July 29–A Las Vegas home builder was indicted Wednesday after federal authorities accused him of arranging to sell his houses at inflated prices as part of a scheme to “kick back” money from mortgage loans to buyers and their associates.

Paul Wagner, owner of Wagner Homes, was one of 123 defendants who were charged, convicted or sentenced in Las Vegas during Operation Stolen Dreams. The nationwide initiative, which began March 1, was a collective enforcement effort aimed at confronting mortgage fraud.

Wagner was the only builder who was prosecuted in Las Vegas as part of Operation Stolen Dreams.

Natalie Collins, a spokeswoman for the U.S. attorney’s office, said Wagner previously was charged in a criminal complaint with one count of conspiracy. The federal indictment replaces the complaint.

The indictment charges Wagner with conspiracy, six counts of bank fraud and three counts of wire fraud. Collins said prosecutors also are seeking the forfeiture of $2.7 million.

A summons was issued for Wagner, who is free on his own recognizance. He is scheduled to appear for an arraignment on Aug. 13 before U.S. Magistrate Judge George Foley Jr.

Wagner’s attorney, John Momot Jr., could not be reached for comment Wednesday.

According to the indictment, Wagner conspired to commit bank fraud and wire fraud from about 2007 to about 2009.

“It was part of the conspiracy that the defendant, a home builder, arranged to sell his houses at inflated prices in order to fraudulently kick back large amounts of money from the mortgage loan to the buyers and those working with the buyers as incentives for them to buy houses,” the indictment alleges.

The conspiracy involved nine Las Vegas houses, according to the document.

Michael Rawlins, a special agent with the FBI, participated in the investigation of Wagner and prepared an affidavit for the criminal complaint. Rawlins wrote the following in his affidavit:

“The investigation has disclosed that from 2005 to 2009 Wagner sold more than 100 homes, and that almost every home is either in foreclosure, or has already been foreclosed upon by the victim lender.”

By Carri Geer Thevenot

LAS VEGAS—A former Las Vegas resident has pleaded guilty to conspiracy for his involvement in a Nevada mortgage fraud scheme involving straw buyers and falsified mortgage loan documents, announced Daniel G. Bogden, United States Attorney for the District of Nevada.

Brian K. Jackson, 38, currently of Anaheim, California, pleaded guilty on Friday, July 9, 2010, before U.S. District Judge James C. Mahan to conspiracy to commit mail fraud, wire fraud, and bank fraud and is scheduled for sentencing on October 8, 2010, at 10:00 a.m. Jackson was indicted by the Federal Grand Jury in Las Vegas on October 21, 2009. He faces up to 30 years in prison and a $1,000,000 fine.

From about 2002 to May 14, 2008, Jackson, owner of Unlimited Properties, a now-revoked Nevada limited liability corporation, participated in a conspiracy to submit mortgage loan applications to financial institutions to finance straw buyer real estate purchases in Nevada. Jackson recruited and caused to be recruited straw buyers to purchase properties on behalf of the members of the conspiracy. The loans were processed through Sapphire Mortgage, located in Henderson, Nevada. Jackson caused false and fraudulent information to be placed in the straw buyers’ mortgage loan applications concerning their employment, income, assets, intent to occupy property, etc. Jackson caused the same home to be purchased multiple times by different straw buyers at ever increasing prices, and caused the “equity” to be diverted to himself or his company. Jackson also placed renters in the properties and caused the mortgages to default.

The plea agreement states that Jackson caused fraudulent loan applications to be sent to financial institutions to fund mortgage loans for the purchase of a home at 2061 Scenic Sunrise Drive in Las Vegas. Between March 2002 and late 2004, Jackson twice orchestrated the sale of the property using two straw buyers and the placement of false information in their loan applications. In June 2004, Jackson also orchestrated the sale of the Scenic Sunrise property to himself, and falsely stated in his loan application that he intended to reside in the property when he knew he did not. During this period, Jackson also leased the Scenic Sunrise property to another individual and accepted money from the individual as guarantee that he would purchase it in the future, even though Jackson knew that the property at the time was owned by the first straw buyer and was in the process of being sold to the second straw buyer. As a result of the fraud, the financial institutions suffered a loss of approximately $111,103.

In May 2008, the owner of Sapphire Mortgage, Cindy Birkland, was arrested and charged in state court in Las Vegas with mortgage fraud related offenses.

This investigation is being led by IRS Criminal Investigation and the FBI, and other agencies of the Southern Nevada Mortgage Fraud Task Force, including the Las Vegas Metropolitan Police Department, Office of the Inspector General for the Social Security Administration, Office of the Inspector General for the Department of Housing and Urban Development, the U.S. Postal Inspection Service, and the U.S. Secret Service. The case is being prosecuted by Assistant United States Attorney Brian Pugh.

Persons who have information concerning potential mortgage fraud may contact the Southern Nevada Mortgage Fraud Hotline at (702) 584-5555.

Nevada Attorney General Catherine Cortez Masto has announced the indictment of Jeffery Tye Brown, 50, of Henderson, on charges of four felony counts of theft and one felony count of forgery in connection with the operation of DB Financial Services, a foreclosure rescue business located in Henderson.

The State alleges Brown misled customers into believing that, for a fee, he would guarantee resolution of a victim’s pending mortgage foreclosure.

“My mortgage fraud task force is aggressively prosecuting loan modification scams,” said Masto. “Scammers should know we will use all our resources to extradite, indict and convict you if you attempt to perpetrate these schemes upon Nevada’s consumers.”

The indictment alleges that between December 2007 and February 2008, Brown contacted victims whose homes were going into foreclosure and obtained advance payments of $999 for foreclosure rescue services that he never performed.

He failed to give refunds despite promising refunds in his contracts and advertising. He also allegedly forged documents to the Mortgage Lending Division to cover up the criminal activity.

Shortly after execution of a search warrant on the DB Financial offices in 2008 by the Attorney General’s mortgage fraud task force, Brown fled the country.

He has been extradited back to the U.S. from the Philippines, where he was in hiding to evade authorities.

A District Court arraignment has been scheduled for Feb. 25 in the Lower Level Arraignment Court of the Las Vegas District Court.

The indictment is not a determination of guilt or innocence but is just a finding of probable cause that a crime was committed. The Defendant is presumed innocent until proven guilty.

Anyone who has information regarding this case should contact the Attorney General’s Office at 702-486-3777 in Las Vegas or 775-684-1180 in Carson City.

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

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

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

Five people–including a licensed real estate broker, a mortgage loan processor, and a licensed mortgage agent–have been charged and entered guilty pleas in a Las Vegas mortgage fraud scheme that federal government say caused over $17 million in losses to federally-insured banks. As previously reported here on FlippingFrenzy.com, Eve Mazzarella, a Las Vegas REALTOR® who ironically was named by REALTOR® Magazine in 2007 to it’s “Top 30 Under 30” list, her husband–Steven Grimm–and four other loan officers and mortgage brokers are currently awaiting trial on federal conspiracy and fraud charges for their alleged role in the scheme, which involved straw buyers, fraudulent mortgage loan applications, and shell companies.

• Daicy Vargas, 23, of Las Vegas, pleaded guilty to one count of misprision of a felony, admitting that from about November 2005 to 2007, she assisted Steven Grimm in the diversion of the illicit proceeds of the fraud and failing to report the fraud as soon as possible to appropriate authorities.
• Benjamin Labee, 27, a mortgage loan processor, and his wife, Shauna Labee, a.k.a. Shauna Dyphibane, a licensed mortgage agent in Nevada, both of Salt Lake City, Utah, pleaded guilty to one count of conspiracy.
  

• The Labees admitted that from about April 1 to December 31, 2006, they conspired with Steven Grimm to recruit straw buyers to pose as property purchasers and that they placed false information in loan applications which allowed straw buyers to qualify for loans for which they would not have otherwise qualified.
• Craig Christians, 39, a licensed Nevada real estate broker in Las Vegas, pleaded guilty to one count of misprision of a felony. Christians admitted that from about January 1, 2006, to March 12, 2008, he allowed his company, Western Pacific Funding, to be used as a conduit for the fraud.
• Robert Samora, 41, of Las Vegas and a licensed Nevada mortgage agent, pleaded guilty to one count of money laundering. Samora admitted that from about 2006 to 2007, he assisted Grimm by diverting illicit proceeds of the mortgage fraud scheme, namely loan officer commissions, to Grimm.

Led by Steven Grimm and Eve Mazarrella, the scheme allegedly included an astonishing 432 straw buyer transactions involving more than 225 properties with a total purchase price of over $107 million. Grimm and Mazzarella defaulted on mortgage payments on many of the loans which not surprisingly caused the properties to go into foreclosure. At least 143 of the approximately 225 properties purchased by the defendants are in default causing losses to the banks estimated at more than $17 million.

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

Nevada, California, and Arizona post top state foreclosure rates

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

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

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

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

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

Detailed state-by-state data is available here.

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

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

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

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

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

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

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

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

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

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

The 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.

While the vast majority of real estate industry professionals are honest and hard working individuals, real estate and mortgage fraud schemes continue to be orchestrated by some within the industry, including mortgage bankers/brokers, loan officers, Realtors, title/escrow officers, appraisers, and other industry related personnel. Since these fraudsters and schemers are said to have contributed significantly to the demise of the real estate market in Las Vegas, Nevada, the Las Vegas Division of the FBI has created a task force specifically designed to go after the bad guys.

The Southern Nevada Mortgage Fraud Task Force, which is housed in FBI’s Las Vegas office, is comprised of representatives of the following local, state, and federal entities:

• Las Vegas Metropolitan Police Department
• Internal Revenue Service-Criminal Investigation
• Housing and Urban Development
• Social Security Administration-OIGs
• United States Postal Inspection Service
• Nevada Attorney General’s Office
• United States Attorney’s Office

The very same day the Task Force went public–last Thursday, the 13th of March–a Las Vegas real estate broker and her husband were charged by a federal grand jury in Las Vegas with defrauding federally-insured financial institutions of millions of dollars through a scheme that involved inflated housing values, straw purchasers, and a series of bogus limited liability companies to run a massive real estate fraud scheme.

Eve Mazzarella, 30, and her husband, Steven Grimm, 45, were indicted last Wednesday, and charged with six counts of Bank Fraud, one count of Money Laundering, and Aiding and Abetting. Grimm was arrested on Thursday morning in Las Vegas by agents and officers of the newly created fraud task force. At last check, Mazzarella has not yet been arrested.

As we all know, it is a violation of federal law for anyone to make a false statement regarding their income, assets, debt, or matters of identification, or to willfully overvalue any land or property in a loan and credit application for the purpose of influencing in any way the actions of a federally-insured financial institution. Well, Mazzarella and Grimm controlled and operated numerous limited-liability companies designed specifically to defraud federally-insured financial institutions in order to benefit themselves and no one else.

Here’s how the scheme worked:

1. Mazzarella and Grimm recruited individuals (straw buyers) to make offers to purchase homes in Las Vegas at substantially above the seller’s asking price.
2. Once the purchase was negotiated, the straw buyers applied for mortgages from financial institutions.
3. Mazzarella and Grimm placed, or caused to be placed, false information regarding the straw buyers’ places of employment, income and assets on the mortgage loan applications in order to ensure that the straw buyers could qualify for the loans.
4. They then required the straw buyers to transfer title to the property to a designated limited liability company controlled by the defendants.
5. Mazzarella and Grimm typically used the straw buyer’s first initial and last name to name limited liability companies, and did not pay the straw buyer his/her fee until the property was transferred to the limited liability company in question.
6. After the mortgage loans were funded, Mazzarella and Grimm caused title and escrow companies to disperse a portion of each loan to one of their limited liability companies.
7. Once they obtained control over a property, they would again sell the same property to another straw buyer at an inflated price.

What a racket!

Mazzarella and Grimm engaged in approximately 432 straw buyer transactions, and obtained control over more than 225 properties with a total purchase price of over $100 million. They defaulted on mortgage payments on many of the loans which caused the properties to go into foreclosure, and more than 115 of the approximately 225 properties purchased by Mazzarella and Grimm have since been been sold in foreclosure, causing losses to the banks of more than $15 million.

If convicted, which is almost a certainty, Mazzarella and Grimm face up to 30 years in prison and a $1,000,000 fine on each bank fraud charge and up to 10 years in prison and a $250,000 fine on the money laundering charge.

Those of you who have read my many blog entries on real estate and mortgage fraud, know that cash back at closing is a form of fraud that is particularly prevalent and destructive. The reason I focus on it so much is because many people think that cash back at closing is acceptable and that at its very worst, it is a victimless crime. A buyer simply agrees to pay more for a property than what it is really worth in order to receive the excess proceeds as a refund when the transaction closes.

More and more people are beginning to realize that cash back at closing is illegal, so the con artists are starting to do what they usually do when the public wises up — they modify the technique and give it a new name. Recently victims of a large-scale real estate scam in Florida, Texas and Nevada called my attention to a new adaptation of cash back at closing called lease back at closing. In a letter from Ricky Stokes (who was selling these investment opportunities on behalf of Cay Clubs Resorts) to an investor, Stokes acknowledges that “kickbacks” at closing are illegal, so the company uses lease backs instead:

… at closing, as the investor, you get a 15% kickback they call a “guaranteed lease back.” They make this legal by calling it a lease back instead of a kickback. These kickbacks more than cover your out of pocket expenses for two years! This also allows them to have free will to renovate and then rent it to vacationers/snow birds..

In the same letter, Mr. Stokes provides the following example to show how the lease back scheme would work on a $500,000 property:

Let’s say you buy a townhouse conversion for $500K. You get 100% financing and get a check cut back to you at closing for $50K (return of your deposit). Ten days later you get another check for $75K (this is their guaranteed lease back…kickbacks are illegal). This cash back at closing will more than cover your outflow for the next 2 years. With appreciation sitting at around 23%, you can roll out of it in 18 months, and make $320K.

In other words, Ricky Stokes is claiming that simply calling cash back at closing a lease back rather than a kickback makes it okay. This is absurd. Using the same logic, we could simply refer to murder as killing to avoid a conviction for first-degree murder. Dress it up however you like, call it whatever you like, cash back at closing is illegal.

What Cay Clubs Resorts was doing was simply refunding a portion of the mortgage loans used to finance the purchase of the property to the investor. This was not Cay Clubs Resorts’ money to give away or use however it wished. This was money that the lender was led to believe was to be used solely for purchasing the property and that the property’s value was sufficient collateral to secure the loan.

Lying to the lender, which is essentially what Cay Clubs Resorts was doing, is mortgage fraud, plain and simple, no matter what you want to call it. For more about Cay Clubs Resorts, including stories from investors who fell victim to the scam, visit the Cay Clubs Resorts category here on FlippingFrenzy.com.

Mortgage Fraud Surging in Florida: More potential mortgage fraud cases were reported by lenders in Florida in 2007 than in the entire country the previous year, William Stern, a supervisory special agent with the FBI, said today. And Tampa, he said, ranks seventh on the agency’s top 10 list for mortgage fraud, joining another Florida city on the list, Miami, which is No. 4.

Several face charges in Canadian real estate fraud probe, including…: Ready for this one? Hold onto your hat… A 70-year-old Canadian man is among five people charged and police are looking for others in connection with a massive real estate fraud totalling nearly $4 million. Toronto, Canada police laid 135 fraud-related charges this against five people, and Canada-wide warrants have been issued for two more suspects.

Las Vegas escrow officer arrested for mortgage fraud: Sheila Katherine Williams (pictured below), a Las Vegas, Nevada escrow officer, was arrested after fraud investigators say she pocketed more than $500,000 in escrow funds. Authorities say this case is just the tip of the iceberg in what they believe will be a deluge of mortgage fraud cases in the weeks and months ahead, and that this particular arrest is another ripple effect of Nevada’s worsening foreclosure crisis.

Gary, Indiana attorney sentenced for real estate fraud: According to the AP, Gary attorney Willie Harris has been sentenced to four-and-a-half years in prison for his role in a real estate fraud scheme. Harris was convicted in September on fraud and tax evasion charges for skimming $50,000 from the profits of a 2000 real estate deal involving a now-defunct local enterprise association. The Indiana Supreme Court suspended Harris’ law license earlier this month.

Woman receives $3.5 million judgment in mortgage scam case: A Great Neck, New York woman victimized by mortgage fraud when she unknowingly gave away her house has won a $3.5 million judgment against the mortgage broker who scammed her. Priscila Nano, 66, said she was “scared” and on the brink of losing her longtime home to foreclosure in 2004 when she received an advertisement from a company called Foreclosure Options Inc., and called the company’s number. In court papers, Nano’s attorneys described her as “an underemployed, senior citizen and immigrant with a modest command of the English language … desperate to keep her home.”

Maryland expects significant rise in mortgage and foreclosure scams: A dramatic rise in foreclosures and related scams is expected in Maryland in the coming year, prompting that state’s governor and the General Assembly to roll out several initiatives intended to help people keep their homes and avoid mortgage fraud. Governor Martin O’Malley this week proposed a set of emergency regulatory reforms and bills to target predatory lending and mortgage fraud, more efficiently inform homeowners about foreclosures, and create stricter licensing regulations. In addition, there are at least five more foreclosure-related bills that have originated in the state’s legislature this year. Maryland had 6,969 foreclosures in October and November 2007 alone.

16 People Indicted in Austin, Texas Mortgage Fraud Scheme: The United States Attorney for the Western District of Texas announced that a federal grand jury has returned an indictment charging sixteen individuals for their roles in a multi-million dollar mortgage fraud scheme.

In yesterday’s blog post, “Cay Clubs Resorts: Unbelievable Investment Opportunity or Notorious Chunking Scheme?,” I reported on a possible chunking scheme allegedly perpetrated by Cay Clubs Resorts.

I first heard about the incident from a real estate agent who read an article I had written on real estate and mortgage fraud for RISMedia. The agent informed me that she believes her son and daughter-in-law had fallen victim to company that has been ripping off investors.

In today’s post, the daughter-in-law tells what happened in her very own words:

After 10 years of marriage, my husband and I felt the time was right to start investing in real estate property. Our parents had recently been to Las Vegas, Nevada and discovered a condo development with units for sale by Cay Clubs Resorts which sold the properties under the name Flamingo Palm Villas, LLC, which operates out of Hallandale, Florida. They offered a lease back agreement where they would lease back the property for 2 years at 15% of the total purchase price of the condo. The lease back would start within 30 days of closing. The amount they were to pay us was $47,976. Our parents wrote a check for $5,000 to hold the condo until we were able to get to Las Vegas to see it. After speaking with Phil Graham (now former Cay Clubs property manager) an agreement was made to come to Las Vegas, Nevada in March 2007, and Cay Clubs Resorts would give us 3 complimentary nights at Harrah’s Casino and comp us for 1 of our plane tickets if we were to purchase the condo that weekend.

We arrived in Las Vegas, Nevada, and met with Phil Graham who gave us a tour of the property and a packet with brochures showing new high rise towers that would be built on part of the property that Cay Clubs Resorts owned. Phil Graham discussed the new amenities that were coming to the property–transportation to other hotels on the strip via shuttle bus, updated pool and workout room, upgraded parking lots, higher wall to be built around premises and gated entrance ensuring more security to property. He also explained that adding all of these amenities would increase the value of the property and that the appraisal would reflect its future value. In March 2007, we decided to purchase a one-bedroom condo unit as investment property.

After expressing our interest to Cay Clubs Resorts and mentioning using the same mortgage company that we have on our primary residency, Cay Clubs Resorts offered to waive our first year of HOA fees if we agreed to use Ross Pickard from Chase Bank, their preferred lender, and close on March 31, 2007. The closing was a nightmare–papers were never Federal Expressed to our house, instead they were e-mailed to us in the late afternoon of our closing. Based on the timing of receiving the documents, we had little time to review the documents, and pressure was placed on us to close that day.

What we have come to learn is that the loan officer from Chase Bank, Ross Pickard, inflated our credit assets on our HUD statement and indicated that the loan was for a second home instead of an investment property when he was fully aware that the property was going to be leased back to Cay Clubs Resorts for 2 years. The appraisal company, the Appraisal Team from Las Vegas, Nevada, appraised our property for more than its market value, and it’s been 10 months and we have yet to see any of our lease back money.

After doing extensive research, we have discovered that Cay Clubs Resorts is insolvent and has been taken over by another LLC, Desert Tides. Craig Holt (property manager of Desert Tides, LLC) has indicated that they will take over the responsibilities from Cay Club, however they would not be repaying any of Cay Club’s debt which includes lease back money and furniture for condo units. Desert Tides is asking us to sign a new lease agreement which waives our right to sue Cay Clubs Resorts for monies owed to us. Also, in June 2007 the zoning of the property was changed from condo to time share which would make it impossible for owners to sell the property as no lender will be willing to make a mortgage on a time share property.

To make matters worse, Desert Tides, LLC is owned by Marina Associates which is a newly formed company that is led by Dave Clark (CEO of Cay Clubs Resorts) and Dave Band.

We feel like we’re running out of options. We continue to pay a mortgage every month on a property that is not producing any income for us, even though Desert Tides, LLC continues to rent our unit and not pay us the money. It’s bad enough that we may never see our lease back money and are stuck with a property that we won’t be able to sell (or get what we paid for it) and as a result cause us to foreclose. They are NOT going to ruin our impeccable credit. Nor are they going to get away with their crooked scheme. Did these people ever take one minute to think how all of their scams would affect others’ lives?

Carisa and Craig Urban

If you have had any dealings with Cay Clubs Resorts, as an investor or employee, I invite you to share your story with other readers of FlippingFrenzy.com. Any first-hand accounts you can relate can help us determine the truth about Cay Clubs Resorts and may help other would-be investors avoid becoming the next victims.

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I recently received a letter from a real estate agent whose son had apparently fallen victim to a classic real estate fraud con called a chunking scheme.

With a chunking scheme, the con artist pitches an attractive investment scheme, promising anyone who’s willing to listen (sometimes an individual and sometimes a roomful of prospective investors) that they will be the proud owners of investment properties and that the con artist will take care of all the details–obtaining the mortgage, placing renters, making the mortgage payments, and so on. Investors are told that the rental payments will cover the mortgage and perhaps generate a little extra cash each month and that investors will make money when the homes are sold.

Unbeknownst to the investor, the properties are typically overvalued, the renters are nonexistent, and the con artist never even makes the mortgage payments. Investors are left with dilapidated homes, unpaid mortgages, and destroyed credit.

In this particular case, a company by the name of Cay (K) Clubs Resorts allegedly purchased condo complexes with plans to build a highrise hotel and casino around the complexes to boost their value.

Instead of promising to make the mortgage payments on behalf of the investors, Cay Clubs allegedly promised to lease back the property from the buyer for two years. Along with the leaseback proceeds (to be paid soon after closing), the investor would receive a portion of the rental income, so the investor could make the mortgage payments while the complex was being improved.

Unfortunately, according to many investors, Cay Clubs failed to make the promised leaseback payments, so investors were faced with refinancing, finding other sources of cash to make their payments, or losing their properties in foreclosure. According to one source, Cay Clubs owes investors about $10.5 million in leaseback payments.

Here is a copy of the letter I received and have obtained permission to use:

Mr. Roberts,

I just read the article you wrote for RISMedia, and was hoping you might be able to help in a serious financial problem that we believe may have been mortgage fraud.

My son purchased a condo in Las Vegas from Cay Club Resorts - The actual seller was Flamingo Palms Villas, LLC out of Hallandale, FL and the Lender is JP Morgan Chase. My husband and I went to see the project and learned that when buying you would be guaranteed 2 yr. leaseback .

What we have come to learn is that our son’s credit assets were inflated and when he challenged the salesperson, was told we do that because if you want to buy more properties, this helps. Like a lamb to the slaughter, our son went along. To avoid Private mortgage insurance, they had him take out a 2nd loan for $50,000, but told him he would get that $50,000 back after closing. He has since paid off this line of equity but wants to take it back since he never got the money he was promised. The appraisal was inflated to reflect the value of when the project was completed, so the higher mortgage could be obtained.

We understand there are some 250 plus buyers who have been “scammed.” A law firm is working on a class action suit. My son, today, was told that the law firm has made contact w/Chase’s in-house counsel and they will temporarily substand from all proceedings, etc. while they further investigate allegations.

Our son has not been paid any monies, and Cay Club has supposedly been taken over by another company. While our son had a lease agreement with Cay Club, he has not signed another with the new company, because in it is a release to Cay Club, which means he has no recourse against them for non-payment. So his condo is being rented, and he receives nothing.

I’m looking to find a solution for my son. He is out his down payment, the $50,000 he was going to receive after closing, and all rents. Plus starting in May, he and others will have to begin paying a Eugene Burger Mgmt. Corp. $400 a month for association fees.

Any advice you can provide or leading me to the right people who can help us out would be appreciated.

Thank you in advance,

Arlene

If you think this letter describes a nightmare scenario, check in with us tomorrow as we share the story as told by the investor and his wife, revealing additional details about what happened when Cay Clubs Resorts became insolvent and was taken over by a company called Desert Tides.

If you have had any dealings with Cay Clubs Resorts, as an investor or employee, I invite you to share your story with other readers of FlippingFrenzy.com. Any first-hand accounts you can relate can help us determine the truth about Cay Clubs Resorts and may help other would-be investors avoid becoming the next victim.

Above, I say: “If you think this letter describes a nightmare scenario, check in with us tomorrow as we share the story as told by the investor and his wife, revealing additional details about what happened when Cay Clubs Resorts became insolvent and was taken over by a company called Desert Tides. Click here for Part II.

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EDITOR’S NOTE

Before commenting on this blog entry, please read this important message:

The comments left on this and all other Flipping Frenzy blog entry are now closely monitored by site editors for relevancy to the specific information presented herein. According to our Terms of Use, comments that are intended as a personal attack or that are threatening, harassing, libelous, false, defamatory or offensive will be removed. When commenting, if you stray from the specific topic of this particular blog entry, your comment(s) will be removed.
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Investigators from Nevada’s Secretary of State office today arrested a 64-year-old Las Vegas man on 32 felony charges related to the fraudulent purchase of Las Vegas area homes. State officials served Matthew Marlon with an arrest warrant earlier today when he arrived at the home of two of his victims who were cooperating with investigators. Marlon, who is described as a local businessman, is scheduled for arraignment tomorrow morning at 7:30 a.m.

Marlon is currently facing numerous charges, including:

• Thirty-two (32) counts of offering a false document for filing or recording
• Two (2) counts of theft of property by false pretenses
• Two (2) counts of obtaining property by false pretenses from victims over the age of 60
• Five (5) counts of forgery

According to Secretary of State officials, Marlon targeted homeowners who were anxious or desperate to sell their homes. Using an alias, he would tell a homeowner that he would assume the responsibility of their mortgage in exchange for the deed to the home and, in some cases, a small amount of cash, sometimes as little as $200.00.

After taking physical possession of the home, Marlon would then rent the home to new tenants, collecting rent, but never paying the mortgage as he had promised the original homeowner. Homeowners would then find out after a few months had passed, that no payments had been made on the loan, which was still in their name.

Nevada officials believe Marlon used a series of fraudulently created corporations as part of the transactions, and made promises to his victims that were not made in the documents he presented for the victims to sign. He also told his victims that a real estate agent could not be involved in the transaction, and that he would take care of all the paperwork. To the unsuspecting victims, what Marlon presented was an opportunity to avoid looming foreclosure and a ruined credit rating.

State officials are continuing their investigation by working directly with the office of Nevada’s Attorney General. Homeowners should always be aware that if they sell their home but do not make sure that the mortgage is paid off as part of the transaction, they will still be obligated to pay the lender and the property will go into foreclosure. Using a reputable title company should assure that the mortgage is paid off by the buyer before title to your home is transferred. Most mortgages cannot be “transferred” to a new person without the lender’s written permission.

Some of the warning signs of potentially questionable or fraudulent mortgage deals include:

• You are asked to sign a deed or other papers, and the seller promises to pay off your mortgage, but no escrow is opened
• You are told that a real estate agent or title company “doesn’t need to be involved”
• You are told that the buyer will “take over the payments”
• The buyer tells you he will buy your house for the sum of the mortgages owing and an additional amount of money which he will pay in cash.

State officials are seriously concerned that the initial charges against Marlon represent just the tip of the iceberg. If you live in Nevada and believe you have been the victim of real estate or mortgage fraud, please contact the Nevada Secretary of State’s office at (702) 486-2440, or (775) 688-1855.

For more about this case, read the Criminal Complaint against Matthew Marlon.