GIUSEPPE CRACCHIOLO, 60, of Romeo, Michigan, pleaded guilty before U.S. District Judge Paul D. Borman this morning to a federal information that charges him with conspiracy to commit wire fraud, United States Attorney Barbara L. McQuade announced today. Also charged in the one count information was ATIIM COLLINS, 38, of Detroit, Michigan, and TED CARTER, 59, of Detroit, Michigan, both of whom have already pleaded guilty to the same information.

McQuade was joined in the announcement by Maurice Aouate, Special Agent-In-Charge, Internal Revenue Service Criminal Investigation; Andrew Arena, Special Agent in Charge, Federal Bureau of Investigation, Detroit; Robert L. Davila, Special Agent in Charge U.S. Treasury Inspector General for Tax Administration; and Dean Tirro, Acting Special Agent in Charge United States Secret Service, Detroit.

From 2002 through 2005, Collins, owner of Edgewood Property Management in Shelby Township, Michigan, recruited and paid individuals to act as straw buyers in fraudulent mortgage loan transactions. The scheme to defraud involved homes built by CRACCHIOLO, through his company, Mark Christian, Inc (MCI), in Romeo, Michigan. The straw buyers generally had good credit ratings, but not enough income, and lacked the qualifications necessary to purchase the properties. CARTER participated in the conspiracy by creating false documents, including fictitious W-2 forms and pay stubs, used by the straw buyers to support the fraudulently inflated asset and income information submitted on their mortgage loan applications. After the loans were approved by the lending companies, CRACCHIOLO used MCI to receive and disburse the illegally gained proceeds. This scheme to defraud resulted in the approval and disbursement of over $4.1 million in fraudulent mortgage loans.

CRACCHIOLO admitted that during the conspiracy, he arranged to have the illegally obtained loan proceeds transferred back to borrowers and others without the knowledge and approval of the lending companies. All of the properties involved in the fraud went into foreclosure resulting in approximately $2.5 million in losses to the lenders.

Conspiracy to commit wire fraud is punishable by a maximum sentence of 20 years’ imprisonment and $250,000 in fines.

Sentencing is scheduled as follows in front of United States District Court Judge Paul D. Borman: CARTER on October 6, 2010 at 3:00 p.m., COLLINS on November 11, 2010 at 2:00 p.m., and CRACCHIOLO on December 2, 2010 at 3:00 p.m..

This case is being prosecuted by Assistant U.S. Attorney Karen Reynolds.

A Macomb County homebuilder pleaded guilty to conspiracy to commit wire fraud, the Departments of Justice, Treasury and Homeland Security reported Friday.

Romeo resident Giuseppe Cracchiolo, 60, entered his plea before U.S. District Court Judge Paul D. Borman Friday morning. Codefendants Atiim Collins, 38, and Ted Carter, 59, both of Detroit, pleaded guilty to the same charge earlier this year. Conspiracy to commit wire fraud is punishable by a maximum sentence of 20 years in prison and a $250,000 fine.

Court documents show that, from 2002 through 2005, Edgewood Property Management owner Collins recruited and paid individuals to act as straw buyers in fraudulent mortgage loan transactions involving homes built by Cracchiolo. Carter participated in the conspiracy by creating false documents used by the straw buyers to support fraudulently inflated asset and income information on their mortgage loan applications.

After the lending companies approved the loans, Cracchiolo used his building company, Mark Christian, Inc., to receive and disburse the illegally gained proceeds. The scheme to defraud resulted in the approval and disbursement of over $4.1 million in fraudulent mortgage loans.

Cracchiolo admitted that he arranged to have the illegally obtained loan proceeds transferred back to borrowers and others without the knowledge and approval of the lending companies. All of the properties involved in the fraud went into foreclosure, resulting in approximately $2.5 million in losses to the lenders.

Judge Borman will sentence Carter on October 6, Collins on November 11, and Cracchiolo on December 2, 2010.

By Margaret Agius

A Livingston County businesswoman and her employee are two of the 10 people charged Thursday for defrauding Michigan families out of thousands of dollars in a foreclosure-rescue scam.

Michelle Rene Garbuschewski, who also uses the name Michelle Justice and owns Howell’s Elite Mortgage Relief, is facing two counts of obtaining at least $1,000 but less than $20,000 under false pretenses while employee Lisa Marie Joboulian of Northville is charged with one count of the same offense, according to Livingston County District Court records.

In all, Attorney General Mike Cox’s office authorized 19 criminal complaints — a total of 69 charges — against 10 people and nine Michigan mortgage companies for allegedly illegally charging homeowners facing foreclosure upfront fees for mortgage-modification assistance, or “foreclosure-rescue” promises, which is a violation of the Credit Services Protection Act.

Joy Yearout, a spokeswoman with the attorney general’s office, said none of the companies were coordinated, but were each separately operating similar scams.

The investigation against Elite Mortgage Relief began in May 2009, when the attorney general’s office received two complaints against the company and the women.

Yearout said the defendants claimed they would help two homeowners by working with their lenders in an attempt to modify the borrower’s mortgage. However, Garbuschewski and Joboulian are accused of pocketing the $8,000 fee they charged but not following through on their promises, Yearout said.

While many of the victims lost their homes to foreclosure, the two victims in the Livingston County cases did not, Yearout noted.

“These companies took advantage of struggling Michigan families trying to hold onto the American dream,” Cox said.

Cox urged any consumers who paid fees to the companies and individuals charged by his office, or any other mortgage-modification company, for services that were not provided to file a consumer complaint online with the attorney general’s Consumer Protection Division at www.michigan.gov/ag or call (877) 765-8388.

Kaiyotta, who doesn’t want her last name published, said two years ago she was an unemployed college student searching for a job.

The 23-year-old said she found an opportunity in the paper that seemed perfect for her career path. It was a chance to be a landlord. The company, Maxwell Holdings, told Kaiyotta earning money was simple.

Kaiyotta said company officials told her she only needed to take out a home mortgage in her name and they would set her up with tenants so she could collect rent.

But, before Kaiyotta could collect any rent, the Michigan State University Student received a surprising call from state officials. Investigators told her Maxwell Holdings was under investigation and she was the victim of a scam.

State officials confirm they are investigating Maxwell Holdings because they take mortgage fraud very seriously.

Anyone who feels like they’ve been a mortgage-scam victim is asked to call the Michigan Department of Energy, Labor and Economic Growth on its toll free line 877-999-6442.

Seven individuals were charged today in a federal criminal complaint in connection with an extensive multi-million-dollar mortgage fraud scheme, United States Attorney Barbara L. McQuade announced. Joining her in the announcement was Special Agent in Charge Andrew G. Arena, head of the Detroit Division of the FBI.

Named in the complaint were Ronnie Edward Duke, 43, of Fenton; William Camsell Wells, III, 39, of Howell; Wilinevah Richardson, 32, of Rochester Hills; Ryan Andrew Zundel, 36, of Belleville; Robert Charles Brierley, 43, of New Boston; Nicole Lynn Turcheck, 31, of Gibraltar, and Anthony Edward Peters, 72, of Belleville. The complaint charges the defendants with one count of conspiring to commit wire fraud. A conviction for this offense carries a maximum penalty of 20 years in prison, a $1 million fine, and an order of restitution.

According to the complaint, the defendants conspired among themselves and with others to engage and participate in a scheme to defraud mortgage lenders and obtain money and property by means of materially false and fraudulent pretenses and representations. The scheme lasted for close to four years, ending in July 2007 when the FBI executed seven search warrants in metropolitan Detroit and Cape Coral, Florida. The complaint affidavit alleges that the scheme involved over 500 fraudulent mortgage loans, over 100 straw buyers, and approximately 180 different residential properties in metropolitan Detroit that were used as—or falsely represented to mortgage lenders to be—the collateral for the loans, most of which went into default and were foreclosed on. The loans ranged in size from roughly $350,000 to $600,000. Losses to the lenders resulting from the scheme are expected to exceed $100 million.

The defendants are alleged to have participated in obtaining both “real” loans and “ghost” loans. The “real” loans were used to purchase and then control residential properties. The related warranty deeds and mortgages were properly recorded at county registers of deeds. The “ghost” loans were used to obtain additional funds from mortgage lenders. The home sales that the “ghost” loans were supposed to finance were nothing but sham transactions, purporting to be secured by the residential properties purchased with the “real” loans, according to the complaint. The warranty deeds and mortgages associated with the “ghost” loans were not recorded, and the lenders were completely unsecured.

The complaint also alleges that the proceeds of the scheme were used to make monthly payments on the “real” and “ghost” loans (to keep the scheme afloat), to pay the straw buyers and other participants in the scheme, to finance unrelated businesses, to purchase a helicopter, expensive car, boats, and expensive residential properties, and to travel extensively overseas.

Defendants Ronnie Duke, Wilinevah Richardson, and Ryan Zundel are expected to appear before a federal magistrate judge this afternoon. The other defendants are expected to appear in court later this week.

A complaint is only a charge and is not evidence of guilt. Trial cannot be held on felony charges in a complaint. When the investigation is completed a determination will be made whether to seek a felony indictment.

This case has been investigated by the Federal Bureau of Investigation, with the assistance of the U.S. Secret Service. It is being prosecuted by Assistant United States Attorneys Stephen Hiyama and Erin Shaw.

Representatives of the Financial Fraud Enforcement Task Force met in Detroit Friday, April 23, 2010, for the third of a series of Mortgage Fraud Summits. The task force, established by President Barack Obama in November 2009 to wage an aggressive, coordinated and proactive effort to investigate and prosecute financial crimes, is composed of representatives from a broad range of federal agencies, regulatory authorities, inspectors general, and state and local law enforcement.

The greater Detroit metropolitan area is ranked 10th in the nation for the number of local subjects named in Suspicious Activity Reports (SARs) filed by depository institutions concerning suspected mortgage fraud, according to a recent study by the Treasury Department’s Financial Crimes Enforcement Network (FinCEN). And according to FinCEN data, Michigan ranked eighth in the nation for mortgage fraud SARs. According to True Standings Loan Performance, Detroit also ranked 9th in metropolitan areas for serious delinquencies in conventional mortgages.

The task force members met with Detroit community members, banking, mortgage and real estate industry representatives and law enforcement officials to discuss the problem of mortgage fraud from a national, state and local perspective. In the morning panels, attendees discussed the community impact of mortgage fraud and the evolution of the crisis. In the afternoon, task force representatives will meet privately with law enforcement officials involved in the investigation of mortgage fraud.

“Integrity in the mortgage lending business is crucial to protecting home owners, neighborhoods, and lending institutions,” said U.S. Attorney for the Eastern District of Michigan Barbara L. McQuade. “Mortgage fraud leads to foreclosures and vacant homes, which harm property values and create havens for criminal activity. Today’s summit shows the commitment of the Department of Justice, along with our local law enforcement agencies and regulatory agencies, to combat the problem of mortgage fraud.”

Task force warns industry reps, community of scams targeting strapped homeowners

Metro Detroit is a hotbed of mortgage scams with a rising number of crooks preying on homeowners desperate to avoid foreclosures, representatives of a federal Financial Fraud Enforcement Task Force, an ad-hoc group of law agencies, said Friday.

The task force met with community groups, real estate agents, banking officials and law enforcement agencies in Detroit and launched a website called www.preventloanscams.org to help consumers identify and report scams.

“This was a freight train coming right at us,” said Andrew Arena, FBI special agent in charge.

The region has 60 cases of fraudulent mortgage behavior. The average scam nabs about $3,000 from a homebuyer.

In November, the Obama administration put together a new federal task force after deciding the number and complexity of investigations linked to the economic crisis require a more coordinated response from government agencies. It targets fraud related to mortgage lending and modification, securities law, stimulus spending and the government’s bailout of the financial industry.

The task force’s creation comes as federal and state authorities investigate a wide array of potential wrongdoing linked to the financial crisis.

Some cases of scams have already been pursued and prosecuted, said Barbara McQuade, U.S. attorney for the Eastern District of Michigan.

And the danger of more people losing their homes in Metro Detroit is rising significantly, said Kenneth Donohue, inspector general for the U.S. Department of Housing and Urban Development.

One out of 10 Metro Detroiters with a Federal Housing Administration-backed loan are 90 days or more behind in their mortgage. The default rate in Metro Detroit increased 700 percent in 2009 compared with 2008, Donohue said.

This year, about 160,000 homeowners are behind on their mortgages, he said.

Louis Aguilar

A Jackson County judge sent a man involved with a mortgage fraud scheme to jail Thursday for at least 90 days.

Circuit Judge Thomas Wilson also placed Freddie Young Jr. on probation for three years. As a condition of the probation, Young cannot apply for a mortgage or engage in any real estate transactions without the court’s written approval.

Young, 45, of Jackson pleaded guilty in February to two counts of using false pretenses to acquire more than $20,000. In exchange for his plea, the prosecutor’s office dropped a third false pretense count and a racketeering charge.

Young said he paid a woman to forge tax forms so a man who was not qualified for a house loan could get mortgages.

Assistant Prosecutor Nick Mehalco Jr. alleged Young worked with several others to cheat companies into giving homes loans for over-valued Jackson properties using doctored documents. The mortgages would then go unpaid.

He was linked to Angelo Williams, 46, of Jackson, who is now in prison for scamming mortgage companies.

Such scams negatively impact the economy, Mehalco said. “It is a cancer on our community.”

Young said he takes full responsibility for his actions. “I shouldn’t have let other people force me to do something I kind of knew was wrong,” he said.

Wilson said he got many letters about Young and his community activities, which include work with youth sports leagues. His lawyer said he works two jobs.

“You’ve done a lot of positive things out there,” Wilson said.

The judge also said Young had to do 150 hours of community service.

If he fails to comply with all court orders and conditions, he could spend more time in jail.

Young and others were arrested and charged as part of a county effort to nab those involved in mortgage fraud.

Almost $74,000 seized earlier from Young as part of an investigation is to be held in an escrow account until victims, if any, can be identified, Mehalco said.

Between December 2005 and March 2007, Mario Bernadel and seven accomplices purchased nearly 40 properties in the Phoenix area. What appeared to be a legitimate real-estate venture was instead an illegal scheme that resulted in losses totaling $9.5 million.

Bernadel and his cohorts submitted false mortgage-loan applications, used fake “straw buyers,” and directed the proceeds of their illegal scheme into bank accounts they controlled. Bernadel used his share of the money to support a lavish lifestyle, buying luxury vehicles and nights on the town at local nightclubs. Last week, the U.S. Attorney’s Office in Phoenix obtained a 17-year prison term for Bernadel, putting him out of business.

Stories like Bernadel’s have become common in recent years. Although signs of economic recovery are starting to appear, we know many Americans are still coping with the fallout of the housing crisis. That is why President Barack Obama established the Financial Fraud Enforcement Task Force, a broad coalition of federal, state and local law-enforcement agencies focused on combating fraud and protecting American families. Officials will work together to investigate and prosecute the types of financial wrongdoing that helped create our current economic crisis and that continue to hurt working families.

A central focus of the task force is mortgage fraud. While this problem transcends city and state lines, Phoenix has been hit especially hard. According to a study conducted at Arizona State University, the Phoenix area set a new record for foreclosures in 2009. In February 2010, Phoenix suffered foreclosures on 3,300 homes, and foreclosure-related activity represented 65 percent of sales last month. That’s why those of us on the task force and its chairman, Attorney General Eric Holder, met in Phoenix recently. We listened to community members who have suffered at the hands of con artists, to leaders in real estate who are trying to rid their industry of the cancer of fraud, and to state and local law enforcement responsible for fighting schemes designed to take advantage of honest Americans. Not only did we listen, we shared strategies and considered several solutions.

Attorney General Holder also announced that new investments included in the FY 2010 budget will soon be distributed to combat mortgage fraud. This spring, nearly $8 million will be allocated for this work, including $1.7 million to Arizona.

This event was the second of several summits the task force is hosting this year. Next month, we will hold a similar event in Detroit. The task force will use the information we learn to bring justice to those who see today’s climate as something to exploit for personal gain.

The task force intends to send a message to all would-be fraudsters: If you commit mortgage fraud, you will be punished. It also has a message to Americans who face the effects of the housing crisis every day: We will stand by you to protect what you have worked so hard to build.

Tony West is the assistant attorney general for the Civil Division of the U.S. Justice Department.

A former loan originator and licensed notary was convicted Wednesday in federal court on 30 felony counts of conspiracy, bank fraud, wire, fraud and money laundering offenses, following an investigation by U.S. Immigration and Customs Enforcement (ICE).

William S. Poff, 37, of Marshall, Mich., was living in Washington state when he and four other individuals were involved in a mortgage fraud scheme that cheated banks and property sellers in the Puget Sound region out of millions of dollars. ICE agents arrested Poff and four others in June 2009.

Court documents reveal that starting in 2005 through 2008, the co-conspirators fraudulently obtained financing from banks to purchase homes. They secured the loans by providing a series of false statement on employment, income, citizenship status, assets and liabilities.

They submitted bogus appraisals and hired fictitious home repair companies to do repair work on the properties. Proceeds from the home sales would go to the fake companies that had, in fact, done no work.

At the same time, they convinced innocent home sellers to extend private loans to the buyer of the home to cover a portion of the purchase price. The private loans, which were not disclosed to the banks, allowed the conspirators to obtain loan proceeds far beyond the value of the assets securing those loans.

The sellers did not know that the conspirators had already obtained financing from commercial lenders to cover the full cost of the home. When payments were not made, the properties fell into foreclosure. The homes were then sold for less than the total of all loans secured for the property. The sellers who had extended private loans to the buyers were ultimately left with nothing.

During Poff’s trial, prosecutors focused on the purchase of eight different properties using various deceptive methods including straw buyers, forged settlement documents, lies on loan applications, inflated sales prices, and undisclosed seller financing. Most of the properties are pending foreclosure.

ICE investigators learned that Poff and his co-conspirators pocketed $1.7 million. Evidence presented at trial showed that Poff used some of it for his living expenses, trips, and child support payments.

“This case illustrates how the desire to turn a quick profit can lead to financial crimes that defraud innocent citizens,” said Leigh Winchell, special agent in charge of ICE’s Office of Investigations in Seattle. “ICE will continue to use its unique investigative authority to expose other illegal financial transactions in an effort to deter this type of activity.”

The fraudulent mortgage transactions occurred in communities throughout Western Washington, including in Des Moines, Tacoma, Seattle, Puyallup, Spanaway, SeaTac, Auburn, Bellevue, Renton, Lakewood, Fircrest, Kent, Pacific and Issaquah. The other four defendants in the case have pleaded guilty.

Poff faces up to 30 years in prison. He is scheduled to be sentenced on June 14.

Kurt Warren Heintz, age 39, of Grand Blanc, Michigan, formerly the owner of Great Lakes Broker Funding in Grand Blanc, Michigan, was sentenced on Wednesday, February 10, 2010, to 65 months in the custody of the Bureau of Prisons on one count of Financial Institution Fraud in violation of Section 1344 of Title 18 of the United States Code. Sentenced at the same time was James Fish, age 41, of Royal Oak, Michigan, formerly a licensed real estate broker in the State of Michigan, who was sentenced to serve 30 months in the custody of the Bureau of Prisons on one count of Financial Institution Fraud in violation of Section 1344 of Title 18 of the United States Code.

The sentences were announced today by United States Attorney Barbara L. McQuade. Ms. McQuade was joined in the announcement by Andrew G. Arena, Special Agent in Charge, Federal Bureau of Investigation, Detroit Field Office. The sentences were imposed by the Honorable Sean F. Cox, United States District Judge sitting in Detroit.

On February 6, 2009 and February 4, 2009, respectively, Mr. Heintz and Mr. Fish pleaded guilty to a one-count Information charging that they had devised and executed a scheme to defraud Indy Mac Bank though the use of a fraudulent mortgage loan application based on a false and inflated property appraisal. Although Mr. Heintz and Mr. Fish pleaded guilty to one count of Financial Institution Fraud, they agreed to be held responsible for the full extent of their scheme to defraud financial institutions in the Flint metropolitan area. This scheme to defraud began in May of 2005 and continued through 2007. In addition to IndyMac Bank the victim financial institutions included, Fifth Third Bank, Bank of America, Independent Bank, Mercantile Bank, and Union Federal Bank. The Federal Bureau of Investigation conducted of a review of the mortgages obtained in the course of this scheme to defraud and calculated the loss to these and other lending institutions at more than $14.4 million.

In sentencing Heintz and Fish, Judge Cox carefully reviewed and summarized the facts of the case, as well as the background and circumstances of each defendant. Judge Cox expressed his “shock” that Mr. Heintz had chosen to devise and commit such a serious and devastating crime. In sentencing Mr. Fish, Judge Cox said his sentenced had been heavily influenced by the fact that Fish had stolen the identity of other appraisers and used them on fraudulent appraisals. In addition to the millions of dollars lost by lending institutions, Judge Cox noted the devastation caused to entire neighborhoods, the financial cost to unsuspecting purchasers and the damaged and destroyed careers of innocent appraisers.

In addition to their custodial sentences, Mr. Heintz was ordered to pay, jointly and severally with Mr. Fish, $14,467,546.50 in restitution to various financial institutions, and Mr. Fish was ordered to pay, jointly and severally with Mr. Heintz, $4,992,400. Each was ordered to pay a $100 special assessment and must serve three years of supervised release upon the completion of their custodial terms.

FBI Special Agent in Charge Arena said that, “These charges and sentences underscore the seriousness with which the United States Attorney’s Office, the Federal Bureau of Investigation, area financial institutions, as well as other local, state and federal law enforcement agencies and regulators, view allegations of mortgage fraud. Mortgage fraud continues to have significant and devastating consequences for the Michigan economy. It is important that investors, consumers and real estate professionals, as well as the public in general, recognize that schemes to defraud involving mortgages and real estate transactions will result in the incarceration of the offenders.”

This matter was initiated and investigated by the Federal Bureau of Investigation. Additional information can be found on the FBI’s website at www.fbi.gov, search Mortgage Fraud. To report illegal activity related to mortgages in Detroit or anywhere in Michigan; please call the Detroit Mortgage Fraud Hotline at 313-237-4530, www.tips.fbi.gov, or the Wayne County Register of Deeds’ Deed Fraud Hotline at 313224-5869.

Rita Gosselin, 58, was arrested and charged with one count of continuing criminal enterprise (racketeering) at her Grosse Ile house early Thursday morning by investigators from the Michigan Attorney General’s Office and the Southgate Police Department.

Gosselin is accused of orchestrating a real estate investment Ponzi scheme in the Detroit metropolitan area between April 2007 and September 2008.  The allegations include defrauding up to 20 people of $500,000.

Gosselin was arraigned Thursday, December 3, 2009 in 33rd District Court in Woodhaven, Michigan on charges related to an alleged real estate Ponzi scheme.

If convicted, she faces a 20-year sentence for the racketeering felony, and 10 years each for three counts of false pretenses over $20,000.

Gosselin allegedly enticed investors with claims that she could purchase foreclosed and distressed properties in bulk, renovate them and sell them for a profit. Gosselin allegedly promised investors regular monthly payments.  As security for these investments, Gosselin allegedly provided investors with promissory notes.

A preliminary examination of the evidence against Gosselin is set for 9 a.m. Dec. 15 in 33rd District Court.

Judge Michael McNally set bond at $300,000.

The Continuing Criminal Enterprise statute defines a criminal enterprise as any group of six or more people, where one of the six occupies a position of organizer, a supervisory position, or any other position of management with respect to the other five, and which generates substantial income or resources, and is engaged in a continuing series of violations of Title 21 of the United States Code.

Just When You Thought it was Safe to go into the Water

This is not a follow-up story about hurricane Katrina.

One out every three home owners today in America is drowning.  According to Mark Fleming, chief economist for First American CoreLogic, more than 15.2 million U.S. mortgages, or 32.2% of all mortgaged properties, were in a negative-equity position on June 30, edging down from 32.5% at the end of March, according to the real-estate information company, which tracks data on about 90% of mortgage loans nationwide.

The combined total property value for loans in 2008 in a negative-equity position was $3.4 trillion, according to the report.  Negative equity can occur because of a decline in property value, an increase in mortgage debt or a combination of both. Equity levels are important to people who can’t make their mortgage payment since it affects their ability to sell or refinance.

“The slight drop from 2008 to the figures of 2009’s first 2 quarters in the portion of under-water loans reflects the recent flattening of home price changes, which is “great news” for the housing market as negative equity has been increasing for a number of periods,” Fleming said.

Still, he stressed that this decrease is a quarterly comparison and not the yearly comparison typically used in house prices.

Negative equity is a strong driver of foreclosures, Fleming said, and the stunted growth rate in the second quarter is a positive sign that foreclosures may moderate in the future. First American CoreLogic made “very crude” estimates that the foreclosure rate will peak a bit higher than 4% in early 2010, he said.

Is there Regional competition to be in Second Place?

According to business columnists in Arizona and Florida, they both report that their state has the number two spot sewn up for the most homes under water with negative-equity mortgages.

According to Jan Bucholz of the Phoenix Business Journal, her headline read:

“Arizona second in underwater loans”

On the other coast of the United States, the South Florida Business Journal with a statistical quote from CoreLogic posts the following headline:

“Florida No. 2 in mortgages under water”

For the sake of preventing another Civil War, let’s call it a tie.  We’ll look at the raw figures in a moment.  For right now, here is a look at what everyone agrees on:

The number one state leading the country in under water (negative-equity) mortgages is Nevada where 65 percent of homeowners have negative equity in their homes. (I still am quoting data from First American CoreLogic, based in Santa Ana, Calif.)

The percentage difference between the two states “coveting” the number two position, Arizona and Florida, is a fraction between 49% and 48% respectively.

Fourth on the list of under water mortgages is Michigan with California rounding out the top five.

Can anyone say:  Tsunami?

Nationwide, we have one-third of all mortgages in an “under water” position with a total property value for loans at $3.4 trillion. California led states with $969 billion, followed by Florida with $432 billion, New Jersey and Illinois each with $146 billion and Arizona with $140 billion.

Looked at by city, Los Angeles topped the list with more than $310 billion of total property value under water, followed by New York with $183 billion, Miami with $152 billion, Washington with $149 billion and Chicago with $134 billion, according to CoreLogic.

Michigan Attorney General Mike Cox today announced that his office has filed charges against seven individuals at the forefront of a major mortgage fraud operation in Southeast Michigan.  The charges resulted from a year-long investigation by the Michigan Mortgage Fraud Task Force and included efforts from the Michigan State Police, U.S. Secret Service, and the Attorney General’s office. 

“Mortgage fraud is a serious threat to Michigan’s economy, killing jobs and hurting residents’ pocketbooks,” said Cox.  “By committing wide scale fraud, these defendants have contributed to the declining home market that is ruining family finances.”

Arraigned today is Eddie Zaben, 39, of Dearborn.  Zaben is charged with one count of continuing criminal enterprise (racketeering), a 20-year felony, and eight counts of false pretenses over $20,000, each a 10-year felony.  The joint investigation revealed Zaben used his business, MYA’s Investment Group, LLC, to perpetrate large scale mortgage fraud.  The scheme involved the financing of at least eight Wayne County homes in 2006 and 2007. 

For each property, a straw buyer was recruited and asked to sign the closing papers.  Zaben presented fraudulent mortgage applications on their behalf containing falsified employment and income information.  Records indicate that some or all of the proceeds disbursed at the closing went to Zaben.  As a result of the scheme, each of the properties has been foreclosed or is in the process of foreclosure.

Six others were charged earlier for crimes including ID theft, false pretenses, and uttering and publishing: Dagoberto Reyes, 53 of Detroit, Evelyn Santana, 53 of Union City NJ, Mohamed Beydoun, 27 of Detroit, Memoud Makky, 29 of Dearborn, Ali Hassan Haidous, 25 of Dearborn and Balil Hashem, 26 of Dearborn. 

Zaben was arraigned this morning in the 19th District Court in Dearborn before Judge Hultgren.  The court imposed a $20,000 personal recognizance bond and Zaben is next due in court for a preliminary examination scheduled for July 31.   Other arrests could come shortly.

“I would like to thank the Michigan State Police and the Secret Service for their hard work over a significant period of time to help build this serious case,” said Cox. 

Attorney General Mike Cox has made prosecuting mortgage fraud a priority for his office.  In 2008, Cox created a mortgage fraud unit and teamed up with the Michigan State Police and other law enforcement agencies to tackle the problem.  In the last six months alone, Cox has charged 12 people with mortgage fraud-related offenses.  Cox’s office has also held seven mortgage foreclosure forums to help families stay in their homes during these difficult times.

This is the kind of story you’d expect to hear about on April Fools Day, but sadly it’s true. Michigan’s Office of Financial and Insurance Regulation (OFIR) has ordered an entity claiming to be a mortgage company to cease and desist from doing business. OFIR believes Southfield, MI-based Capita Management Group, through its website, www.capitamanagementgroup.com (which has since been shut down by OFIR has contacted Godaddy.com), was as a legitimate mortgage company in an attempt to steal consumers’ money and identity. The fraudulent company encouraged customers to apply for loans by providing personal information including social security and financial account numbers.

“OFIR will continue to make it our business to put these fake companies out of business,” OFIR Commissioner Ken Ross said. “Michigan consumers need to be on the lookout for these classic advance loans scams, where they are lured into paying upfront fees for services they never get in return.”

OFIR found that Capita was not licensed under the state’s Mortgage Brokers, Lenders and Servicers Licensing Act.

To find out if a mortgage company in Michigan is licensed to do business in the state, contact OFIR toll-free at 877-999-6442 or visit the agency’s website www.michigan.gov/ofir and click “Who We Regulate.”
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As a result of a tip his office received from FlippingFrenzy.com founder Ralph R. Roberts, Michigan’s Attorney General today filed charges against four people for conducting what the AG’s office is calling a “million-dollar mortgage fraud scheme”. According to Michigan Attorney General Mike Cox, the following people are charged with racketeering:

• Dequincy Hyatt, of Detroit
• Seaesther Thompson-Hayes, of Flat Rock
• Aaron Brooks, Jr., of Southgate

The fourth person, Pietro Biundo, of Washington, Michigan, is charged with filing false documents when selling a home in one of the mortgage fraud transactions.

Today’s actions were a direct result of information Ralph R. Roberts, founder of FlippingFrenzy.com and a real estate-focused consumer advocate, provided to the Michigan State Police and Attorney General Cox’s office!

An investigation by the State Police and the AG’s office revealed that in 2006 Dequincy Hyatt, managing partner of J.B. Homes/Construction, LLC., Seaesther Hayes, a mortgage broker, and Aaron H. Brooks, Jr., a former service representative for the People’s Trust Credit Union (PTCU), partnered together to perpetrate a large scale mortgage fraud.

In short, two properties were involved in this case. In the first case, it is alleged that Dequincy Hyatt, Seaesther Hayes, and Aaron Brooks secured a $710,000 mortgage for a $510,000 home in Shelby Township, MI. After paying fees, the three scammers were able to skim more than $163,000 off the transaction.

In the second case, it is alleged the defendants secured a $785,000 mortgage though the straw buyer for a $515,000 Clinton Township, MI, home. The seller of the home in this case, Pietro Biundo, is charged with filing false documents related to the transaction.

Attorney General Mike Cox alleges that the defendants sought and obtained a straw buyer for the two targeted luxury properties. The straw buyer was told that her name and credit, which was boosted by grossly inflated income and asset data, would be used to purchase the properties. The mortgage payments would be made for her by the defendants and her name would later be removed from the mortgages. In return, the straw buyer was promised compensation.

About a year after the transactions, however, Dequincy Hyatt, Seaesther Hayes, and Aaron Brooks stopped making the mortgage payments. The straw buyer was left with two mortgages in her name, and was not able to make payments. Not surprising, both houses went into foreclosure.

Hyatt, Hayes, and Brooks are charged with one count of continuing criminal enterprise (racketeering), a 20-year felony, and two counts of false pretenses, each a 10-year felony. Biundo is charged with one count of false pretenses based on the filing of a falsified deed in the sale of his home, a 5-year felony. Hyatt, Hayes, and Brooks have been arrested and arraigned. Biundo is expected to turn himself in to police shortly.

In 2008, Michigan Attorney General Mike Cox created a mortgage fraud unit and teamed up with the Michigan State Police and other law enforcement agencies to tackle the problem. Cox’s office has also held four mortgage foreclosure forums to help families stay in their homes during these difficult times.

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

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

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

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

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

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

The U.S. Attorney’s Office for the Eastern District of Michigan has finally created a multiagency task force to deal with real estate and mortgage fraud in eastern Michigan. As mortgage fraud continues to have significant consequences that affect the housing market, law enforcement in Michigan has decided now is the time to formally step up its commitment to fighting what for the last three years has been the fastest-growing white collar crime in America.

Participating agencies and financial institutions include:

• Bank of America
• Federal Bureau of Investigation (FBI)
• Federal Deposit Insurance Corp. – Inspector General Office
• Flagstar Bank
• Internal Revenue Service
• JP Morgan Chase Bank
• Oakland County Register of Deeds
• Small Business Administration- Office of Inspector General
• State of Michigan Attorney General’s Office
• State of Michigan Office of Financial Regulation
• U.S. Department of Agriculture- Office of Inspector General
• U.S. Dept. of Housing & Urban Dev. – Office Inspector General
• U.S. Trustee Program
• United States Postal Inspection Service
• Washtenaw County Clerk/Register of Deeds
• Wayne County Register of Deeds – Deed Fraud Unit
• Wayne County Sheriff’s Department
• Wayne County Prosecuting Attorney

The acting U.S. Attorney for the District, Terrence Berg, issued a press release stating:

“I want to commend the leadership of the FBI in Detroit for taking the initiative on this project, and also recognize the participation of our private sector partners. I am very encouraged by the commitment of the Task Force members.“

Rather than congratulating themselves for the task force’s formation, as Berg does above, perhaps the U.S. Attorney’s office for the Eastern District of Michigan — along with the other agencies and the banks involved in this new effort — should apologize to the residents of Michigan for taking this long to act in a coordinated way.

As Flipping Frenzy has relentlessly reported over the years, Michigan’s real estate and mortgage fraud woes are legendary. In August of this year, the Mortgage Asset Research Institute (MARI) reported Michigan ranked 3rd in the nation for loans containing alleged fraud or serious material misrepresentation (and just in case you’re wondering, MARI ranked the state #12 in 2001, #8 in 2003, and #5 in 2004). For its part, the FBI’s most recent index of the worst states for mortgage fraud puts Michigan in the slot: #3.

Recognizing that roughly 90% of all reported real estate and mortgage fraud losses involve collaboration or collusion by real estate industry insiders, the Mulit-Agency Mortgage Fraud Task Force will concentrate their efforts on fraud for profit, which everyone knows by now involves the skimming of equity, falsely inflating the value of the property through false appraisals, and the issuance of loans on fictitious properties.

To report real estate and mortgage fraud in Detroit or anywhere in Michigan, Flipping Frenzy readers can call the Detroit Metro Mortgage Fraud Hotline at (313) 237-4530, or contact the Wayne County Register of Deeds’ Deed Fraud Hotline at (313) 224-5869.

Forged and counterfeit documents commonly play a role in real estate and mortgage fraud, and notaries form a front line of defense in these areas. With that in mind, the following email message arrived yesterday afternoon, and since it is categorized as an alert, I feel it is worth sharing here:

DATE: September 11, 2008
FROM: Tim Reiniger, Executive Director
TO: Concerned Notaries of Michigan
RE: Your Support Needed For Important Fraud-Fighting Legislation

As a Notary in a state where there is no record-keeping requirement, you know the importance of keeping Notary records. The FBI and law enforcement agencies across the nation have cited Notary records as vital evidence in the investigation and prosecution of mortgage fraud and identity theft crimes. Despite the downturn in the mortgage industry, mortgage fraud has actually risen. In fact, the Mortgage Asset Research Institute has ranked Michigan number three in the nation in mortgage fraud for the first quarter of 2008. Because you use a Notary journal, we are asking for your support of important fraud-fighting legislation currently pending in the state Legislature. Officially designated as HB 5448 (with similar companion bills HB 5379 and 5431), this bill would require Notaries in Michigan to keep a record of all their official acts to facilitate prosecution of identity thieves.

ACTION ITEM: Please contact your State Representative and urge this legislator to support HB 5448.

For information on finding and contacting your State Representative click here: http://house.michigan.gov/find_a_rep.asp

Curious about House Bill 5448, I visited the Michigan Legislature’s website. There, I found the entire Michigan Notary Public Act along with the proposed language referenced in Tim Reiniger’s email alert:

A NOTARY PUBLIC SHALL KEEP, MAINTAIN, AND PROTECT, UNDER HIS OR HER EXCLUSIVE CONTROL, A CHRONOLOGICAL PAPER OR ELECTRONIC OFFICIAL JOURNAL OF NOTARIAL ACTS. THE JOURNAL SHALL CONTAIN THE FOLLOWING ENTRIES FOR EACH NOTARIAL ACT:

(A) THE DATE AND TIME OF THE NOTARIAL ACT.

(B) THE TYPE OF NOTARIAL ACT.

(C) THE TYPE, TITLE, OR DESCRIPTION AND DATE OF EVERY RECORD NOTARIZED.

(D) THE NAME, ADDRESS, SIGNATURE, AND, IN THE CASE OF REAL ESTATE RECORDS, THE RIGHT THUMBPRINT OF EACH PERSON WHOSE SIGNATURE IS NOTARIZED.

According to the National Notary Association (NNA), each year, countless civil and criminal court challenges are made to documents after they have been legally notarized. Claims of fraud, forgery, coercion and other misdeeds, real or not, are common. In some cases, an original document’s loss or theft makes the issue even more difficult to resolve.

A Notary’s journal, says the NNA, can prevent the frauds and many of the baseless lawsuits that burden our courts as well as safeguard personal rights when a valuable document is lost or fraudulently altered. The NNA also says the Notary’s journal supplies independent physical evidence that a particular document was signed or acknowledged on a specific day by a person who was positively identified by a Notary. Other benefits of the Notary’s journal (again, from NNA):

• It deters forgers and impostors who are naturally unwilling to leave a signature (and a thumbprint) that would incriminate them.
• A Notary journal protects the signer and other involved parties in the event the document is lost, challenged or fraudulently altered.
• It protects the Notary from baseless allegations by showing reasonable care was exercised in identifying the signer and performing the notarial act.
• A Notary journal provides critical evidence to law enforcement authorities in prosecuting frauds.
• It discourages groundless lawsuits by showing that a signer appeared before the Notary and was properly identified.
• A Notary journal can avert or quickly resolve litigation, helping unclog our over-burdened courts.

As I point in my book “Protect Yourself from Real Estate & Mortgage Fraud: Preserving the American Dream of Homeownership,” given the right to notarize documents is a privilege that’s not to be taken lightly. To make notarization of documents less susceptible to abuse, in addition to what has been proposed for Michigan, I recommend the following:

• Requirements for becoming a Notary should be much stricter. In some areas, becoming a Notary is easier than getting a cash advance at an ATM.
• Notaries should have an electronic system that captures the signer’s information (thumbprint and driver’s license) and verifies the information.
• Notaries should be required to pass a fraud-certification exam.
• A notary’s thumbprint should be included on the notarized document or within the seal. (Notaries often claim that they are the victims of identity theft. Requiring a thumbprint would help prevent that from occurring.)
• Notaries should receive newsletters in print or electronically keeping them informed of their responsibilities and any new fraud schemes that may exploit the powers of a notary.
• Notaries should be legally prohibited from notarizing real estate or loan documents for family members.
• Notaries should be legally prohibited from notarizing documents in transactions in which they have a direct or indirect beneficial interest. (Some states prohibit Notaries from notarizing documents in transactions in which the notary has a direct interest but provide no wording dealing with indirect interests.)
• An additional witness should be required to verify the identity and signatures of those signing the documents and then sign as a witness.
• Notaries should be required to obtain the thumbprint of the signatory in all transactions involving real property.
• Notaries should be provided with the legal discretion to refuse to notarize a document if the Notary believes that the signer is under duress or the victim of fraud.
• As is proposed in Michigan, all states should mandate that notorial logs be maintained.

Con artists will always find ways to exploit vulnerabilities in the system, but the system can and must fight back.

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.