending crisis and the 2008 Presidential Election, Real Estate and Mortgage Fraud has somewhat moved to the front of the mind. Unfortunately, very little continues to be done at an industry level to ensure that insiders and those who work alongside them are educated and trained in Real Estate and Mortgage Fraud detection and prevention.

In an article that is slated to appear in tomorrow’s edition of The Washington Post, nationally-syndicated Real Estate columnist Kenneth R. Harney writes that despite all the doom and gloom coverage from the media, “mortgage money is plentiful” and “the majority of mortgage products remain relatively unaffected by troubles in the subprime segment.” He also goes on to say:

“…FICO credit-score standards generally are higher than a year ago, stated-income mortgages with no verifications are hard to find and major investors are on the prowl for anything hinting at fraud.“

As much as I beat the drum for more funding at the state and Federal levels for Real Estate and Mortgage Fraud enforcement and education, things are getting better on some levels, but not all. Here on the ground, far away from Wall Street and the major investors Harney alludes to… here in the real world–in the Realtors’ office and at the closing table–education and enforcement are nowhere to be found.

Classic example

Earlier this week, the U.S. Attorney for the Southern District of Florida filed conspiracy charges against a licensed mortgage broker, a title attorney, and a former Wachovia Bank loan officer for their role in a $42,000,000 mortgage fraud scam. Richard Crowder, II, Gary Mills, and Karen Sullivan each now face up to thirty years in federal prison, restitution (which, mind you, they’ll never be able to pay in full), and fines of up to $1,000,000.

Crowder is a licensed mortgage broker and the former owner of America’s Best Mortgage Services, located in Coconut Creek, Florida. Mills is a licensed title attorney and the owner of Four Star Title, located in Deerfield Beach, Florida. And Sullivan is a former loan officer for Wachovia Bank.

As a part of their scam, Crowder identified residential properties, including luxury condominiums on Miami’s South Beach, which were available for purchase. He then recruited buyers for the properties by representing to them that he could obtain 100 percent financing. After locating the buyers, Crowder applied for equity lines of credit on their behalf with Wachovia Bank. To get Wachovia to issue the equity lines of credit, Crowder and Mills prepared fraudulent HUD-1 settlement forms that falsely stated that the buyers already owned the properties. The fraudulent HUD-1s were then given to Sullivan, who used them to facilitate the issuance of equity lines of credit from Wachovia.

Simultaneously, or sometimes soon after obtaining the equity lines of credit from Wachovia, Crowder applied for first mortgages on the properties. Not surprising, his applications overstated the buyers’ assets and income, and included false verification of deposit forms prepared by Sullivan. To further induce the lenders to issue loans, Mills prepared documents falsely representing that the buyers were using their own money for the down payments and closing costs. In fact, if you have not figured it out by now, the buyers were using funds from the fraudulently obtained Wachovia equity lines credit or funds provided by Crowder.

What’s going on here?

An attorney, a bank loan officer, and the owner of a mortgage company, all conspiring to rip off nearly $42,000,000, and no one did anything about it until a U.S. Attorney (who received some help from the FBI) stepped in and put a stop to it? What a shame. For years now, Real Estate Fraud Forensics experts have called for funding to support efforts to raise awareness among consumers and industry insiders alike, but all we ever seem to receive are press releases detailing indictments, arrests and a few successful prosecutions.

As I recently shared with an industry colleague, sadly, our federal government appears to believe that only way to stop Real Estate and Mortgage Fraud is through lengthy and time consuming investigations, forced entries, indictments, and convictions. Very little if anything is being done to educate Real Estate industry insiders and to make them truly aware of the significant harm and short-sightedness associated with fraud.

Fifty-six year-old James Stovall of Roswell, Georgia, pleaded guilty yesterday in federal district court to charges of conspiracy to commit bank, mail and wire fraud, bank loan application fraud, money laundering, and wire fraud in connection with a series of Real Estate fraud schemes valued at more than $20,000,000.00.

According to the U.S. Attorney overseeing the case (David Nahmias) and the information presented in court, Stovall is a real estate attorney who participated in a mortgage fraud scheme involving property flips orchestrated by one of his clients, Reti Relocation Services, Inc. From April 2000 to June 2001, Reti flipped some 50 properties in the metro-Atlanta area (more specifically, in the Brookstone subdivision of Acworth, the Windward and Seven Oaks subdivisions in Alpharetta, and the Towne Lake subdivisions in Woodstock).

Reti would acquire properties and on the same day resell them to straw borrowers who were paid for participating in the transactions. Reti paid recruiters for locating straw borrowers, loan officers for preparing and submitting false loan applications and false qualifying documents, and appraisers for preparing fraudulent appraisals with inflated values that were submitted to lenders.

Stovall closed nearly all of the same day fraudulent flips and, in doing so, failed to advise his clients, the lenders, of those flips, prepared false HUD-1 settlement statements that were submitted to the lenders, and moved the proceeds of the scheme through his escrow account and into off-shore bank accounts. The scheme also involved the submission of false qualifying information and documents through the mail and the wire transfer of scheme proceeds. In the overall scheme, financial institutions and lenders were fraudulently induced to make loans totaling over $20 million.

Stovall pleaded guilty to one count of conspiracy to commit bank, mail, and wire fraud, bank loan application fraud, and money laundering, and one count of wire fraud. Upon sentencing, he could receive five years in prison and a fine of up to $1,500,000.00.

Just two weeks after Texas’ Attorney General convened the Texas Residential Mortgage Fraud Task Force–a strategic partnership intended to improve collaboration among residential mortgage regulators and law enforcement officials–some progress has been made. Last Friday, Attorney General Greg Abbott charged Foreclosure Assistance Solutions, LLC (a Clearwater, Florida-based company) with operating an unlawful foreclosure rescue scam that targeted struggling Texas homeowners, and seized of $13,000,000.00 worth of the company’s assets.

As a result, the 408th District Court in Texas issued a temporary restraining order and froze assets belonging to three businessmen who organized the scheme. According to court documents, the defendants fraudulently advertised that they could save homeowners from imminent foreclosures.

Defendants named in the petition:

• Foreclosure Assistance Solutions, LLC of Florida
• Herb Zerden, co-owner of Foreclosure Assistance Solutions
• Adolfo Quintero, co-owner of Foreclosure Assistance Solutions
• J.W.W. Services, Inc. of California
• John Woodruff, owner of J.W.W. Services

According to the State of Texas, the defendants mailed cards and letters to homeowners whose mortgage payments were delinquent and thus facing foreclosure. Their correspondence with homeowners promised established relationships with mortgage companies and banks nationwide. As a result, they claimed, Foreclosure Assistance Solutions could stop the foreclosure process.

Homeowners who contacted Foreclosure Assistance Solutions were urged to sign a $1,200 contract immediately. Under the contract, Foreclosure Assistance Solutions strictly prohibited homeowners from contacting their lenders. After homeowners paid the fee, they rarely heard from the company’s representatives again. When homeowners repeatedly called the company for answers, they were ignored. As a result, many homeowners still lost their homes to foreclosure.

Last Friday’s action prohibits the defendants from making false representations to homeowners. Specifically, Foreclosure Assistance Solutions is prohibited from claiming that a home is at risk without providing proof of that risk. The court also ordered the defendants to stop assisting homeowners without describing the alleged assistance.

The Office of the Attorney General’s petition states that Foreclosure Assistance Solutions deposited over $13 million in Bank of America accounts between 2005 and 2006. Most of those funds came from homeowners who faced foreclosure. That account and others are subject to last Friday’s asset freeze.

The Attorney General is now seeking court-ordered restitution for homeowners who were harmed by the defendants’ acts, as well as civil penalties of up to $20,000 per violation of the Texas Deceptive Trade Practices Act. Additionally, the Attorney General is requesting up to $5,000 per violation for the defendants’ failure to register the business as one that conducts telephone solicitations.

As I mentioned at the outset of this post, the State of Texas is engaged in a variety of efforts involving residential mortgages. Last week, Attorney General Abbott launched the Texas Residential Mortgage Fraud Task Force, a partnership that involves key state regulatory agencies. The task force, established by Texas House Bill 716, is required “to take a proactive stance towards tracking and prosecuting mortgage fraud and the perpetrators of mortgage fraud statewide.”

Earlier this year, the state secured $21 million in restitution for Texas homeowners who were harmed by lending giant Ameriquest Mortgage Co. That case resolved allegations that the company and its affiliates did not clearly disclose certain terms to homeowners, including unpredictable adjustable rates.

Homeowners who believe they have been harmed by Foreclosure Assistance Solutions, LLC, or similar fraudulent businesses in Texas may call the Office of the Attorney General’s toll-free complaint line at (800) 252-8011.

Last Friday, the Los Angeles Times today ran a story entitled “Brokers to Westside elite accused of fraud,” in which staff writers Annette Haddad and Diane Wedner reported the previous day’s indictment of two “high-profile Beverly Hills real estate agents and two licensed appraisers” on multiple charges of conspiracy, bank fraud and loan fraud (another term for mortgage fraud). The quartet stand accused of conspiring to dupe lenders out “more than $40 million in fraudulent loans for homes in some of Southern California’s most expensive neighborhoods.”

Named in the indictment are Joseph Babajian and Kyle Grasso, agents with Prudential California Realty, and appraisers Lila Rizk of Trabuco Canyon and Scott Robinson of Dana Point. Babajian and Grasso were also charged with money laundering.

Although those charged are certainly innocent until proven guilty, this case draws attention to the growing problem of real estate fraud and mortgage fraud and the threat that fraud poses to the real estate industry and homeowners, as well. As I explain in my most recent book, co-author of the recent book Protect Yourself from Real Estate and Mortgage Fraud: Preserving the American Dream of Homeownership:

Most people consider mortgage fraud to be a victimless crime, but that is far from the truth. The way this type of mortgage fraud typic