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Noticed this earlier today on Sacramento, California’s News10.com…

The managing broker behind a failed mortgage operation posted a rambling essay on the company’s Web site describing his years of fraudulent activity and asking for forgiveness.

The seven-page essay by Christopher Warren, 27, replaced the home page of Triduanum Financial which abruptly closed its doors last month.

Warren said his career in the mortgage industry began when he was still a teenager and took a job with the now-defunct Ameriquest in 2001. Warren claimed he manipulated loan applications to secure financing and eventually hacked into the Ameriquest computer system to approve loans himself with no oversight.

Warren said he left Ameriquest three years later with the personal information of 680,000 Ameriquest customers to start his own mortgage banking operation in Sacramento called WTL Financial.

“At the ripe old age of 22, a fraudster trained by the best corporate environment for fraud, I built a company modeled after the movie Boiler Room,” Warren wrote.

Warren said WTL Financial faked credit scores and W-2s to peddle loans to investors who failed to scrutinize the files.

“I made over $2.25 million, all of which was spent on 24 cars, five houses and drugs,” he wrote.

Warren said WTL Financial originated $810 million in questionable mortgages before it collapsed in 2007.

Warren then moved on to work as a vice president for Roseville-based Loomis Wealth Solutions, which he described as a real estate Ponzi scheme.

Federal authorities raided the offices of Loomis Wealth Solutions last August and searched the Granite Bay home of founder Lawrence Leland Loomis. Among items they were looking for were “any documents pertaining to Christopher Warren.”

In his essay, Warren said he had been interviewed by the FBI and expected to be indicted for his role in operations at Loomis Wealth Solutions.

Public records show Warren struggled with other personal problems in 2008. In May he lost a $729,000 Folsom home to foreclosure and in November he finished three years of probation for narcotics possession.

State records show Triduanum Financial was incorporated last July. Warren’s essay did not address Triduanum Financial’s business practices, but an earlier Web posting said the company had exceeded its line of credit by $20 million and suggested homebuyers find another lender.

Warren did not immediately return phone calls or email from News10 seeking comment.

In his essay, Warren said he helped ruin the nation’s economy and hopes his experiences can help reform the mortgage and banking systems.

“Almost a billion dollars of toxic assets came from me,” he wrote. “Looking back at the life I have led, I beg a higher power for forgiveness.”

Read Christopher Jared Warren’s entire confessional essay here.

The promoter of an $18 million real estate investment scheme that targeted African-American individuals in Southern California and other states was sentenced today to 151 months in federal prison. Jeanetta M. Standefor, a 40-year-old resident of Altadena, California, was sentenced in Los Angeles federal court by United States District Judge Percy Anderson. In addition to the prison term, Judge Anderson ordered Standefor to pay $8,688,924.

Through her Pasadena-based company, Accelerated Funding Group (AFG), Standefor operated a bogus “foreclosure reinstatement” program that attracted more than 600 investors between 2005 and 2007. The scheme purported to use investors’ funds to cure defaults on distressed properties about to be put into foreclosure. While soliciting investor money and promising returns of up to 50 percent in time periods as short as one month, Standefor and AFG were instead operating a Ponzi scheme that used money from new investors to pay previous investors.

Jeanetta Standefor pleaded guilty in September 2008 to two counts of mail fraud.

Standefor’s case involved what is commonly called “affinity fraud,” that is, a fraud directed at a particular community. Jeanetta Standefor and AFG targeted investors in the African-American community through a now-defunct Web site, word of mouth, real estate seminars and testimonials by other seemingly successful African-American investors.

Standefor claimed investor funds would be used to assist owners of distressed properties. Written materials put out by AFG touted its foreclosure reinstatement program as “virtually risk-free” and promised investors that their principal would be safely returned within 72 hours at their request. However, Standefor and AFG did not use investor funds to cure defaults on any residential properties, and investors’ requests for return of their investments were ignored.

Jeanetta Standefor used more than $1.9 million of investor funds for personal expenses, such as her lavish wedding and honeymoon, cars, jewelry, tickets to entertainment events and home renovations.

To update a story we first told you about on October 13, 2008, Derek Davis — aka Terry McCullough, 62, of Sacramento, California — pled guilty last week to mail fraud and structuring currency transactions with a financial institution to evade Currency Transaction Reports (CTR) in connection with his role in a widespread mortgage fraud scheme involving cash-back-at-closing. Davis’ misdeeds cost lenders more than $2,500,000.

According to Assistant United States Attorneys Courtney Linn and Phil Ferrari, Derek Davis admitted that between March 2005 and December 2006, he participated in a mortgage fraud scheme in which several individuals purchased approximately 20 residential real properties using a form of 100 percent financing called “80/20.”

In the transactions, Derek Davis caused material misstatements to be made about the purchasers’ monthly income and intent to occupy the property. He further admitted that in the transactions an amount approximately equal to the difference between the purchase price and the true market price of the properties was credited as cash-back-at-closing of each escrow to the bank account of a Nevada Corporation he controlled called Calorneva Land Company.

Not surprising, Davis concealed the cash-back-at-closing credits from lenders. Some of the proceeds from the cash back facet were diverted to accounts held in the name of third parties, but in fact controlled by Derek Davis, and used for a variety of purposes, including making mortgage payments on several of the properties. In total, approximately $1,400,000 was transferred to Calorneva Land Company from escrow companies in connection with the approximately 20 real property transactions.

Cash-back-at-closing schemes prey upon lenders willing to finance as much as 100 percent of the purchase price of real property.

Derek Davis is scheduled to be sentenced on February 27, 2009. Charges remain pending against a second defendant in this case, Dino Rosetti, who is next scheduled to appear in court this Friday, January 9, 2009.

Reported incidents of real estate and mortgage fraud in the U.S. increased by 45% on fewer loan applications in the second quarter of 2008 from a year ago, according to a report released today by the Mortgage Asset Research Institute (MARI). The MARI Quarterly Fraud Report is based on data submitted by MARI subscribers on loans originated in the second quarter of this year that have since been classified as fraudulent.

Key findings from the report include:

• Fraud most often occurs at the beginning of the loan process. More than 65% of fraud incidents are attributed to “General Application Misrepresentation,” a trend that has continued over the past two quarters. General Application Misrepresentation occurs when information such as a name, occupancy or assets is incorrectly stated during the application process.
• Income misrepresentation on loan applications rose 5% during the second quarter of 2008 versus the first quarter of 2008.
• Asset and debt misrepresentation on the loan application rose 7% during the second quarter of 2008 versus the first quarter of 2008.
• Tax return and financial statement misrepresentation rose 4% during the second quarter of 2008 versus the first quarter of 2008.
• Verification of deposit and bank statement misrepresentation rose 3% during the second quarter of 2008 versus the first quarter of 2008.
• Appraisal misrepresentation climbed to 21% for an overall increase of 6% during the second quarter of 2008 versus the first quarter of 2008.
• Florida, California, and Illinois compose the top three states for reported incidents of fraud. Florida saw a 5% increase in General Application Misrepresentation in the second quarter, while California saw a 20% decrease. Illinois recorded the highest percentages of income and employment misrepresentation on loan applications.

As was the case for the first quarter of 2008, Florida tops the list with the most reported loans with misrepresentation in the second quarter. Twenty-one percent (21%) of reports for loans originated during this time period were for properties in Florida. California ranks second, with 15% of loans reported; and Illinois rounds out the top three with 12% of all loans reported.

California REALTOR® Jose Oliva Sentenced for Real Estate Fraud: A real estate agent from Fontana, Calif., who was arrested in July of this year on felony charges connected to real estate fraud, has finally been sentenced… to six (6) months in jail followed by three (3) years probation.

John Matouk pleads guilty in Michigan of quitclaim deed fraud: According to the Wayne County Prosecutor’s Office, in February 2004, Matouk, who owned half a property in the 1100 block of Telegraph in Dearborn, forged a quitclaim deed from an elderly couple that transferred the entire property to his company, LM Investments of Dearborn LLC. Before his sentencing last week, Matouk was ordered to pay $26,000 in real estate taxes, the outstanding balance on a $650,000 loan, and court and probation costs. Because of his plea, Matouk received a sentence of two (2) years’ probation.

Rockland County, New York, task force targets mortgage fraud: Rockland County, NY, officials are trying to fight the worsening mortgage fraud problem by forming a Real Estate Fraud Investigation Task Force. The task force, a joint effort of Rockland District Attorney, County Clerk and County Sheriff, will investigate and prosecute cases involving recorded real estate documents, with an emphasis on instances in which the victim’s home is at risk of foreclosure.

U.S. Attorney charges Missouri mortgage brokers with cash-back-at-closing fraud: John F. Wood, United States Attorney for the Western District of Missouri, announced that several mortgage brokers are among six Missouri residents indicted by a federal grand jury last week for participating in several related mortgage fraud schemes. Charles M. Davis, 34, of Rogersville, Mo., Cheryl Joan Kassebaum, 42, and her husband, Scott Allen Kassebaum, 42, both of Ozark, Mo., Randall Lee Hall, 59, and Shanda Lynn Moore, 44, both of Springfield, Mo., and Steven Ray Spencer, 47, of Carl Junction, Mo., were charged in a 55-count indictment returned by a federal grand jury in Springfield. Davis, a former mortgage broker, was the owner of Master Marketing Consultants. The Kassebaums, former mortgage brokers, were owners of Metro Consulting Group. Hall is a former mortgage broker.

Westport, Connecticut, mortgage broker Fred Stevens pleads guilty to mortgage fraud: Stevens, 53, of Easton, Conn., is charged with submitting fraudulent mortgage applications with IndyMac Bank and other financial institutions resulting in losses of over $1,000,000.

Florida real estate appraiser Juan Gonzalez guilty of mortgage fraud: Gonzalez fraudulently obtained loans on more than 40 properties, victimizing numerous lenders and grossing over $5,000,000 in the process. As a result, the 51-year-old will spend the next 30 years in federal prison and pay a $1 million fine.

The U.S. Attorney for the Southern District of California, Karen Hewitt, announced that former mortgage loan offers Rafael Santiago and Angel Armendariz pled guilty today in federal court in San Diego to conspiring to commit wire fraud in connection with a $16 Million mortgage fraud scam. Three other loan officers — Abner Betech, Said Betech, and Aviva Betech — already pleded guilty to conspiring to commit wire fraud.

According to court documents, Rafael Santiago, Abner Betech, Said Betech, Aviva Betech, and Angel Armendariz admitted to committing mortgage fraud. In 2005, Abner and Said Betech and others founded Creative Financial Solutions, Inc. (“CFS”), a mortgage brokering company formerly located at 707 Broadway Avenue, Suite 1720, San Diego. CFS was in the business of sending loan application packages and other documents to lenders for review and funding. CFS did not fund loans but received commissions from the lenders when the loans closed. All five also often received kickback payments when loans closed.

Rafael Santiago, Abner Betech, Said Betech, Aviva Betech, and Angel Armendariz admitted in court that CFS obtained mortgage loans for unqualified borrowers by, among other things, submitting false loan applications, false bank statements, and false income documentation.

In total, the victim lenders funded more than $16 million in loans on properties that have since foreclosed or are in the stream of foreclosure.

Sentencing for Rafael Santiago, Abner Betech, Said Betech, and Aviva Betech is scheduled for April 13, 2009, and sentencing for Angel Armendariz is scheduled for April 20, 2009. A sixth defendant, Lucette Montane, remains at large and is actively being sought by federal authorities.

Bloomberg.com is reporting that more than 10,000 Californians who defaulted on home loans may now face prosecution for providing false information when applying for their mortgages. If all goes according to plan, the U.S. Attorney for the Northern District of California — Joseph Russoniello — could begin filing charges as early as December, according to Bloomberg. Russoniello (pictured left) told Bloomberg he is investigating homeowners who walked away from their loans and abandoned properties, not those who are keeping up with their monthly payments.

From Bloomberg:

U.S. Prosecutor Targets Cheating Borrowers for Mortgage Fraud

By Karen Gullo and Peter Blumberg

Oct. 31 (Bloomberg) — Thousands of Californians who defaulted on their home loans may face prosecution for providing false information to qualify for the mortgages, San Francisco U.S. Attorney Joseph Russoniello said.

Russoniello, 67, leads a task force of 20 federal, state and local law-enforcement officials that is looking into as many as 11,000 cases of mortgage fraud in the San Francisco Bay area. Borrowers who overstated income or concealed debt when they took out loans are partly to blame for the housing crisis, he said.

“We need them to take responsibility for their actions,” Russoniello said in an Oct. 29 interview. “Everyone would love to find some bull that was responsible, but there is literally no one that has clean hands.”

Russoniello expects to start filing criminal charges in early December. Accused cheaters may avoid prison time by agreeing to pay a fine and restitution equal to the difference between the loan amount and the value of the home assumed by the lender, he said. If brokers or community groups helped borrowers commit fraud, they also may be prosecuted, Russoniello said.

The U.S. attorney said he is targeting borrowers who “walked away” from their loans and abandoned properties, not those who are keeping up with their monthly payments.

Priority List

“We’re suggesting to people that if they stay in their homes, they will drop very low on the priority list,” he said.

Some community activists said Russoniello should be focusing on banks and mortgage brokers, not borrowers.

“It’s picking on the weakest and least consequential because you can put away a victory,” said Robert Gnaizda, general counsel of the Greenlining Institute, a Berkeley, California-based advocacy group for low-income and minority communities. “I don’t think he’s up to the task of addressing the kind of fraud that Wall Street has committed.”

Russoniello said the task force, which includes agents from the Federal Bureau of Investigation and the Internal Revenue Service, is scrutinizing potential fraud by lenders, brokers and real-estate appraisers, as well as borrowers.

New York-based investment banks already face probes by U.S. attorneys in Manhattan, Brooklyn and Newark, New Jersey. In Southern California, federal investigators in Los Angeles are reviewing the practices of lenders including Countrywide Financial Corp., which was the largest U.S. mortgage lender before its takeover by Bank of America Corp.

Bottom Steps

“If there are 10 steps in the process, we’re looking at the four bottom steps,” Russoniello said.

In some cases, Russoniello said, evidence of a borrower’s cheating may come from lenders who discovered false information in paperwork while processing defaults. Particular lenders or brokers may be in trouble if multiple borrowers describe a pattern of suspicious activity, he said.

California accounted for 210,845 foreclosure filings, or 27 percent of the U.S. total, from July through September, according to data compiled by Irvine, California-based RealtyTrac.

Russoniello’s task force, formed in May, focuses on coastal Northern California, including foreclosure hot spots such as Monterey County, about 80 miles (129 kilometers) south of San Francisco, and Alameda and Contra Costa counties, both on the east side of San Francisco Bay.

There are more than 20,000 bank-owned properties in those three counties, according to RealtyTrac.

Russoniello, who held the same job under President Ronald Reagan, was brought back last year by President George W. Bush to replace Kevin Ryan, one of nine federal prosecutors ousted by the White House.

He may not have long to implement his plan following next week’s election. U.S. attorneys serve at the pleasure of the president, and a new administration may replace him soon after taking office in January.

The U.S. Attorney for the Eastern District of California announced last Friday morning that a federal grand jury returned an indictment charging Derek Davis — aka Terry McCullough, 62 — of Sacramento, California, and Dino Rosetti, 39 (pictured left), of Roseville, California, with mail fraud and making false statements in loan documents. Davis was separately charged with attempting to cause a financial institution to fail to file a currency transaction report, and Rosetti was separately charged with engaging in a monetary transaction in criminally derived property in an amount greater than $10,000.

Dino Rosetti (pictured above) was arrested last Friday morning by federal agents. Derek Davis was previously arrested on a criminal complaint and is in custody. Both were arraigned on the indictment at 2:00 p.m. Friday afternoon before United States Magistrate Judge Kimberly J. Mueller in Sacramento.

The Davis/Rosetti indictment is the product of an extensive investigation conducted by the FBI, the IRS-Criminal Investigation, the California Department of Real Estate, and the El Dorado County District Attorney’s Office.

According to Assistant United States Attorney Courtney J. Linn, who is prosecuting the case, the indictment charges that from June 2005 through December 2006, Derek Davis and Dino Rosetti engaged in a scheme to defraud mortgage lenders in connection with residential real estate purchases in Sacramento, El Dorado, and Placer Counties.

Davis recruited various individuals, including straw and nominal purchasers, to purchase 16 properties. He orchestrated the transactions and Rosetti, through his company 1st Option Mortgage, acted as the mortgage broker.

The indictment charges that the transactions involved fraudulent or false representations to obtain 100% mortgage financing, including misstatements about the purchasers’ monthly income, intent to occupy the property, and existing liabilities.

In addition, the indictment charges that in each transaction, the purchase price was above the true market price of the property. An amount approximately equal to the difference between the purchase price and the true market price was then diverted as “cash back” at the close of each escrow to the bank account of a Nevada Corporation called Calorneva Land Company.

As part of the scheme, Derek Davis caused the cash to be concealed from the mortgage lenders. The indictment charges that Davis in fact exercised control over the Calorneva Land Company bank account and used the fraudulently obtained funds for various purposes, including extensive cash withdrawals.

From U.S. Attorney McGregor Scott:

“Over the course of numerous investigations we have seen how fraud-for-profit mortgage schemes took root in our Sacramento-area housing market, particularly in this 2005 to 2006 time frame. There were undoubtedly many catalysts to the lending crisis that now grips our national economy. Mortgage fraud was one of them. As this investigation illustrates, the Department of Justice is committed to prosecuting those responsible for mortgage fraud, and to working with federal, state, and county law enforcement agencies to investigate and prosecute those involved in these activities.”

The maximum penalty for mail fraud is 30 years in prison if the fraud affects a financial institution, and a fine of up to $250,000, or twice the value of the gain or loss, whichever is greater. The maximum penalty for making false statements in loan applications is 30 years in prison and a fine of $1,000,000. The maximum penalty for engaging in monetary transactions involving more than $10,000 in crime proceeds is 10 years in prison and a fine of $250,000, and the maximum penalty for money laundering is 20 years in prison and a fine of up to $500,000 or twice the value of the money laundered, which ever is greater. The maximum penalty for causing or attempting to cause a financial institution to fail to file a currency transaction report is ten years in prison and a fine of $500,000.

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.

While members of Congress, President Bush, and the Treasury Department attempt to work out (pun intended) the $700 billion Troubled Asset Relief Program, real estate and mortgage fraud continues to be the fastest-growing white collar crime in American:

WaMu loaned millions to California home flippers convicted in fraud scheme: Records show WaMu, America’s largest savings and loan, financed at least 43 mortgages worth $24.5 million on properties bought and sold by members of the Soni family since 2007. Of the 22 homes sold in that period, at least six have become problems for WaMu: Four were foreclosed, one received a notice of default and another was listed for sale at a $260,000 loss. Total value of WaMu’s mortgages on the troubled properties: $2.7 million.

Weld County’s ‘Most Wanted’ fugitive — a developer — busted in Mexico: Weld County’s “Most Wanted” fugitive sits in a California jail today after a dogged investigation led to his arrest in Mexico. Mark Strodtman, a Greeley developer, was indicted March 25 by Weld County grand jury on 23 felonies, including racketeering. Strodtman, 51, and two others are accused in a mortgage fraud scheme that left many Greeley area families in foreclosure, reduced property values of neighboring homes and defrauded lenders, according to the Weld County District Attorney’s Office.

Brothers admit to million-dollar mortgage fraud: Federal prosecutors say two Virginia brothers have pleaded guilty in a million-dollar mortgage fraud scheme. Twenty-nine-year-old Mohammed Rababeh of Vienna and 31-year-old Ahmed Rababeh of Haymarket pleaded guilty Wednesday to conspiring to commit bank fraud.

Former mortgage loan officer pleads guilty to fraud scheme: A 25-year-old woman pleaded guilty in federal court yesterday to participating in a mortgage fraud scheme and faces up to five years in prison and $250,000 in fines. Paula Galacgac admitted that, while working as a loan officer for Mortgage Ability, LLC she recruited two “straw buyers” for properties on O’ahu and assisted them in fraudulently applying for mortgage loans worth more than $400,000. Other members alleged to be part of the fraud conspiracy were named in a separate criminal indictment returned by a federal grand jury May 30.

Officials say Florida man is part of mortgage scheme: A Seffner man was arrested Wednesday in connection with a multimillion-dollar mortgage fraud scheme that victimized dozens of people since 2004, the Florida Department of Law Enforcement said. Michael Fetterhoff, 37, of 205 Kingsway Road, was charged with grand theft of more than $100,000. Fetterhoff worked in sales for Advanced Mortgage Solutions, a mortgage broker company associated with other home improvement businesses that persuaded mostly minority customers in poor areas of Florida to take out home loans, FDLE spokeswoman Trena Reddick said.

Kansas City mortgage fraud ringleader sentenced to 13 years: A Kansas City businessman was sentenced to 13 years in prison for a $17 million mortgage fraud scheme that included buying a home owned by former Jackson County Executive Katheryn Shields and her husband. Raymond Zwego Jr. will also pay nearly $5.6 million in restitution and serve three of those years in prison for a probation violation.

AARP Calls For Help For Victims of Mortgage Fraud: Florida is one of only three states that doesn’t offer financial protection to victims of fraudulent loans. We’re also first in the nation for mortgage fraud. The Florida Association of Mortgage Brokers and AARP are calling on lawmakers to revive the Mortgage Brokerage Guaranty Fund. The fund was quietly cut in the 90’s. It would pay some victims or mortgage fraud 20,000 dollars for their losses. AARP Spokesman Dave Bruns said if the program hadn’t been canceled, today the state would have 24 (m) million dollars to help victims.

Delray Beach mortgage agent guilty of fraud: A Delray Beach mortgage broker pleaded guilty Friday to participating in a wire fraud scheme to misappropriate more than $1.2 million in client funds supposedly held in escrow for real estate transactions and related expenses. John Mohan, 38, faces up to 20 years in prison when he is sentenced Dec. 19 in federal court. According to the U.S. Attorney’s Office, Mohan worked as a mortgage broker and closing agent. He collected money from buyers and lenders and represented to the parties that the funds were being held in escrow to be disbursed for various specified purposes, including the satisfaction of pre-existing mortgages. Prosecutors said Mohan used the money for personal use and investments and tried to conceal the fraud and prevent immediate foreclosure of the property by sometimes making payments on the homeowner’s original mortgage.

Virginia mortgage broker sentenced in real estate fraud scheme: A mortgage broker from Norfolk has been sentenced to four years in federal prison in a mortgage fraud case involving a home in northern Virginia. Fifty-year-old David A. Freelander was sentenced last Friday in Alexandria federal court. He has to pay more than $5.4 million in restitution.

Florida AG suing 10 companies, 15 individuals for mortgage fraud: Florida Attorney General Bill McCollum announced last Friday that his state’s Mortgage Fraud Task Force is suing 10 companies and 15 individuals for their alleged roles in a Central Florida mortgage fraud scheme. The suit alleges that the group obtained more than $37 million in mortgage loans for at least 60 homes and siphoned off more than $6 million of the loan proceeds for their personal use.

12 indicted in Atlanta mortgage fraud scheme: Local authorities said last Monday they charged 12 men with an elaborate mortgage fraud scheme in Atlanta’s West End neighborhood and seized more than $200,000 of assets. In indictments filed last week, Fulton County District Attorney Paul Howard Jr. accused the men of buying and selling nine homes using false appraisals that were more than double the homes’ actual value. Seven of the houses were in the 30310 zip code in the West End, where 26 homes were put up for foreclosure auction in late June.

Reported incidents of mortgage fraud in the U.S. increased by nearly 50% in the first quarter of 2008 from a year ago, according to a new report released this week. The report is based on data submitted by Mortgage Asset Research Institute (MARISM) subscribers about loans that were originated in the first quarter of this year and have since been classified as fraudulent, and shows a whopping 42% increase in filings. At the local level, Florida continues to lead all states in reported mortgage fraud. In fact, according to the report, Florida accounted for 24% of all properties with material misrepresentation for loans originated during the first quarter of 2008, and the Miami MSA alone boasts 49% of all of the reports submitted for properties in the state.

California ranked second in the first quarter of this year (with 52% of the properties with misrepresentation coming from the Los Angeles area), followed by a three-way tie for third place among Illinois, Maryland and Michigan.

Major urban areas also score the highest in Illinois, Maryland and Michigan. Ninety-four percent of investigations in the state of Illinois are for properties in the Chicago MSA, while in Maryland, 25% of reports are in the Baltimore MSA. In addition, the Detroit MSA counts for 56% of all of the misrepresentation reported for Michigan.

For all states, the most common type of fraud was in the “General Application Misrepresentation” category, followed closely by misrepresentations related to income and employment. In addition, multiple types of fraud types–such as identity theft and identity fraud–continue to appear in a significant percentage of loan transactions.

The report–which available for download here–presents a number of interesting and noteworthy trends:

• In general, misrepresentation on the mortgage application trends high in each of the states.
• Income and employment misrepresentation on the mortgage application rank high in Florida,
  California, Illinois and Maryland. Florida and Maryland report higher income than employment misrepresentation, and California and Illinois report slightly higher employment than income misrepresentation.
• Michigan shows a high percentage of asset and debt misrepresentation on the mortgage application.
• Appraisal misrepresentation (including value inflation and incorrect use of comparables) is most prevalent in Michigan.
• Maryland has an abnormally high percentage — 69% — of tax return and financial statement misrepresentation.

In its final analysis, this week’s report concludes the following:

1. The first quarter data reveals that loan application misrepresentation continues to plague the industry. According to the FBI’s 2007 Mortgage Fraud Report, “the downward trend in the housing market provides an ideal climate for mortgage fraud perpetrators to employ a myriad of schemes suitable to a down market.” Simply stated, mortgage fraud will not disappear — in fact, it is expected to significantly grow, evolve and penetrate new areas within the industry.
2. As the nation’s lenders redraw their credit practices, we see a continued need to highlight and eliminate loans that are not in good order at the point of origination, well before prefunding processors spend any effort to seek added verification or validation of the mortgage application information. If loan applications are not in good order when submitted, the loan data may likely be adjusted to fit the business practice expectation to meet the requirements for funding, which ultimately may result in funded loans that quickly go bad.
3. To save itself from schemes both commonplace and new, the mortgage industry must continue to strengthen its attention to and practice of due diligence to ensure that transactions are in good order at the point of origination. This includes an analysis of the borrower’s identity, as well as the players involved in each of the real estate roles whether they are outsourced or work directly for the lender.
4. As lenders pursue higher-quality loans for the market, the priority should be on identifying poor quality at the earliest possible point in the process — and at the lowest possible cost. In MARI’s view, the origination and prefunding processes offer the largest and least expensive opportunities to assure funding of higher quality loans. How a lender accepts or rejects a loan application at the front door is often all a criminal needs to see how much further he or she may push through the loan process.
5. Pre-funding fraud detection solutions can help prevent the risk of application discrepancies, exposure to compromised identities and establishment of relationships with insiders who leverage someone’s good name to perpetrate fraud. If on the mortgage application general misrepresentation or income, appraiser or employer misrepresentation were checked adequately at origination and pre-funding, in this quarter’s examples, would there still be significant fraud to report…?
6. Mortgage fraud inflicts damage to profits, reputations and consumer confidence. Today, it is wise to ensure you know the customers, employees and vendors involved in every loan transaction — doing this early in the process can result in overall protection from tainted pipelines and hidden threats to loan quality.

According to the Federal Bureau of Investigation (FBI), which earlier today issued yet another Mortgage Fraud Advisory, here are the latest Real Estate Fraud statistics:

• Estimated Annual Losses: $4 billion to $6 billion
• Total Mortgage Fraud Suspicious Activity Reports in Fiscal Year 2007: 46,717, with $813 million in losses
• Total FBI Mortgage Fraud Task Forces/Working Groups (June 2008): 42
• Pending FBI Mortgage Fraud Investigations (May 2008): 1,380
• Cases opened in Fiscal Year 2007: 462 (compared to 295 in Fiscal Year 2003)
• Successes in Fiscal Year 2007: 321 indictments/informations; 260 convictions
• States with Significant Mortgage Fraud problems in 2008:

1. Florida
2. Nevada
3. Michigan
4. California
5. Utah
6. Georgia
7. Virginia
8. Illinois
9. New York
10. Minnesota

The U.S. Attorney for the Eastern District of California announced that a federal grand jury returned an indictment yesterday charging nine people in connection with a mortgage fraud scheme involving the purchase of 13 properties in Solano County, California, in 2006. The individuals charged include:

• JOY JOHNSON, 33, former RE/MAX Real Estate Agent, Vacaville, Calif.
• CORY WHALEN, 33, of Solano County, Calif.
• ELIZABETH CARRION, 38, of Vacaville
• LENIN GALEANO, 32, of Vacaville
• CARMEN GALEANO, 30, of Vacaville
• ANGELITO EVANGELISTA, 39, of San Francisco, Calif.
• CLARISA ANG, age 43, of Elk Grove, Calif.
• CRIS ANG, 46, of Elk Grove
• LYDIA ANG, 71, of American Canyon, Calif.

According to the U.S. Attorney’s office for the Eastern District of California, the indictment charges ELIZABETH CARRION, ANGELITO EVANGELISTA, CLARISA ANG, CRIS ANG, and LYDIA ANG with mail fraud arising out of their involvement in the fraudulent purchase of 11 real estate properties between May 2006 and September 2006.

The indictment further charges LENIN GALEANO, CARMEN GALEANO, CRIS ANG and CLARISA ANG with making false statements to a financial institution in connection with the purchase of two additional real estate properties in April and May of 2006.

Finally, the indictment charges ELIZABETH CARRION, ANGELITO EVANGELISTA, CRIS ANG, CLARISA ANG, CORY WHALEN, LYDIA ANG, and JOY JOHNSON with engaging in monetary transactions involving more than $10,000 in criminally derived property.

The scheme involved purchasing properties at prices substantially higher than the list price without the lenders’ knowledge. They were entirely financed with so called “80/20″ loans. The difference between the list price and the inflated sales price was then credited at the close of escrow to fictitious businesses controlled by the defendants and others. The defendants and others then used the credited funds mainly to make mortgage payments on the properties and for their own living expenses. In addition, the loan applications contained false information about income, personal assets, and intent to occupy properties as a primary residence. Most of the loans that were secured by the properties have either been foreclosed upon or are in default.

The maximum penalty for mail fraud in these cases is 20 years in prison, a fine of up to $250,000, or both. The maximum penalty for making a false statement to a financial institution is 30 years in prison, a fine of up to $1,000,000, or both. The maximum penalty for engaging in a monetary transaction involving criminally derived property is 10 years, a fine of up to $250,000, or both.

The U.S. Attorney for the Eastern District of California announced last week that a federal grand jury returned an indictment today charging Joel Blanford, 40, of San Ramon, Calif., with six counts of mail fraud and one count of conspiring to engage in money laundering in connection with a multi-million dollar mortgage fraud scheme.

From April 2003 through October 2005, Blanford participated in a scheme to defraud Long Beach Mortgage, a wholesale subprime lender and former subsidiary of Washington Mutual, Inc. While working as a sales representative for Long Beach Mortgage, Blanford 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 2003, 2004, and 2005, the indictment against Blanford alleges he received, before taxes and payroll deductions, more than $1,000,000 in commissions and other compensation from Long Beach Mortgage. The indictment also charges that between April 2003 and October 2005, Blanford 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. Between April 2003 and October 2005, Blanford is said to have paid the loan coordinator more than $54,000 in checks alone.

In connection with this ongoing investigation, Manpreet Singh, Jose Serrano, John Ngo, and Iftikhar Ahmad have all pleaded guilty to perjury, mail fraud, and/or money laundering charges.

From U.S. Attorney McGregor Scott:

“This indictment reflects the commitment of this office, the FBI and the IRS-CI to follow the facts to wherever they lead us,” said Scott.

“We have now convicted several individuals who participated at different levels of the loan origination process in mortgage fraud transactions centered in the Stockton, California area. The indictment returned today charges an individual who allegedly worked inside a major subprime lender and who received significant commissions and other compensation in his capacity as a sales representative.“

The maximum penalties for mail fraud affecting a financial institution is 30 years in prison and a fine of up to $250,000, or twice the value of the gain or loss, whichever is greater. The maximum penalty for conspiring to engage in money laundering is 20 years in prison and a fine of up to $500,000 or twice the value of the money that was laundered, whichever is greater. However, the actual sentence 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.

More Americans are facing foreclosure than at any other time in recent memory. According to the May 2008 U.S. Foreclosure Market Report™ from RealtyTrac, foreclosure filings (i.e., default notices, auction sale notices, and bank repossessions), were reported on 261,255 properties during the month of May, which translates into a 7% increase over April and a 48% increase from May 2007. The report also shows one (1) in every 483 U.S. households received a foreclosure filing during the month of May, the highest monthly foreclosure rate since RealtyTrac began issuing its report in 2005.

Nevada, California, and Arizona post top state foreclosure rates

With one in every 118 households receiving a foreclosure filing in May, Nevada posted the highest state foreclosure rate for the 17th consecutive month. Foreclosure filings were reported on a total of 9,009 Nevada properties, an increase of nearly 24% from the previous month and a 72% increase from May 2007.

California’s foreclosure activity in May increased 11% from the previous month and 81% from May 2007, helping the state continue to register the nation’s second highest state foreclosure rate. One (1) in every 183 California households received a foreclosure filing during the month of May, a rate that was 2.6 times the national average.

Arizona’s May foreclosure rate — 1 in every 201 households received a foreclosure filing during the month — ranked third highest in the U.S. for the second month in a row. Arizona’s foreclosure activity increased nearly 12% from the previous month and almost 119% from May 2007.

One in every 228 Florida households received a foreclosure filing in May, giving it the fourth highest foreclosure rate in the country. Michigan foreclosure activity in May increased nearly 25% from the previous month, helping the state’s foreclosure rate to jump to fifth highest in the country after ranking No. 9 the previous month. One in every 353 Michigan households received a foreclosure filing in May.

Other states with foreclosure rates ranking among the top 10 for the month of May were Georgia, Colorado, Massachusetts, Ohio and New Jersey.

Detailed state-by-state data is available here.

For the second month in a row, California and Florida cities accounted for nine out of the top 10 metropolitan foreclosure rates among the 230 metropolitan areas tracked in the report. Seven cities in California were in the top 10, led by Stockton in the top spot. One in every 75 Stockton area households received a foreclosure filing in May– more than six times the national average. Other California cities in the top 10 were Merced at No. 3, Modesto at No. 4, Riverside-San Bernardino at No. 5, Vallejo-Fairfield at No. 7, Bakersfield at No. 8, and Sacramento at No. 9.

The Cape Coral-Fort Myers metro area in Florida registered the second highest metro foreclosure rate in May, with one in every 79 households receiving a foreclosure filing during the month. The other Florida metro area in the top 10 was Port Lucie-Fort Pierce at No. 10.

Las Vegas was the only city outside of California and Florida with a foreclosure rate ranking among the top 10. One in every 96 Las Vegas households received a foreclosure filing in May, more than five times the national average and No. 6 among the metro areas.

Metro areas with foreclosure rates among the top 20 included Phoenix at No. 12, Detroit at No. 14, San Diego at No. 17 and Miami at No. 19.

Next up: Speculation about when the slide will end / have we seen the worst of the worst. Weighing in on the topic is Joe G. Henry of Long & Foster-affiliated W.C & A.N Miller Realtors in Virginia (comment found on ForeclosurePulse):

Defendable recovery will be 2011 due to the highest volume of ARM resets occurring in June 2008 and the typical foreclosure process lasts 12 months from Notice of Default, Notice of Trustee Sale, Foreclosure Auction, then seasoning to a Bank Owned (REO) — plus a 15-18 month housing inventory. Moreover, for every one bank-owned listing in Fairfax County, we have three short sales, which 80 percent of these will actually be foreclosed. There are three crisis response talking points concerning this scenario: (1) added liquidity; (2) mark down distressed assets; and (3) act now.

What’s your take? Do you agree with Joe G. Henry or do you have a theory of your own?

If you are interested in the federal government’s handling of real estate and mortgage fraud prevention and prosecution, read “FBI Halts Some Cases to Investigate Mortgage Frauds,” by Bloomberg’s Robert Schmidt. If you don’t have time to read the entire article, here’s just what you need to know:

• The FBI, confronting a surge in mortgage fraud, has ordered more than two dozen of its field offices to stop probing certain financial crimes so agents can focus on real estate and mortgage fraud.
• Kenneth Kaiser, chief of the bureau’s criminal investigative division, issued this directive late last week on a video conference call with the heads of 26 FBI offices in areas where real estate fraud is out of control.
• An FBI spokesperson said the shift was made after an analysis of how agents are spending their time. Approximately 150 FBI agents were working on more than 1,300 real estate fraud cases before the directive was issued.
• The 26 FBI field offices were told to temporarily suspend opening new cases dealing with price fixing, mass marketing, wire fraud, mail fraud and environmental crimes. Current cases aren’t being dropped, the FBI spokesperson said.
• FBI field offices in Florida, Georgia, California, Nevada, Arizona, Texas, New York, Ohio, Michigan, Illinois, Indiana and Minnesota–all rated as real estate and mortgage fraud hot spots–are participating.
• “Diverting FBI resources to deal with cases of mortgage fraud is exactly what Chairwoman Mikulski wants to avoid,” Melissa Schwartz, a spokeswoman for U.S. Senator Barbara Mikulski, who heads the appropriations subcommittee for the FBI, told Bloomberg late yesterday.
• The Attorney General of the United States, Michael Mukasey said last week that the Justice Department, the FBI’s parent agency, “won’t create a national task force to combat mortgage fraud as the government did with corporate crime after Enron. “This isn’t that kind of phenomenon,” he said.

For more on this developing story, read FBI Halts Some Cases to Investigate Mortgage Frauds.

The following case of real estate fraud is so ridiculously far-fetched and absurd that you’d think today was April Fool’s Day and that I was playing a bad joke by reporting it. Sadly, and unbelievably so, the following is true!

California’s Attorney General, with support from the FBI, has shut down a company that acquired deeds to hundreds of homes in foreclosure by convincing distressed homeowners to place their property in a “land grant,” a phony and worthless real estate document. Federal Land Grant Company (FLGC)–a San Diego-based business run by William “Bill” Hutchings, 62, his wife Xiaoke Li, 43, both of San Diego (Scripps Ranch); and Hutchings’ former wife Shawna Landis, 29, of Sorrento Valley–tricked homeowners into believing they could protect their homes from foreclosure by deeding their property to “federal land grants.” Land grant transfers, which were used hundreds of years ago when the United States was still acquiring land from other countries, are no longer recognized by any court or county assessor in California or anywhere else that I’m aware of for that matter.

There hasn’t been a legitimate use of the land grant since the conclusion of the Mexican-American war. If some fast talking scam artist offers you a quick escape from foreclosure using archaic documents, be more than extremely suspicious. Hutchings’ company, Federal Land Grant Company (FLGC), required homeowners to pay up to $10,000 to put their property in a so-called land grant which FLGC claimed would prevent foreclosure. FLGC also tricked homeowners into signing over the deed to their home and paying the company rent.

To make the meaningless grants appear legitimate, FLGC attached a land survey from when property was transferred to the United States by a foreign entity hundreds of years ago. In San Diego, for example, FLGC attached a survey from the Spanish Land Grant of 1872 and said that the deed reinstated the land grant and would protect homes from foreclosure.

State investigators in California confirmed from realty specialists in the Bureau of Land Management (BLM) that a federal land grant transfer is meaningless and there is no mechanism in California for establishing a land grant on privately held land. Homeowners who are conned by the land grant scam are typically evicted from their property at the completion of foreclosure proceedings and retain no legally recognizable title to their property. At least two Riverside County Superior Court judges, when faced with foreclosure sales involving so-called land grants, did not give any consideration to the deeds and issued eviction orders sought by the lender.

FLGC often perpetrated its scam by inviting homeowners to attend weekly seminars on the fraudulent land grant program. During these seminars, which reportedly attracted up to 50 participants or more, FLGC convinced homeowners to enter a lease-back scheme in which the homeowners transfer their property to FLGC and then make monthly payments, purportedly for rent. Investigators in California discovered more than 280 properties in San Diego and Riverside counties that have been transferred to FLGC or one of its affiliated companies. An additional 65 properties have been transferred in other counties, including Los Angeles, Orange and San Bernardino. At least 60 homeowners have had their homes sold through foreclosures.

If you or someone you know signed properties over to Federal Land Grant Company, report it by calling the following hotline: (619) 531-4475.

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

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

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



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

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

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

The latest foreclosure statistics from RealtyTrac are out, and the news isn’t very good. According to the Q1 2008 U.S. Foreclosure Market Report, which tracks foreclosure filings (including default notices, auction sale notices and bank repossessions), 649,917 properties were foreclosed upon during the first quarter of the year, a 23% increase from the previous quarter and a 112% increase from the first quarter of 2007. The report also shows that one (1) in every 194 U.S. households received a foreclosure filing during the quarter.

Foreclosure activity in the quarter increased on a year-over-year basis in 46 out of the 50 states and in 90 of the nation’s 100 largest metro areas, demonstrating that most regions of the country are seeing more foreclosures. In some areas there are also some unusual, non-market factors impacting the foreclosure numbers. For example, the city of Philadelphia in late March issued a temporary moratorium on all foreclosure auctions for April, and the city has since adopted a program that will delay foreclosure proceedings on owner-occupied properties until the owners have met face-to-face with lenders to attempt a loan workout plan that would prevent foreclosure.

While programs like those in Philadelphia are certain to have a positive long-term impact, they could be simply deferring another flood of foreclosures, and that could extend the length of time it takes the market to recover from the current downward cycle, in which we’ve already seen seven consecutive quarters of increasing foreclosure activity.

Click on the map to the left for a close up view of exactly where foreclosure-related activity is playing out across the United States. As you’ll see, one (1) in every 54 Nevada households received a foreclosure filing during the first quarter, the highest foreclosure rate in the nation and 3.6 times the national average. Foreclosure filings were reported on 19,595 Nevada properties during the quarter, up 3% from the previous quarter and up 137% from the first quarter of 2007.

Foreclosure filings were reported on 169,831 California properties during the first quarter, the highest total in the nation at a rate of one (1) in every 78 households — the nation’s second highest foreclosure rate. Foreclosure activity in California increased 32% from the previous quarter and was up nearly 213% from the first quarter of 2007.

Arizona documented the nation’s third highest state foreclosure rate, with one (1) in every 95 households receiving a foreclosure filing during the quarter. Foreclosure filings were reported on 27,404 Arizona properties during the quarter, up 45% from the previous quarter and up nearly 245% from the first quarter of 2007.

Foreclosure filings were reported on 87,893 Florida properties during the first quarter, the second highest state total and giving Florida the nation’s 4th highest foreclosure rate — one (1) in every 97 households received a foreclosure filing during the quarter. Foreclosure activity in the state was up 17% from the previous quarter and up 178% from the first quarter of 2007.

Colorado foreclosure activity increased 33% from the previous quarter and 78% from the first quarter of 2007, and the state’s foreclosure rate ranked No. 5 among the states. Foreclosure filings were reported on 18,996 Colorado properties during the quarter, a rate of one in every 110 households.

Other states with foreclosure rates among the top 10 were Georgia, Michigan, Ohio, Massachusetts and Connecticut.

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

Here’s how the scam typically works:

(Image courtesy of the FBI)

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Unfortunately all of this was a scam. The defendants would recruit straw buyers as the investors and oftentimes these individuals would in fact replace the homeowners on the titles of the properties without the homeowners’ knowledge. These straw buyers were often friends and family members of the defendants. Once the straw buyer had title to the home, the defendants immediately applied for a mortgage to extract the maximum available equity from the home. The defendants would then share the proceeds of the ill-gotten equity and rent being paid by the victim homeowner. When the defendants ultimately would sell the home, stop making the mortgage payment, and/or pursue an eviction proceeding, the victim homeowner was left without their home, equity, or repaired credit.

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

• Charles Head, 33, of La Habra, California
• Jeremy Michael Head, 30, of Huntington Beach, California
• Elham Assadi, aka Elham Assadi Jouzani, aka Ely Assadi, 30, of Irvine, California
• Leonard Bernot, 51, of Laguna Hills, California
• Akemi Bottari, 28, of Los Angeles, California
• Joshua Coffman, 29, of North Hollywood, California
• John Corcoran, aka Jack Corcoran, 52, of Anaheim, California
• Sarah Mattson, 27, of Phoenix, Arizona
• Domonic McCarns, 33, of Brea, California
• Anh Nguyen, 36, of Los Angeles, California
• Omar Sandoval, 32, of Rancho Cucamonga, California
• Xochitl Sandoval, 29, of Rancho Cucamonga
• Eduardo Vanegas, 28, of Phoenix, Arizona
• Andrwe Vu, 39, of Santa Ana, California
• Justin Wiley, 28, of Irvine, California
• Kou Yang, 32, of Corona, California

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

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

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

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