After a three-day trial, a jury in federal district court returned a guilty verdict yesterday against Emanuel County, Georgia attorney John R. Thompson on mortgage fraud charges. The case was tried before District Court Judge B. Avant Edenfield at the U.S. Courthouse in Statesboro, Georgia.

United States Attorney Edward J. Tarver stated, “Mortgage fraud is a cancer in our society which must be cured. In this case, a lender relied upon this defendant as their closing attorney and agent and he was in a position of trust. For his criminal violation of that trust for profit, he will soon face a prison sentence.”

According to the evidence presented at trial, Thompson, along with his coconspirators, Brian and Natasha Steptoe, sold a piece of property located in Swainsboro, Georgia, in August of 2007 to what is known in real estate terms as a “straw purchaser.” Thompson and the Steptoes submitted a falsified loan application and supporting documents Bank of America in order to obtain a loan for the purchaser of the property. Based on the lies contained in the loan application and other documents, Bank of America approved a mortgage loan for over $400,000. Thompson and his coconspirators pocketed large sums of money for themselves as a result of their scheme. Soon after the property was sold, it went into foreclosure and remains on the market to this day.

Evidence presented at trial also established that Thompson and his coconspirators committed additional acts of mortgage fraud from October 2006 through May 2008, which included defrauding people out of their money while conducting real estate closings.

U.S. Attorney Tarver recognized the extensive efforts of the Federal Bureau of Investigation in bringing this criminal activity to light. He praised particularly the efforts of Statesboro F.B.I. Special Agent Cornelius Harris, who investigated this matter.

The case was prosecuted by Assistant United States Attorneys Natalie Lee and Frederick Kramer. For additional information, please contact First Assistant United States Attorney James D. Durham at (912) 201-2547.

Earlier today at the federal courthouse in Brooklyn, New York, an indictment was unsealed charging 10 defendants, including three attorneys and two licensed real estate brokers, with conspiracy, bank fraud, and wire fraud arising out of their mortgage fraud scheme. The indictment alleges that the defendants fraudulently obtained over $10 million in loans from American Home Mortgage, Fremont Bank, BNC Mortgage (a subsidiary of Lehman Brothers), and WMC Mortgage (a subsidiary of GE Money Bank).

The indictment was announced by Benton J. Campbell, United States Attorney for the Eastern District of New York, Joseph M. Demarest, Jr., Assistant Director-in-Charge of the Federal Bureau of Investigation, New York Field Office, and Jon T. Rymer, Inspector General, Federal Deposit Insurance Corporation. The defendants’ initial appearances and arraignments are scheduled later today before United States Magistrate Judge Roanne L. Mann, at the U.S. Courthouse, 225 Cadman Plaza East, Brooklyn, New York. The case has been assigned to United States District Judge I. Leo Glasser.

The indictment charges Akin Ayorinde, Hervin Henry, Anthony Onua, Umana Oton, Max Shimba, John Star, Anthony Suazo, Marisol Vasquez, and two others with conspiracy to commit bank and wire fraud. In addition, Ayorinde, Henry, Onua, Oton, Shimba, Star, Suazo, and two others are charged with bank fraud, and Ayorinde, Henry, Onua, Shimba, and two others are charged with wire fraud.1

As detailed in the indictment, from January 2005 to May 2007, Ayorinde, Onua, and Star purchased properties located in Brooklyn and Queens. Ayorinde and Onua are attorneys licensed to practice in the State of New York, and Star is a real estate broker licensed in the State of New York. As part of the scheme, the defendants allegedly submitted false loan applications to create the appearance that the properties were being purchased by creditworthy individuals, when, in fact, the properties were purchased at inflated prices by straw buyers who were controlled by Ayorinde, Onua, and Star. Many of these straw buyers were recruited by Henry, a real estate broker licensed in the State of New York. The indictment charges that Suazo furnished fraudulent appraisals to support the inflated purchase prices of the properties, and Onua, Shimba, and Marisol Vasquez provided fraudulent title abstract reports and other documentation that falsely enhanced the purported value of the properties. These false documents induced lenders to issue loans which were far in excess of the true value of the properties.

The defendants were assisted in the fraud by a third attorney, Oton, who is also licensed to practice in the State of New York. Ayorinde, Onua, and Oton served as attorneys at the closings and allegedly were aware that there were fraudulent misrepresentations made to lenders in connection with the closings.

“This prosecution is another example of the results of the department’s ongoing efforts to investigate and prosecute allegations that licensed professionals abused their positions to perpetrate mortgage fraud,” stated United States Attorney Campbell. “We believe that professionals who serve as gatekeepers against fraud owe a duty to their clients and their oaths and should not compromise that duty by promoting their own selfish interests.”

FBI Assistant Director-in-Charge Demarest stated, “As attorneys and real estate brokers, these men know the ins and outs of dealing in real estate. We should expect them to be honest and serve their clients, but in this case they allegedly did just the opposite. Their activity hurts the trust that everyone should be entitled to when dealing with their attorneys and brokers. The FBI is dedicated to tracking down those that work to abuse the system and steal money while causing further damage to the real estate market.”

FDIC Inspector General Rymer stated, “The Federal Deposit Insurance Corporation Office of Inspector General is committed to its partnerships with others in the law enforcement community as we address mortgage fraud cases throughout the country. The American people need to be assured that their government is working to ensure integrity in the financial services and housing industries and that if the individuals indicted today have undermined that integrity, they will be held accountable.”

The maximum term of imprisonment for any defendant convicted of conspiracy to commit bank and wire fraud is 30 years. The indictment also seeks forfeiture of the proceeds of the defendants’ bank and wire fraud activities, including a criminal forfeiture money judgment and money traceable to the offenses.

The government’s case is being prosecuted by Assistant United States Attorneys Jonathan E. Green and Daniel A. Spector.

PREET BHARARA, the United States Attorney for the Southern District of New York, and JOSEPH M. DEMAREST, JR., the Assistant Director-in-Charge of the New York Office of the Federal Bureau of Investigation (“FBI”), announced the unsealing of an Indictment yesterday charging LOUIS CHERICO, a lawyer who practiced in New York City and Westchester County, with participating in a wide-ranging scheme to commit mortgage fraud, obstruction of justice, and money laundering.

According to the Indictment filed in Manhattan federal court:

From July through December of 2002, CHERICO participated in a fraudulent real estate investment scheme which had, as its primary objective, the purchase of multi-million-dollar residential properties in various communities in Westchester County, New York, including Purchase, Eastchester, and Rye, with loans obtained through the submission of false and misleading information to banks and other lenders. Many of the loans were equal to or in excess of one hundred percent of a property’s actual sale price, so that the defendant and his co-conspirators did not have to put any of their own money at risk in the transaction.

CHERICO served as the attorney for various co-conspirators in negotiating and closing the fraudulent purchases that were part of the scheme. CHERICO and his co-conspirators submitted to numerous federally-insured banks various documents, including loan applications, contracts of sale, deeds, real estate transfer documents, and title reports. Those documents 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, as well as the borrower’s intent to reside in the property as a primary residence, when, in fact, the properties were typically purchased for investment purposes. As a result of the scheme to defraud, CHERICO and his co-conspirators 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.

The Indictment also charges CHERICO with laundering the illegal proceeds obtained from the sale of one of the properties used in the mortgage fraud scheme by transferring the proceeds from a bank account controlled by CHERICO to an account that was controlled by one of his co-conspirators, DOMINICK DeVITO. The transaction was designed to conceal and disguise the nature, location, source, ownership, and control of the illegal proceeds.

The Indictment further charges CHERICO with obstruction of justice, and conspiracy to obstruct justice, in connection with the 2003 sentencing of DOMINICK DeVITO, following DeVITO’s conviction in United States v. Pasquale Parello, et al.,(01 Cr. 1120) in United States District Court for the Southern District of New York on charges of racketeering and mortgage fraud. Specifically, CHERICO assisted DeVITO in concealing profits that DeVITO earned from the sale of a property located in Purchase, New York, and in submitting an affidavit containing false and misleading information about the sale to the United States Probation Office.

CHERICO, 69, of Eastchester, New York, was arrested this morning and was presented and arraigned this afernoon in Manhattan federal court. The case has been assigned to United States District Judge COLLEEN McMAHON.

If convicted, CHERICO faces a maximum sentence of 30 years in prison on each of the six counts of mortgage fraud, 20 years in prison on the money laundering count, 10 years in prison on the obstruction count, five years in prison on the conspiracy to obstruct justice, and a fine of the greater of $1,000,000, or twice the gross gain or loss resulting from the crime.

Over one hundred California Lawyers were charged with loan modification fraud in 2009.

“More than 1,200 complaints against California lawyers were filed by the beginning of November regarding loan modification activity,” said Suzan Anderson, supervising trial counsel for the California State Bar loan modification task force. That is up from four filed in December 2008.

In April, California became the first state to form a “Bar Task Force” to investigate attorneys who deceive homeowners, collect advance fees, and even forge a judge’s signature while delivering little to distressed mortgage holders.

Officials announced Nov. 10, that five more California attorneys have disciplinary charges pending against them alleging that they engaged in loan modification scams.  This brings to 14 the number of lawyers the state bar’s loan modification task force has charged, forced to resign, or put on inactive status.

“That’s all we do. I have four other attorneys and eight investigators,” said Anderson. The task force is currently looking at 250 attorneys. (More than 220,000 attorneys are licensed by the California Bar Association.)  Each loan task force investigator oversees about 135 cases. 

In 2009, almost 20,000 client files have been removed from the offices of lawyers whose loan modification practices have been shut down or abandoned, the bar said. Investigations are up 69 percent over 2008.

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.

Image via WikipediaA New Jersey attorney who ran his law practice from the basement of his home, has pleaded guilty to stealing approximately $4,000,000.00 entrusted to him for 20 different real estate closings. Michael Rumore, 50, of Lyndhurst, NJ, gambled away the stolen funds at a variety of Atlantic City, NJ, casinos, including the Trump Taj Mahal Casino Resort.

According to Deborah Gramiccioni, director of the State of New Jersey’s Division of Criminal Justice, Rumore pleaded guilty to first-degree money laundering and second-degree theft by failure to make required disposition of property received. Under the terms of his plea agreement, the State of New Jersey will recommend Michael “Mike” Rumore be sentenced to 15 years in state prison. In addition, he must sign a consent judgment to pay full restitution to the victims ($6,200,00.00), which are five title insurance companies (First American Title Insurance Co., New Jersey Title Insurance Co., Fidelity National Title Insurance Co., Stewart Title Insurance Co., and Lawyers Title Insurance Co.).

Michael Rumore’s sentencing hearing is schedule for April 17, 2009. He is currently free on $100,000 bail.

According to the plea agreement, Michael Rumore was hired as an attorney and settlement agent for numerous real estate purchasers. Between April 2007 and August 2008, he received approximately $4 million into his attorney trust account from various mortgage companies. He had a duty to disburse the funds for closings and use them to pay balances on existing mortgages and other associated costs and fees. In pleading guilty, Rumore admitted that he instead transferred the funds into his personal and business accounts and used them to gamble at casinos in Atlantic City, primarily on slot machines.

A licensed attorney since 1984, Michael Rumore was disbarred in mid-September of last year.

Mary Reagan, 41, of Alpharetta, Georgia, was sentenced yesterday morning to serve almost five years in federal prison for her role in a multi-million dollar mortgage fraud scheme. Reagan pleaded guilty in July of this year. shortly before she was to go to trial, and agreed to assist the government in the prosecution of the scheme.

According to United States Attorney for the Northern District of Georgia and information presented in court:

• From mid-2004 through June 2006, Mary Reagan was an attorney, doing business as The Reagan Law Group, closing millions of dollars of fraudulently inflated mortgage loans being provided to unqualified straw buyers.
• Reagan was the attorney responsible for representing the mortgage lenders at the closing table. When the loans closed, Reagan instead transferred millions of dollars of the inflated loan proceeds to co-conspirators (Adriene Newby-Allen, Brinson Allen, and James Howard Bailey, III) by falsifying closing documents, such as the HUD-1 settlement statements, and concealing from the lenders the true recipients and purposes of payments made in connection with the closing.
• Reagan also concealed from lenders that the unqualified straw buyers did not make sizeable down payments required as a condition of closing. On one property, Reagan falsified title work and other documents to conceal from a lender that the property was already encumbered by two mortgages at an inflated price, ensuring that the lender’s security interest in the property was worthless.

From U.S. Attorney David E. Nahmias:

As is unfortunately true of many mortgage fraud schemes that we have seen, this case involves an attorney who should have known and done better. This prosecution serves as another warning to closing attorneys and others in positions of trust in the real estate industry. If you become involved in mortgage fraud, you will not just lose your license, you may end up in a federal prison.”

Mary Reagan was sentenced to four years, nine months in federal prison, to be followed by five years of supervised release, and was ordered to pay full restitution of more than $4,000,000.

A Missouri attorney has been sentenced in federal court for defrauding a North Kansas City, MO, bank in a series of loans totaling $866,810.00. Dawn Harpster, 38, of Kidder, MO, was sentenced by U.S. Chief District Judge Fernando J. Gaitan, Jr., on Monday morning to four years and two months in federal prison without the possibility of parole. The court also ordered Harpster to pay $866,810.00 in restitution.

On Nov. 28, 2007, Harpster pleaded guilty to five counts of bank fraud. Harpster, formerly doing business as Northwest Missouri Title Co., LLC, in Gallatin, MO, admitted that she defrauded Norbank (which was just bought by CCB Financial Corp. for an undisclosed amount) by obtaining five loans totaling $866,810.00 between March 2006 and December 2006.

For each of those loans, Dawn Harpster falsely claimed to have contracts with the Church of Jesus Christ of Latter-Day Saints in Salt Lake City, Utah, under which the LDS Church would purchase Daviess County, MO, properties from her. If Norbank would loan her the funds to purchase the properties, Harpster told the bank, then she would sell those properties to the LDS Church one year later at a price of at least $1,300 per acre above her original purchase price, or above the average appraised value of the properties.Image via Wikipedia

For each of the five loans, Harpster submitted false and fraudulent contracts in connection with applications for loans.

Harpster also told Norbank that Northwest Missouri Title would handle the closing and would obtain title insurance for her purchase of the properties and for the sale of the properties to the LDS Church. Harpster falsely represented to Norbank that she had obtained a title commitment and title insurance for each of the properties, when in fact she had not done so and the title insurance documents she provided to Norbank were false and fraudulent. Harpster falsely represented to Norbank that she had recorded deeds of trust from Northwest Missouri Title to Norbank, thereby securing the liens on the properties in the amounts of the loans.

When the bank disbursed the loans in the form of cashier’s checks, Harpster used the proceeds for personal expenditures and not for the purposes represented. Dawn Harpster’s license to practice law has been suspended due to matters unrelated to this felony conviction; the status of her license will be reviewed by the appropriate authorities as a result of today’s sentencing.

This case, which was investigated by the FBI, was prosecuted by Assistant U.S. Attorney Linda Parker Marshall.

When it comes to fighting real estate and mortgage fraud, the State of Maryland is putting its money where its mouth is.

The Governor’s Office for Crime Control and Prevention has awarded a $165,500 grant to Prince George’s County to be used to pay for a full-time prosecutor and an investigator to work exclusively on mortgage fraud-associated cases.

Statistically speaking, according to the FBI, Maryland’s mortgage fraud problems are epic. The Old Line State consistently ranks among the top 10 states based on active real estate fraud investigations, and currently ranks in the top 20 for foreclosures. Prince George’s County, which is located immediately north, east, and south of Washington, D.C., leads the the state in both categories.

To address these problems, a full-time Assistant State’s Attorney has already been hired to prosecute additional mortgage fraud cases in the County. Assistant State’s Attorney April Richardson will be able to devote 100% of her time and energy to going after fraudulent mortgage lenders, foreclosure scam artists and others who violate Maryland’s laws involving property, homes and real estate.

In addition to the Richardson hiring, an investigator has been brought on board as well. Sergeant Ted Jones is tasked with tracking down fraudsters through forensic accounting, on location investigations, and good old fashioned gumshoe detective work.

Flipping Frenzy tip’s it hat to Maryland General Assembly Delegate Doyle Niemann (he introduced the legislation that led to the grant) and Maryland Governor Martin O’Malley (he signed the measure into law).

A 45-year-old Wilton, Connecticut, real estate attorney has pleaded guilty to one count of conspiracy to commit bank fraud, one count of fraud in loan and credit applications, and one count of mail fraud in connection with an $8 million real estate fraud scam through which he and others defrauded federally insured financial institutions, property owners, and others who sought to refinance their mortgages. Joseph Kriz, who recently forfeited his license to practice law, is now free on bond pending a sentencing hearing on Thursday, October 23.

According to documents filed with the U.S. District Court in Bridgeport, Connecticut, and statements made in court, Joseph Kriz was both a practicing real estate attorney in Westport, Connecticut, and a licensed mortgage broker, as well as a principal of Aspetuck Building & Development, LLC. In pleading guilty, Kriz admitted that, between January 2005 and March 2008, he and his co-conspirators altered and created false documents to obtain financing for properties which far exceeded the real value underlying their mortgages. In one instance, Kriz and his co-conspirators commissioned a false appraisal of a property that boosted a home’s square footage, thereby inappropriately increaing the value of a property and the loan.

Joseph Kriz also admitted that he converted funds from the sale and refinancing of his clients’ homes for his own personal use rather than pay off the mortgages on the properties as he had promised his clients.

During many of the property refinancings he handled, Kriz mailed to a title insurance company–First American Title Insurance Co.–a title policy representing that a new mortgage was the primary lien on a property. However, Kriz converted those new mortgages to fund his and his co-conspirators’ development projects, and the existing mortgages remained the primary lien on the properties.

As a result of this fraudulent conduct, Kriz defrauded banks and his clients of more than $8 million. He now faces a up to 65 years in federal prison and fines totaling nearly $16 million.

Three real estate industry insiders have been sentenced in Florida for their roles in a humongous real estate fraud conspiracy. Richard Crowder, II, a former licensed mortgage broker and owner of America’s Best Mortgage Services, along with former title attorney Gary Mills (who owned Four Star Title) and a former Wachovia Bank loan officer (Karen Sullivan), all received stiff sentences on Wednesday from U.S. District Judge Jose Martinez. Crowder received nine (9) years’, while Mill and Sullivan received three years’ and eight months and four years’ and one month imprisonment, respectively. All three are scheduled to appear again in court on May 29 for a hearing to determine the amount of restitution they must pay to the victims in this case.

To carry out their scheme, mortgage broker Crowder identified residential properties, including luxury condominiums on South Beach in Miami, Florida, that were available for purchase. He then recruited buyers for the properties, representing that he could obtain 100% financing for their purchase. After finding a purchaser, Crowder would apply for equity lines of credit on their behalf with Wachovia Bank. To induce Wachovia to issue the equity lines of credit, Crowder and title attorney Mills prepared fraudulent HUD-1 settlement forms stating the buyers already owned the properties and also significantly understated the amount of the first mortgages on the properties. The fraudulent HUD-1 settlement forms were then given to Wachovia Bank loan officer Sullivan, who used the forms to facilitate the issuance of equity lines of credit from the bank.

Simultaneously, or shortly after obtaining the equity lines of credit from Wachovia, Crowder applied for the first mortgages on the properties. These applications overstated the buyers’ assets and income, and also included false verification of deposit forms prepared by Wachovia Bank loan officer Karen Sullivan. To further induce the lenders to issue the loans, title attorney Gary Mills prepared documents falsely representing that the buyers were using their own money for the down payments and closing costs. In fact, the buyers were using funds from the fraudulently obtained Wachovia equity lines credit or funds provided by mortgage broker Richard Crowder.

At the end of the day, Crowder, Mills and Sullivan caused the fraudulent purchase of 17 different luxury condominiums at The Continuum on South Beach and at The Point of Aventura using more than $37,000,000 in fraudulently obtained mortgage loans.

Today’s New York Times features a lengthy article (more than 3,000 words) asserting that as the number of foreclosures grows, a small group of law firms and default servicing companies, who represent mortgage lenders, have been raking in mounting profits. These firms, according to the Times, assess legal fees and a host of other charges, calculate what borrowers’ owe and draw up the documents required to remove them from their homes. The only problem is, in a growing number of cases, the firms involved have not been following the the law.

In many cases, paralegals and “nonlawyer employees” do all the work, which only increases the chance of mistakes being made, and that’s just the tip of the iceberg, according to The New York Times’ investigation.

Of particular interest to FlippingFrenzy.com readers (courtesy of The New York Times)…

1. Law firms, paid by the number of motions filed in foreclosure cases, have sometimes issued a flurry of claims without regard for the requirements of bankruptcy law, several judges say.
2. Court documents say that some of the largest firms in the industry have repeatedly submitted erroneous affidavits when moving to seize homes and levied improper fees that make it harder for homeowners to get back on track with payments. Consumer lawyers call these operations “foreclosure mills.”
3. John and Robin Atchley of Waleska, Ga., have experienced dubious foreclosure practices at first hand. Twice during a four-month period in 2006, the Atchleys were almost forced from their home when Countrywide Home Loans, part of Countrywide Financial, and the law firm representing it said they were delinquent on their mortgage. Countrywide’s lawyers withdrew their motions to seize the Atchleys’ home only after the couple proved them wrong in court.
4. Joel B. Rosenthal, a United States bankruptcy judge in the Western District of Massachusetts, wrote in a case last year involving Wells Fargo Bank that rising foreclosures were resulting in greater numbers of lenders that “in their rush to foreclose, haphazardly fail to comply with even the most basic legal requirements of the bankruptcy system.“
5. Last month, almost 225,000 properties in the U.S. were in some stage of foreclosure, up nearly 60 percent from the period a year earlier.
6. Fidelity National Default Solutions, a unit of Fidelity National Information Services of Jacksonville, Fla., is one of the biggest foreclosure service companies. It assists 19 of the top 25 residential mortgage servicers and 14 of the top 25 subprime loan servicers. Citing “accelerating demand” for foreclosure services last year, Fidelity generated operating income of $443 million in its lender processing unit, a 13.3% increase over 2006. By contrast, the increase from 2005 to 2006 was just 1 percent.
7. A recent analysis of 1,700-plus foreclosures across the country by Katherine M. Porter, associate professor of law at the University of Iowa, showed that questionable fees were added to borrowers’ bills in almost half the loans.
8. A generation ago, home foreclosures were a local business, lawyers say. If a borrower got into trouble, the lender who made the loan was often a nearby bank that held on to the mortgage. That bank would hire a local lawyer to try to work with the borrower; foreclosure proceedings were a last resort. Now foreclosures are farmed out to third-party processors who hire local counsel to litigate. Lenders negotiate flat-fee arrangements to try to keep legal bills down.
9. The September 2006 issue of The Summit, an in-house promotional publication of Fidelity National Foreclosure Solutions, another unit of Fidelity, trumpeted the efficiency of its 18-member “document execution team.” Set up “like a production line,” the publication said, the team executes 1,000 documents a day, on average.
10. The Texas law firm of Barrett Burke has come under intense scrutiny by bankruptcy judges. Overseeing a case last year involving James Patrick Allen, a homeowner in Victoria, TX, a judge examined the firm’s conduct in eight other foreclosure cases and found problems in all of them. In five of the matters, documents show, the firm used inaccurate information about defaults or failed to attach proper documentation when it moved to seize borrowers’ homes. The judge imposed $75,000 in sanctions against Barrett Burke for a pattern of errors in the Allen case.

Raymond Costanzo, Jr., 63, of Clayton, Georgia, was sentenced last Friday to three years, five months in prison, followed by four years of supervised release, and was ordered to pay $7,843,184 in restitution related to charges of bank fraud and conspiracy in a multi-million dollar mortgage fraud scheme.

From 2004 through 2006, Costanzo participated in closing millions of dollars in fraudulently inflated mortgage loans for unqualified straw borrowers. These straw borrowers were paid as much as $600,000 from fraudulently obtained loan proceeds through shell companies. Costanzo himself obtained mortgage loans totaling over $1.5 million by providing lenders with false qualifying information, and he also falsified down payments. Costanzo received $250,000 in scheme proceeds from this transaction, and arranged for disbursements of fraudulently obtained loan proceeds to co-conspirators.

Such blatant fraud by a licensed professional and real estate market ‘gatekeeper’ cannot be tolerated, which is exactly what U.S. Attorney David Nahmias said about the Costanzo case. “Closing attorneys are the lenders’ eyes and ears at the closing table and must guard against mortgage fraud,” Nahmias said.

The integrity of closing attorneys is essential in the effort to prevent real estate and mortgage fraud. Attorneys who choose to be part of the fraudulent transactions rather than part of the solution should understand that their future may be in a federal prison, right alongside Raymond Costanzo, Jr.

• 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.

Following up on a story FlippingFrenzy.com first report on September 25th, a Marietta, Georgia closing attorney who admitted that he was a member of a mortgage fraud ring that federal prosecutors say included more than a dozen people, is now cooperating with the government in a trial that began earlier week in U.S. District Court. From Law.com:

Following up on a post from September 25, on Tuesday, federal prosecutors identified real estate closing attorney James F. Stovall III — formerly a partner in the now-defunct law firm, King, Taylor & Stovall — as the lawyer who finalized as many as 50 fraudulent home sales. The sales were part of a scheme that bilked banks out of at least $20 million in 2000 and 2001, prosecutors said.

Stovall is the most recent Georgia attorney caught using his law practice to perpetuate mortgage fraud, a crime that has cost the country’s banks hundreds of millions of dollars. As a warning to other real estate lawyers, U.S. District Judge Thomas W. Thrash Jr. in 2005 sentenced disbarred DeKalb County attorney Chalana C. McFarland to 30 years in prison for her role in a mortgage fraud scheme that cost lenders more than $11.5 million — the toughest sentence to date handed down in Georgia on dozens of mortgage fraud defendants who have faced federal prosecution here since 2000.

This year, two other Georgia real estate closing attorneys pleaded guilty to charges associated with yet another, wide-ranging mortgage fraud scheme in which they played roles similar to Stovall’s — but on hundreds, rather than dozens, of properties.

In August, Thrash sentenced one of those two lawyers, J. Christopher Halcomb of Cumming, to 37 months in prison and ordered him to pay more than $15 million in restitution. He has also been disbarred. The other lawyer, Andrew E. Wolf, is still awaiting sentencing.

Click here for more information on Stovall and the mess he helped to create.

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.

According to the Chicago Tribune, a former real estate lawyer who fabricated evidence to obstruct a federal investigation, was sentenced last Friday to three years of probation and ordered to pay $21,000 in fines and restitution. The Tribune reports that 53-year-old Nicholas Black lost his law license in 2002 after he admitted creating two backdated notes to help two of his clients conceal a fraudulent 1996 sale of a popular restaurant and bar. Black admitted creating the notes in 2000 at his clients’ request.

Click here for the Chicago Tribune’s coverage.

The headline for today’s post is not a misprint. Just when you thought you’ve seen it all, a story like this one comes out and knocks you off your feet. According to the Pittsburgh Tribune-Review, a Fayette County (PA) Assistant District Attorney was fired earlier this week after a title insurance company filed a lawsuit alleging he that the ADA forged closing documents bearing the title company’s name on real estate transactions through the ADA’s private law office. From today’s Pittsburgh Tribune-Review:

First American Title Insurance Co. filed the complaint Monday against Mark F. Morrison and Deborah DeFranks Morrison in Fayette County Common Pleas Court. In one instance, First American alleges Morrison and his wife, who is a secretary at his law office in Hopwood, South Union Township, were unable to account for money received from a mortgage company to pay off a mortgage for a client’s Hopwood residence at the time of the Aug. 17 closing. In lieu of satisfying the outstanding mortgage to Vanderbilt Mortgage, Morrison’s law office continued paying the monthly amount due, the lawsuit claims. As of Feb. 7, the outstanding mortgage was $46,615, according to the lawsuit…

During an interview with the Tribune-Review on Tuesday night, Morrison denied that he or his wife forged any documents and said the mortgage has been paid off. “I feel in the end, it’s going to be shown that I haven’t done anything wrong,” Morrison said. “The main point is the money was always there. There’s no money missing.”

Morrison has practiced law in Fayette County for more than two decades, serving as a defense attorney, solicitor for county departments and, most recently, as a prosecutor. District Attorney Nancy D. Vernon hired Morrison in August to fill a new position, administrative assistant district attorney, which the county salary board set at $34,963 annually…

Vernon said yesterday that Morrison had been very helpful in prosecuting some high-profile criminal defendants. However, some of the allegations could constitute criminal charges, leaving her with no alternative but to fire Morrison, she said. “I terminated him to avoid the appearance of impropriety in this office,” Vernon said. “I felt that I had no recourse.” If any criminal allegations were to arise, Vernon said she would refer the matter to the state Attorney General’s Office.

In its lawsuit, First American says it believes Morrison and DeFranks Morrison forged documents in the form of closing protection letters, title commitment letters and title insurance policies. In turn, those documents were issued to buyers and lenders in real estate transactions in which the defendants supplied the closing services, according to attorney Stacey F. Vernallis, of Pittsburgh.

Click here for the rest of the article.

For me, there are two ways I can approach this one. On the one hand, I can sound the alarm that even the prosecutors are dirty. That, of course, is not true, so I’m not even going to go there. On the other hand, I can hope and pray that this is all a big misunderstanding and that Morrison won’t be found guilty of misappropriation of funds and/or conspiracy to commit fraud.

The last thing we need right now in the fight against real estate and mortgage fraud is a case involving someone who is supposed to be prosecuting the bad guys. I mean really, can you image what an uphill battle we’d have on our hands if state officials were in on the action? It’s too difficult to even conceive, so I’m going with the ‘other hand.’ Let’s all hope this one is just a big misunderstanding!

2006-01-19 20:46

It is sometimes alarming to discover who may be in on fraudulent activity. Just take this story for instance.

Feds unveil probe into local law firm: Charge filed against former town attorney; partners plead guilty

By Michael Valkys-The Poughkeepsie Journal

WHITE PLAINS (NY) — Former Town of Poughkeepsie Town Attorney Frank Redl, already suspended from practicing law for his role in a 1990s town corruption scandal, was arrested early this morning by federal authorities and accused of stealing more than $150,000 from his former private firm’s attorney trust account.

Three other former members of the now defunct firm, its accountant and a local banker have already pleaded guilty to various charges following a two-year probe by federal authorities that uncovered illegal acts dating back eight years.

Click here to read the entire article.