STATESBORO, GA—BRIAN STEPTOE, 41, and NATASHA STEPTOE, 38, both from Emanuel County, Georgia, were sentenced yesterday in federal district court for their roles in a mortgage fraud scheme that occurred in Swainsboro, Georgia.

“The U.S. Attorney’s Office will continue to work with law enforcement partners to investigate and prosecute those who engage in financial crimes, especially crimes such as mortgage fraud, that affect the heartland of our country,” stated United States Attorney Edward J. Tarver.

Evidence presented during their guilty pleas revealed that the Steptoes, with the assistance of others, knowingly submitted a false loan application and other documentation to Bank of America with regard to a $400,000 home loan. The investigation revealed that the Steptoes’ scheme was to defraud Bank of America in order to pocket sizeable sums of money for themselves and others. The property went into foreclosure soon after it was sold and remains on the market to this day.

BRIAN STEPTOE was sentenced to fifty-four (54) months, $410,236.59 in restitution to be paid jointly and severally with his co-defendants, and five (5) years of supervised release. NATASHA STEPTOE was sentenced to twenty (20) months, $340,297.54 in restitution to be paid jointly and severally with her co-defendants, and three (3) years of supervised release.

This case was brought in coordination with President Barack Obama’s Financial Fraud Enforcement Task Force. President Obama established the interagency Financial Fraud Enforcement Task Force to wage an aggressive, coordinated, and proactive effort to investigate and prosecute financial crimes. The task force includes representatives from a broad range of federal agencies, regulatory authorities, inspectors general, and state and local law enforcement who, working together, bring to bear a powerful array of criminal and civil enforcement resources. The task force is working to improve efforts across the federal executive branch, and with state and local partners, to investigate and prosecute significant financial crimes, ensure just and effective punishment for those who perpetrate financial crimes, combat discrimination in the lending and financial markets, and recover proceeds for victims of financial crimes.

U.S. Attorney Tarver recognized the extensive efforts of the FBI in bringing this criminal activity to light, and particularly praised the efforts of Statesboro FBI Special Agent Cornelius Harris, who investigated this case.

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

Mortgage fraud has become more prevalent throughout the nation and especially so in Georgia, particularly the Atlanta metropolitan area. Mortgage fraud has wreaked havoc on neighborhoods, ruined individuals’ credit standing, and caused many millions of dollars of losses in Georgia. Don’t be a victim of mortgage fraud or fall prey to becoming unwitting participants in a fraud scheme. Ensure that you are dealing with a reputable entity, ask questions about unusual or suspicious transactions, and be aware of any deal that sounds “too good to be true”. If any loan officer or mortgage broker asks you to sign any document that you know contains a false statement or misrepresentation – WALK AWAY from the transaction and report the incident to the Department of Banking and Finance!

The Department wants to ensure that you are aware of some of the common fraud schemes that have come to our attention. Most of the fraud schemes involve variations of several of the following elements in which the “fraudsters”:

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Induce appraisers to inflate property values in order to obtain a larger mortgage loan for the “straw borrower.”
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Submit bogus invoices for phantom “upgrades” or “renovations” that falsely inflate the value of the property. This allows the fraudster, “straw borrower” or “investor” to obtain a larger mortgage.
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Promise “investors” that their properties will be leased or rented and all mortgage, insurance, property tax and home owner association payments will be paid for them. In actuality, these payments are not made and there may or may not be any tenants.
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Pay “straw borrowers” or “investors” to sign and submit documents containing false qualifying information such as false and counterfeit drivers’ licenses, pay stubs, tax returns, W-2 tax forms, rent checks, bank statements, earnest money checks, Social Security numbers, and verifications of deposit, employment, rent and mortgage.
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Pay “straw sellers” to falsely claim ownership of a property, appear at a closing where the property is sold to “straw borrowers”, disburse the sale proceeds at the fraudsters’ direction and thereafter appear at another closing to purchase the same property at a lesser amount with a portion of the sale proceeds, a practice sometimes called “flipping.” Some flips are the same day and others within days, weeks or months.
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Advance down payment amounts which are falsely represented as being paid by the borrower.
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Cause “straw sellers” and “straw borrowers” to assume the identity of other people for the purpose of fraudulently obtaining mortgage loan proceeds.
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Quit claim the property back to the seller or to a co-conspirator without notice to or permission from the lender.
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File false satisfaction, cancellation and assignment of security deeds on a number of properties to eliminate the security interest of legitimate lenders, by either fraudulently transferring interest to a co-conspirator’s company or showing the property to be free of all mortgage liens before obtaining additional mortgage loans on the property.
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File false and forged Quit Claim deeds transferring property from true owners to “straw sellers” and “straw borrowers”, thereby gaining control of the property to use as security for fraudulent loans.

More Information

Residential mortgage fraud continues to receive much attention and has been more prevalent in Georgia. An FBI assistant director testified that fraud is “pervasive” in the mortgage market and is growing fast. With sophisticated electronic document-preparation programs, unethical mortgage loan officers, brokers, real estate agents and lawyers can create fake FICO scores, fake tax returns, fake identities and obtain inflated appraisals. According to the FBI, based on existing investigations and mortgage fraud reporting, 80% of all reported fraud losses involve collaboration or collusion by industry insiders.

The chairman of a House financial services subcommittee cited industry studies suggesting that “between 10 and 15 percent of all home loan applications involve some fraud or misrepresentation.” The potential costs – to home buyers and mortgage lenders – could be in the billions of dollars a year. According to a recent report by the Federal Bureau of Investigation (FBI), each mortgage fraud scheme contains some type of “material misstatement, misrepresentation or omission relied upon by an underwriter or lender to fund, purchase or insure a loan.”

Frequently, mortgage fraud ends up hurting not only lenders but innocent consumers too. One mortgage company cited the following example of mortgage fraud: A first-time buyer was persuaded to purchase a property that was significantly overvalued because of a fraudulent appraisal. The seller pocketed big profits, but now the buyer is unable to refinance and unable to pay off the loan by selling the house because the property is worth less than the mortgage amount. Some possible signs of fraud in the application – unusually high FICO scores combined with high incomes, higher-than-average mortgage amounts and home values for the neighborhood. That may sound odd since all these characteristics would normally be associated with problem-free applicants. But unfortunately, the crooks know this too, and they often try to make a loan application good enough to pass cleanly through automated loan underwriting systems.

Georgia Real Estate Fraud Prevention & Awareness Coalition (GREFPAC)

The GREFPAC works to:

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Prevent real estate and mortgage fraud;
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Facilitate cooperation among and between industry partners, regulators and law enforcement agencies;
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Pursue compliance with, and enforcement of, existing regulations and statutes;
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Develop and promote industry practices and regulatory and statutory reforms that will benefit consumers and industry partners; and
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Promote public awareness through information and education.

You will find valuable information about preventing mortgage fraud on GREFPAC’s website – http://www.grefpac.org/

Of particular interest is their “You Can Prevent Mortgage Fraud – DO’s & DON’Ts” brochure. The prevention brochure is broken down into two index cards. The brochure is provided in English and in Spanish.

For quick access to the DO’s brochure in English – http://www.grefpac.org/downloads/Do Card 5×8.doc
For quick access to the DON’Ts brochure in English – http://www.grefpac.org/downloads/Dont Card 5×8.doc
See the Spanish version of the brochure

If you suspect mortgage fraud, please go to the following page on MBA’s website to learn more about reporting procedures:
Reporting Mortgage Fraud in Georgia

You may report suspected mortgage fraud in Georgia to the Department by downloading our Reporting Mortgage Fraud form. Doe not use this form if you are a consumer with an issue or complaint regarding your own home loan.

Additional Resources for Mortgage Fraud Prevention:

Stop Mortgage Fraud website

Mortgage Asset Research Institute, Inc.

Online-Home-Mortgages.Net

STATESBORO, GA—BRIAN STEPTOE, 41, and NATASHA STEPTOE, 38, both from Emanuel County, Georgia, were sentenced yesterday in federal district court for their roles in a mortgage fraud scheme that occurred in Swainsboro, Georgia.

“The U.S. Attorney’s Office will continue to work with law enforcement partners to investigate and prosecute those who engage in financial crimes, especially crimes such as mortgage fraud, that affect the heartland of our country,” stated United States Attorney Edward J. Tarver.

Evidence presented during their guilty pleas revealed that the Steptoes, with the assistance of others, knowingly submitted a false loan application and other documentation to Bank of America with regard to a $400,000 home loan. The investigation revealed that the Steptoes’ scheme was to defraud Bank of America in order to pocket sizeable sums of money for themselves and others. The property went into foreclosure soon after it was sold and remains on the market to this day.

BRIAN STEPTOE was sentenced to fifty-four (54) months, $410,236.59 in restitution to be paid jointly and severally with his co-defendants, and five (5) years of supervised release. NATASHA STEPTOE was sentenced to twenty (20) months, $340,297.54 in restitution to be paid jointly and severally with her co-defendants, and three (3) years of supervised release.

This case was brought in coordination with President Barack Obama’s Financial Fraud Enforcement Task Force. President Obama established the interagency Financial Fraud Enforcement Task Force to wage an aggressive, coordinated, and proactive effort to investigate and prosecute financial crimes. The task force includes representatives from a broad range of federal agencies, regulatory authorities, inspectors general, and state and local law enforcement who, working together, bring to bear a powerful array of criminal and civil enforcement resources. The task force is working to improve efforts across the federal executive branch, and with state and local partners, to investigate and prosecute significant financial crimes, ensure just and effective punishment for those who perpetrate financial crimes, combat discrimination in the lending and financial markets, and recover proceeds for victims of financial crimes.

U.S. Attorney Tarver recognized the extensive efforts of the FBI in bringing this criminal activity to light, and particularly praised the efforts of Statesboro FBI Special Agent Cornelius Harris, who investigated this case.

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

Defendant Used Stolen Identities for Short Sale “Buyers” When He Sought Forgiveness of $2.2 Million in Loans

ATLANTA, GA—BRENT MERRIELL, 38, of Atlanta, Georgia, was sentenced today by United States District Judge Jack T. Camp to federal prison on charges of making false statements to the Federal Deposit Insurance Corporation (FDIC) and aggravated identity theft.

“The FDIC serves a critical role by insuring the assets of hard-working Americans. Mr. Merriell used stolen identities, created fictitious buyers, and negotiated phony short sale deals for properties, all in an effort to defraud FDIC of millions of dollars he owed on mortgages,” said United States Attorney Sally Quillian Yates. “This double fraud has landed him in federal prison.”

MERRIELL was sentenced to three years and three months in prison to be followed by five years of supervised release. MERRIELL was convicted of these charges on March 23, 2010, upon his plea of guilty.

According to United States Attorney Yates, the charges and other information presented in court: MERRIELL obtained millions of dollars in loans from Omni National Bank as mortgages on numerous properties. Omni later failed and was taken over by the FDIC. Beginning in October 2009, MERRIELL faced foreclosure on 14 different properties subject to Omni mortgages. In response, MERRIELL asked the FDIC to forgive $2.2 million in loan payments and instead allow him to “short sell” the properties to seven new purchasers at significantly reduced amounts. The seven new purchasers, however, were phony: the seven names MERRIEL presented to the FDIC were, in fact, stolen identities whose names were forged on sales contracts and counterfeit loan commitment letters. Under this scheme, if law enforcement had not intervened, Merriell would have retained control of the properties, and could then rent them for amounts in excess of the substantially reduced mortgage payment, or resell them at a profit.

A “short sale” occurs when a lender such as Omni Bank agrees to the sale of property—on which the current owner has defaulted—to a third party for less than the full amount due on the loan. Lenders are willing to accept “short sales” as a means of mitigating their losses on troubled loans. The MERRIELL “short sale” fraud was discovered through a sting operation conducted by the Special Inspector General for the Troubled Asset Relief Program (SIGTARP) with the assistance of the FDIC.

Other Omni-related prosecutions to date include:

JEFFREY L. LEVINE, 68, of Atlanta, Georgia, who pleaded guilty on January 14, 2010, to causing materially false entries that overvalued bank assets to be made in the books, reports, and statements of Omni, is scheduled to be sentenced on September 14, 2010, at 2:00 p.m., before United States District Judge Jack T. Camp.

DELROY OLIVER DAVY, 37, of Lithonia, Georgia, who pleaded guilty on May 11, 2010, to bank fraud and conspiracy to commit bank fraud, mail and wire fraud in connection with a scheme to fraudulently obtain millions of dollars of mortgage loans from Omni and other lenders, is scheduled to be sentenced on September 14, 2010, before United States District Judge Jack T. Camp.

CHRISTOPHER BERNARD LOVING, 32, of McDonough, Georgia, who pleaded guilty on June 24, 2010, to making false statements to agents of the Office of the Special Inspector General for the Troubled Asset Relief Program and the FDIC in connection with an investigation regarding Omni construction contracts, is scheduled to be sentenced on August 24, 2010, before United States District Judge Jack T. Camp.

MARK ANTHONY MCBRIDE, 44, of East Point Georgia, was sentenced on April 1, 2010, to over 16 years in prison for obtaining fraudulent loans from many lenders, including Omni.

This investigation is part of President Barack Obama’s Financial Fraud Enforcement Task Force. President Obama established the interagency Financial Fraud Enforcement Task Force to wage an aggressive, coordinated, and proactive effort to investigate and prosecute financial crimes. The task force includes representatives from a broad range of federal agencies, regulatory authorities, inspectors general, and state and local law enforcement who, working together, bring to bear a powerful array of criminal and civil enforcement resources. The task force is working to improve efforts across the federal executive branch, and with state and local partners, to investigate and prosecute significant financial crimes, ensure just and effective punishment for those who perpetrate financial crimes, combat discrimination in the lending and financial markets, and recover proceeds for victims of financial crimes.

This case was investigated by special agents of a mortgage fraud task force formed for Omni-related cases, made up of the Special Inspector General for the Troubled Asset Relief Program (SIGTARP), Housing and Urban Development Office of Inspector General (HUD-OIG), the United States Postal Inspection Service, the Federal Deposit Insurance Corporation Office of Inspector General (FDIC-OIG), and the Federal Bureau of Investigation. The task force is continuing to investigate a number of Omni-related matters.

Assistant United States Attorneys Gale McKenzie and Christopher Bly prosecuted the case.

For further information please contact Sally Q. Yates, United States Attorney, or John Horn, First Assistant United States Attorney, through Linda Isaac, U.S. Attorney’s Office, at (404) 581-6056. The Internet address for the HomePage for the U.S. Attorney’s Office for the Northern District of Georgia is www.justice.gov/usao/gan.

The United States Attorney’s Office for the Middle District of Pennsylvania announced that an Atlanta, Georgia resident was sentenced to 18 months in federal prison by Senior U.S. District Court Judge William J. Nealon for her role in a Luzerne County mortgage fraud scheme in 2005 and 2006.

According to United States Attorney Peter J. Smith, Nancy Barlet, age 52, previously pleaded guilty to a charge of mail fraud as an aider and abettor. Barlet admitted to providing false employment and income information on mortgage applications for numerous properties in the Wilkes-Barre area in 2005 and 2006. The fraud involved mortgages worth more than $400,000.

Barlet was charged in a criminal information filed by the United States Attorney’s Office in October 2008. The charge resulted from an investigation by the Federal Bureau of Investigation and Wilkes-Barre Police.

Judge Nealon also ordered Barlet to serve three years of supervised release following her prison sentence, and pay a special assessment of $100. The amount of restitution will be determined within 90 days.

U.S. Attorney Smith noted that the case was prosecuted by Assistant U.S. Attorney Francis P. Sempa.

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.

ATLANTA, GA—EDGAR J. BEAUDREAULT, JR., 61, of Alpharetta, Georgia, and HOWARD A. SPERLING, 45, of San Diego, California, were sentenced today by United States District Judge Clarence Cooper to federal prison on charges of conspiracy to commit wire fraud for their part in a scheme to defraud a California corrections facility operator of nearly $13 million.

United State Attorney Sally Quillian Yates said, “These defendants were part of an elaborate fraud scheme that ironically involved the construction of a prison. They will now experience how business is conducted inside a real prison.”

BEAUDREAULT was sentenced to three years, five months in prison to be followed by three years of supervised release, and ordered to pay restitution in the amount of $5,417,500. BEAUDREAULT pleaded guilty to the charges on December 17, 2008.

SPERLING was sentenced to five years, 10 months in prison to be followed by three years of supervised release, and ordered to pay restitution in the amount of $5,417,500. SPERLING pleaded guilty to the charges on February 2, 2009.

Both BEAUDREAULT and SPERLING cooperated with the government, and in February 2010, testified in the trial of co-defendant ROBERT B. SURLES, which resulted in guilty verdicts on 16 counts of conspiracy and wire fraud. SURLES is scheduled to be sentenced by Judge Cooper on June 22, 2010.

According to United States Attorney Yates, the charges and other information presented in court: From August 2003 through January 2004, BEAUDREAULT, SPERLING and SURLES conspired to defraud “Cornell Corrections of California, Inc.,” a private company that operates corrections facilities for various governmental units. In June 2003, Cornell Corrections contracted to have a corrections facility built in Canon City, Colorado for $13 million. The $13 million purchase price was to be held in an escrow account until the facility was completed.

In August 2003, the defendants induced Cornell Corrections to transfer its $13 million to an account in Atlanta, which they controlled, by falsely representing to Cornell that the account was an escrow account that was administered by a reputable bank. Upon receipt of Cornell Corrections’ $13 million, the defendants wire transferred the majority of Cornell’s $13 million to other accounts, to be used for their own purposes. Under the terms of their contract, the defendants were also to obtain a construction loan on behalf of “Western Comfort, Inc.” the general contractor who began construction of the facility. No loan was secured, making Western Comfort another victim of this scheme.

This case was investigated by special agents of the Federal Bureau of Investigation.

Assistant United States Attorneys Bernita B. Malloy and David E. McClernan prosecuted the case.

For further information please contact Sally Q. Yates, United States Attorney, or Charysse L. Alexander, Executive Assistant United States Attorney, through Patrick Crosby, Public Affairs Officer, U.S. Attorney’s Office, at (404) 581-6016. The Internet address for the HomePage for the U.S. Attorney’s Office for the Northern District of Georgia is www.justice.gov/usao/gan.

Trent Edward Wright, 38, of Cumming, Ga., was sentenced today by U.S. District Judge Timothy C. Batten, Sr. to serve one year and nine months in federal prison on a mail fraud charge involving a mortgage fraud scheme which victimized lenders and title insurance companies.

Acting U.S. Attorney Sally Quillian Yates said of today’s sentencing, “Lenders and title companies relied on this defendant as their closing attorney and agent and he was in a position of trust. He was supposed to pay off all prior encumbrances on properties to secure loans, and pass clear title as warranted by the title insurance. He didn’t. Now he is going to federal prison.”

Wright was sentenced to one year, nine months in prison to be followed by three years of supervised release, and was ordered to pay $2,409,760 in restitution to the victims of the scheme. There is no parole in the federal system. Wright pleaded guilty to the mail fraud charge in a criminal information on Dec. 17, 2009.

According to Acting U.S. Attorney Yates and the information presented in court: In September, October and November 2006, Wright, then a real estate closing attorney operating from an office in Sugar Hill, Ga., closed approximately 17 loans in which lenders were falsely assured that all prior loans encumbering the properties securing their loans had been paid off. Those lenders then believed that they would be in first position to recoup their loan amounts from the sale of the properties should they go into foreclosure. Wright also wrote title insurance for these loans although he failed to pay off numerous prior recorded liens which encumbered the properties. Rather than ordering title searches and requesting pay off amounts from all prior lenders as required before the new loan closings, Wright either failed to order title searches or disregarded recorded prior encumbrances, causing over $2.4 million in losses. Wright closed his law practice in January 2007, and surrendered his license to practice law in December 2009.

A co-conspirator in a related case, Edward William Farley, 47, of Hoschton, Ga., operated through a company called Alliance Resource Management (ARM) located in Lawrenceville, Ga., as the borrower who received the proceeds from the 17 mortgage loans closed by Wright. In seeking funds for other loans, Farley told real estate investors, lenders, and banks, that they would get returns of 14 percent to 60 percent. Farley also promised them that they, too, would be first position to recoup their loan amounts from the sale of the properties should they go into foreclosure. Farley in fact used the same property to falsely “fully secure” multiple lenders on that same property. This fraud caused losses in excess of $25 million.

Farley pleaded guilty to bank fraud and conspiracy on Nov. 5, 2009, and is scheduled for sentencing before Judge Batten on April 14, 2010. Farley could receive a maximum sentence of 30 years in prison and a fine of up to $1,000,000 on each of the two counts, plus full restitution to all victims who have not been repaid. In determining the actual sentence, the court will consider the U.S. Sentencing Guidelines, which are not binding but provide appropriate sentencing ranges for most offenders.

These cases are part of President Barack Obama’s Financial Fraud Enforcement Task Force. President Obama established the interagency Financial Fraud Enforcement Task Force to wage an aggressive, coordinated and proactive effort to investigate and prosecute financial crimes. The task force includes representatives from a broad range of federal agencies, regulatory authorities, inspectors general, and state and local law enforcement who, working together, bring to bear a powerful array of criminal and civil enforcement resources. The task force is working to improve efforts across the federal executive branch, and with state and local partners, to investigate and prosecute significant financial crimes, ensure just and effective punishment for those who perpetrate financial crimes, combat discrimination in the lending and financial markets, and recover proceeds for victims of financial crimes.

Trent Edward Wright, 38, of Cumming, Ga., was sentenced today by U.S. District Judge Timothy C. Batten, Sr. to serve one year, nine months in federal prison on a mail fraud charge involving a mortgage fraud scheme which victimized lenders and title insurance companies.

Acting U.S. Attorney Sally Quillian Yates said of today’s sentencing, “Lenders and title companies relied on this defendant as their closing attorney and agent and he was in a position of trust. He was supposed to pay off all prior encumbrances on properties to secure loans, and pass clear title as warranted by the title insurance. He didn’t. Now he is going to federal prison.”

Wright was sentenced to one year, nine months in prison to be followed by 3 years of supervised release, and ordered to pay $2,409,760 in restitution to the victims of the scheme. There is no parole in the federal system. Wright pleaded guilty to the mail fraud charge in a criminal information on Dec. 17, 2009.

According to Acting U.S. Attorney Yates and the information presented in court: In September, October and November 2006, Wright, then a real estate closing attorney operating from an office in Sugar Hill, Ga., closed approximately 17 loans in which lenders were falsely assured that all prior loans encumbering the properties securing their loans had been paid off. Those lenders then believed that they would be in first position to recoup their loan amounts from the sale of the properties should they go into foreclosure. Wright also wrote title insurance for these loans although he failed to pay off numerous prior recorded liens which encumbered the properties. Rather than ordering title searches and requesting pay off amounts from all prior lenders as required before the new loan closings, Wright either failed to order title searches or disregarded recorded prior encumbrances, causing over $2.4 million in losses. Wright closed his law practice in January 2007, and surrendered his license to practice law in December 2009.

A co-conspirator in a related case, Edward William Farley, 47, of Hoschton, Ga., operated through a company called Alliance Resource Management (ARM) located in Lawrenceville, Ga., as the borrower who received the proceeds from the 17 mortgage loans closed by Wright. In seeking funds for other loans, Farley told real estate investors, lenders, and banks, that they would get returns of 14% to 60%. Farley also promised them that they, too, would be first position to recoup their loan amounts from the sale of the properties should they go into foreclosure. Farley in fact used the same property to falsely “fully secure” multiple lenders on that same property. This fraud caused losses in excess of $25 million.

Farley pleaded guilty to bank fraud and conspiracy on Nov. 5, 2009, and is scheduled for sentencing before Judge Batten on April 14, 2010. Farley could receive a maximum sentence of 30 years in prison and a fine of up to $1,000,000 on each of the two counts, plus full restitution to all victims who have not been repaid. In determining the actual sentence, the court will consider the U.S. Sentencing Guidelines, which are not binding but provide appropriate sentencing ranges for most offenders.

These cases are part of President Barack Obama’s Financial Fraud Enforcement Task Force. President Obama established the interagency Financial Fraud Enforcement Task Force to wage an aggressive, coordinated and proactive effort to investigate and prosecute financial crimes. The task force includes representatives from a broad range of federal agencies, regulatory authorities, inspectors general, and state and local law enforcement who, working together, bring to bear a powerful array of criminal and civil enforcement resources. The task force is working to improve efforts across the federal executive branch, and with state and local partners, to investigate and prosecute significant financial crimes, ensure just and effective punishment for those who perpetrate financial crimes, combat discrimination in the lending and financial markets, and recover proceeds for victims of financial crimes.

A Georgia man is facing mortgage fraud charges after allegedly printing up $1.6 billion in bogus U.S. Treasury bonds and trying to buy a house, officials said.

Authorities said Lloyd Clifford Norris, 57, of Duluth was being held without bond following his arrest last week, The Atlanta Journal-Constitution reported Tuesday.

Gwinnett County sheriff’s investigators were tipped off Feb. 1 by a lawyer that Norris intended to buy a house using a registered promissory note supposedly certified by U.S. Treasury Secretary Timothy Geithner, Gwinnett police Cpl. David Schiralli said.

“A copy of the promissory note was given to the investigator and with the assistance of the U.S. Treasury, the note was confirmed to be fraudulent,” Schiralli said.

Norris attended a loan closing at the attorney’s office Thursday and allegedly presented the $225,000 note for payment to purchase a Lawrenceville house, the Journal-Constitution reported.

Norris was arrested after investigators allegedly confirmed he signed the loan documents under false pretenses, the newspaper reported.

Schiralli said Norris also brought several more counterfeit promissory notes with him in the amount of $600 million. Investigators entered Norris’s home on a search warrant and allegedly seized about $1 billion in phony notes.

ATLANTA – Metro Atlanta’s foreclosure notices jumped a whopping 27% this month over January.

More than 10,000 of those notices came in the 13-county metro area, according to Alpharetta’s Equity Depot.

That bad news is sure to spur on some state lawmakers who’re trying to reform Georgia’s mortgage laws and crack down on fraud.

JoAnne Hall of Decatur is one of the lucky homeowners.

Four years ago, she refinanced the mortgage on her Decatur home of 35 years for some needed improvements.

About a year later, her monthly payment on what she thought was a fixed, 30-year loan began to explode.

“It was going up, up, up so fast ’til I couldn’t keep up,” the 66-year-old disabled retired nurse’s aide told 11 Alive News on Monday.

She was able to restructure what turned out to be an adjustable loan and hang onto her home thanks to the help of Atlanta Legal Aid.

But she was one of the few fortunate ones in a sea of foreclosures.

“Left unchecked, we’ll see all of these problems arise again 5 to 10 years down the road,” says State Representative Mike Jacobs (R-Atlanta).

Jacobs chaired a House Judiciary Sub-committee hearing Monday that began studying some bills that would revamp Georgia’s mortgage laws.

HB 972 would lengthen the state’s foreclosure period to 90 days instead of the current 30 days, which is one of the shortest in the nation.

SB 57, which passed the State Senate last year and is now in the House, would make several changes, including doing away with prepayment penalties and requiring a lender to make sure the borrower can afford loan payments before signing.

Some banking groups say the wording of the laws goes too far, while some consumer advocates think the bills are too pro-banking.

Either way, they are beginning to get traction as new figures continue to show the foreclosure crisis is still around.

Meanwhile, Governor Sonny Perdue is trying to do something about another embarrassing statistic…that Georgia ranks fourth in the nation in mortgage fraud.

One of his floor leaders, Sen. Bill Cowsert (R-Athens), has introduced a bill to create a GBI Mortgage Fraud Task Force to prosecute lawbreakers statewide.

“Our interest is in where fraud took place either by the borrower or the lender or the broker in that area,” the Governor tells 11 Alive News.

Lawmakers are also looking into whether Georgia’s mortgage reform bills might conflict with similar changes being made by the U.S. Congress and President Obama.

Many still want the state to have its own tougher mortgage laws no matter what Washington does.

Atlanta’s downtrodden neighborhoods proved a gold mine for Omni National Bank and its founders, who amassed tens of millions of dollars’ worth of mansions, company stock and a private jet after launching an unusual bank that financed renovations of inner-city houses.

Four men in total were arrested of bank fraud in which they routinely doctored their records to hide losses, and a loan officer took kickbacks in return for doling out loans. Omni allowed people to “flip” houses three, four and even five times, artificially inflating their value, Georgia prosecutors said.

“This is just the tip of the iceberg,” said Ralph Roberts, a Macomb real estate broker and author of a book on mortgage fraud who tipped off authorities about the Omni National Bank case. “You’re going to be seeing more cases. When the economy suffers, people start to do bad things.”

Ralph Roberts, said people across the country told him they were victims of the scheme. “Everyone I talked to lost everything they put in,” said Roberts. “It wasn’t set up to make [them] money. It was set up to make inner-city real estate broker, Delroy Davy money.” Some related to Roberts that they were chauffeured around Atlanta on a tour bus that included a stop at Davy’s sprawling mansion.

Davy recruited “straw buyers” to obtain fraudulent loans. For years, Omni was a magnet for these so-called property flippers, some of whom made superficial repairs and then resold the homes at inflated prices.

Roberts, a Realtor from Macomb daily researches these cases involving mortgage fraud throughout North America, is aware of the rising frequency of fraud in the nation. His daily blog, FlippingFrenzy.com, from Macomb exposes hundreds of fraud cases. “I want families to understand one thing,” alerts Roberts. “Real estate fraud is not a victimless crime. The bank loses money. The seller loses money on the house. But, even more significantly, the entire community loses value, and ultimately, the tax base erodes.

“When people are trying to sell their homes and they have foreclosures on their street, it lowers their value and makes it harder to sell their home,” Roberts continued. “Some folks won’t buy into a neighborhood with foreclosed homes. This is the spreading ripple effect.”

Macomb County’s foreclosure expert was instrumental in exposing a mortgage fraud ring in 2008 and 2009 when four Michigan men were accused of mortgage fraud in which they illegally made more than $300,000 by selling two upscale homes at inflated values to a “straw buyer.”

The case, involved homes in Washington and Shelby townships that went into foreclosure, was part of a rising frequency of real estate fraud in Michigan and the nation, according to Roberts.

The growing problem prompted the Michigan Attorney General, Michael Cox and the Michigan State Police two years ago to form a mortgage fraud task force, which investigates these cases in our state.

Formally charged in 41B District Court in Clinton Township with racketeering, which carries a penalty of up to 20 years, and two counts each of false pretenses, a 10-year felony, were Dequincy Hyatt, 27, of Detroit, a managing partner in J.B.Homes and Construction; Seaesther Thompson-Hayes, 50, of Flat Rock, a mortgage broker; and Aaron Brooks Jr., 26, of Southgate, a former service representative for the People’s Trust Credit Union.

A fourth man, builder Pietro Biundo, 35, who built the Washington Township house and lived in the same subdivision, was charged in a warrant with a lesser degree of false pretenses but has not been formally charged.

In the Washington Township case, the Adams Drive home in Washington Pointe subdivision near 28 Mile and Mound roads initially listed for $679,000 but eventually dropped to $530,000.

The straw buyer obtained a mortgage for $785,000, $225,000 more than the asking price, according to Roberts. Investigators never determined amount taken or how the defendants used the additional $225,000.

Biundo reported on the deed that the home sold for $140,000, which drastically decreased the assessed value and surrounding property taxes.

In the Shelby Township case, defendants skimmed about $163,000 from the transaction in which a $510,000 home was sold for $710,000 to the same straw buyer, according to Cox.

Gina Patrona, who lives across the street from the Washington Township home, said the home was in “terrible shape” with no grass, window treatments or furniture. Together with a second foreclosed home nearby, her home’s property value was negatively affected.

“I don’t think we could sell our home for half of what we put into it,” she said Wednesday.

Cox in a prepared statement echoed the words of Ralph Roberts by pointing out the negative impact on the economy as a whole.

“The housing market, consumers and mortgage lenders suffer when scam artists limit the ability of law-abiding citizens to obtain loans,” Cox said. “With those loans, consumers would be buying a home or a car, something our economy desperately needs for recovery.”

The Atlanta Case Mirrors Detroit

“Such schemes have worsened the damage in some of Atlanta’s struggling neighborhoods,” said Brent Brewer, a civil engineer turned neighborhood activist.

Several houses flipped with Omni National Bank financing have driven up property taxes in his West End neighborhood, he said. Yet the homes mostly sit vacant, attracting criminals and squatters.

The most explosive charge in the Atlanta case alleges Delroy Davy paid kickbacks to an unnamed loan officer at Omni who gave approval for funding to investors who wanted to buy his inner-city properties.

In a flipping case with Michigan connections, an East Point man, Mark Anthony McBride, pleaded guilty to falsifying his identity and using straw borrowers to obtain millions in loans from Omni only days after his release from prison.

Omni is “the most egregious of the lenders because they’re local. They know if the appraisals are correct,” said Brewer

Brewer said Omni repossessed, sold and financed one house near him three separate times, even though for much of that time it sat vacant and windowless, with huge sections of its exterior walls torn away.

Property records confirm Omni took possession and resold the house three times in two years at rising values, following a pattern that allowed the bank to hide its growing number of foreclosures.

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To update a story I wrote on May 29, 2008 (“Real Estate Fraud and the Real Estate Investor: Banks can be victims too!“), Omni Financial Services Inc., the bank holding company for Omni National Bank, is now officially operating under a mandatory regulatory oversight plan put into place by the Federal Reserve Bank of Atlanta.

For anyone interested in diving deep into this one, here’s the exact text from the written agreement between the Federal Reserve Bank of Atlanta and Omni Financial Services, Inc.:

UNITED STATES OF AMERICA
BEFORE THE
BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM WASHINGTON, D.C.

Written Agreement by and between

OMNI FINANCIAL SERVICES, INC.
Atlanta, Georgia

and

FEDERAL RESERVE BANK OF ATLANTA
Atlanta, Georgia

Docket No. 09-022-WA/RB-HC

WHEREAS, Omni Financial Services, Inc., Atlanta, Georgia (“Omni”), a registered bank holding company, owns and controls Omni National Bank, Atlanta, Georgia (the “Bank”), a national bank, and various nonbank subsidiaries;

WHEREAS, it is the common goal of Omni and the Federal Reserve Bank of Atlanta (the “Reserve Bank”) to maintain the financial soundness of Omni so that Omni may serve as a source of strength to the Bank;

WHEREAS, Omni and the Reserve Bank have mutually agreed to enter into this Written Agreement (the “Agreement”); and

WHEREAS, on March 16, 2009, the board of directors of Omni, at a duly constituted meeting, adopted a resolution authorizing and directing Stephen M. Klein to enter into this Agreement on behalf of Omni, and consenting to compliance with each and every provision of this Agreement by Omni and its institution-affiliated parties, as defined in sections 3(u) and 8(b)(3) of the Federal Deposit Insurance Act, as amended (the “FDI Act”) (12 U.S.C. §§ 1813(u) and 1818(b)(3)).

NOW, THEREFORE, Omni and the Reserve Bank agree as follows:

Capital Plan

1. Within 30 days of this Agreement, Omni shall submit to the Reserve Bank an acceptable written plan to maintain sufficient capital at Omni, on a consolidated basis, and the Bank, as a separate legal entity on a stand-alone basis. The plan shall, at a minimum, address, consider, and include:

(a) The consolidated organization’s and the Bank’s current and future capital requirements, including compliance with the Capital Adequacy Guidelines for Bank Holding Companies: Risk-Based Measure and Tier 1 Leverage Measure, Appendices A and D of Regulation Y of the Board of Governors of the Federal Reserve System (the “Board of Governors”) (12 C.F.R. Part 225, App. A and D) and the applicable capital adequacy guidelines for the Bank issued by the Bank’s federal regulator;

(b) the adequacy of the Bank’s capital, taking into account the volume of classified credits, concentrations of credit, allowance for loan and lease losses (“ALLL”), current and projected asset growth, and projected retained earnings;

(c) the source and timing of additional funds to fulfill the consolidated organization’s and the Bank’s future capital requirements;

(d) supervisory requests for additional capital at the Bank or the requirements of any supervisory action imposed on the Bank by its federal regulator;

(e) the requirements of section 225.4(a) of Regulation Y of the Board of Governors (12 C.F.R. § 225.4(a)) that Omni serve as a source of strength to the Bank; and

(f) procedures for Omni to: (i) notify the Reserve Bank, in writing, no more than 30 days after the end of any quarter in which Omni’s consolidated capital ratios or the Bank’s capital ratios (total risk-based, tier 1 risk-based, or leverage) fall below the plan’s minimum ratios; and (ii) submit simultaneously to the Reserve Bank an acceptable written plan that details the steps Omni will take to increase its and the Bank’s capital ratios above the plan’s minimums.

Accounting Policies and Procedures

2. Within 30 days of this Agreement, Omni shall submit to the Reserve Bank acceptable written accounting policies and procedures for the consolidated organization that are designed to enhance the accounting controls over Omni’s books and records and to ensure the accuracy of Omni’s books and records, which shall, among other things include, but not be limited to:

(a) A separate general ledger system which shall track Omni’s assets and liabilities, and shareholders’ equity separately from the Bank’s; and

(b) segregation of and physical control over Omni’s assets separate and apart from the Bank’s assets.

Affiliate and Insider Transactions

3. (a) Omni shall take all necessary actions to ensure that the Bank complies with sections 23A and 23B of the Federal Reserve Act (12 U.S.C. §§ 371c and 371c-1) and Regulation W of the Board of Governors (12 C.F.R. Part 223) in all transactions between the Bank and its affiliates, including, but not limited to, Omni, and its nonbank subsidiaries. Omni shall maintain a written record of each transaction between Omni, its nonbank subsidiaries, and the Bank and make such record available for subsequent supervisory review.

(b) For the purposes of this paragraph, the terms: (i) “transaction” shall include, but not be limited to, the transfer, contribution, sale or purchase of any Bank asset, the direct or indirect payment of any Omni expense or obligation, the direct or indirect assumption of any Omni liability, the payment by the Bank of a management or service fee of any nature to Omni, or any extension of credit by the Bank to Omni, including overdrafts; and (ii) “extension of credit” shall be defined as set forth in section 215.3 of Regulation O of the Board of Governors (12 C.F.R. 215.3).

4. (a) Omni shall not, directly or indirectly, enter into, participate, or, in any other manner, engage in any financial transaction with any of Omni’s or the Bank’s current or former executive officers, directors, principal shareholders or related interest thereof without the prior written approval of the Reserve Bank.

(b) Any request for prior approval shall be accompanied by adequate documentation that provides details of each proposed transaction, including a full description of the proposal, the purpose(s) of the transaction, the amounts involved, the benefits to be derived by the Omni, the Bank, or the current or former executive officer, director, principal shareholder or related interest thereof and such other matters that may be pertinent to the proposed payment or transaction to assist the Reserve Bank’s review of each proposal.

(c) For the purposes of this paragraph, the terms: (i) “director,” “executive officer,” “principal shareholder,” and “related interest” shall be defined as set forth in section 215.2 of Regulation O of the Board of Governors (12 C.F.R. 215.2); and (ii) “financial transaction” shall include, but is not limited to: an extension of credit; the use of Omni’s credit card for personal expenses; the payment of money; the transfer, sale or purchase of any asset; a contract; or Omni’s payment of any obligation of Omni’s or the Bank’s current or former executive officers, directors, principal shareholders or related interest thereof. Notwithstanding the foregoing definition of “financial transaction,” for the purposes of this paragraph, “financial transaction” shall not include the payment of fees and salaries to executive officers and directors and the reimbursement of expenses provided that similar types and amounts of payments have previously been made and fully documented on Omni’s books and records.

Compensation

5. (a) Omni shall not, directly or indirectly, increase salaries, bonuses, or directors’ fees, or make any other payments, including, but not limited to, reimbursement of expenses or payment of indebtedness, to or on behalf of any of Omni’s directors or executive officers without the prior written approval of the Reserve Bank.

(b) Notwithstanding the provisions of this paragraph, Omni does not need to obtain the prior written approval of the Reserve Bank for the reimbursement of reasonable expenses that aggregate no more than $500 per month for each executive officer, provided that such reasonable expenses are incurred in performing routine duties, which have been adequately documented and reported on Omni’s books and records.

Dividends and Distributions

6. (a) Omni shall not declare or pay any dividends without the prior written approval of the Reserve Bank and the Director of the Division of Banking Supervision and Regulation of the Board of Governors (the “Director”).

(b) Omni shall not directly or indirectly take dividends or any other form of payment representing a reduction in capital from the Bank without the prior written approval of the Reserve Bank.

(c) Omni and its nonbank subsidiaries shall not make any distributions of interest, principal, or other sums on subordinated debentures or trust preferred securities without the prior written approval of the Reserve Bank and the Director.

(d) All requests for prior approval shall be received by the Reserve Bank at least 30 days prior to the proposed dividend declaration date, proposed distribution on subordinated debentures, and required notice of deferral on trust preferred securities. All requests shall contain, at a minimum, current and projected information on Omni’s capital, earnings, and cash flow; the Bank’s capital, asset quality, earnings, and ALLL; and identification of the sources of funds for the proposed payment or distribution. For requests to declare or pay dividends, Omni must also demonstrate that the requested declaration or payment of dividends is consistent with the Board of Governors’ Policy Statement on the Payment of Cash Dividends by State Member Banks and Bank Holding Companies, dated November 14, 1985 (Federal Reserve Regulatory Service, 4-877 at page 4-323).

Debt and Stock Redemption

7. (a) Omni and any nonbank subsidiary shall not, directly or indirectly, incur, increase, or guarantee any debt without the prior written approval of the Reserve Bank. All requests for prior written approval shall contain, but not be limited to, a statement regarding the purpose of the debt, the terms of the debt, and the planned source(s) for debt repayment, and an analysis of the cash flow resources available to meet such debt repayment.

(b) Omni shall not, directly or indirectly, purchase or redeem any shares of its stock without the prior written approval of the Reserve Bank.

Compliance with Laws and Regulations

8. (a) In appointing any new director or senior executive officer, or changing the responsibilities of any senior executive officer so that the officer would assume a different senior executive officer position, Omni shall comply with the notice provisions of section 32 of the FDI Act (12 U.S.C. § 1831i) and Subpart H of Regulation Y of the Board of Governors (12 C.F.R. §§ 225.71 et seq.).

(b) Omni shall comply with the restrictions on indemnification and severance payments of section 18(k) of the FDI Act (12 U.S.C. § 1828(k)) and Part 359 of the Federal Deposit Insurance Corporation’s regulations (12 C.F.R. Part 359).

Progress Reports

9. Within 30 days after the end of each calendar quarter following the date of this Agreement, the board of directors shall submit to the Reserve Bank written progress reports detailing the form and manner of all actions taken to secure compliance with the provisions of this Agreement and the results thereof, and a parent company only balance sheet, income statement, and, as applicable, a report of changes in stockholders’ equity.

Approval and Implementation of Plan, Policies, and Procedures

10. (a) Omni shall submit a written capital plan and accounting policies and procedures that are acceptable to the Reserve Bank within the applicable time periods set forth in paragraphs 1 and 2 of this Agreement.

(b) Within 10 days of approval by the Reserve Bank, Omni shall adopt the approved capital plan and accounting policies and procedures. Upon adoption, Omni shall promptly implement the approved plan and policies and procedures, and thereafter fully comply with them.

(c) During the term of this Agreement, the approved capital plan and accounting policies and procedures shall not be amended or rescinded without the prior written approval of the Reserve Bank.

Communications

11. All communications regarding this Agreement shall be sent to:

(a) Mr. Robert D. Hawkins
Assistant Vice President
Federal Reserve Bank of Atlanta
1000 Peachtree Street, N.E.
Atlanta, Georgia 30309-4470

(b) Stephen M. Klein
Chairman and CEO
Omni Financial Services, Inc.
Six Concourse Parkway, Suite 2300
Atlanta, Georgia 30328

Miscellaneous

12. Notwithstanding any provision of this Agreement, the Reserve Bank may, in its sole discretion, grant written extensions of time to Omni to comply with any provision of this Agreement.

13. The provisions of this Agreement shall be binding upon Omni and its institution- affiliated parties, in their capacities as such, and their successors and assigns.

14. Each provision of this Agreement shall remain effective and enforceable until stayed, modified, terminated, or suspended in writing by the Reserve Bank.

15. The provisions of this Agreement shall not bar, estop, or otherwise prevent the Board of Governors, the Reserve Bank, or any other federal or state agency from taking any other action affecting Omni, the Bank, any nonbank subsidiary of Omni, or any of their current or former institution-affiliated parties and their successors and assigns.

16. Pursuant to section 50 of the FDI Act (12 U.S.C. § 1831aa), this Agreement is enforceable by the Board of Governors under section 8 of the FDI Act (12 U.S.C. § 1818).

IN WITNESS WHEREOF, the parties have caused this Agreement to be executed as of the 16th day of March, 2009.

Signed by Stephen M. Klein
Chairman and CEO, Omni Financial Services, Inc.

Signed by Robert D. Hawkins
Assistant Vice President,
Federal Reserve Bank of Atlanta

According to the FDIC’s latest Summary of Deposits for Omni National Bank (June 30, 2008), the bank’s holding company, Omni Financial Services, Inc., had $846,839,000 in customer deposits in 10 offices spread across five different states (Georgia, Florida, Illinois, North Carolina, and Texas). Capital Bank, a subsidiary of Capital Bank Corporation, acquired Omni’s four branches in Fayetteville, North Carolina in mid-December, 2008.

Omni National Bank is now participating in the FDIC’s Transaction Account Guarantee Program. Under that program, through December 31, 2009, all of the Bank’s noninterest-bearing transaction accounts are fully guaranteed by the FDIC for the entire amount in the account.

Finally, according to numerous comments left here on FlippingFrenzy.com, many home owners and investors who became acquainted with Omni National Bank through Delroy Davy are still searching for answers and justice in their quest to recover from their business dealings with Delroy Davy.

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.

It is rare that an opportunity like this presents itself.

Earlier today I received the following message from Special Agent Michelle Ahmad in the Office of Inspector General at the U.S. Department of Housing and Urban Development.

NOTE: For anyone interested in following through with Ms. Ahmad’s offer, please note that the offer itself is made ONLY in connection with claims involving Delroy Davy and/or DNK Investment Group, as outlined in my May 29, 2008 blog entry here on FlippingFrenzy.com titled “Real Estate Fraud and the Real Estate Investor: Banks can be victims too!”

Ralph,

You may post on your website, my information as follows:

If you have been a victim (Editor’s Note: of Delroy Davy or DNK Investment Group) and want to file a complaint, please contact me via email only: mahmad@hudoig.gov

Thanks,

Michelle Ahmad, Special Agent
US Department of Housing and Urban Development
Office of Inspector General, Investigations
75 Spring Street SW, Suite 346
Atlanta, Georgia 30303 USA

Tips for Contacting Special Agent Ahmed

• Do not contact Special Agent Ahmad unless you have a claim related to the details outlined in the following Flipping Frenzy blog post: “Real Estate Fraud and the Real Estate Investor: Banks can be victims too!“
• Be specific in your email communication (do not ramble or provide incomplete or unrelated information).
• Be sure to include your contact information, including: Your Name, Your Mailing Address, Your Telephone Number, Your Preferred Email Address for Replies, etc.).
• Provide as much information as possible but DO NOT include attachments (attachments are often blocked when sent to government email addresses; wait for a reply suggesting that you send additional materials before doing so).

Thank you, Special Agent Ahmad, for making yourself available like this. And thank you to everyone who plays a role in spotting, reporting and stopping real estate and mortgage fraud.

= = = = =
Update: You may also call Special Agent Ahmad’s office at (678) 732-2050.

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.

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

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.

Corrected 8/6/08 — 2:50 p.m. ET

To follow up on my post from last Thursday (“Real Estate Fraud and the Real Estate Investor“), on February 7 of this year, Omni Financial Services, Inc. (NASDAQ: OFSI)–the publicly held bank holding company for Omni National Bank–issued a press release stating there would be a delay in the release of its December 31st, 2007 financial results because the company detected “lending policy violations and internal control deficiencies.” However, nearly four months later, at least one bank employee accused of fostering an environment where such policy violations thrived, is still working at the company’s full-service branch in Atlanta, according to the company’s own website.

In the same press release, accessible here, Omni Financial Services, Inc. stated it had made “certain personnel changes and provided additional staff training and support predominantly in the community lending division.” If by “community lending division” Omni means its “Redevelopment Lending Division” (there is no “community lending division” listed on the Omni corporate site… only a “Redevelopment Lending Division” that the company’s website states has “…provided thousands of redevelopment loans to a wide range of investors.”), my sense is the training didn’t take!

If in fact Omni Financial Services provided such staff training, why did it not stress to bank employee and redevelopment specialist Greg Patten–or his supervisors–that demanding that a loan applicant engage the services of DNK Investment Group and Delroy Davy only or their loan application would be denied is a flagrant abuse of his position and the bank’s standing in the greater Atlanta community. As I stated in my post from last Thursday, as a Federally Chartered Bank, Omni and its employees should be familiar with the RESPA rules, and might be expected to follow them as good compliance procedures or “Best Practices.” At the very least, Greg Patten’s actions are questionable and may lead us to believe that there could have been some sort of transactional/kickback arrangement between himself, Delroy Davy, and perhaps even Omni Financial Services itself.

I mean, come on… think about it for a second. Internal auditors should have called into question how and why out-of-town investors from California gained access to tiny Atlanta-based DNK Real Estate Investment Group and Delroy Davy. And then, one would think, internal auditors would investigate the relationship to the point where they’d come to learn that Delroy Davy had never held a Georgia Real Estate Commission Certification of Licensure, and that DNK Real Estate Investment Group similarly held no such validating credentials from the State of Georgia; two omissions which in and of itself should have been blazing red flags right in front of any internal auditing team’s own noses.

Perhaps all of this is for not. Just two weeks ago, Omni Financial Services, Inc. received a letter from the Listing Qualifications Staff of The Nasdaq Stock Market notifying the company that it currently fails to comply with Nasdaq’s filing requirement for continued listing set forth in Nasdaq Marketplace Rule, which by the way requires timely filing of periodic SEC reports, and that its common stock is therefore subject to delisting from The Nasdaq Global Market. As of this evening, Omni Financial Services, Inc’s stock was trading at 80 cents, which is nearly $10 below its most recent 52-week high of $10.52.

Omni Financial Services, Inc. has for a Thursday (tomorrow) hearing before a Nasdaq Listing Qualifications Panel, at which it says will present a plan for regaining compliance. As you might expect, I’ll be watching for relevant information from the Thursday meeting, and if anything new surfaces, you can count on learning about here on FlippingFrenzy.com.