David B. Fein, United States Attorney for the District of Connecticut, today announced that a federal grand jury sitting in New Haven has returned an 11-count indictment charging STEVEN J. KOTTAGE, 44, and GENARO R. HATHAWAY, 46, both of Weston, and MARY ELLEN DURSO, 53, of Milford, with conspiracy and other offenses stemming from the defendants alleged involvement in mortgage fraud.

The indictment alleges that KOTTAGE and HATHAWAY, who are married, conspired to commit wire fraud relating to a home on Fire Island, New York. HATHAWAY, a former attorney in Connecticut and New York, and KOTTAGE purchased and financed the property in the name of KOTTAGE’s mother by filing false loan applications to Wells Fargo Home Mortgage. In each instance, HATHAWAY served as the closing attorney on behalf of KOTTAGE’s mother and Wells Fargo. The indictment further alleges that HATHAWAY subsequently purchased the property from KOTTAGE’s mother’s estate in his own name and, in so doing, made a materially false loan application to H&R Block Home Mortgage to obtain a separate mortgage. Rather than using the sale proceeds due and owing to KOTTAGE’s mother’s estate to pay off the outstanding loans issued by Wells Fargo, KOTTAGE and HATHAWAY used those proceeds to pay off an obligation arising from a separate real estate transaction in which HATHAWAY served as the closing attorney for the seller. The losses resulting from this alleged conspiracy exceed $500,000.

The indictment further alleges that KOTTAGE, HATHAWAY, and DURSO conspired to commit bank fraud by filing a materially false loan application to Washington Mutual to refinance a condominium in Hillsboro Beach, Florida. DURSO served as the straw owner for the condo in order to obtain the fraudulent loan proceeds for the benefit of KOTTAGE and HATHAWAY.

The indictment also charges HATHAWAY with tax evasion in 2005 and DURSO with filing false tax returns from 2004 to 2008.

The indictment charges KOTTAGE and HATHAWAY with two counts and DURSO with one count of conspiracy, a charge that carries a maximum term of imprisonment of 30 years on each count. The indictment further charges KOTTAGE and HATHAWAY with two counts of wire fraud, a charge that carries a maximum term of imprisonment of 30 years on each count. KOTTAGE, HATHAWAY and DURSO are each charged with one count of bank fraud, which carries a maximum term of imprisonment of 30 years. The one count of tax evasion against HATHAWAY carries a maximum term of imprisonment of five years, and the five counts of filing false tax returns against DURSO carry a maximum term of imprisonment of three years, on each count.

U.S. Attorney Fein stressed that an indictment is not evidence of guilt. Charges are only allegations, and each defendant is presumed innocent unless and until proven guilty beyond a reasonable doubt.

This case is being investigated by the Federal Bureau of Investigation and the Internal Revenue Service – Criminal Investigation. The case is being prosecuted by Assistant United States Attorney David T. Huang.

In July 2009, the U.S. Attorney’s Office and the Federal Bureau of Investigation announced the formation of the Connecticut Mortgage Fraud Task Force to investigate and prosecute mortgage fraud cases and related financial crimes occurring in Connecticut. In addition to investigating past mortgage fraud schemes, the Task Force will focus on emerging crime trends that are associated with the growing tide of foreclosures, including foreclosure rescue schemes, and short sale schemes. Citizens are encouraged to report any suspected mortgage fraud activity by calling 203-333-3512 and requesting the Connecticut Mortgage Fraud Task Force, or by sending an email to ctmortgagefraud@ic.fbi.gov.

The Connecticut Mortgage Fraud Task Force includes representatives from the U.S. Attorney’s Office; Federal Bureau of Investigation; Internal Revenue Service – Criminal Investigation; U.S. Postal Inspection Service; U.S. Department of Housing and Urban Development, Office of Inspector General; Federal Deposit Insurance Corporation, Office of Inspector General, and State of Connecticut Department of Banking.

To report financial fraud crimes, and to learn more about the President’s Financial Fraud Enforcement Task Force, please visit www.stopfraud.gov.

A federal grand jury in Connecticut indicted five people this week linked to a $10 million mortgage-fraud scheme led by Syed A. Babar, a 28-year-old Connecticut resident. The defendants previously were arrested on criminal complaints and released on bond, according to the U.S. Attorney’s office.

The scheme involved approximately 35 properties and loans obtained in the amount of an estimated $10 million, according to the government. Current losses from the operation are estimated at $3 million.

New charges were brought against Babar, who has been held without bail since he was indicted in April. He is now accused of conspiring with the others to defraud the Federal Housing Administration, which offers insurance for government loans to borrowers of low and moderate income.

Indicted with Babar were Thomas E. Gallagher, 67; Morris I. Olmer, 82; David Avigdor, 56; Nathan M. Russo, 34; and Rab Nawaz, 47. They are each charged with one count of conspiracy, eight counts of wire fraud and four counts of making false statements.

Nawas is also charged with one count of obstruction of justice, after he was accused of trying to influence a witness to provide false information during the government investigation.

The indictment alleges that between February 2007 and April 2010, Babar, along with Russo, a mortgage broker; Gallagher, a real estate appraiser; Olmer, a former attorney who has not been licensed to practice since February 2007, and Avigdor, an attorney who shared an office with Olmer, obtained millions of dollars in residential real estate loans through the use of sham sales contracts, false loan applications and fraudulent property appraisals.

Federal authorities have charged Rab Nawaz of Waterford in connection with a real estate fraud scheme that involved purchasing homes in New London and selling them to straw buyers at artificially inflated prices.

Nawaz, 47, of Harbor View Avenue, was arrested Wednesday morning at his home. He appeared before U.S. District Judge Ellen Bree Burns on charges of conspiracy to commit wire fraud and obstruction of justice and was released on a $100,000 bond secured by property.

Nawaz allegedly conspired with Syed A. Babar and others in a scheme involving real estate throughout Connecticut, costing lenders an estimated $2.5 million. The scheme involved more than 25 properties in New London, New Haven and other locations.

According to the U.S. Attorney’s office, Nawaz purchased homes in New London and sold them to straw buyers at artificially inflated prices that, typically, were supported by fraudulent appraisals. Although the straw buyers would represent that they intended to occupy the homes as their primary residence, they had no intention of doing so. They defaulted on the loans and allowed the homes to go into foreclosure.

Following Babar’s arrest on May 14, Nawaz allegedly met with a co-conspirator in the case, advised him of evidence that the government had presented against Babar and instructed him as to “what he should and should not admit knowing to government investigators,” according to the U.S. Attorney’s office.

The charge of conspiracy to commit wire fraud carries a maximum term of imprisonment of 20 years and the charge of obstruction of justice carries a maximum term of imprisonment of 10 years.

U.S. Attorney David Fein said the investigation is ongoing. The case is being investigated by the Federal Bureau of Investigation and the U.S. Department of Housing and Urban Development, Office of Inspector General. The case is being prosecuted by Assistant United States Attorney Eric J. Glover.

-Karen Florin

Nora R. Dannehy, United States Attorney for the District of Connecticut, announced that ANNA McELANEY, 38, a licensed real estate agent residing in Norwalk, pleaded guilty today before United States Magistrate Judge Holly B. Fitzsimmons in Bridgeport to one count of bank fraud stemming from her involvement in a “short sale” mortgage fraud scheme.

A short sale transaction involves a mortgage holder or lender entering into an agreement to release its mortgage or lien on real property in exchange for payment of less than the total amount owed on the underlying debt. Many short sale transactions are legitimate.

According to court documents and statements made in court, McELANEY worked with Sergio Natera, also a real estate agent, to defraud Regions Bank, which held two mortgages on a residential property in Bridgeport. On December 5, 2007, McELANEY, who was a listing agent for the property, received an offer to purchase the property for a price of $132,500. However, McELANEY and Natera subsequently directed communications to Regions Bank that the highest offer to purchase the property was for $102,375 by BOS Asset Management, LLC, an entity that Natera controlled. The bank agreed to a short sale of the property for the lower price, and released its mortgages on the property.

On June 9, 2008, Natera, through BOS Asset Management, sold the property for $132,500 to the original bidder on the property, and Natera and McELANEY retained the difference in the two sale prices.

McELANEY is scheduled to be sentenced by United States District Judge Janet C. Hall on May 10, 2010, at which time she faces a maximum term of imprisonment of 30 years, a fine of up to $1 million, and an order of restitution.

Natera pleaded guilty to one count of bank fraud on February 11, 2010. He awaits sentencing.

This matter is being investigated by the Federal Bureau of Investigation and is being prosecuted by Assistant United States Attorney Ann M. Nevins.

In July 2009, the U.S. Attorney’s Office and the Federal Bureau of Investigation announced the formation of the Connecticut Mortgage Fraud Task Force to investigate and prosecute mortgage fraud cases and related financial crimes occurring in Connecticut. In addition to investigating past mortgage fraud schemes, the Task Force will focus on emerging crime trends that are associated with the growing tide of foreclosures, including foreclosure rescue schemes, and short sale schemes. Citizens are encouraged to report any suspected mortgage fraud activity by calling 203-333-3512 and requesting the Connecticut Mortgage Fraud Task Force, or by sending an email to ctmortgagefraud@ic.fbi.gov.

The Connecticut Mortgage Fraud Task Force includes representatives from the U.S. Attorney’s Office; Federal Bureau of Investigation; Internal Revenue Service – Criminal Investigation Division; U.S. Postal Inspection Service; U.S. Department of Housing and Urban Development, Office of Inspector General; Federal Deposit Insurance Corporation, Office of Inspector General, and State of Connecticut Department of Banking.

Midland Police say the second man wanted in this case has turned himself in.

Marcus Rosenberger turned himself in around noon on Wednesday.

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.

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.

In May of this year, the Mississippi Department of Banking and Consumer Finance notified all of the state’s mortgage license holders that, as of July 1, 2008, the state will be participating in the National Mortgage Licensing System (NMLS) and that participation for all of the state’s mortgage license holders is mandatory.

NMLS officially launched on January 2, 2008, and was the culmination of a four-year effort by state regulators and is just one part of a multi-faceted plan being implemented to enhance consumer protection, improve regulation, increase uniformity of mortgage supervision, and streamline the licensing process. These efforts include coordinated supervision, improved regulatory practices, and consistent standards for testing and training for mortgage originators; and uniform license application, renewals and annual reports. To accomplish this, Mississippi’s Department of Banking and Consumer Finance amended the Mississippi Mortgage Consumer Protection Law during the past regular session of the Legislature to mandate participation in NMLS.

At its core, NMLS is a state-based approach that has the benefits of localized accountability and an on-the-ground regulatory system combined with the efficiencies of a nationwide framework. This type of framework has the potential to create high and consistent regulatory standards without preempting states important role in the development of consumer protections and the enforcement of lending standards.

NMLS’ basic feature is a central database, containing a single record for every state-licensed mortgage lender,
broker, and branch and loan originator, based on the uniform mortgage application forms developed by state
regulatory agencies. It will also drive standardization and coordination among state regulators in areas such as
licensing requirements, background checks, testing and education, enforcement action, examinations and annual
reporting, which is bound to have a positive impact in the fight against real estate and mortgage fraud.

To date, 42 state agencies representing mortgage regulators in 40 states have indicated their intent to be a part of
NMLS. By the end of 2008 there should be 19 state agencies on the system with another 14 participating in 2009.
The remainder of the 42 agencies are expected to come online in 2010 and 2011. Total projected enrollment in NMLS will be more than 500,000 professional licensees. In Mississippi, the Department of Banking and Consumer Finance estimates its enrollment will be approximately 4,000 mortgage professionals.

The Connecticut Department of Banking and the Louisiana Office of Financial Institutions have issued announcements indicating their participation on NMLS starting July 1, 2008, also. Connecticut licensees have until September 30, 2008 and Louisiana licensees have until October 1, 2008 to transition their license(s) onto NMLS. Both agencies will begin accepting submissions through NMLS on July 1.

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.