EUGENE, OR—Today, an indictment was unsealed that charged Louis J. Borstelmann, 68, of Thousand Oaks, California, with mail fraud, wire fraud, and money laundering in connection with a Ponzi scheme that reached Florence, Oregon.
According to the indictment, defendant solicited approximately 100 individuals to invest in real estate through his company Sunburst Associates, Inc., a California corporation, and investors lost more than $18 million. Reportedly, defendant claimed to offer hard-money loans through his company that were secured by real estate deeds of trust. As alleged in the indictment, defendant solicited individuals to invest in the deeds of trust by falsely promising high rates of return and a security interest in the property allegedly pledged to secure the investment.
As further contained in the indictment, defendant, to perpetuate the scheme, sent investors fraudulent investment materials, including the supposed deeds of trust. Based on the indictment, the alleged investments never existed, and defendant used new investor money to pay existing investment obligations. According to the indictment, defendant also spent investor money on personal items, including a car and a home.
“This kind of fraud plays on vulnerable victims—parting people from their money through deception and misrepresentation,” said U.S. Attorney Dwight C. Holton. Arraignment is set for November 8, 2010, at 1:30 pm before the Honorable Thomas M. Coffin.
An indictment is only an allegation of a crime, and all defendants should be presumed innocent until proven guilty.
This case was investigated by the Federal Bureau of Investigation, the Internal Revenue Service – Criminal Investigation, and the Oregon Division of Finance and Corporate Securities. The case is being prosecuted by Assistant U.S. Attorney Scott E. Bradford.

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The FBI and U.S. Attorney’s Office today announced plans to ramp up efforts to identify and prosecute real estate and mortgage fraud in Oregon. As part of this multi-agency effort, a dedicated e-mail address and telephone tip line have been established to enable the public to report mortgage fraud.

Oregonians can send tips to the FBI at mortgagefraudtips.portland@ic.fbi.gov or call (503) 273-5813.

The FBI says a special Federal Mortgage Working Group in Oregon operating since 2007 continues to tackle the real estate and mortgage fraud issue on multiple fronts. Most FBI investigators assigned to mortgage fraud are working major cases involving multiple suspects, multiple borrowers, and millions of dollars worth of fraudulent loans. Many of these cases involve the falsification of income, liabilities, or employment on applications and/or falsification of appraisals. The task force is also focusing on emerging trends, as analysts predict an even higher number of foreclosures in the future.

Emerging Trends

Foreclosure Rescue Schemes: One of the biggest concerns for consumers now comes in the form of unscrupulous foreclosure specialists. In some cases, desperate homeowners sign over the deed to their home to these so-called specialists, believing that they can stay in the home, make rent payments, and eventually re-purchase their property. In many cases, the rent payments that are supposed to go to the mortgage company never get sent. The specialist simply pockets the payments and any extra fees. The home continues into foreclosure, and the homeowner loses even more money.

Short Sale Scams: A second emerging trend according to the FBI involves short sales scams. In this instance, a buyer purchases a home with no intention of making payments. Oftentimes, additional funds are included in the loan for improvements. The buyer pockets that money and informs the bank several months later that the house will foreclose. The buyer presents a possible pre-foreclosure buyer. This second fraudster makes a deal with the lender to purchase the home below the current loan amount. The lender agrees, not knowing that the mortgage payments were deliberately not made to fabricate a short-sale situation. Sometimes, the new buyer or previous homeowner will damage the house to prove its lower worth. After the deal closes, the fraudster repairs the damage, gets the home appraised at a higher level, and re-sells it for a profit.

Some mortgage fraud cases will not be criminally prosecuted!: Amid all the anguish arising from the swelling volume of home foreclosures in and around Stockton, California, there has been much talk about real estate fraud. But most of the complaints cannot be criminally prosecuted, representatives of the San Joaquin County Office of the District Attorney said yesterday.

Foreclosure vultures prey on Portland, Oregon, homeowners: As national foreclosure rates hit their highest levels ever, people calling themselves “foreclosure consultants,” are filling Craigslist, billboards and mailers with offers to “save your home.” Detective Liz Cruthers, who investigates white-collar crimes for the Portland, Oregon, Police Bureau, says she’s spending much of her time learning the intricacies of “mortgage rescue fraud” and chasing down the bad guys.

Utah seeks stiffer penalties for real estate fraud: A Utah legislative committee is recommending the passage of a bill aimed at increasing criminal and civil penalties against people involved in mortgage fraud. The Senate Business and Labor Standing Committee on Tuesday unanimously approved SB134 for further consideration by the state Legislature.

FBI targets mortgage fraud in Hawaii: The FBI has opened multiple mortgage fraud investigations in Hawai’i as a result of the fallout from the nation’s subprime mortgage crisis, the bureau’s director said yesterday. FBI Director Robert S. Mueller III, speaking to reporters on a stopover following a trip to Asia, confirmed the subprime mortgage mess has reached Hawai’i.

Countrywide accused of mortgage fraud: Already burned in the subprime mortgage meltdown, lending giant Countrywide Financial Corp. is now under investigation in Florida for possible unfair and deceptive trade practices, state officials said Thursday. Officials say they have received more than 150 formal complaints about Countrywide since setting up a mortgage fraud hotline last year.

Arrest made in Erie, Pennsylvania, real estate fraud case: A key figure in an ongoing federal investigation into suspected mortgage fraud in the city of Erie, Pennsylvania, will plead guilty to fraud and money-laundering charges. The U.S. Attorney’s Office in Erie on Thursday filed criminal charges against Frank Kartesz II. Kartesz, 39, is accused of one count each of mail fraud and criminal conspiracy to commit mail fraud, wire fraud and bank fraud. The government alleges he was part of a scheme in which he and others bought run-down houses and sold them at artificially inflated prices. Most of the buyers were low-income people who knew little about the home-buying process.

Illinois mortgage broker in jail for selling credit histories: Homeowners already worried about with a slumping real estate market and tighter restrictions on home loans should look to the case of an Illinois mortgage broker as another cautionary tale.

Georgia real estate appraiser sentenced to prison for mortgage fraud: After submitting fraudulent appraisals on incomplete houses as part of a mortgage fraud scheme, a Georgia real estate appraiser has been sentenced to prison.

In mid-June, Reuters reported that “U.S. home foreclosures in May jumped 90% from a year earlier, reflecting a poor spring housing market and foreshadowing even higher levels later in 2007.” And this was only one of dozens of articles I read in June declaring the current foreclosure crisis and warning that the worst is yet to come.

Well, June came and went, after which I was contacted by Julie Tripp of The Oregonian, who told me that foreclosure rates in the Pacific Northwest were lower than national average. According to Julie and the Mortgage Bankers Association, Pacific Northwest homeowners are less likely than those nationwide to be behind in their mortgage payments, but the percentage of Oregon and Washington loans in foreclosure is creeping upward. Julie says that with the smell of blood in the water, foreclosure sharks are beginning to close ranks, attracting the wounded with promises of rescues that never come.

From yesterday’s online edition of The Oregonian:

To make matters worse — and yes, it gets worse — con artists are targeting homeowners in foreclosure with pitches about saving their homes. But what they’re really doing is setting the vulnerable homeowner up for a scam that skims all of the equity from a property and leaves the borrower nothing.

Oregon’s mortgage regulation chief, Berri Leslie, has seen a handful of equity-skimming schemes in the past six months and has tried to help unwind the disasters. But because the scammers are not mortgage brokers or bankers, they don’t come under the purview of her office. The Department of Justice investigates so-called mortgage-rescue schemes through the state’s Unlawful Trade Practices Act and has received 56 complaints or inquiries about them since 2003.

Here’s how they work, according to Ralph R. Roberts, a Detroit real estate executive and author of “Protect Yourself from Real Estate and Mortgage Fraud“:

The classic foreclosure-rescue scheme starts when the con artist gets foreclosure information from county public records or by reading legal notices. In Portland, such a detailed “trustee’s notice of sale” can be found in the pages of the Daily Journal of Commerce, including names and addresses of property owners in default, amounts owed and the date of proposed sale on the courthouse steps.

The scammer then calls on owners, sometimes within days of scheduled foreclosure sales. He says he can save their homes if they sign lease-option contracts to sell their properties to the scammer, who says he’ll rebuild their credit rating during the lease so that they can qualify for a loan when the lease expires, then buy back the property.

Depending on the scheme, the scammer either takes control of the property, taps its equity using a refinanced loan, or pockets the homeowners’ payments.
Some investment seminars teach similar techniques as an “investment strategy,” Roberts says.

“It is one of the most often taught ways of buying property with ‘no money down,’ Roberts says. But the purpose is to get the property and strip its equity, not to teach investors how to earn a reasonable rate of return.

“Foreclosure-rescue scams always increase when the housing market begins to decline,” Roberts says. “As foreclosure rates continue to rise, we see an inordinate increase in the incidence and frequency of such schemes.”

The U.S. Department of Justice has issued a consumer alert about mortgage-foreclosure scams, including the following warning signs. Watch out if an individual or company:

• Calls itself a “mortgage consultant,” “foreclosure service,” or similar name.
• Contacts or advertises to people whose homes are listed for foreclosure.
• Collects a fee before it provides services.
• Directs you to make your home mortgage payments to the individual or company.
• Tells you to transfer your property deed or title to the individual or company.

As Julie points out at the end of her excellent article, if you cannot pay your mortgage, call your lender to find out what help is available. Also, consider calling the U.S. Department of Housing and Urban Development to find a legitimate counselor at 800-569-4287.