U.S. Attorney General Eric Holder delivered more resources to fight mortgage fraud in Arizona and across the nation Thursday, saying $8 million will be used to beef up investigation teams this spring.

Holder made the announcement during a break in a daylong meeting of the federal Financial Fraud Enforcement Task Force, which was created to coordinate efforts to battle fraud by local, state and federal law enforcement agencies. The money included $1.7 million for efforts in Arizona, one of the states hardest hit by mortgage crimes.

Task force members were in Phoenix to hear about emerging trends in mortgage fraud from professionals who work in the real estate and mortgage industry, and community organizers and lawyers who help homeowners struggling to keep their homes. Members include senior Justice Department prosecutors, FBI officials and officials with the Department of Housing and Urban Development.

Advanced technologies, new communication tools and top federal law enforcement officials are focused on preventing, prosecuting and punishing mortgage fraud, Holder said.

“We will use information gained here in Phoenix — and in other epicenters of mortgage fraud — to focus and strengthen our law enforcement activities,” Holder said. “Mortgage fraud schemes must be stopped in their tracks, and those willing to exploit our national financial crisis for personal gain will be brought to justice.”

Real estate professionals who briefed task force members outlined new and emerging fraud trends, including the “flopping” of short-sale properties.

That’s a technique where someone gets two price opinions from brokers, giving the low one to the bank arranging a short sale of a home nearing foreclosure and the high one to a potential buyer, said Holly Eslinger, president of the Arizona Association of Realtors.

Such techniques can net an unscrupulous buyer tens of thousands of dollars while shorting the bank and homeowner and taking advantage of the subsequent buyer, she said.

A real estate professional for more than 30 years, Eslinger said what’s happening now isn’t new or unique. She said similar scams cropped up in the late 1980s, the last time the nation saw a huge price collapse and wave of foreclosures.

“When people get in trouble there is always someone to take advantage of them,” Eslinger said.

Other professionals urged increased scrutiny of valuation reports done by non-appraisers and loan modification schemes that prey on the most vulnerable homeowners.

Ben Wagner, a task force member who is the U.S. attorney for central California, said different parts of the country are seeing different kinds of fraud.

“It’s kind of a moving target depending on the market,” he said. “Obviously this crisis is not something that we are going to be able to prosecute our way out of, but it is one part of the solution.”

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.

As reported by Chad Halcom in Crain’s Detroit Business yesterday, four Oakland County business owners are appearing in court to answer charges of foreclosure rescue fraud, though just one so far faces possible jail time in the case, the Michigan Attorney General’s office announced today.

The AG’s office brought a total of 18 charges against Madison Heights-based Save My Home USA Co. Inc., Birmingham-based Help4homeowners, Livonia-based Michigan Economic Reinstatement Program L.L.C. and Payment Doctors of Livonia. Also charged personally was MERP’s owner, Mark Aloe.

Matt Frendewey, communications advisor for the AG’s office, said owners or principals of the four companies will appear in court today to answer the criminal charges — but only Aloe faced charges personally because he is the only company owner the state could tie directly to criminal acts.

Jason McCallum is owner of Save My Home in Madison Heights and Payment Doctor is owned by Katherine Small.

The charges stem from an undercover operation by the Attorney General’s office, and include 17 counts of violating Michigan’s Credit Services Act. An additional count of unauthorized use of the Great Seal of the State of Michigan was lodged against MERP and Aloe only.

“Preying on residents in the process of losing their homes is not only shameful, it’s illegal,” Attorney General Mike Cox said in a statement. “Today we are sending a message that mortgage rescue fraud will not be tolerated.”

Charges included:

• Four MCSA violations against Save My Home. State officials allege the company took $595 to $2,000 from customers and advised some not to communicate with their primary mortgage lender.

• Three MCSA violations against Help4homeowners. State officials claim the company charged before services, falsely claimed a 97 percent success rate and one employee admitted having no loan training.

• Two MCSA violations against Payment Doctors, for false claims and payment before services.

• Four MCSA violations against Michigan Economic Reinstatement Program L.L.C. and Aloe, for charging $360 to $3,000 before completion of services, false claims and business cards with the state seal even though MERP was not an agency of the State of Michigan.

Cox also sent out inquiry letters to 17 other out-of-state businesses, including five in California and four in Florida, warning that their practices may violate state law and seeking more information.

Disbarred Lawyer, Real Estate Investor Convicted of Massive Fraud Schemes

NORFOLK, VA—Troy A. Titus, 43, of Virginia Beach, Virginia, was convicted by a Norfolk federal jury today of operating multiple fraud schemes to steal and misappropriate more than $7 million from clients and investors.

Neil H. MacBride, United States Attorney for the Eastern District of Virginia, and A.J. Turner, Special Agent in Charge of the Norfolk Field Office of the Federal Bureau of Investigation, made the announcement after the jury issued its verdict following four days of deliberations.

“Today, a jury found Troy Titus stole millions from people who trusted him to protect their investments,” U.S. Attorney MacBride said. “Today’s conviction is a testament to the ability of our law enforcement partners to tackle complicated investment and mortgage fraud cases. Especially in the light of the recent economic crisis, we are even more determined to work together to aggressively fight financial fraud in this district.”

“This case represents a strong investigative and prosecutive effort to protect our citizens and the financial services industry, and by extension, the larger economy,” said Special Agent in Charge Turner. “To that end, we will continue to target those who, motivated by greed, prey on honest investors and damage our country’s financial confidence.”

On March 25, 2009, a grand jury charged Titus in a superseding indictment with 49 counts of fraud-related charges. After a four-week trial, a jury at the Norfolk federal courthouse found Titus guilty of 33 charges, and he faces up to 590 years in prison when he is sentenced on April 15, 2010 by United States District Judge Raymond A. Jackson.

According to court documents and evidence at trial, Titus was a lawyer practicing in Virginia who also conducted investment seminars focusing primarily on real estate and estate planning. Titus approached clients or seminar participants and induced them into investing money with him to purchase and rehabilitate real estate, promising to return the money at a later date with a high rate of interest. However, Titus obtained many of the real properties involved through fraud or transferring the properties into trusts controlled by him. Instead of using the funds as promised, Titus directed the investment income toward paying business or personal expenses, backfill investment losses, and at times to make token payments or repay previous investors.

In addition, Titus misappropriated funds given to him by elderly or incapacitated clients who provided him with income intended to be held in trust and took steps to conceal those uses from those who inquired about the management of the trust. Trial evidence showed that Titus failed to make payments for the trust clients’ basic medical and housing needs. Titus engaged in a similar scheme to defraud involving real estate closing funds he held in trust.

Court records and evidence at trial indicate that the loss amount attributed to Titus’s activities totaled more than $7 million and affected approximately 30 victims. The Virginia State Bar revoked his law license in 2005.

This case was investigated by the Norfolk Field Office of the FBI, with assistance from the Virginia Attorney General’s Office, the State Corporation Commission, and the Virginia State Bar. The case was prosecuted by Assistant United States Attorneys Melissa O’Boyle and Michael Moore.

Michigan Attorney General Mike Cox today announced that his office has filed charges against seven individuals at the forefront of a major mortgage fraud operation in Southeast Michigan.  The charges resulted from a year-long investigation by the Michigan Mortgage Fraud Task Force and included efforts from the Michigan State Police, U.S. Secret Service, and the Attorney General’s office. 

“Mortgage fraud is a serious threat to Michigan’s economy, killing jobs and hurting residents’ pocketbooks,” said Cox.  “By committing wide scale fraud, these defendants have contributed to the declining home market that is ruining family finances.”

Arraigned today is Eddie Zaben, 39, of Dearborn.  Zaben is charged with one count of continuing criminal enterprise (racketeering), a 20-year felony, and eight counts of false pretenses over $20,000, each a 10-year felony.  The joint investigation revealed Zaben used his business, MYA’s Investment Group, LLC, to perpetrate large scale mortgage fraud.  The scheme involved the financing of at least eight Wayne County homes in 2006 and 2007. 

For each property, a straw buyer was recruited and asked to sign the closing papers.  Zaben presented fraudulent mortgage applications on their behalf containing falsified employment and income information.  Records indicate that some or all of the proceeds disbursed at the closing went to Zaben.  As a result of the scheme, each of the properties has been foreclosed or is in the process of foreclosure.

Six others were charged earlier for crimes including ID theft, false pretenses, and uttering and publishing: Dagoberto Reyes, 53 of Detroit, Evelyn Santana, 53 of Union City NJ, Mohamed Beydoun, 27 of Detroit, Memoud Makky, 29 of Dearborn, Ali Hassan Haidous, 25 of Dearborn and Balil Hashem, 26 of Dearborn. 

Zaben was arraigned this morning in the 19th District Court in Dearborn before Judge Hultgren.  The court imposed a $20,000 personal recognizance bond and Zaben is next due in court for a preliminary examination scheduled for July 31.   Other arrests could come shortly.

“I would like to thank the Michigan State Police and the Secret Service for their hard work over a significant period of time to help build this serious case,” said Cox. 

Attorney General Mike Cox has made prosecuting mortgage fraud a priority for his office.  In 2008, Cox created a mortgage fraud unit and teamed up with the Michigan State Police and other law enforcement agencies to tackle the problem.  In the last six months alone, Cox has charged 12 people with mortgage fraud-related offenses.  Cox’s office has also held seven mortgage foreclosure forums to help families stay in their homes during these difficult times.

Back in December of 2005 and again in January of 2006, I mailed a letter to each state’s Attorney General requesting that they looking to the dangers associated with companies that generate fake pay stubs for ‘novelty’ purposes. Back then, now defunct sites like the one calling itself Novelty Paycheck Stubs, advertised that for just $90, anyone could order “novelty” paycheck stubs that could be used to “fool anyone” with falsified salary information. The companies that produced the stubs would even include your social security number and home address just to make them look official. Sadly, many of the fake stubs were used by Real Estate industry insiders, con artists, straw buyers, and fraudsters to induce leading financial institutions into make home loans that otherwise would not have been made.

Call them what you want, fake pay stubs, fake payroll stubs, fake check stubs, sample paycheck stubs, or even novelty paychecks… I think these things are bad, bad news, plain and simple!

What do you think? Do sites like this one I just found–FAKEPAYCHECKSTUBS.COM–really serving the greater good or are they nothing more than wolves in sheep’s clothing? You already know I feel. Click on the “Comments” link below to share your own thoughts.

And the hits, they just keep coming–especially from our state attorneys general. Connecticut’s Attorney General, Richard Blumenthal, has announced a lawsuit against several Real Estate industry insiders, exposing along the way an extensive statewide predatory lending scheme that devastated dozens of homeowners.

Charged in the scheme are:

• Royal Financial Services, of Trumbull, CT
• First Source Mortgage Solutions, Inc. of Branford, CT
• Elizabeth Athan Real Estate, of Shelton, CT
• J.G. Property Management & Investment, of New London, CT
• Brian Guimond, d/b/a Cutting Edge Contracting of Norwich, CT
• Jose Guzman & Mauricio Lancia, RE Agents at Elizabeth Athan Real Estate, of Shelton, CT

The State of Connecticut alleges that through a multi-layered scheme, the defendants mislead consumers and mortgage lenders into property purchases that financially destroyed dozens of homebuyers, while benefiting only the defendants, their associates and family members.

Blumenthal’s investigation has uncovered consumers who sought the American Dream but bought a financial nightmare. His lawsuit charges that homebuyers were victimized by a vast scheme with multiple layers of lies and co-conspirators. His office alleges that a predatory lending scheme enticed consumers with false promises of profits from investment rental properties and nonexistent management services for tax and mortgage payments and other expenses.

Homebuyers were purposefully lured to buy properties whose values were inflated, using mortgages with concealed costs that they could never realistically afford, because their incomes and assets were falsified with bogus bank and employer records. They were discouraged from seeking outside assistance from outside home inspectors and lawyers. These practices, like so many we report about here on FlippingFrenzy.com, preyed on the most vulnerable citizens–many of them, according to Blumenthal, first-time unsophisticated low-income homebuyers who spoke little or no English.

Blumenthal’s legal action seeks money back to consumers and severe penalties for practices that undermine an entire industry, endangering not only consumers directly involved, but the economic welfare of the northeast region.

Details of the scheme include:

• J.G. Management and Guzman, who were not licensed by the State of Connecticut to engage in Real Estate transactions, and Elizabeth Athan Real Estate, solicited low-income consumers, including renters receiving federal housing assistance, to buy through them multiple or multi-unit residential properties. They promised these people, among other things, favorable mortgage terms, cash-back-at-closing, and diminished monthly housing expenses.
• J. G. Management and Guzman also pledged to provide property management services for rental properties that the consumers purchased through them–services including maintenance, finding renters, collecting rent and making mortgage and tax payments.
• Once someone agreed to work with J.G. Management, Guzman, and Elizabeth Athan Real Estate to purchase properties, the defendants referred consumers to Royal Financial or First Source to act as the mortgage broker.
• J.G. Management, Guzman and the Elizabeth Athan agency would then select the property or properties for purchase from a stock of properties owned by the defendants, their family members or associates. The properties were sold to consumers at inflated prices–often tens of thousands of dollars more than what they were purchased for months earlier. J.G. Management, Guzman, and Elizabeth Athan Real Estate substantiated the inflated prices to consumers and lenders through bogus and artificially inflated appraisals.
• When consumers inquired about hiring a home inspector, the defendants often convinced them it was unnecessary or not in their best interest to hire one.
• In order to qualify the buyers for mortgages, Royal Financial and First Source falsified information on mortgage loan applications, including details about the buyers’ income and assets. Cutting Edge and another home improvement company involved in the scheme would falsify consumer employment and wage records, indicating the buyers’ earned money from Cutting Edge and others as employees.
• Royal Financial and First Source also submitted bogus forms to lenders verifying bank account balances and rental income to artificially inflate consumer income and assets.
• Once the buyers were approved for mortgages, the J.G. Management, Guzman, and Elizabeth Athan Real Estate arranged closings presided over by attorneys who the defendants knew would not alert the buyers or lenders to the significance or irregularities of the transactions.
• Many of the buyers were non-English speaking and first-time buyers so Guzman translated and guided them through closings. In reality–go figure–he misled them about the details and nature of the documents that they signed. Royal Financial and First Source then proceeded to blindsid the buyers on closing day with previously undisclosed closing costs.
• Because of these practices, the buyers misunderstood their financing terms and, in some cases, did not even realize they had purchased more than one property until after the closings.

It took nearly 13 months and a change in administration, but Florida’s Attorney General’s Office has finally issued an official consumer advisory warning Floridians of common mortgage fraud scams. Back in January of 2006–as evidenced by this blog entry, I sent a letter to each and every states’ Attorney General warning of the growing problems associated with real estate and mortgage fraud. Last Friday, Florida’s recently elected Attorney General, Bill McCollum, revealed that mortgage fraud-related scams are included among the top ten categories of complaints received by his office over the last 12 months, and encouraged residents to be aware of scams and fraud aimed at Florida homeowners.

There are several variations of home equity scams which homeowners everywhere should be aware. Equity Stripping occurs when a lender encourages a prospective homeowner to manipulate their loan application in order to qualify for a greater loan amount. Loan Flipping involves lenders who repeatedly encourage homeowners to refinance their loans, which may require them to borrow more money and as a result, accumulate higher fees. Other scams include baiting and switching, where the lender offers one set of terms prior to the loan application and then pressures consumers to agree to a different set of terms after the application is signed. Deceptive Loan Servicing, another common complaint, happens when lenders do not provide their clients with accurate or complete account statements and payoff figures.

Consumers shopping for a mortgage loan should take into consideration high interest rates and additional costs which could place undue financial burdens. Always shop around before choosing a lender and do not sign a loan agreement if the terms are not the same as those you were given when you applied. You should also always ask for explanations of any dollar amount, term or condition you don’t fully understand, and if you’re using a broker, research the brokers’ credentials to ensure they are properly licensed and certified before entering into a contract.

In addition to tips, strategies, and warnings that can be found throughout FlippingFrenzy.com, Florida’s Attorney General’s Office provides the following tips to consider when applying for home equity loans:

• Keep careful records of any amount paid
• Lenders should never pressure applicants
• Read all items on the contract or application carefully
• Never sign an application or contract with blank spaces
• Ask specifically if credit insurance is required as a condition of the loan
• Check contractors’ references for any construction and get more than one estimate

Florida’s Home Ownership and Protection Act of 1994 addresses certain unfair and deceptive practices in home equity lending. The law establishes requirements for certain loans with high rates or high fees. Additionally, the act prevents balloon payments, which are large lump-sum payments scheduled at the end of a series of considerably smaller periodic payments and negative amortization which arises when the mortgage payment is smaller than the interest due and causes the loan balance to increase rather than decrease. The law also prevents default rates that are higher than pre-default rates and most prepayment penalties.

My apologies for the length of today’s post, but it’s a good one. A few weeks ago I sent the following letter to each and every states’ Attorney General:

———————————————————–
Dear Attorney General,

Ralph R. Roberts
———————————————————–

As of this morning, I’ve only heard back from five (5) of the Attorney Generals we wrote to. Here’s a summary of what each has had to say:

From the office of the Attorney General for the District of Columbia (Washington, DC):

Dear Mr. Roberts,

Your email dated January 11, 2006 to the Mayor and Attorney General was forwarded to the Department of Insurance, Securities and Banking for a response. My name is Stephen M. Perry and I am the Associate Commissioner of the Enforcement and Investigation Bureau, Department of Insurance, Securities and Banking (DISB).

My Bureau has responsibility, along with the DISB Banking Bureau, to be vigilant for real estate and mortgage frauds in the District of Columbia. We actively investigate any reports of these types of fraud. I am familiar with the Ralph Roberts web site “Flipping Frenzy.com” and your “On Demand Video web cast”. We will continue to check your web site for the very informative ” Mortgage Fraud Alerts” and act on any that refer to the District of Columbia.

We sincerely appreciate your interest in fighting fraud and the service you provide state regulators by educating the public on real estate and mortgage fraud.

Sincerely,

Stephen M. Perry, Director-Enforcement & Investigation Bureau
DC Department of Insurance, Securities and Banking (DISB)

From Arizona Attorney General Terry Goodard’s office:

The Consumer Protection and Advocacy Section of our office would like to thank you for the information you sent. Viligant citizens like you are the main source of information for our consumer fraud work. The time and effort it takes for consumers to pass on information to us does not go unnoticed.

To keep track of this practice, we will keep your correspondence in our records. The information you provided will help us monitor questionable business practices and determine priorities in our law enforcement efforts and legislative recommendations.

If we can assist you in the future, please do not hesitate to contact our office. Again, thank you for your good citizenship.

Sincerely,

Pamela Crabtree
Legal Assistant

From Georgia Attorney General Thurbert Baker’s office:

The Attorney General has asked me to respond to your recent letter. Please be aware that our office serves as legal counsel for state government. Therefore, we will be forwarding your information to the Federal trade Commission (”FTC”). The FTC is vested with the authority to investigate matters like the one that concerns you. You can address any future complaints to the FTC by filing an online complaint to www.ftc.gov/ftc/complaint.htm . I have included their address for your convenience.

Federal trade Commission
Consumer Response Center
600 Pennsylvania Avenue, N.W.
Washington, DC 20580

Think you again for bringing this matter to our attention. I regret we were unable to assist you, but trust you will find this responsive to your request.

Sincerely,

Jeffrey W. Stump
Assistant Attorney General

From Ohio Attorney General Jim Petro’s office:

Thank you for your recent letter regarding [sic: Credit Launchers]. Attorney General Petro always appreciates receiving information of this type from concerned citizens like you.

Letters such as yours are the source of much of our information and often the first indication of a problem that may warrant investigation. The information you have provided will be recorded in our complaint retention system that enables us to identify patterns of questionable business practices that may violate Ohio’s consumer laws.

With the assistance of citizens such as you, we can continue working to eliminate deceptive and unconscionable practices in the Ohio marketplace.

Again, thank you for taking the time to bring this issue to our attention. Please feel free to contact our office in the future with any of your consumer-related concerns.

Very truly yours,

Jonathan L. Ward
Consumer Protection Specialist

Jonathan from the Ohio AG’s office has since followed up via e-mail with the following:

We have received your complaint regarding [sic: Credit Launchers]. Unfortunately, you failed to provide me with Credit Launchers address. Before your complaint can be assigned to a Complaint Specialist for mediation, this information must be provided. Please send this information to me as soon as possible so I may process your complaint in an expedient manner.

Attorney General Petro appreciates the opportunity to serve you.

Very truly yours,

Jonathan L. Ward
Consumer Protection Specialist

Ohio’s attention and responsiveness is in stark contrast to North Dakota’s. See for yourself:

I am responding on behalf of the Attorney General to your email. The Attorney General and his staff are prohibited by law from providing legal advice or legal assistance to members of the public or private businesses - we may only serve as legal advisors to state agencies and officials, state’s attorneys, and certain city officials.

This office does not have authority to enact new laws or change existing laws; the next legislative session begins January 1, 2007. Thank you for contacting us with your concerns; we will keep this information on file for future reference.

Liz Brocker
Executive Assistant/PIO
ND Office of Attorney General

Here’s my reply to Liz in the North Dakota AG’s office:

Dear Ms. Brocker,

Thank you for your e-mail correspondence dated January 11, 2006 (referenced below). Given the tenor of your reply, I have no option but to believe one of two things:

1. You did not read my original message in its entirety; or
2. You misunderstood the message in its entirely.

To recap, I wrote to your office on January 10, 2006 (see attached), to share information–not to, as your response alluded to, request “legal advice” or “legal assistance.” In short, I wrote to “inform” the North Dakota Attorney General of fraudulent real estate-related activities taking place in North Dakota.

In closing, I would sincerely appreciate a more appropriate response to my correspondence than the one you sent (which, quite frankly, felt like an automated response rather than one which took into account the facts and data I so freely and sincerely shared).

Respectfully,

Ralph R. Roberts

My reply brought the following one back from Liz in the ND AG’s office:

The “legal advice” language is disclaimer language that is included in all our email responses. I assure you I read your entire email, as did my supervisor when she approved my response.

Our consumer protection division has not received any consumer complaints relating to the companies referenced in your email, nor are we aware of any such operations in North Dakota at this time. You may be interested in reviewing North Dakota’s consumer fraud statutes, online at: http://www.legis.nd.gov/cencode/t51c15.pdf, and information on our website at: http://www.ag.state.nd.us/CPAT/ConsumerInfo.htm, and http://www.ag.state.nd.us/CPAT/ScamsShamsFlimFlams.pdf.

If the alleged activity is currently occurring outside North Dakota’s borders, you may find it more helpful to contact the US Attorney’s office or Attorney General’s office having jurisdiction. As previously indicated, we will keep your original email on file for future reference.

Liz Brocker
Executive Assistant/PIO
Office of Attorney General

We’ve since been able to uncover Credit Launcher attempting to operate in North Dakota, so we’ll be contacting the ND AG again!

If anyone would like to join us in our letter writing campaign, simply leave a comment in the ‘Comment’ section below. Together we CAN put an end to Real Estate-related fraud!