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.

Details are now emerging from a Congressional subcommittee hearing that seem to suggest that the City of New York, along with the New York Yankees, may have committed real estate fraud in their attempt to pay for the construction of a new $1.3 Billion stadium in the South Bronx.

According to the Interim Report into Public Financial Assistance for the New Yankee Stadium, which was prepared for the House Oversight and Government Reform Committee’s Subcommittee on Domestic Policy by New York Assemblyman Richard L. Brodsky, City of New York officials intentionally misrepresented to the Internal Revenue Service (IRS) the value of the stadium’s property, which in turn helped the City secure special tax deals from the federal government.

Apparently, the City of New York used comparable land values in the borough of Manhattan rather than the Bronx to place a value for the new property upon which the stadium is being built. (The new ballpark is being constructed across the street from the current one, on the present site of Macombs Dam Park.)

Today’s House Oversight and Government Reform subcommittee hearing in Washington, D.C., was called by Congressman Dennis Kucinich (Democrat, Ohio), Chairman of the Subcommittee on Domestic Policy, to examine whether the use of the federal tax code to subsidize the construction of professional sports stadiums and arenas furthers the public interest. It was the third hearing held by Kucinich’s group on this subject and the first to examine alleged improprieties in the financing process of the New York Yankees new stadium.

“In the case of the new Yankee Stadium,” Congressman Kucinich said, “not only have we found waste and abuse of public dollars subsidizing a project that is for the exclusive benefit of a private entity, the Yankees, but also we have discovered serious questions about the accuracy of certain representations made by the City of New York to the federal government.”

Furthermore, Kucinich says that the Subcommittee on Domestic Policy has found substantial evidence of improprieties and possible fraud by the financial architects of the new Yankee Stadium.

As Flipping Frenzy readers know, inflated appraisals are often involved in the advancement of real estate and mortgage fraud. More often than not, a key player in an illegal flipping operation is the appraiser, who inflates the value of the house on paper to enable the buyer to qualify for a higher loan. Sometimes, a real appraiser is pulled into the scheme. In other cases, the appraisal is simply a phony document.

At issue for the City of New York, the New York Yankees, the IRS, and now the United States Congress, is the valuation of the land used for the site of the new stadium. Similar to residential real estate, municipal real estate developments require appraisals. In the case of Yankee Stadium, New York Assemblyman Brodsky and others–including members of Congress–believe that the value of the stadium land was grossly inflated and misrepresented to the IRS in order to justify more than $900 Million in tax-exempt bonds that were issued to finance construction of the stadium.

If in fact the allegations are true, the City of New York and the New York Yankees may just be key figures in the largest real estate fraud scam ever to be uncovered in the U.S.

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.

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

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

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

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

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

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

While a lot will be written about the U.S. government’s takeover of Freddie Mac and Fannie Mae, very little is likely to be said about the role real estate and mortgage fraud played in the run-up to the takeovers themselves.

With real estate fraud still labeled by the FBI as the “fastest-growing white collar crime,” and with a high percentage of mortgage loans containing overwhelming evidence of fraudulent claims, one would think that now would be the time that interviews with Treasury Secretary Henry M. Paulson Jr. would touch upon the F-word. Sadly though, it’s business as usual at all of the national media outlets covering this story. It’s as if they don’t even know to ask about real estate fraud, which of course is utterly insane:

At the very beginning of the current mortgage meltdown and resulting foreclosure epidemic, a small group of people–myself included–pointed out the true main cause of this mess–fraud. Most people I talked with either didn’t understand or disagreed, including a lot real estate professionals and–not surprising–members the national media. Most still think today’s mess had more to do with irresponsible lending on the part of consumers, the popularity of poorly conceived mortgage loan products, and a long overdue market correction in property values.

The truth then as it is now, is that fraud is at the very root of the problems we’re experiencing.

Unfortunately, getting the national media or the real estate and mortgage industry to admit to this fact is nearly impossible. For the national media, it appears to be too easy for them to just tell the story as it is being fed to them by the government (in other words, they’re either lazy or don’t have the resources to dig just a little deeper). And for the real estate and mortgage industry, well, they just have too much to lose by admitting the truth. If fraud is a proven contributing factor to a borrower’s defaulting on a loan, the mortgage lender is required to buy the bad loan back from Fannie Mae, Freddie Mac, or the Wall Street Firms who sold the loan to investors.

Fraud has been and continues to be so rampant that acknowledging its role in this mess would lead to the mortgage banks having to buy back billions of dollars in bad loans, which they simply cannot afford to do.

The current state of denial about fraud is only making the problem worse. Until the Federal National Mortgage Association (Fannie Mae), Federal Home Loan Mortgage Corporation (Freddie Mac), and the real estate and mortgage loan industry all wake up and admit to the problem, the fraudsters will be free to continue in their ways with no thought of the future mess they’re causing.

Two newsworthy real estate fraud items out of the state of Virginia (which according to the FBI ranks as one of the top 10 hot spots/states for mortgage fraud) :

Real Estate Broker Rajasekhar Marni Pleads Guilty to Defrauding Clients

Rajasekhar Marni, 47, of Reston, Virginia, pled guilty on August 21st in United States District Court to federal wire fraud and money laundering charges in connection with a real estate fraud scheme that took place in 2005 and 2006. Chuck Rosenberg, U.S. Attorney for the Eastern District of Virginia, and Joseph Persichini, Jr., Assistant Director in Charge, FBI, Washington Field Office, made the announcement. Marni faces up to 30 years in federal prison, three years of supervised release, a fine of at least $500,000, and full restitution when he is sentenced by U.S. District Judge T.S. Ellis, III on October 31, 2008.

According to court documents, Rajasekhar Marni was the president of Loanworth Corporation, Inc., a Vienna, Virginia-based real estate firm. He defrauded three sets of clients resulting in a loss to those victims of approximately $1.14 million. In March 2006, Marni arranged to purchase a Fairfax Station, Virginia home for $889,000. The homeowners agreed to finance Marni’s purchase. Marni had the victims transfer title to him while he signed a deed of trust setting out the terms of the loan. Marni recorded with Fairfax County documentation transferring title to the property to him but never recorded the documentation related to the loan. Marni then sold the property to a third party and used the proceeds to, among other things, buy a house for himself in Vienna, Virginia.

As part of the plea, Rajasekhar Marni admitted to also defrauding a Lorton, Virginia couple, whom he convinced in November 2005 to transfer title to their property to Loanworth for six months while he tried to sell the property to a third party. During that time, without the homeowners’ knowledge, Marni took out loans against the property totaling $227,778. He never repaid the loans, which subsequently went into default. In June 2006, title in the home, which Marni had not sold to a third party, was returned to the original owners. Less than four months later, one of Marni’s lenders foreclosed on the home, resulting in a loss of the victims’ equity in the property.

Marni also admitted to defrauding a Silver Spring, Maryland couple of $23,000 that was to be used as a down payment on an undeveloped parcel of land.

Assistant United States Attorney Timothy D. Belevetz is prosecuting the case on behalf of the United States.

Also out of Virginia…

Former Venture Capitalist Scott E. Luellen Sentenced to Seven Years for Orchestrating Real Estate Investment Scheme

Scott E. Luellen, 35, of Washington, D.C., was sentenced late last week (August 29, 2008) to seven years in federal prison for orchestrating a real estate investment scheme in northern Virginia and Delaware. Chuck Rosenberg, U.S. Attorney for the Eastern District of Virginia, and Jeffrey Irvine, Special Agent in Charge, United States Secret Service, Washington Field Office, made the announcement after Luellen was sentenced by United States District Judge Liam O’Grady. Luellen pled guilty to one count of money laundering on May 13, 2008.

According to court documents, Luellen was the former Managing Director of Ideal Ventures, LLC and the Virginia Heritage Foundation II. From September 2004 through to November 2007, Luellen convinced approximately 20 potential investors, including a private equity firm, to invest millions of dollars in fraudulent real estate projects. Specifically, Luellen made material false representations concerning real estate development projects to induce investors to provide him with funds. Luellen received approximately $1.7 million from investors during the course of his scheme. Luellen then used those funds to finance a lavish lifestyle, which included living at the Ritz Carlton in Georgetown .

Assistant United States Attorney G. Derek Andreson prosecuted the case on behalf of the United States.

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.

We have all heard that if an offer sounds too good to be true, it probably is too good to be true. But what if the offer comes from a high profile member of your own community… say it comes from a professional athlete who spent years helping the local NBA team make it to the playoffs and into championship games. Surely, someone as well known as a National Basketball Association player wouldn’t involve himself as a ringleader in real estate fraud scam, would he?

This is the question I encountered recently when Bruce McClellan and his attorney Mike J. Smith contacted my office for information on where to turn for help in an alleged mortgage fraud scam perpetrated by veteran Detroit Pistons basketball player Lindsey Hunter.

Here is what happened, in Bruce McClellan’s own words (provided as an exclusive to FlippingFrenzy.com):

My name is Bruce McClellan (picture left) and this is my account of what happened between myself and NBA player Lindsey Hunter, and Hunter’s real estate investment firm, L&I Enterprises, LLC, and L&I’s other business personnel—Ivan “Iron” Johnson and Denna P. Tansil. I met Lindsey Hunter through his business associate, Ivan “Iron” Johnson, who I originally met years earlier at the Pontiac School system where I work as a boiler engineer.

In February of 2007, Ivan Johnson approached me to see if I would be interested in investing in real estate. According to Ivan, he had just opened a real estate investment firm with Detroit Pistons’ basketball player Lindsey Hunter, and if Lindsey felt they had a deal that I just had to look at, he wanted to know if I’d be interested.

When I asked him to tell me more about this business he was involved in with Lindsey Hunter, Ivan said they had formed a company called L&I Enterprises, LLC, for the purpose of buying and selling homes for a profit. After he swore to me that his business with Lindsey Hunter was 100% legit, I said yes to learning more about real estate investment opportunities.

A few weeks later, Ivan Johnson told me that he and Lindsay Hunter (picture right) had a real estate opportunity that would make me a lot of money. Ivan asked me to meet with himself and Lindsay at L&I Enterprises’ office for the purpose of checking my credit and running a background check on me to ensure that I’d qualify for a loan. When I arrived at their office, Lindsey he had left already, so Ivan handled the request for my credit report all on his own. Once he saw the results, Ivan said I had a great credit score (it was in the neighborhood of 790), and I was told I’d soon be a millionaire from investing in real estate.

At about the end of February, I heard from Ivan Johnson again. This time he said that he and Lindsey Hunter found the perfect property for me to invest in, and that once the deal was finalized, I’d earn $300,000 for my participation. According to Lindsay Hunter and Ivan Johnson, the deal involved buying a $1.2 Million home and selling it for $2.1 Million to a buyer Lindsey and Ivan had already identified and received a commitment from to buy the house. All I needed to do, Ivan and Lindsey told me, was apply for the home loan for the $1.2 Million purchase, and they’d handle the rest.

When I expressed doubt about my ability to qualify for a $1.2 Million loan, both men told me not to worry, that they would handle everything. Once again, as I did when Ivan first told me about Lindsey Hunter and L&I Enterprises, I expressed my concern for only working on legitimate deals and keeping my good credit in good standing. Again, both men told me I had nothing to be concerned about.

For a man making less than $45,000 a year, what Lindsay Hunter was telling me was quite appealing, as was the star treatment I was receiving from a well-known veteran NBA player.

On March 30, 2007, Ivan Johnson called to tell me that he needed me to meet him at LaSalle Bank in Farmington Hills, MI, where it was necessary for me to add my name to Lindsey and Ivy (wife) Hunter’s bank account. When I asked why my name was being added to Lindsey’s account, Ivan told me that this was necessary so it appeared to the bank that I had more money than I really did, which would help me qualify for the loan. When I asked Ivan why Lindsey wasn’t worried about adding me to his personal account, Ivan told me that Lindsey knew that I was an honest person and that I would never attempt to steal from him (which of course was true—I would never steal money from anyone).

Ivan Johnson and I went to the bank together where Ivan called Lindsay Hunter on his phone. Lindsey spoke to LaSalle Bank employee Shatha Atcho-Salmu, and from what I could hear of the conversation, it was obvious that they knew each other. Anyway, with the assistance of LaSalle Bank’s Shatha Atchoo-Salmu, and without Lindsey Hunter or his wife Ivy Hunter present, I signed my name onto Lindsey and Ivy’s account, which I was told Lindsey had authorized.

On April 30, 2007, Ivan Johnson called to tell me that we got the house (1718 Morningside Way, Bloomfield Hills, MI 48302 — pictured below) and that I needed to meet him to sign all the necessary paperwork. We met at Prudential Cranbrook Real Estate office on Franklin Road in Franklin, MI, to sign the papers. When I arrived I asked if Lindsey would be there and Ivan told me no, Lindsey had a game. I told Ivan that I would be taking his lead because I did not understand the paperwork and Ivan said that was fine. There were about four or five other people there including the sellers of the property.

Luckily, Denna P. Tansil—a realtor from L&I Enterprises, LLC—was there to guide us through the paperwork, which did not include any reference to me receiving $300,000 once the other sale had gone through. When I pointed this out to Denna, she wrote the following into the contract: “Seller will receive no less than $300,000.00 at the sale of the property.” I showed Ivan what Denna wrote, and after he checked over, he said everything was fine and Denna signed the paper and gave me a copy.

After about two months had passed, I asked Ivan Johnson if he could give me a full tour of the house and property. At first, he agreed but on the day we were to meet, Ivan was too busy. So I didn’t try again until much later because I really was not concerned since both Ivan and Lindsey Hunter had told me that they had a buyer for the house and it was basically on its way to being sold.

Later, I told Ivan that I needed to talk to Lindsay Hunter myself because the house had not sold like he said it would and I did not like the way things were going. Ivan called Lindsey while I was there and Lindsey told Ivan to tell me that for sure nothing was wrong. Regardless, I said that I needed to talk to him.

A few days later, Ivan called and told me that Lindsey had invited me to a Detriot Pistons home basketball game for the day of October 24, 2007. After being treated like a VIP in a private suite during the game, Lindsey, Ivan and I went to an upscale restaurant in Bloomfield Hills (MI), where Lindsey proceeded to tell me that everything for the real estate investment deal was in great shape—he reconfirmed that they had a buyer lined up and ready to buy the house from us for $2.1 Million—and that he wasn’t going to do me wrong or get me involved in any illegal activities. Lindsey even went as far as to tell me that he was financially set for the rest of his life, he wanted to make me and Ivan millionaires within the next one to two years, and that he wanted to make me a partner in L&I Enterprises, LLC.

When more time passed by without the house selling, I again became anxious and decided to visit the house myself. When I arrived at the house, I was surprised to find Lindsay Hunter’s truck parked in the driveway. Not knowing why his truck was there, and not seeing a way to gain access to the house, I called Ivan to get a feel for what was going on. It was then that I learned from Ivan that Lindsey and his wife Ivy were going through a rough patch—Ivan said they had separated—and that Lindsey was actually living in the house. Basically, Ivan told me that I shouldn’t go into the house right now because it might be “awkward.”

Understanding that this happens to some people, and keeping in mind Lindsey and Ivan’s previous statements about there already being a buyer for the house—which would yield $300,000 for my part of the investment—I was okay with the situation as explained to me by Ivan, and I went home. From my way of thinking, it was really Lindsey Hunter’s house anyway, and since he already had a buyer lined up and the mortgage was being paid on time—or so I assumed—there really wasn’t anything for me to worry about.

Eventually, in February of 2008, I did end up gaining access to the house, at which time I called Ivan Johnson and told him that I did not think the house was worth $1.2 Million.

In April 2008, I received a phone call from Countrywide inquiring about the mortgage payments. Apparently, the mortgage on the house had not been paid in quite some time, and Countrywide was calling me to demand payment.

Immediately after I got off the phone with Countrywide, I called Ivan Johnson to see just what in the heck was going on. Ivan informed me at that time—and for the first time ever—that Lindsey Hunter had shut down L&I Enterprises, and that in doing so, he had left a lot of people “holdin’ the bag” and that we were on our own. Lindsey, it seems, had gone home to his wife.

I asked Ivan how I was supposed to pay an $8,700 monthly note on my salary, to which he told that what Lindsey Hunter did was wrong and that he would talk with Lindsey to see if Lindsey would make things right for me. Rather than wait for Lindsey to call Ivan, Ivan tried calling Lindsey several times but discovered that Lindsey had changed his phone numbers; he was impossible to reach.

Finally, around the end of May of 2008, Ivan Johnson and Lindsey Hunter called me on a three-way call and asked: “What do you think you deserve to get you out of this house?” I told them that since my credit was ruined from the lack of mortgage payments, I wanted $50,000 and for them to get caught up on all of the outstanding monies owed to Countrywide. At this point, Lindsey became very angry and started cursing at me over and over. I told Lindsey that I was not cursing at him and I did not understand why he was cursing at me. I told Ivan that I didn’t want to talk under these conditions any more and I hung up. Ivan called me back about twenty minutes later and he said that what Lindsey had done was wrong.

About another week passed and Ivan and Lindsey called me again for a three-way conversation. “Bruce, this is Ivan and Lindsey is on the phone,” Ivan said. I said ok and Lindsey said hello and then proceeded to tell me that he was going to do whatever it took to get me out of the deal. He would restore my credit, get me off the house, and give me $25,000.

Since I just wanted my name off the deal, I agreed. The $25,000 was much less than the $300,000 I was originally told I would receive for investing in the house, but like I said, I just wanted to get free of the whole mess.

I never heard from Lindsay Hunter again.

Long story short, Lindsay Hunter never paid the $25,000 he promised me, my credit is ruined, and come to find out that back in April—when I signed all those closing documents Ivan Johnson and Denna Tansil told me to sign—I unknowingly signed for two loans, not just one!

Now I have legal representation and am hoping that because of this story on FlippingFrenzy.com and Lindsey Hunter’s profile, someone with judicial authority will listen and Hunter, Ivan Johnson, and Denna Tansil will be held accountable for what they’ve done.

~ Bruce McClellan

Thank you, Bruce, for sharing your account of what happened between yourself and Lindsey Hunter and Hunter’s business partners, Ivan Johnson and Denna Tansil. This story involves many of the trademark signatures of real estate and mortgage fraud:

• Bruce was a naïve borrower with nearly perfect credit. He had no idea a scam was taking place right under his nose, which ultimately made him the perfect straw buyer.
• This particular case features a long-term relationship—between Bruce and Ivan— making it easy for Bruce to be conned. Ivan knew that Bruce would jump at the chance to make serious money, and he knew that Bruce was a trusting soul with nearly perfect credit.
• What scam wouldn’t be complete without a glamour player (i.e., a ring leader). In this case, it is a professional basketball player claiming to want to take a common man under his wing and make him a millionaire. In other cases it is the smooth talking, good looking, get the deal done, likeable person. In either case, Lindsay Hunter seems to fit the bill.
• This scam involves fabricating income and/or assets, which is one of the oldest tricks in the book. Lindsay Hunter added Bruce McClellan to his million dollar bank account to boost Bruce’s ability to qualify for a loan.
• Bruce was promised easy money and no risk for his involvement in what he was told was a legitimate real estate deal. How many times have we heard that one!

A common thread running through most real estate fraud schemes is an offer that is to good to be true. When prominent public figures like Lindsay Hunter make offers that seem too good to be true, especially in harsh economic times, consumers tend to lose their judgment and make poor decisions

As a result of Bruce coming forward, I was able to put his case in front of serious law enforcement officials who are now attempting to sort through this mess. From Crain’s Detroit Business:

Is Lindsey Hunter, the veteran guard of the Detroit Pistons, a victim of mortgage fraud? Or is he a perpetrator?

That’s what two investigations, one by the Wayne County Register of Deeds’ mortgage-fraud task force, the other by the FBI, want to determine.

So far, Wayne County investigators consider him a victim, with someone else serving as what they describe as “a mastermind.” The FBI, on the other hand, according to sources close to its investigation, has him as its main focus and as a leading participant in at least two possibly fraudulent deals that went awry.

Stay turned to FlippingFrenzy.com for more information and developments on this story. In the meantime, read “Pistons guard: Duplicitous or dupe in mortgage fraud?” for more information.

A federal grand jury in Michigan has indicted four men–including a mortgage broker and an appraiser–for allegedly running a $1.9 million real estate/mortgage fraud scheme. Hassan Nagi, 30, of Dearborn Heights, Michigan; Ali Haidous, 24, of Dearborn; Safi Bzeih, 35, of Dearborn; and Hussein Aoun, 23, of Dearborn Heights reportedly conspired to secure fraudulent mortgages from Countrywide Bank, Washington Mutual, Fifth Third Bank, IndyMac Federal Bank, Net Bank, and Sun Trust for more than 15 properties between April 2005 and April 2008.

The indictment alleges that Hassan Nagi worked as a mortgage broker and was responsible for submitting false and fraudulent applications to obtain the mortgages. Ali Haidous was a real estate appraiser who provided fraudulent appraisals for the properties. Bzeih and Aoun recruited sellers and straw buyers for the properties.

According to the indictment, after the Nagi and Haidous identified a willing seller of a property, Nagi secured financing for a straw buyer. False income and employment information was provided to the lender using fraudulent W-2 forms. In support of each loan, Nagi also submitted an inflated appraisal, created by Haidous.

After the inflated mortgage was funded at closing, the seller received sufficient funds to pay off any existing mortgage as well as a bonus for participating in the real estate fraud scheme. The remainder of the proceeds from the inflated mortgage were shared between Hassan Nagi, Ali Haidous and one of the straw buyers.

Nagi, Haidous, and Bzeih were expected to appear in federal court before Magistrate Judge Virginia Morgan yesterday afternoon, for their initial appearances and arraignment on the indictment. Hussein Aoun is a fugitive in Lebanon. The case is being prosecuted by Assistant U.S. Attorney Leonid Feller.

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

A New Jersey woman who raised more than $10 million from hundreds of investors in connection with real estate investments has been arrested and charged with operating a Ponzi scheme. According to Justin W. Arnold, the Assistant U.S. Attorney handling the prosecution, Marcia Sladich, 50, of Clifton, NJ, was arrested yesterday morning by Special Agents of the FBI and Postal Inspectors at her home. Prosecutors have charged Sladich with one count of mail fraud, which carries a maximum statutory prison term of 20 years and a fine of $250,000.

The U.S. Attorney’s office for the District of New Jersey alleges that beginning in 2004 and continuing through at least August of 2007, Marcia Sladich solicited hundreds of investors, most of them members of her church, to invest money with her and her company, Kay Services, LLC. According to the Criminal Complaint filed in the case, Sladich told investors that she was partnering with a successful businesswoman who would be responsible for investing their money in real estate here in the U.S. and abroad. Prosecutors say Sladich promised investors that the investments were safe and secure and guaranteed 100% annual returns.

Contrary to the representation she made to investors, Sladich did not have a successful business partner. Rather, she forged that individual’s signature on numerous investment contracts to deceive investors. What’s more, there were no bona fide investments made on behalf of any investors during the course of the scam. To perpetuate her scheme, Sladich simply used new investor money to make required payments to existing investors (i.e., she ran a Ponzi scheme).

Sladich is said to have misappropriated at least $400,000 of investor funds to purchase real estate in Florida and in Brazil for herself, and used other investor funds to pay for numerous personal expenses, including credit card bills and everyday expenses.

Following up on a story first reported by Flipping Frenzy in August of 2007, the president of a New York-based real estate investment firm has been sentenced to serve more than 11 years in federal prison and fined more than $22 million for his role in a real estate investment scam that defrauded more 200 people from 2002 through 2007. Forty-six-year-old Wilson James Baston, Jr., who is also known as Will James, pleaded guilty in March to 17 count of mail fraud and wire fraud in connection with the scheme.

For more on this story, including details on Baston’s methods, read our August 20, 2007 post, “ President of NY Real Estate Investment Firm Indicted On Multi-Million Dollar Fraud Charges.”

Glen G. McGorty, Assistant United States Attorney for the Southern District of New York, successfully prosecuted the Baston case. Prior to prosecution, the case was investigated by the Criminal Investigators of the United States Attorney’s Office, the United States Postal Inspection Service, and the Federal Bureau of Investigation. Federal District Judge for the Southern District of New York, Harold Baer, Jr.. presided over the case and imposed Baston’s sentence and fine on August 7, 2008.

Predatory lenders employ many of the same illegal tactics found in other write-ups here on Flipping Frenzy. Loan officers, for example, may obtain inflated appraisals to get the homeowner a higher loan or will falsify income information to qualify the borrower for a mortgage.

Rather than doing those things to help the borrower, predatory lenders are simply out for themselves. Their actions rarely have any tangible benefits for borrowers and often saddle homeowners with loans they cannot afford. Loan officers—as you’re about to read—sometimes simply use borrowers to engage in a type of fraud I like to refer to as fraud for commissions.

Recently, one Flipping Frenzy reader came forward to share her experience with predatory lending and fraud for commission.

My name is Kim Sikorski, and in 2000 I was living in a one-bedroom apartment in New Baltimore, Michigan, when a local builder began construction on the Aspen Glen Condominiums right outside my front door. I remember thinking to myself how nice they looked and wished that someday I could own a home like that. Fast forward three years and I did.

To be honest, I wasn’t sure I could buy anything. I made ok money for a single person but I wasn’t sure it’d be enough to actually buy a home. To get the process started, I went to talk to a man named Dave Piccinini at Lira Financial in Clinton Township., MI (David Piccinini Inc. dba Lira Financial; 16600 18 Mile Rd.; Clinton Township., Michigan 48038). He was a friend of my boss, Ralph Bianchi, so I thought that I would be able to trust him.

I told Mr. Piccinini where I was looking to live and gave him the information he needed to check my credit report and get things started. A few weeks later I received a call from Stephen Tyree, the Lira Financial loan officer assigned to my application. Mr. Tyree called to tell me that my credit was good and I qualified to purchase one of the Aspen Glen condos with a mortgage at 6 ¼% (which for me translated into a monthly of $912.00). Before long, I went ahead and signed the purchase agreement and then started picking out carpet, countertops, tile color, etc. From my perspective, I was in the process of living the American dream of home ownership; I was buying my own home and I couldn’t be happier.

On August 27, 2003, I closed on my condo at the Mt. Clemens MI, office of Greco Title Co. To my surprise, neither Stephen Tyree or Dave Piccinini were present. It was there–at the closing–that I first found out that I was placed into an adjustable rate mortgage (ARM) that was only fixed for two years.

At the time, I only had a few days left to move out of my apartment, so I went ahead and signed all the documents and looked forward to moving into my new home. For me, the closing was a exciting day in my life. My mom and sister were even there by my side, taking pictures along the way.

The next day I talked to Dave Piccinini at Lira Financial and asked about the adjustable rate mortgage without escrow. Mr. Piccinini told me not to worry because in two years we would refinance and be able to set up escrow for my property taxes (which, by the way, were not included the first time). Eventually, I started having trouble keeping up with the taxes, and once again talked to Dave Piccinini about the situation. As he did before, Mr. Piccinini told me not to worry, that the taxing authority couldn’t do anything about it until I was four tax bills behind, and that by then we will have refinanced and paid off the back taxes, and set up escrow before that happens.

Based on Dave Piccinini’s recommendation, I went ahead as planned. About a week or so before I was supposed to close, my mortgage company at the time, Homecomings Financial, paid the back taxes (to protect their interest) and put me into forced placed escrow, which added to my principle and interest payment. My monthly payment went from $912 to $1,280 overnight.

When I called Dave Piccinini at Lira Financial, to tell him what happened, he told me this wasn’t a problem because we would just add it to the new mortgage. Just before closing I went to Mr. Piccinini’s office where I learned for the first time that he had placed me into a interest-only mortgage. I was told that my new mortgage was at 8%, 30-year fixed interest. I immediately told the staff in Mr. Piccinini’s Lira Financial office to stop all paperwork and please have Dave Piccinini call me himself as I was not aware of the interest-only loan (just like I was not aware that I was placed in an adjustable rate mortgage the first time around).

Long story short, I never heard from Dave Piccinini until he called about six months later to tell me that I owed him $350.00 for the appraisal done on my condo. I told him I was not paying him for the appraisal because I did not close with him, and we have not spoken since.

So my interest rate went up and I paid the difference for a year, but with my rate to go up a point or so a year with a ceiling of 12 ½ %, I knew I could not keep it up, so I went to see Stephen Tyree (my original loan officer at Lira Financial) who was now with Keystone Mortgage in Shelby Township, Michigan (45679 Village Blvd, Shelby Township, Michigan 48315). While it’s true that I originally knew Stephen from my association with Dave Piccinini, Stephen had refinanced my girlfriend’s mortgage and she was very happy with the results. I told Stephen the situation I was in—which he was well aware of—and asked for his help. He said he would see what he could do and get back with me. In the meantime, he had me fill out a credit application and give him permission to check my credit report. He also had me sign lots of blank forms saying we had to see what we could do and fill those in later.

When Stephen Tyree called me back he told me it was going to be tough to help me but that he felt he could get it done. He asked me if I had any savings, which I did not, and told me that having a savings account with at least three to six months worth of mortgage payments would show reserves and help me get approved. Stephen Tyree asked me to ask someone with money in their own bank account to add my name to their account to make it look like I had some savings, so I did. I asked my father to do this for me, and despite feeling it was not a very good idea–but wanting to help and not see me lose my home–he did. Stephen also told me that getting my condo to apprise for what we needed was going to be difficult but he thought he knew an appraiser that could get it done. Obviously, looking back, these should have been red flags. I know I should have never signed those papers.

On October 16, 2006, I closed on the refinance with an 80-20 mortgage. The 1st for $112,320 with an interest rate of 7.5% and a payment of $1,047.99 and the 2nd for $28,660 with an interest rate of 9.75% and a payment of $252.44. The total of both is $1,300.43, which I could not afford but I did what I thought I should to save my home.

In about March or April of 2007 I started calling Indy Mac to make them aware of my situation and that I was falling further and further behind on my payments. I talked to several people but no one really had any suggestions for me. They did thank me for calling and making them aware but offered no help other than trying to refinance again with a lower interest rate.

Ultimately, I was told Indy Mac could not lower my interest rate due to the fact that they technically did not own my mortgage any longer. With a payment of $1300.43 plus association dues of $160.00 a month come October 2007, I could no longer afford to pay my mortgage. I had put my condo up for sale by owner in May of 2007 (I thought I would rather sell it then lose it). But nothing. I was advised from Indy Mac that I could sell it in a short sale but the property must be listed with a real estate agent for at least 90 days. I listed the property in October 2007 and did not have even one person look at it. My condominium complex is not completed (the builder has about four more buildings to construct), and prices for new units identical to my own have dropped to $99,000. Why would anyone look at mine for $145,000.00 when they can build a new one for $99,000?

In January 2008 I came home from work to find a letter on my door from Trott & Trott, the law firm representing IndyMac, stating that my property had gone into foreclosure, was going to a Sheriff’s sale at the end of February, and that I had six months from 2/29/08 to redeem my property or be out.

And so there you have it—that’s were I am as of today. Most of my conversations with both Dave Piccinini at Lira Financial and with Stephen Tyree formally at Lira and now with Keystone Mortgage, were based on trust. Like many new homeowners, I did not know anything about mortgages and put all my trust in the people who did. I thought they were working with my best interest at heart.

Expecting the worst, hoping for the best!

~ Kim Sikorski, Michigan

In reviewing Kim’s account of what happened, a number of items jump off the page as being sure signs of predatory lending and fraud for commissions. For example, after contacting Kim and reviewing her situation a little closer, I was able to determine the following:

• Kim’s loan officer had her “sign lots of blank forms” and told her that he had to first “see what we could do and fill those in later.” In real estate fraud forensics, we call this ‘backing into the documents.’ With signed forms (that contain blank fields) in hand, a loan officer is able to manipulate the borrower’s loan documents to fit his commission-related needs.
• Kim’s loan officer artificially inflated her income in order to help her qualify for her loan. This of course is against the law.
• As noted by Kim above, her loan officer worked with an appraiser to secure an inflated appraisal on Kim’s property, thus allowing her to qualify for a higher loan that translated into a higher commission for the loan officer. Here again, the loan officer and appraiser broke the law.
• As Kim already pointed, she was encouraged to borrow her father’s assets, which everyone should know by now is a highly improper way of determining one’s actual worth and ability to repay a loan. Any real estate industry professional that advises someone to borrow or rent assets is more likely than not up to no good.
• Her loan officer promised to refinance Kim into a fixed loan within two years. Legally, no one can make that type of promise to a homeowner.
• As you read in Kim’s account, when she arrived for the very first closing of her life, she learned that she had been placed into an adjustable rate mortgage that was only fixed for two years. When mortgage brokers and loan officers present the borrower with a product, specifying the terms, and then change the terms just prior to closing, that is called “bait and switch” and it makes the loan highly suspect and questionable.

While many federal and state laws are aimed at preventing predatory lending, it’s not always easy to spot it when it occurs. If after reading Kim’s story, you’re left wondering if you are a victim of predatory lending, review the following list of common predatory lending practices:

1. Refinancing a mortgage repeatedly within a short period of time and charging higher than normal loan origination fees each time.
2. Selling a high-cost, high-interest loan to a borrower who would qualify for the lower-cost, lower-interest loan that the same lender offers.
3. Being asked or instructed to sign an application or documents containing blanks that the loan officer says he will fill in later.
4. Convincing loan applicants to borrow more than they can reasonably afford to pay back.
5. Pressuring loan applicants into accepting high-risk loans such as interest-only mortgages and loans with unusually high prepayment penalties.
6. Providing “products” that are nonexistent or offer no benefits.
7. Selling high-interest loans to borrowers based on ethnicity or nationality rather than their credit history or financial situation.

Loan officers (and to be fair, Realtors also) are often paid on commission. The more loans the sell, the more they make. In many cases, loan officers can earn even higher commissions by selling high-cost loans and additional products and services. In other words, the motivation to make money sometimes eclipses a loan officer’s responsibility to follow the rules.

The rules that real estate industry professionals—including loan officers—are supposed to follow stipulate the parameters for approving and underwriting a home loan. Although the stipulations may seem overly restrictive to some, the rules are in place for a reason—to make sure that the homeowner/borrower can afford their monthly payments and continue to live the American Dream of Homeownership.

A 45-year-old Wilton, Connecticut, real estate attorney has pleaded guilty to one count of conspiracy to commit bank fraud, one count of fraud in loan and credit applications, and one count of mail fraud in connection with an $8 million real estate fraud scam through which he and others defrauded federally insured financial institutions, property owners, and others who sought to refinance their mortgages. Joseph Kriz, who recently forfeited his license to practice law, is now free on bond pending a sentencing hearing on Thursday, October 23.

According to documents filed with the U.S. District Court in Bridgeport, Connecticut, and statements made in court, Joseph Kriz was both a practicing real estate attorney in Westport, Connecticut, and a licensed mortgage broker, as well as a principal of Aspetuck Building & Development, LLC. In pleading guilty, Kriz admitted that, between January 2005 and March 2008, he and his co-conspirators altered and created false documents to obtain financing for properties which far exceeded the real value underlying their mortgages. In one instance, Kriz and his co-conspirators commissioned a false appraisal of a property that boosted a home’s square footage, thereby inappropriately increaing the value of a property and the loan.

Joseph Kriz also admitted that he converted funds from the sale and refinancing of his clients’ homes for his own personal use rather than pay off the mortgages on the properties as he had promised his clients.

During many of the property refinancings he handled, Kriz mailed to a title insurance company–First American Title Insurance Co.–a title policy representing that a new mortgage was the primary lien on a property. However, Kriz converted those new mortgages to fund his and his co-conspirators’ development projects, and the existing mortgages remained the primary lien on the properties.

As a result of this fraudulent conduct, Kriz defrauded banks and his clients of more than $8 million. He now faces a up to 65 years in federal prison and fines totaling nearly $16 million.

The owners of a well established Minnesota home builder were sentenced last Friday in federal court for conspiring to commit mortgage fraud and money laundering in connection with a scheme involving approximately 200 residences and approximately $100 million in loans. In determining the following sentences, U.S. District Court Judge Ann Montgomery found the scheme resulted in a loss of between $20 million and $50 million and harmed more than 50 victims:

• Michael Parish, 63, of Eagan, MN: 13 years in prison along with three years of supervised release
• Ardith Parish, 62, Eagan: 5 years in prison followed by three years of supervised release
• Christopher Troup, 40, Eagan: 10 years in prison and three years of supervised release

Michael and Ardith Parish were the owners and officers of Parish Marketing Development Corp. (PMDC), a long-time Minnesota home builder, and Christopher Troup, their son-in-law, was an agent for the company. Along with the company, all three pleaded guilty in November 2007 to participating in the real estate fraud conspiracy. According to their pleas, the Parish’s and Troup acknowledged participating in the mortgage fraud scheme, by which PMDC utilized straw buyers to purchase approximately 200 Minnesota properties built by PMDC.

All three also acknowledged completing loan applications for the straw purchases (which–go figure–included false information), executing loan documents in the names of the straw buyers, and manufacturing and providing false documentation (i.e., false representations of employment and false verifications of deposit) for the straw buyers for purposes of obtaining loan proceeds to purchase the properties from PMDC.

The three also admitted:

1. Providing false information that resulted in appraisals that overstated the amount for which the residences could have been sold at the time of the transaction in a normal, arms-length transaction. The appraisals supported a higher sales price to the straw buyers, allowing PMDC to obtain additional funds from the loan proceeds.
2. That the straw buyers did not view the residences they were purchasing, did not negotiate the purchase price of the residences, and, often times, did not execute the sales documents and loan documentation, which were instead signed by the three pretending to be the straw buyers.
3. That the straw buyers made no payments on the mortgages that were taken out in their names. Instead, PMDC made all payments or allowed mortgages to go into foreclosure. Often times, PMDC utilized proceeds from the sale of one residence to a straw buyer to make monthly payments for the mortgages held on other residences in the names of other straw buyers.

Several other people connected to the conspiracy previously pleaded guilty to federal charges and are awaiting sentencing, including:

• Ramiz Yousef Saadeh, 30, of Apple Valley, MN, pleaded guilty in September 2007 to conspiracy to commit mortgage fraud. The former US Bank officer admitted providing false verifications of deposit to PMDC on behalf of straw buyers.
• Kristopher Robbins, 28, Brandon, South Dakota, pleaded guilty in September 2007 to conspiracy to commit mortgage fraud. The former closing agent admitted to permitting conspirators to forge signatures on mortgage documentation.
• Melissa Smith, 45, Gerard, Ohio, pleaded in September 2007 to conspiracy to commit mortgage fraud. Smith, a stay-at-home mother and the sister of Christopher Troup, admitted to acting as a straw buyer for the scheme, purchasing 46 residences for approximately $20 million from October 2004 through January 2007.
• Donald Yeager, 41, Ardamore, Oklahoma., pleaded guilty in October 2007 to one count of honest services fraud. The former appraiser admitted providing misleading and inflated appraisals of the homes to lenders.
• In June of this year, John Rubischko, 36, Eagan, a former mortgage broker implicated in the scheme, also pleaded guilty to mortgage fraud and identity theft charges.

Acting U.S. Attorney Frank J. Magill had this to say about the case:

The crime of mortgage fraud poses a significant threat to the national economy, as well as Minnesota’s economy. For many, the dream of home ownership has been shattered by those engaging in fraud, deception and illegal lending practices. These illegal practices have also resulted in communities blighted by foreclosed and boarded up homes, increased crime, property depreciation and other livability issues. Our office is working to ensure that those who devise and implement fraud schemes to bilk homeowners and lenders out of money will be prosecuted to the fullest extent of the law. Mortgage fraud will continue to be a top priority, and we thank our law enforcement partners on the federal, state and local level, for their efforts in investigating these schemes.

The former mayor of Newark, New Jersey–Sharpe James (pictured to the left)–has been sentenced to serve two years and three months in federal prison, and fined $100,000, for his corruption convictions related to a scheme that enabled his girlfriend–Tamika Riley–to fraudulently obtain steeply discounted city-owned land and resell it for hundreds of thousands of dollars in profits. At the same hearing, Riley was sentenced to one year and three months in prison, and ordered to pay $27,000 in restitution, for convictions related to the same fraud, as well as fraudulent receipt of rental assistance she was not qualified to receive, tax fraud and tax evasion.

U.S. District Judge William J. Martini ordered James and Riley to surrender to the federal Bureau of Prisons on Sept. 15 to begin serving their prison terms. There is no parole in the federal system.

Following yesterday’s sentencings, the U.S. Attorney for the District of New Jersey–Christopher J. Christie–announced his intention to appeal the lenient sentences to the Third Circuit Court of Appeals. Christie had argued before Judge Martini and in a sentencing brief to the Court that, under the advisory U.S. Sentencing Guidelines, former Mayor Sharpe James faced a sentencing range as high as between 15.5 years to 19.5 years in prison. That range took into account James’ leadership role in the scheme to defraud Newark and its citizens, as well as other sentencing enhancements available in the Sentencing Guidelines.

For Tamika Riley (pctured above and to the right), the sentencing guidelines resulted in an advisory range of 8.8 years to 10.8 years in prison.

The U.S. Probation Department determined in its presentencing report and recommendations to the judge that Sharpe James faced a prison sentence of between 12.5 years and 15.5 years in prison, in accordance with the federal sentencing Guidelines, and that Tamika Riley faced 97 to 121 months in prison.

Given the disparity between the guidelines recommendations and the sentences imposed by Judge Martini, the U.S. Attorney’s Office intends to appeal the sentence. The sentencing guidelines, while advisory only, must be consulted by a sentencing judge and considered in formulating a sentence.

A jury convicted Sharpe James earlier this year on all counts against him, which included:

• Three counts of mail fraud related to the sale of the city lots to Riley
• One count of fraud involving a local government receiving federal funds
• One count of conspiracy to defraud the public of James’ honest services

For her part, Tamika Riley was convicted on:

• Three counts of mail fraud for her fraudulent receipt of housing rental assistance for which she was not qualified
• Two counts of tax fraud for failing to report the income she received from her sale of the Newark properties
• one count of corporate tax fraud; and one count of tax evasion.

The prosecution was built around the sale to Riley of municipally-owned properties in Newark. The properties, according to evidence and testimony, were steered to Riley by James, who had a long-running romantic relationship with her. Riley paid only $46,000 for a total of nine properties, and then quickly flipped the properties for more than $600,000.

Evidence at trial revealed that Sharpe James used his influence and power as both mayor and as a state senator to manipulate and control a city program designed to redevelop run-down properties in the city. The program was intended to enable experienced, financially sound and qualified developers to buy blighted lots and houses at substantially less than market rates on the condition that they rehabilitate the properties before re-selling them at market prices. With James’s help, Tamika Riley acquired the properties at cut-rate prices and resold them without any rehabilitation.

Tamika Riley had no real estate or construction experience and did not possess the financial wherewithal or backing required to participate in the program. She was, in fact, the owner of a failed Newark clothing store and had operated an entertainment and public relations firm that reported no income or assets on tax returns in 1999 or 2000, the years before she started flipping Newark properties.

According to trial testimony, throughout the period of their relationship and the property transactions benefitting Tamika Riley, Sharp James and Riley traveled and socialized together, shared hotel rooms and stayed in fine resorts, among other things. Testimony also revealed that James once directed his security personnel to purchase and install an air-conditioner in Tamika Riley’s Jersey City apartment. Riley also donated several times to James’ political campaigns.

The United States Attorney for the Middle District of Florida–Robert E. O’Neill–yesterday announced the return of a 47-count indictment against four real estate industry insiders, charging them with conspiracy, making false statements in connection with bank loans, a scheme to defraud seven FDIC insured banks, and money laundering.

The indicted defendants are:

• Neil Mohamed Husani, 38, formerly a resident of Sarasota, Florida, and owner and principal officer of Capital Force, Inc., an business which purportedly purchased and sold commercial real estate in Sarasota and Manatee Counties
• Michael A. Tringali, 46, a resident of Sarasota, owner and principal officer of G & T Land Development, an entity which purportedly purchased and developed commercial real estate, primarily in Sarasota and Manatee (FL) Counties
• John A. Yanchek, 48, a resident of Sarasota, and a practicing attorney licensed by the State of Florida.
• Larry P. Nardelli, age 49, a resident of Tampa, and a businessman associated with Elba International, LLC and other companies.

John A. Yanchek was arrested yesterday morning without incident. Michael A. Tringali and Larry P. Nardelli were expected to surrender to the authorities today, while Neil Mohamed Husani current whereabouts is said to be unknown.

The maximum penalty for a violation of conspiracy (18 U.S.C. §371) is five years imprisonment and a fine of $250,000. The maximum penalty for a violation of making false statements to a financial institution in connection with a loan (18 U.S.C. §1014) and bank fraud (18 U.S.C. §1344) is 30 years imprisonment and a $1,000,000 fine. The maximum penalty for a violation of a 1956 money laundering charge (18 U.S.C. §1956) is 20 years imprisonment and a $500,000 fine. The maximum penalty for a 1957 money laundering charge (18 U.S.C. §1957) is 10 years imprisonment and a $250,000 fine.

According to the allegations in the indictment, the defendants conspired to obtain approximately $82,790,000.00 in loans from seven financial institutions in the Tampa/Sarasota, Florida area by making false statements to those banks.

We talk about a lot of “constants” here on Flipping Frenzy (e.g., constant threads in real estate and mortgage fraud; the constant barrage of seemingly never-ending real estate and mortgage fraud cases; the constant denial by many in the real estate industry and elsewhere that real estate and mortgage fraud is that big of a problem; etc.). So today we’re joyous over the news out of Brooklyn, New York, of another “constant” development… namely, that one Emmanuel Constant–a Haitian national who, despite being convicted for crimes against humanity, has been living freely in New York since the mid-1990s–has been found guilty of six felony counts against him related to a mortgage fraud scheme.

(photo (c) 2007 Jesse Ward)

A Kings County, NY, Supreme Court jury found Emmanuel Constant guilty last Friday of fraudulently arranging millions of dollars in home loans for three Brooklyn properties. Constant, who has been convicted in Haiti, in absentia, for crimes against humanity, will remain in police custody. Sentencing will occur on September 10, 2008.

In an elaborate mortgage fraud scheme, Emmanuel Constant and other co-conspirators fraudulently arranged bank financing for the purchase or refinancing of three Brooklyn properties. After locating a property for sale and generating an artificially high appraisal value for the property, they would pay a straw buyer to get loans from mortgage banks to purchase the house at the inflated value. Constant and the co-conspirators would then divert the proceeds of the fraudulently obtained home loans to themselves. Many of Constant’s co-conspirators have been arrested, and some contributed to the testimony against him.

For part of the period of the mortgage fraud scheme, Emmanuel Constant, 51, served as the Suffolk County branch manager for D & M Financial, Inc., a New Jersey-based mortgage bank. In a separate conviction also prosecuted by the New York AG’s office, Constant served two years in prison for his involvement in the theft of over $1 million in mortgage funds from the fraudulent sale of a Suffolk County home. Constant completed serving this jail time on July 1, 2008.

Before being arrested for mortgage fraud, Constant, a native of Haiti, had been living freely in New York despite a 1995 federal immigration warrant and a 1995 federal deportation order. He was convicted in Haiti, in absentia, for crimes against humanity. He was the founder and commander of the Front Revolutionnaire Pour L’Advancement et le Progres d’Haiti, or “FRAPH,” which was dedicated to terrorizing and torturing political opponents of Haiti’s military regime.

The Kings County Supreme Court jury found Emmanuel Constant guilty of two class C felonies, two class D felonies, and two class E felonies. Sentencing will occur on September 10, 2008. Emmanuel Constant faces a maximum of 15-45 years in prison.

Editor’s Note: The following Guest Commentary was written exclusively for FlippingFrenzy.com by Larry Rubinoff, branch manager of a Clearwater Beach, Florida office of Mortgage Lending Direct, a dba of MLD Mortgage, Inc. Larry’s commentary is his and his alone and may not necessarily reflect the views or opinions of the management of FlippingFrenzy.com.

When he speaks in public, President Bush usually talks in a very measured tone. Yet late last week, at a private fundraising event in Houston, Texas, the President was more candid than ever before about the state of the U.S. economy:

“There’s no question about it,” President Bush said. “Wall Street got drunk (that’s one of the reasons I asked you to turn off the TV cameras) it got drunk and now it’s got a hangover,” Bush said last Friday, according to a video obtained by Houston’s ABC network affiliate, KTRK. “The question is how long will it [sic: take to] sober up?”

It is with those comments in mind that Guest Blogger Larry Rubinoff weighs in with the following:

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The Truth about Wall Street
By Larry Rubinoff

President Bush is right. Wall Street was drunk (with greed), and it opened the floodgates for the levees to burst, creating what can only be described as economic disaster of unprecedented proportions.

While drunk, Wall Street provided the vehicles for fraud, encouraged it and worse–closed a blind eye to it all the while profiting to the tune of hundreds of billions of dollars.

Not only are they complicit in the fraud we are learning about and fighting here through FlippingFrenzy.com, but Wall Street was instrumental in committing fraud against investors on a global scale… investors who bought the securities almost every mortgage was put into. Fannie and Freddie did the same. The rating agencies committed fraud by rubber-stamping each security issue “AAA,” never really looking at the integrity of the pools. Wall Street sold these securities knowing full well what the true worth and values of the pools were.

The government had full knowledge of what they were doing, and in fact, may have encouraged them to do so to keep our economy flourishing. This was, in fact, the case during the Great Depression.

President Bush admitted what many of us already knew, and that’s why he wanted the cameras turned off.

~ Larry Rubinoff

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Editor’s Note: You can read more of Larry Rubinoff’s thoughts and opinions on TheMortgageCorner.org
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The last seven day have proved to be quite fruitful in Colorado’s attempt to curb real estate and mortgage fraud. Around the same time Fredric “Rick” Dryer was found guilty on 44 out of 60 felony counts in a securities fraud case involving Dryer’s former company, Mile High Capital Group, LLC, another Denver, Colorado-based real estate con man was found guilty of ripping off the very people he once swore to help.

A jury in U.S. District Court in Denver has found Arvin Weiss, age 58, of Englewood, Colorado, guilty of mortgage fraud and witness tampering in a case involving Hispanic homebuyers (specifically, Weiss was found guilty of 16 counts, including eight [8] counts of mail fraud, five [5] counts of wire fraud, and three [3] counts of witness tampering).

The guilty verdict came after a 13-day trial before a Senior U.S. District Court Judge, where the jury deliberated for less than one day.

Arvin Weiss, who is currently is free on bond, faces five years in federal prison and/or a $250,000 fine per count of mail fraud and wire fraud. In addition, he faces 10 years in federal prison, and/or a $250,000 fine per count for witness tampering. A status conference is scheduled for October 22, 2008, at which time the judge will set a sentencing date.

Arvin Weiss was originally indicted by a federal grand jury in Denver on April 20, 2005. The indictment was superseded on September 27, 2007. The trial began on June 23, 2008.

According to the indictment, as well as facts presented during the government’s trial, from June 1998 through January 2002, Weiss ran a scheme that fraudulently obtained money and property from mortgage companies which funded federally insured loans. Weiss, a licensed real estate broker, bought and sold properties as Reserve Capital Funds, Inc.

Reserve Capital Funds acquired numerous single-family residences in the Denver area at low prices. Within a few months, and after some improvements had been made, Weiss resold the properties at substantially higher prices to unsophisticated low-income buyers. The buyers Weiss targeted were Hispanics who knew little or no English, many of whom were living in the United States illegally.

Many of Weiss’ Hispanic buyers did not understand the mortgage loan process, but wanted to purchase their own homes even though they could not legitimately qualify for mortgages. Weiss arranged for buyers to acquire mortgages insured by the Federal Housing Administration (FHA), so they could purchase homes his company owned. Knowing that the buyers he targeted could not afford to buy houses or legitimately qualify for home loans, Weiss allegedly arranged for false information about the buyers’ qualifications and the sources of their down payments to be provided to various mortgage companies and HUD, making it appear that the buyers were qualified to receive FHA insured loans when they were not.

Operating under the name of Fairfax Homes, Ltd., Fairfax Express Corporation, or just Fairfax (all of which Weiss controlled), Weiss would represent to prospective buyers that he had houses or could find houses the buyers could purchase, and that he and an assistant would take care of all the necessary paperwork. He also told buyers they would not have to make down payments using their own funds, despite a requirement by HUD to do so.

The buyers would provide their personal information directly to Weiss or an assistant. Weiss would then provide information about the borrowers, some of which was true, but material portions of which were false, to the mortgage companies and HUD, injecting false information about the borrowers’ qualifications when necessary to enable them to qualify for the loans.

Weiss would secretly provide the funds for the down payments for the borrowers to be presented by the borrowers at closing. Weiss signed numerous false certifications that he had not and would not pay or reimburse the borrowers for any part of their cash down payments.

Weiss usually sold his properties for two or three times what Reserve Capital Funds had recently paid for them. The buyers typically did not have the option of competitive pricing and did not contest his asking price, because they could not legitimately qualify for the loans. In some cases, Weiss did not disclose the true purchase price to the buyers until closing. In many cases, by encouraging the buyers to move into the properties rent free prior to closing, Weiss minimized the possibility that they would back out of their purchase agreements when they were informed of the properties’ true cost.