Caused Loss of Over $850,000 to Banks
GREENBELT, MD—Lynzi Malissa Richardson, age 31, of Glenn Dale, Maryland, pleaded guilty today to conspiring to commit wire fraud in connection with making false statements to obtain three home mortgages within a three month period.
The guilty plea was announced by United States Attorney for the District of Maryland Rod J. Rosenstein; Assistant Inspector General for Investigations Harvey Witherspoon of the Board of Governors of the Federal Reserve System – Office of Inspector General; and Special Agent in Charge Richard A. McFeely of the Federal Bureau of Investigation.
According to Richardson’s plea agreement and court documents, between June and September 2007, Richardson, Melva Massey, her husband D’Von Massey and others submitted mortgage applications for three properties in Washington, D.C. to different banks. Richardson submitted the loan applications with the following fraudulent documents: a rental lease created by Richardson which purported to show that the Masseys had substantial rental income; a cashier’s check fraudulently altered by Richardson to show that the Masseys were the payees, when in fact they were not; and a verification of deposit purporting to show that the Masseys had over $50,000 in deposits, when in fact no such account existed. Richardson used her employment at a bank to general some of the false documents. The three banks approved the mortgage loans in the total amount of $1,205,267.
Each of the three properties went into foreclosure or short sale, resulting in a total loss to the banks of $859,190.
Richardson faces a maximum sentence of 20 years in prison and a $1 million fine. U.S. District Judge Alexander Williams, Jr. scheduled her sentencing for January 12, 2011 at 9:30 a.m.
Melva Massey, age 29, and D’Von Massey, age 37, both of Waldorf, Maryland, previously pleaded guilty to the conspiracy and are scheduled to be sentenced on December 15, 2010 and January 6, 2011, respectively.
The Maryland Mortgage Fraud Task Force was established to unify the agencies that regulate and investigate mortgage fraud and promote the early detection, identification, prevention and prosecution of mortgage fraud schemes. This case, as well as other cases brought by members of the Task Force, demonstrates the commitment of law enforcement agencies to protect consumers from fraud and promote the integrity of the credit markets. Information about mortgage fraud prosecutions is available http://www.justice.gov/usao/md/Mortgage-Fraud/index.html.

BALTIMORE, MD—James William Fox II, age 40, of Crofton, Maryland, pleaded guilty today to conspiracy to commit wire fraud in connection with a mortgage fraud scheme which promised to help homeowners facing foreclosure keep their homes, but left them with no equity and no longer holding the title to their properties.

The guilty plea was announced by United States Attorney for the District of Maryland Rod J. Rosenstein; Special Agent in Charge Richard A. McFeely of the Federal Bureau of Investigation; and Special Agent in Charge Ken Taylor, Jr. of the Housing and Urban Development Office of Inspector General – Office of Investigations.

According to Fox’s plea agreement, he met James Hooper Dan, age 45, of Annapolis, Maryland, when both were loan officers at a mortgage brokerage in Annapolis. Beginning in 2006, Fox began to identify prospective borrowers who owned and had equity in their homes, but who could not afford their mortgage payments and were at risk of losing their homes because they were either in foreclosure, bankruptcy or financial distress. Fox, and sometimes Fox and Dan, told potential victims that they could “rescue” them and save their houses. The promises involved transferring the home to Fox or Dan, who would obtain a new mortgage loan. Fox and Dan promised to make the payments on the new mortgage loan for six months or a year, during which time the individual would “repair” their credit, refinance the property and reacquire it. During this six month or one-year period, the individual was to continue living in the house.

In order to obtain the mortgage loans in their names, Fox and Dan made materially false and fraudulent loan applications including falsification of their intent to occupy the property, annual income, savings, other properties owned, and source of the borrower’s funds for closing. Fox was typically the loan officer for Dan’s loans and was aware of Dan’s material misrepresentations.

According to the plea agreement, from April 20, 2006 through July 5, 2007, Fox and Dan transferred eight properties from financially distressed homeowners to themselves or straw purchasers they recruited. The properties were located in Waldorf, Capitol Heights, Baltimore, Silver Spring, Pasadena and Hagerstown, Maryland, as well as Glen Rock, Pennsylvania and Chesterfield, Virginia. The settlement statements (sometimes called HUD-1s) used at the settlements were false. In each instance, Fox, Dan, or the straw purchaser was supposed to produce the buyer’s funds to close at settlement from their own resources. These funds actually came from the seller’s proceeds, or from money borrowed from others, so that Fox invested no funds of his own in any transaction. Although Fox and Dan were the buyers of the properties, they obtained proceeds from the equity in the properties by making material false representations to financial institutions making the loans. In addition, the sellers paid over to Fox and Dan, or one of their companies, monies that were identified on the HUD-1 as the sellers’ proceeds of the property sales. Fox and Dan shared some of these proceeds with the sellers either directly or by paying off sellers’ debts, but put the remainder in their own bank accounts. Although Fox and Dan made some mortgage payments on each of the properties, they eventually defaulted on the mortgage loans, and all eight properties went into default. None of the victims is in title of their homes.

The government contends that the loss as the result of this scheme is between $1 million and $2.5 million, with the exact amount to be determined at sentencing. As part of his plea agreement, Fox will be required to pay restitution in the full amount of the loss.

Fox faces a maximum sentence of 20 years in prison followed by three years of supervised release and a fine of $250,000. U.S. District Judge J. Frederick Motz scheduled his sentencing for December 16, 2010 at 9:00 a.m. Dan previously pleaded guilty to the same charge. No sentencing date has been scheduled.

The Maryland Mortgage Fraud Task Force was established to unify the agencies that regulate and investigate mortgage fraud and promote the early detection, identification, prevention, and prosecution of mortgage fraud schemes. This case, as well as other cases brought by members of the Task Force, demonstrates the commitment of law enforcement agencies to protect consumers from fraud and promote the integrity of the credit markets. Information about mortgage fraud prosecutions is available http://www.justice.gov/usao/md/Mortgage-Fraud/index.html.

This law enforcement action 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.

United States Attorney Rod J. Rosenstein thanked the Maryland Crime Victims’ Resource Center, Inc. for their assistance to victims in this case.

United States Attorney Rod J. Rosenstein thanked the FBI and HUD-OIG, Office of Investigations for their work in this investigation and commended Assistant U.S. Attorney Joyce K. McDonald, who is prosecuting the case.

GREENBELT, MD—A federal grand jury has indicted Darryl Stanley Paxton, Jr., a/k/a David Sosa, age 34, of Broward County, Florida, formerly of Maryland, on charges of wire fraud, money laundering, and fraudulent use of a Social Security number in connection with a scheme to defraud lenders of over $1.8 million, using a false identity. The indictment was returned on July 14, 2010 and unsealed today upon the arrest of the defendant in Broward County, Florida, on state charges there.

The indictment was announced by United States Attorney for the District of Maryland Rod J. Rosenstein; Special Agent in Charge Richard A. McFeely of the Federal Bureau of Investigation; and Special Agent in Charge Michael McGill of the Social Security Administration – Office of Inspector General, Philadelphia Field Division.

According to the 15-count indictment, between 1997 and 2007 Paxton utilized the identification, including the Social Security numbers of a man and woman, both of whom had the initials DEB. During that period of time, Paxton began to use the fictitious identity, David Sosa, creating or obtaining a fraudulent Virginia driver’s license purportedly issued on May 12, 1999, in the name of David Sosa. Paxton also created or obtained Georgia and District of Columbia driver’s licenses in the name of David Sosa and on June 23, 2003, was issued a Maryland driver’s license in that name.

The indictment alleges that from September 2005 through August 2007, Sosa obtained over $1.8 million in loans from four lenders by submitting fraudulent loan applications, including a fictitious name, a misappropriated Social Security number, false information about his employment, income, address and ownership of real estate. According to the indictment, Paxton utilized a portion of the loan proceeds to repay part of the previous loans, but left most of the loans substantially unpaid.

For example, by submitting a fraudulent loan application, Paxton allegedly obtained a loan for $620,000 to purchase a property in Cockeysville, Maryland, then repaid that loan with the proceeds of a $1.4 million loan and a $420,000 loan he fraudulently obtained from another lender to refinance that property. The indictment alleges that Paxton then defaulted on those loans, causing a loss to the lender of $900,000.

The indictment alleges that through this scheme, Paxton fraudulently obtained over $2.85 million in loans and caused losses to the lenders of over $1.8 million, which is the amount the government seeks to forfeit.

The indictment further alleges that Paxton used the proceeds of the loans for his personal benefit, including the purchase of a Lamborghini and other luxury automobiles, as well as purchases at Nordstrom, Neiman Marcus, The Plastic Surgery Center, the Big Screen Store, and others.

Paxton faces a maximum sentence of 30 years in prison for wire fraud; a maximum of five years in prison for fraudulent use of a Social Security number; and a maximum of 10 years in prison on each of five counts of money laundering. Paxton is detained on state charges in Florida pending his transfer to U.S. District Court.

An indictment is not a finding of guilt. An individual charged by indictment is presumed innocent unless and until proven guilty at some later criminal proceedings.;

The Maryland Mortgage Fraud Task Force was established to unify the agencies that regulate and investigate mortgage fraud and promote the early detection, identification, prevention, and prosecution of mortgage fraud schemes. This case, as well as other cases brought by members of the Task Force, demonstrates the commitment of law enforcement agencies to protect consumers from fraud and promote the integrity of the credit markets. Information about mortgage fraud prosecutions is available at www.justice.gov/usao/md/Mortgage-Fraud/index.html.

This law enforcement action 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.

United States Attorney Rod J. Rosenstein thanked Assistant U.S. Attorney Mara B. Zusman, who is prosecuting the case.

BALTIMORE—A federal grand jury has indicted Winnie Joanne Barefoot, a/k/a Winnie Jo Budzina, a/k/a Winnie JoAnne Conn, a/k/a Joanne Knopsnyder, a/k/a Olivia JoAnne Morgan, a/k/a Olivia JoAnne Barefoot Morgan, age 55, of Annapolis, Maryland, for bank, wire and mail fraud; Social Security fraud; and making false statements to the Social Security Administration. The indictment was returned on July 30, 2010 and unsealed the next day upon Barefoot’s arrest. Barefoot has a detention hearing tomorrow, August 3, 2010 at 10:30 a.m.

The indictment was announced by United States Attorney for the District of Maryland Rod J. Rosenstein and Special Agent in Charge Richard A. McFeely of the Federal Bureau of Investigation.

According to the seven-count indictment, from December 2005 to August 2009, Barefoot used the identity of Olivia JoAnne Morgan and her daughter to engage in fraudulent real estate and loan transactions, including transactions involving three properties in Annapolis and a business entity she operated.

Specifically, the indictment alleges that Barefoot used a forged power of attorney from her daughter to purchase property at 3528 Narragansett Avenue, Annapolis. Her daughter had not provided any such power of attorney nor had any intention of acquiring the property. Barefoot is alleged to have falsely increased the amount of the deposit to the sellers by $100,000, thus changing the loan-to-value ratio of the transaction; and falsely stated the amount of her daughter’s income and assets. As a result, a mortgage company lent $616,250 for the purchase of the property.

The indictment further alleges that Barefoot used the identity of Olivia JoAnne Morgan and other false information to apply for a mortgage loan to purchase property at 896 Coachway, Annapolis.

In February 2007, Barefoot is alleged to have submitted a fraudulent loan application to a bank to increase an existing home equity credit line from $1.3 million to $2.1 million, secured by property at 1588 Eaton Way in Annapolis where she resided with CWH from 2002 to 2009. Barefoot is alleged to have falsely represented in the loan application that she and her “husband” CWH each had monthly income of $25,000; that her net worth was over $10 million; and used a false social security number.

Barefoot is alleged to have submitted fraudulent applications for a $250,000 line of credit loan and a $120,000 commercial loan to operate Maryland Hyperbarics, LLC, a hyperbaric clinic. On one application in February 2007, she is alleged to have falsely represented that her income and the combined assets for herself and CWH was over $12 million; that the value of the Eaton Way property was $4 million and that it was unencumbered; and used a false Social Security number. In the other application she falsely represented that her monthly income was $30,861, her personal net worth was approximately $1.2 million and that she had not filed bankruptcy in the past 10 years, although in fact she filed bankruptcy in 1999. Barefoot secured the $250,000 line of credit using a forged indemnity deed of trust on the Eaton Way property that was purportedly signed by CWH.

Finally, the indictment alleges that on June 3, 2003 Barefoot applied to the Social Security Administration (SSA) for SSI benefits, claiming that she was disabled beginning in 1997 due to back problems. The indictment alleges that she falsely: denied ever having been accused or convicted of a felony, when in fact she was arrested in 1980 and convicted of federal and state felony offenses; and represented that she had no resources nor received any type of income. Barefoot was ultimately approved for SSI disability benefits in April 2007, and received more than $26,000 in benefits to which she was not entitled. In December 2008, Barefoot falsely represented to SSA representatives investigating her eligibility for benefit payments that she lived alone and that “Olivia Joanne Morgan” was her sister, who was married to CWH, and that they were getting a divorce so CWH spent a lot of time at her house on 896 Coachway, Annapolis.

As a result of the fraud schemes, the indictment seeks forfeiture of $4,061,000.

Barefoot faces a maximum sentence of 30 years in prison and a $1 million fine on each of three counts of bank fraud; 20 years in prison and a $250,000 fine on each of two counts of wire fraud; and five years in prison and a $250,000 fine for Social Security fraud and making false statements.

An indictment is not a finding of guilt. An individual charged by indictment is presumed innocent unless and until proven guilty at some later criminal proceedings.

United States Attorney Rod J. Rosenstein thanked Assistant United States Attorney P. Michael Cunningham, who is prosecuting the case.

Paid Over 15 Straw Purchasers and Used False Documents to Buy 25 Properties; Received Over $3.8 Million in Fraud Proceeds

BALTIMORE, MD—U.S. District Judge J. Frederick Motz sentenced Timothy Reed, age 45, of Beltsville, Maryland, today to 51 months in prison followed by five years of supervised release for mail fraud arising from the fraudulent purchase of 25 properties in Maryland, the District of Columbia, and Virginia using false mortgage and settlement documents. Judge Motz also ordered that Reed pay $4,196,967 in restitution.

The sentence was announced by United States Attorney for the District of Maryland Rod J. Rosenstein; Special Agent in Charge Richard A. McFeely of the Federal Bureau of Investigation; Postal Inspector in Charge Daniel S. Cortez of the U.S. Postal Inspection Service – Washington Division; Montgomery County State’s Attorney John McCarthy and his Economic Crimes Unit; and Special Agent in Charge Jeffrey Irvine of the United States Secret Service – Washington Field Office.

According to Reed’s plea agreement, Reed and others paid over 15 straw purchasers $10,000 per property to purchase houses for Reed and others. Reed created false mortgage and settlement documents, many of which misrepresented the straw purchasers’ income and assets. Reed and others also created false invoices to claim that their company, Brotherly Investment Group, performed “renovations” on some of the properties. Using these false invoices, Reed and others were “repaid” at closing for the purported renovations. Reed was an organizer and leader in this scheme.

From 2006 to 2008, Reed and others received approximately $3,830,418 in fraudulent funds as part of this scheme. Many of the purchased properties have been foreclosed upon.

The Maryland Mortgage Fraud Task Force was established to unify the agencies that regulate and investigate mortgage fraud and promote the early detection, identification, prevention and prosecution of mortgage fraud schemes. This case, as well as other cases brought by members of the Task Force, demonstrates the commitment of law enforcement agencies to protect consumers from fraud and promote the integrity of the credit markets. Information about mortgage fraud prosecutions is available http://www.justice.gov/usao/md/Mortgage-Fraud/index.html.

This law enforcement action 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.

United States Attorney Rod J. Rosenstein thanked Assistant United States Attorney Kwame J. Manley, who prosecuted the case.

GREENBELT, MD—Rolando Alonzo Cousins, a/k/a “Junior,” age 32, of Bowie, Maryland, pleaded guilty today to conspiracy to commit mail fraud and wire fraud in connection with a massive mortgage fraud scheme which promised to help homeowners facing foreclosure keep their homes and repair their damaged credit, but left them homeless and with no equity. With Cousins’ plea all 11 defendants in the Metropolitan Money Store case have now been convicted.

The guilty plea was announced by United States Attorney for the District of Maryland Rod J. Rosenstein; Special Agent in Charge Richard A. McFeely of the Federal Bureau of Investigation; Special Agent in Charge Jeffrey Irvine of the U.S. Secret Service – Washington Field Office; Special Agent in Charge Barbara Golden of the U.S. Secret Service – Baltimore Field Office; Special Agent in Charge Rebecca Sparkman of the Internal Revenue Service – Criminal Investigation; and Sarah Bloom Raskin, Commissioner of the Maryland Department of Labor, Licensing and Regulation’s Division of Financial Regulation.

According to Cousins’ plea agreement, he was the senior loan officer with the Metropolitan Money Store, located in Lanham, Maryland, which offered foreclosure consultation and credit services to financially distressed homeowners. Cousins also owned and operated Prosper Investments LLC. In 2005, Joy Jackson and Jennifer McCall incorporated Metropolitan Money Store. Also at that time, Jackson, Jennifer McCall, Jackson’s husband, Kurt Forham, and McCall’s husband, Clifford McCall and others incorporated Fordham & Fordham Investment Group, Ltd. (F&F) and Burroughs & Smythe Financial Services, Inc. (B&S), based in Lanham and Greenbelt, Maryland, to assist Metropolitan Money Store in its foreclosure consulting and credit servicing business.

From September 2004 through June 2007, Cousins, Jackson, McCall and others, operating through several companies, including the Metropolitan Money Store, fraudulently promised to help homeowners avoid foreclosure, keep their homes and repair their damaged credit, by directing the homeowners to allow title to their homes to be put in the names of third party purchasers (the straw buyers) for a one year period, during which time the defendants would help the homeowners obtain more favorable mortgages, improve their credit rating and eventually return title to their homes to them. Cousins, Jackson, McCall and others told the homeowners that the equity withdrawn from the properties would be used to pay the mortgage and expenses on their homes and to repair their credit.

Cousins and other Metropolitan Money Store employees personally served as a straw buyer on several properties in Maryland, because they had good credit history. Cousins and other straw buyers were paid approximately $10,000 to participate in the scheme; fraudulently bolstered the credit of the straw buyers so they could qualify for more favorable mortgages; obtained fraudulently inflated loans on the properties in the straw buyers names; served as straw buyers themselves; stripped away the bulk of the homeowners equity proceeds and converted that money to their own personal use; and stopped making the mortgage payments on the homes, resulting in the homes being foreclosed upon.

The total loss attributable to Cousins from the scheme, including the estimated losses to the mortgage lenders, is $471,702.

U.S. Attorney Rod Rosenstein expressed special appreciation to the Maryland Department of Labor, Licensing and Regulation’s Division of Financial Regulation Investigative Unit for its assistance in the investigation.

Cousins faces a maximum sentence of 30 years in prison and a $1 million fine for the conspiracy. U.S. District Judge Roger W. Titus scheduled sentencing for September 13, 2010 at 3:00 p.m.

Joy Jackson and Jennifer McCall pleaded guilty to their role in the scheme and were sentenced to 151 months in prison and 135 months in prison, respectively. Nine other coconspirators also have pleaded guilty and been sentenced.

United States Attorney Rod J. Rosenstein thanked Assistant United States Attorneys James A. Crowell IV and Christen Sproule, who are prosecuting the case.

GREENBELT, MD—A federal jury today convicted Robert Dewain Venson, age 38, of Fort Washington, Maryland, for mail and wire fraud, money laundering and failing to file tax returns in connection with a three-year mortgage fraud scheme involving 13 residential properties.

The conviction was announced by United States Attorney for the District of Maryland Rod J. Rosenstein; Special Agent in Charge Richard A. McFeely of the Federal Bureau of Investigation; Assistant Director in Charge Shawn Henry of the Federal Bureau of Investigation-Washington Field Office; Special Agent in Charge Rebecca Sparkman of the Internal Revenue Service-Criminal Investigation, Washington D.C. Field Office; and Postal Inspector in Charge Daniel S. Cortez of the U.S. Postal Inspection Service-Washington Division.

According to evidence presented at the two week trial, from 2004 to 2007 Venson negotiated the purchase of 13 residential properties in Maryland and the District of Columbia, including houses in Hyattsville, Ocean City, Fort Washington, and Salisbury, Maryland. Rather than purchase the properties in his own name, the evidence proved that Venson paid straw buyers to appear at the settlement posing as the buyer. Witnesses testified that Venson typically would represent to the straw buyer that he would pay the loan obligation. Venson inflated the price listed on the sales documents to an amount substantially larger than the actual price, causing the mortgage lender to provide funds for the purchase substantially in excess of the actual price. Venson misrepresented and concealed the true purchase price, his arrangement with the straw buyer and other material information from the mortgage lender. Under this scheme, the trial evidence showed that Venson reaped hundreds of thousands of dollars.

Evidence showed that Venson failed to file individual federal income tax returns for 2004, 2005, and 2006, during the period of the scheme. Based on the mortgage fraud scheme, the indictment seeks forfeiture of property, including a money judgment of $892,371.

“The IRS-Criminal Investigation, in partnership with other law enforcement agencies, vigorously pursues individuals who commit crimes against our community and economy,” stated Rebecca Sparkman, Internal Revenue Service-Criminal Investigation Special Agent in Charge, Washington D.C. Field Office. “Convictions, like the one just returned against Robert Venson, send a loud and clear message that people who willfully defy the laws, including tax laws, will be fully investigated and prosecuted for their actions.”

Venson faces a maximum sentence of 20 years in prison for each of the eight counts of mail fraud, each of the eight counts of wire fraud, and each of the seven counts of money laundering; and one year in prison for each of the three counts of failure to file tax returns. Judge Alexander Williams, Jr. ordered Venson detained pending his sentencing, scheduled for October 7, 2010 at 9:30 a.m.

The Maryland Mortgage Fraud Task Force was established to unify the agencies that regulate and investigate mortgage fraud and promote the early detection, identification, prevention, and prosecution of mortgage fraud schemes. This case, as well as other cases brought by members of the Task Force, demonstrates the commitment of law enforcement agencies to protect consumers from fraud and promote mortgage fraud prosecutions is available http://www.justice.gov/usao/md/Mortgage-Fraud/index.html.

This law enforcement action 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.

United States Attorney Rod J. Rosenstein commended Assistant United States Attorneys Michael R. Pauze and Robert Hur, who are prosecuting the case.

ALEXANDRIA, VA—Lloyd Mallory, 48, of Silver Spring, Maryland was sentenced today to 60 months in prison, followed by three years of supervised release, for his role in helping to carry out a multi-million-dollar mortgage fraud scheme. He was also ordered to pay $2,797,855 in restitution.

Neil H. MacBride, United States Attorney for the Eastern District of Virginia, and Shawn Henry, Assistant Director in Charge of the FBI Washington Field Office, made the announcement after sentencing by United States District Judge T.S. Ellis, III.

Mallory was convicted of conspiracy and mail fraud on March 25, 2010. According to court records and evidence at trial, Mallory was a self-employed Certified Public Accountant who conspired with Michael Milan, 49, of Bethesda, Maryland and others to defraud mortgage lenders into lending funds for the purchase and refinance of residential properties. Mallory created false tax returns in the names of Milan’s clients which listed inflated income amounts. These false documents were submitted to banks to back up false claims made in the mortgage applications prepared by Milan and his associates. Milan’s conspiracy defrauded lenders through at least a dozen real estate transactions and caused losses of more than $2.7 million.

At sentencing, the court found that Mallory committed perjury when he testified at trial.

This case was investigated by the FBI’s Washington Field Office. Assistant United States Attorneys Edmund P. Power and Stephen P. Learned prosecuted the case on behalf of the United States.

A copy of this press release may be found on the website of the United States Attorney’s Office for the Eastern District of Virginia at http://www.usdoj.gov/usao/vae. Related court documents and information may be found on the website of the District Court for the Eastern District of Virginia at http://www.vaed.uscourts.gov or on http://pacer.uspci.uscourts.gov.

BALTIMORE—A federal grand jury has indicted Douglas Skibicki, age 41, of Bethesda, Maryland, on charges of mail fraud, aggravated identity theft, and bankruptcy fraud, in connection with a mortgage fraud scheme in which he allegedly defrauded lenders, family, and others. The indictment was returned on March 31, 2010 and unsealed today upon Skibicki’s arrest.

The indictment was announced by United States Attorney for the District of Maryland Rod J. Rosenstein; Chief William J. McMahon of the Howard County Police Department; Special Agent in Charge Richard A. McFeely of the Federal Bureau of Investigation – Baltimore Field Office; Special Agent in Charge Barbara Golden of the United States Secret Service – Baltimore Field Office; and Special Agent in Charge Ken Taylor, Jr. of the Housing and Urban Development Office of Inspector General – Office of Investigations.

According to the nine-count indictment, Skibicki was a mortgage originator and/or broker for a company which operated in Laurel, Maryland. The indictment alleges that from April 2006 through August 2009, Skibicki, with the assistance of an appraiser and others, participated in a scheme to defraud lenders, family members, and others through a series of real estate transactions.

For example, Skibicki and Family Member 1 owned property at 5870 Deer Ridge Lane in Elkridge. On June 2, 2006, Skibicki allegedly submitted a loan application for $350,000 to refinance 5870 Deer Ridge Lane, in the name of Family Member 2. The loan application indicated that title to the property would be held by Skibicki, Family Member 1 and Family Member 2.

According to the indictment, Skibicki allegedly added Family Member 2 to the title of the property without consulting or obtaining the approval of either Family Member 1 or 2. To facilitate the loan application, the appraiser working with Skibicki allegedly prepared an appraisal indicating that there was a 2,040 square foot home on the property and included a description of the home and photographs purporting to be of the front and back of the home. In fact, there was no home on the property, which was a vacant lot. The indictment alleges that the loan application submitted by Skibicki on behalf of Family Member 2 also contained several false statements as to Family Member 2′s employment, income, and current address.

Further, the indictment alleges that in an attempt to conceal the fact that 5870 Deer Ridge Lane was a vacant lot and instead make it appear that there was a home on that property, and also to make it appear that Family Member 2 was earning rental income from leasing that home, Skibicki caused a fraudulent Single Family Dwelling Lease to be provided to the lender, falsely indicating that 5870 Deer Ridge Lane had been rented for a one-year term beginning on January 1, 2006, for a monthly rent payment of $2,875.

A former co-worker and longtime friend of Skibicki was listed on the lease as the real estate agent who had negotiated it, and Family Member 2 was identified on the lease as one of the landlords/owners of 5870 Deer Ridge Lane. According to the indictment, the signatures of the real estate agent and Family Member 2 were forged on this lease and neither individual had any knowledge of, or involvement with, this purported lease. Based on the fraudulent information provided by Skibicki, the lender provided a loan of $350,000 in the name of Family Member 2. The indictment alleges that the signatures of Family Members 1 and 2 were forged on the settlement statement.

The indictment alleges that Skibicki obtained mortgages on five additional properties in the names of family members and others. According to the indictment, in each instance the loan application contained false statements as to the family members and others whose names Skibicki used on the application. In some instances, the family members and others allegedly had agreed to allow Skibicki to use their names, with Skibicki promising that he would make the payments and/or remove their names from the property after some specific amount of time. However, the indictment alleges that the family members and others often had no idea that Skibicki had used their name and personal information to facilitate the transactions. The indictment further alleges that five of the properties went into foreclosure after Skibicki failed to make the promised loan payments. According to the indictment, Skibicki received loans worth $2,829,971 as a result of the scheme.

According to the indictment, after Skibicki had failed to make payments on a mortgage he had obtained in the name of a Family Member 3, the lender instituted foreclosure proceedings and the property was scheduled to be put to auction on August 11, 2009. The indictment alleges that in order to conceal his scheme, Skibicki caused a Chapter 13 bankruptcy petition to be filed on August 11, 2009, in the name of his friend, who was a co-owner of the property, in order to stop the auction of the property.

Skibicki faces a maximum sentence of 20 years in prison and a fine of $250,000 or twice the gross loss or gain of the offense, if greater than $250,000, on each of six counts of mail fraud; a mandatory two years in prison, consecutive to any other sentence, on each of two counts of aggravated identity theft; and a maximum of five years in prison for bankruptcy fraud. Skibicki had his initial appearance today at 2:30 p.m. in U.S. District Court in Baltimore and was released under the supervision of U.S. Pre-trial Services. As a condition of his release Skibicki is prohibited from working in the financial services industry. He is scheduled to be arraigned on April 16, 2010 at 2:00 p.m.

U.S. Attorney Rod J. Rosenstein recognized Howard County State’s Attorney Dario Broccolino and Chief J. Thomas Mangers of the Montgomery County Police Department, and their offices, for their assistance in this investigation and prosecution.

In a related action, Mark Kaufman, Deputy Commissioner of the Maryland Department of Labor, Licensing and Regulation’s Division of Financial Regulation issued a Summary Order to Cease and Desist against Skibicki today, prohibiting him from engaging in any further credit services business activities and/or foreclosure consultant activities with Maryland residents.

An indictment is not a finding of guilt. An individual charged by indictment is presumed innocent unless and until proven guilty at some later criminal proceedings.

The Maryland Mortgage Fraud Task Force was established to unify the agencies that regulate and investigate mortgage fraud and promote the early detection, identification, prevention, and prosecution of mortgage fraud schemes. This case, as well as other cases brought by members of the Task Force, demonstrates the commitment of law enforcement agencies to protect consumers from fraud and promote the integrity of the credit markets. Information about mortgage fraud prosecutions is available at http://www.usdoj.gov/usao/md/Mortgage-Fraud/index.html.

This law enforcement action 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.

Michael Milan, 49, of Bethesda, Md., was sentenced to 108 months in prison, followed by three years of supervised release, for his role in carrying out a multi-million-dollar mortgage fraud scheme. Milan was also ordered to pay restitution of $3,141,409 and to forfeit $1,061,890 in proceeds he obtained.

Neil H. MacBride, United States Attorney for the Eastern District of Virginia, and Shawn Henry, Assistant Director in Charge of the FBI Washington Field Office, made the announcement after sentencing by United States District Judge T.S. Ellis, III.

“Michael Milan manipulated banks to get illegal loans for his clients and large fees for himself,” said U.S. Attorney MacBride. “That greed and deception has caused much of the pain we’re feeling right now in the mortgage market, and we are aggressively pursuing mortgage fraud cases to hold those who engaged in this fraud accountable.”

“Homeowners and homebuyers must be able to rely on the ethics and integrity of their brokers,” said Assistant Director in Charge Henry. “Mr. Milan’s conduct unfairly taints the image of hard-working, honest people seeking to help families under stress because of the current real estate market.”

According to court records, Milan was a consultant to various mortgage brokerage companies and conspired with others to defraud mortgage lenders into lending funds for the purchase and refinance of residential properties. Milan caused his associates to prepare false mortgage applications which contained false information about the income and assets of the borrowers. Some of the mortgage applications falsely claimed that the borrowers earned hundreds of thousands of dollars from a company, Collid LLC, which Milan controlled. Milan’s conspiracy submitted fraudulent loan applications for the purchase or refinance of 11 different properties and caused losses of more than $2.5 million but less than $7 million.

Court records indicate that Milan fled from the United States after the execution of a search warrant at his office in June 2008 and did not return until April 2009. During a detention hearing held after his return, Milan attempted to explain his extended flight from the U.S. by providing fraudulent Iranian court documents, which falsely claimed that he had been incarcerated in Iran during the summer of 2008. As part of his plea on Dec. 1, 2009, Milan acknowledged that he attempted to obstruct justice with these false documents.

Milan is the sixth defendant convicted by the investigation, which remains ongoing. Others convicted include a settlement agent, a loan officer who worked with Milan, and Milan’s son, Dustin Milan.

This case was investigated by the FBI’s Washington Field Office. Assistant United States Attorneys Edmund P. Power and Stephen P. Learned prosecuted the case on behalf of the United States.

GREENBELT, Md. -  Authorities Tuesday arrested a Maryland man in what the Department of Justice called a massive mortgage fraud scheme that left victims homeless.

Rolando Alonzo Cousins, 31, of Bowie, Md., was indicted Monday on charges of conspiracy to commit mail fraud, mail fraud and money laundering, the Maryland U.S. Attorney’s office said in a news release. Prosecutors said the alleged scheme involved promises to help homeowners avoid foreclosure, keep their homes and repair their credit, but ended up leaving victims homeless and with no equity.

The 11-count indictment alleges that Cousins, a senior loan officer with the Metropolitan Money Store in Lanham, Md., and several business associates paid straw buyers who then obtained fraudulently inflated loans, raised their credit scores and then qualified for more favorable mortgages. Straw buyers allegedly took equity out of the properties for their personal use and stopped making mortgage payments, resulting in properties being foreclosed upon.

Victims were persuaded to sell their homes but only on a temporary basis, and would be able to reacquire the title to their properties after repairing their own credit and obtaining more favorable mortgages, the Justice Department said.

The indictment seeks forfeiture of $1.5 million that prosecutors allege Cousins collected through the scheme.

Cousins faces a maximum sentence of 30 years in prison and a $1 million fine for the conspiracy and each of the mail fraud counts, and 10 years in prison and a $250,000 fine on each of the money-laundering counts.

Eleven co-conspirators have already pleaded guilty and have been sentenced in the case.

BALTIMORE, MD—David Wehrs, Sr., age 54, of Annapolis, Maryland, pleaded guilty today to wire fraud in connection with a scheme to defraud investors and financial institutions of more than $2.3 million.

The charge was announced by United States Attorney for the District of Maryland Rod J. Rosenstein and Special Agent in Charge Richard A. McFeely of the Federal Bureau of Investigation.

According to his plea agreement, Wehrs owned Maryland Title and Escrow Company, Inc., located in Annapolis, and operated a small home remodeling company called Show-Me. From 2007 to October 2009, Wehrs induced individuals to invest money through Maryland Title into a purported FDIC-insured money market fund that Wehrs “guaranteed” would pay monthly interest payments of 10.85%.

Instead of depositing the money into an “American Funds Fixed Rate Money Market” as promised, Wehrs deposited investor funds into one of two bank accounts he controlled in the name of his title company. Wehrs wire transferred a large portion of these investor funds to a brokerage account in the name of his title company, then used the money to “day trade.” Day trading is the rapid buying and selling of securities throughout the day in the hope that the stocks will continue climbing or falling in value for the seconds to minutes that they are owned, allowing a person to lock in quick profits.

During the scheme, Wehrs conducted millions of dollars of stock trades per month. From early 2008 until mid-2009, Wehrs lost approximately $1 million.

In addition to day trading, Wehrs used some of the investor funds to: pay “monthly interest” and “redemptions” to other investors; pay expenses of his other businesses, including Show-Me; make escrow payments for his title company; buy real estate and personal property; and pay other personal expenses.

Wehrs admitted that in June 2009, when he had no money left in his personal bank accounts or day trading accounts to pay interest due to investors, he used $630,611 earmarked to pay lending institutions for mortgage payoffs from his escrow account at Maryland Title to pay investors, causing that amount of loss to the title insurance company for Maryland Title. He also used $100,000 from the Maryland Title escrow account that was earmarked as earnest money for the purchase of an individual’s home to pay interest to investors, causing a loss of $100,000 to the home buyer.

The total loss as a result of Wehrs’ scheme is $2,371,061 to investors and the title insurance company. U.S. District Judge Benson Everett Legg has scheduled sentencing for May 19, 2010 at 3:00 p.m.

Wehrs faces a maximum sentence of 20 years in prison. As part of his plea agreement, Wehrs is required to pay restitution of $2,371,061 and to forfeit any assets derived from the scheme. Any forfeited assets will be applied to the restitution amount.

Mr. Rosenstein and Mr. McFeely gave special thanks to the Securities and Exchange Commission and the Maryland Insurance Administration for their work in the investigation and prosecution of this case.

United States Attorney Rod J. Rosenstein commended Assistant United States Attorney Tonya Kelly Kowitz, who is prosecuting the case.

A title company owner, who operated Homemaxx Title & Escrow, was arrested in Palm Beach, Florida. He had been a fugitive since March 26, 2009, when a federal grand jury in Maryland, returned an indictment charging him with wire fraud and money laundering in connection with a scheme to defraud lenders and homeowners.

The indictment states that from February 2003 to July 2004, the fugitive owner had caused Homemaxx to divert funds meant to pay outstanding first mortgages on real estate transactions or to officially record deeds. He had transferred substantial amounts of money from a Homemaxx escrow account into other Homemaxx accounts, as well as to accounts not associated with any transactions.

He then used the money intended to be disbursed per the HUD-1 settlement for personal use that had nothing to do with the real estate transaction. With one particular real estate refinancing by one of his customers, he diverted funds from the escrow account and then used the proceeds to purchase a new 2004 CLK Mercedes.

The indictment seeks the forfeiture of $593,228, and is alleged to have defrauded lenders and homeowners and to have used $93,228 of the criminal proceeds for money laundering. Although, an indictment is not a finding of guilt, an individual charged by indictment is presumed innocent unless and until proven guilty at some later criminal proceedings.

One of the most difficult aspects of dealing with real estate fraud is that it is hard to know the scope of the problem. The human element that is involved makes would-be fraudsters hard to spot, and those already committing fraud even harder to identify.

Because these people are white-collar criminals, they look, dress, act, and talk just like the rest of us. They won’t look like criminals; they’ll look like loan officers, title closing agents, real estate agents, members of management and loan processors or closers and, of course, the people next door.
Once a white-collar criminal gets away with it, the process quickly becomes addictive. Success breeds more success, and before long such crafters of fraudulent mortgage transactions clearly begin feeling that not only are they above the law but in fact, they are not doing anything wrong in the first place.

We should all congratulate the United States Attorney for the District of Maryland Rod J. Rosenstein and Special Agent in Charge Richard A. McFeely of the Federal Bureau of Investigation.

We must be vigilant against fraud, recognizing its signs and taking proactive, definite, and realistic steps to not only prevent it but also punish it.
It starts with me.
It starts with you.
It starts with us…

Michael S. Richardson
Author of “An American Epidemic, Mortgage Fraud a Serious Business”
www.mortgagefraudsolutions.com

Metro Dream Homes (also known as Metropolitan Grapevine LLC, POS Dream Homes, and POS DH LLC) had all the trappings of success — its top officials lived lavish lifestyles, kept a fleet of chauffeur-driven cars, and donated generously to charities. And it used slick marketing to sell its “Dream Homes Program,” which promised to pay homeowners’ mortgages in return for an up-front fee that would be invested in profitable business ventures.

But the dream turned into a $70 million nightmare for more than a thousand investors — among the latest victims of real estate and mortgage fraud.

According to federal grand jury returned on April 22, 2009, and unsealed today, the five people behind Metro Dream Homes and the bogus mortgage payment program — Andrew Hamilton Williams, Jr., 58, of Hollywood, Fla., founder and owner of MDH; Michael Anthony Hickson, 46, of Commack, N.Y., the chief financial officer; Isaac Jerome Smith, 46, of Spotsylvania, Va., the president; and Alvita Karen Gunn, 31, of Hanover, Md., the vice president of operations — were actually running an elaborate deception… one eventually unraveled through the cooperative efforts of federal and state law enforcement agencies.

Here’s how the scam worked:

• Between 2005 and 2007, victims were persuaded into investing at least $50,000 with Metro Dream Homes, either by refinancing their existing homes or buying new homes at inflated prices.
• Investors were told not to worry about high mortgages because Metro Dream Homes would pay their future monthly payments and pay off their mortgages within five to seven years using returns on the homeowner’s original investment. Then the homeowner and Metro Dream Homes would own an equal interest in the home.
• Victims were told that their $50,000—not including an administrative fee of up to $5,000—would be used to fund investments in automated teller machines, flat-screen TV displays that carried commercial advertisements, and Touch-N-Buy electronic kiosks that sold telephone calling cards and other items.
• To make the scam seem more legitimate, the company marketed its program through live presentations at posh hotels in Washington, D.C.; Baltimore; and even Beverly Hills, California.

In the end, it was a classic Ponzi scheme: the proceeds from later investors went to pay the mortgages of earlier investors. The ATM machines, flat-screen TVs, and electronic kiosks never generated any meaningful revenue, federal prosecutors contend.

And the bulk of the money? It lined Williams’, Hickson’s, Smith’s, and Gunn’s pockets — with $200,000-a-year salaries, luxury cars, and travel to major sporting events like the Super Bowl.

By the time law enforcement shut down Metro Dream Homes, homeowners had invested about $70 million. When Metro Dream Homes stopped making the mortgage payments, the homeowners were left holding the bag. The defendants, meanwhile, are facing long prison terms for multiple counts of fraud, conspiracy to commit money laundering, and other charges.

To follow up on a case I first reported about last July (see “Maryland Metropolitan Money Store Employee Charged with Mortgage Fraud“), 31-year-old Chandra Jones, of Lanham, Maryland, is the latest person to plead guilty to conspiracy to commit mail and wire fraud in connection with a mortgage fraud scheme that falsely promised to help homeowners facing foreclosure keep their homes and repair their damaged credit.

Before reading about Chandra Jones, here’s a related story from MSNBC:

Back to Chandra Jones, according to her plea agreement, in July 2005, Jones was hired to work as a loan processor at the Metropolitan Money Store (MMS), located in Lanham, Maryland, which offered foreclosure consultation and credit services to financially distressed homeowners. Shortly after she began working at MMS, Jones conspired with others in a scheme to fraudulently promise to help homeowners, who had substantial equity in their homes but were facing foreclosure because of their inability to make monthly mortgage payments, avoid foreclosure and repair their damaged credit.

The homeowners were directed to allow title to their homes to be put in the names of third party purchasers (the straw buyers) for a year, during which time Metropolitan Money Store promised to improve the homeowners’ credit ratings, help them obtain more favorable mortgages, and eventually return title to their homes to them. The homeowners were told that the equity withdrawn from the properties would be used to pay the mortgage and expenses on their homes and to repair their credit. The straw buyers were paid to participate in the scheme.

Using the homeowners’ properties, the conspirators applied for mortgages to extract the maximum available equity from the homes and prepared and submitted to mortgage lenders fraudulent loan applications to obtain inflated loans on the target properties in the straw buyers’ names. At settlements, the conspirators imposed numerous fees and required “seller contributions” which were far in excess of industry standards; they imposed fees for services which were not performed, disclosed or explained to the homeowners; and they transferred the sale proceeds out of the escrow accounts into the conspirators’ business and personal bank accounts and converted a substantial portion of those funds to their personal use.

In November 2005, Chandra Jones was hired to work at Fordham & Fordham Investment Group, Ltd., a Maryland corporation based in Lanham and Greenbelt, that assisted Metropolitan Money Store in its foreclosure consulting and credit servicing business. Jones was responsible for paying the mortgages on foreclosure reversal program properties and assisting program participants with repairing their credit. Jones was later made vice-president of Fordham & Fordham Investment Group and was also made a director of Burroughs & Smythe Financial Services, Inc., another Maryland corporation that assisted MMS in its foreclosure consulting and credit servicing business. Jones was not licensed to provide credit repair services and had not received any training related to the mortgage industry, credit repair, or financial services.

During the course of the conspiracy, Chandra Jones placed $788,978.30 from Fordham & Fordham Investment Group’s bank accounts into her personal bank accounts. For example, on October 25, 2006, Jones wire transferred $20,000 drawn on one of Fordham & Fordham Investment Group’s accounts and deposited the funds into her personal bank account. At the direction of co-conspirators, Jones transferred funds from the Fordham & Fordham Investment Group accounts to pay the personal expenses of co-conspirators and observed co-conspirators using funds from the Fordham & Fordham Investment Group accounts for their personal benefit.

Chandra Jones also agreed to serve as a straw buyer for two properties, and secure mortgage loans in her own name to do so, because she had a good credit history. Jones was paid $3,600 for serving as a straw buyer for a property in Accokeek, Maryland, and $5,000 for serving as a straw buyer for a property in Bladensburg, Maryland. In purchasing the properties, Chandra Jones made false statements as to personal and financial information on settlement documents.

As a result of this scheme, the total loss attributable just to Chandra Jones, including the estimated losses to the mortgage lenders, is $4,189,283.86.

Chandra Jones now faces a maximum sentence of 30 years in prison and a $1 million fine for the conspiracy. U.S. District Judge Roger W. Titus scheduled Jones’ sentencing for October 5, 2009 at 9:30 a.m.

Chandra Jones, the daughter of co-defendants Jennifer and Clifford McCall, is the sixth defendant to plead guilty in the Metropolitan Money Store mortgage fraud scheme. The others include:

• Jennifer McCall, age 47, of Ft. Washington, Maryland, a chief executive officer of Metropolitan Money Store and owner of JC and JC Investments LLC
• Katisha Fordham, age 35, of Washington, D.C., a loan processor at the Metropolitan Money Store
• Richard Allison, age 37, of Camp Springs, Maryland, an attorney and employee of the U.S. Census Bureau
• Clifford McCall, age 47, of Lanham, Maryland, president of Burroughs & Smythe Financial Services, Inc., based in Lanham and a director of the Fordham & Fordham Investment Group, Ltd., a foreclosure consulting and credit servicing business based in Lanham and Greenbelt, Maryland
• Carlisha Dixon, age 31, of Hyattsville, Maryland, vice president and a director of Burroughs & Smythe Financial Services, Inc.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Updated: 7/21/08 / 10:16 p.m. ET

Criminal charges were filed earlier this week against Richard Allison, age 36, of Camp Springs, Maryland, in connection with an alleged mortgage fraud scheme prosecutors say falsely promised to help homeowners facing foreclosure keep their homes and repair their damaged credit.

According to the court filing, in October of 2005, Mr. Allison took a job with the Metropolitan Money Store in of Lanham, MD, where he provided legal services to Joy Jackson, her husband Kurt Fordham, Jennifer McCall, her husband Clifford McCall, their companies and others. Prosecutors say that from December 2005 through June 2007, Allison conspired with Jackson, Fordham, the McCalls, and others, operating through several companies–including the Metropolitan Money Store which was controlled by Joy Jackson and Jennifer McCall–in a scheme which fraudulently promised to help homeowners avoid foreclosure, keep their homes and repair their damaged credit.

Allison and the others would direct homeowners to allow title to their homes to be put in the names of third-party purchasers (i.e., straw buyers) for one year, during which time Jackson, Fordham, and the McCalls would help the homeowners obtain more favorable mortgages, improve their credit rating and eventually return title to their homes to them. This of course never happened.

Allison and his co-conspirators told the homeowners that the equity withdrawn from the properties would be used to pay the mortgage and expenses on their homes and to repair their credit.

Prosecutors say Richard Allison and his co-conspirators:

• Acted as straw buyers for the loans used to acquire the homeowners’ properties
• Made false statements as to the personal and financial information of the straw buyers on loan documents so they could qualify for mortgages
• Obtained fraudulently inflated loans on the properties in the straw buyers names
• Stripped away the bulk of the homeowners equity proceeds and converted that money to their own personal use
• Stopped making the mortgage payments on the homes, resulting in the homes being foreclosed upon

According to court documents, Richard Allison and his co-conspirators spent the money from the mortgage loan proceeds to pay monthly mortgage payments on properties already purchased, pay for their personal expenses, and divert cash to themselves. Also according to the charging document, in March of 2006, Allison agreed to be a straw purchaser for two properties; completed and signed mortgage and other loan documents for those properties which contained false financial and personal information; and, received a $10,000 check for each of the two transactions.

Richard Allison faces a maximum sentence of 30 years in prison and a $1 million fine for the conspiracy. No court appearance has been scheduled.

As an aside, The Washington Post earlier reported that a separate 25-count indictment was unsealed in June, alleging that Jackson, Fordham, and six others used money from another elaborate real estate scheme to pay for a “lavish lifestyle that included luxury cars, houses, jewelry, fur coats and travel.” According to the Post, the June indictment mentioned Jackson and Fordham’s wedding at a high-end hotel where music legend Patti LaBelle sang to more than 350 guests while dinning on expensive seafood drinking Cristal champagne. Jackson told friends that the wedding cost nearly $800,000, according to the first indictment.

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

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

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



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

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

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

A federal jury in Greenbelt, Maryland, has convicted a husband/wife team of real estate fraud. Patricia Omondi, age 39, and her husband Boureima Sanfo, age 47, both of Woodbridge, Virginia, were convicted in late-April on eight (8) counts of interstate transportation of property obtained by fraud, three counts of money laundering, and one count of obstruction of justice in connection with a scheme to defraud residential lot buyers.

According to testimony presented during April trial, Omondi was the president of Raycha Homes, also known as Construction Consulting and Management (CCM), a home builder located in Woodbridge, Virginia. Sanfo was a loan officer for CCM. From November 2004 to December 2005, Omondi and Sanfo met with consumers and promised to build homes for them on the lots of their choice. Omondi and Sanfo drove people to view several parcels of land in Prince George’s County to select the lot, provided copies of design drawings of homes, provided fictitious letters on the letterhead of a mortgage company falsely representing that the individuals had been pre-approved for mortgages and falsely stated that CCM had obtained permits to begin construction of their houses.

The evidence showed that Omondi and Sanfo caused individuals to enter into contracts with CCM for the construction and purchase of a house and to make regular payments towards the down payment. However, no homes were ever constructed, nor were any lots purchased. Under this scheme, Omondi and Sanfo obtained more than $200,000 from at least seven victims, which they deposited in their bank account in Virginia.

According to trial testimony, in October 2006, Omondi and Sanfo obstructed a grand jury investigation into whether the defendants were committing fraud in connection with their home building operations by providing the grand jury with studies that had purportedly been done in 2005 regarding the feasibility of constructing houses on lots selected by purchasers, when in fact the feasibility studies were completed in September 2006.

Omondi and Sanfo face a maximum sentence of 10 years in prison followed by three years of supervised release and a $250,000 fine for each of the 12 counts. U.S. District Judge Deborah K. Chasanow has scheduled sentencing for both Omondi and Sanfo on September 5, 2008.