Three real estate industry insiders have been sentenced in Florida for their roles in a humongous real estate fraud conspiracy. Richard Crowder, II, a former licensed mortgage broker and owner of America’s Best Mortgage Services, along with former title attorney Gary Mills (who owned Four Star Title) and a former Wachovia Bank loan officer (Karen Sullivan), all received stiff sentences on Wednesday from U.S. District Judge Jose Martinez. Crowder received nine (9) years’, while Mill and Sullivan received three years’ and eight months and four years’ and one month imprisonment, respectively. All three are scheduled to appear again in court on May 29 for a hearing to determine the amount of restitution they must pay to the victims in this case.

To carry out their scheme, mortgage broker Crowder identified residential properties, including luxury condominiums on South Beach in Miami, Florida, that were available for purchase. He then recruited buyers for the properties, representing that he could obtain 100% financing for their purchase. After finding a purchaser, Crowder would apply for equity lines of credit on their behalf with Wachovia Bank. To induce Wachovia to issue the equity lines of credit, Crowder and title attorney Mills prepared fraudulent HUD-1 settlement forms stating the buyers already owned the properties and also significantly understated the amount of the first mortgages on the properties. The fraudulent HUD-1 settlement forms were then given to Wachovia Bank loan officer Sullivan, who used the forms to facilitate the issuance of equity lines of credit from the bank.

Simultaneously, or shortly after obtaining the equity lines of credit from Wachovia, Crowder applied for the first mortgages on the properties. These applications overstated the buyers’ assets and income, and also included false verification of deposit forms prepared by Wachovia Bank loan officer Karen Sullivan. To further induce the lenders to issue the loans, title attorney Gary Mills prepared documents falsely representing that the buyers were using their own money for the down payments and closing costs. In fact, the buyers were using funds from the fraudulently obtained Wachovia equity lines credit or funds provided by mortgage broker Richard Crowder.

At the end of the day, Crowder, Mills and Sullivan caused the fraudulent purchase of 17 different luxury condominiums at The Continuum on South Beach and at The Point of Aventura using more than $37,000,000 in fraudulently obtained mortgage loans.

A federal judge in Philadelphia, Pennsylvania, has thrown out a lawsuit against lenders who supplied funds to a mortgage broker who previously pled guilty to charges of mortgage fraud, finding that lenders are not obliged to monitor mortgage broker actions. The decision is a major setback for 842 victims of Wesley A. Snyder’s company, Personal Financial Management, who could have used the strategy to recover some of their losses, had it succeeded. The victims are said to have approximately $30 million in the scam.

The claim rejected by U.S. District Judge James Giles started in the fall of 2007, when a Fleetwood, Pennsylvania, couple–Douglas and Andrea Jones–filed a lawsuit, hoping to have it certified as a class action suit. According to paperwork filed with the court, defendants in the complaint included:

• ABN AMRO Mortgage Group, Inc.
• Chase Home Mortgage Corporation
• Citimortgage, Inc.
• Citicorp Home Mortgage Services, Inc.
• Countrywide Home Loans, Inc.
• Fifth Third Mortgage Company
• Florida Capital Bank Mortgages
• GMAC Mortgage Corporation
• GMAC Mortgage Asset Management, Inc.
• GMAC Mortgage Group, Inc.
• HSBC Mortgage Corporation (USA)
• Indymac Financial Services Corporation
• Moorequity, Inc.
• National City Mortgage, Inc.
• nBank, N.A.
• Provident Funding Group, Inc.
• Saxon Home Mortgage
• Saxon Mortgage, Inc.
• Sovereign Bank
• SunTrust Mortgage, Inc.
• U.S. Bank, N.A.
• Wachovia Mortgage Corporation
• Washington Mutual Home Loans, Inc.
• Wells Fargo
• Home Mortgage, Inc.
• John Doe Mortgage Companies

In their suit, Douglas and Andrea Jones alleged that several Pennsylvania companies, owned or controlled by Wesley Snyder, offered them Equity Slide Down Mortgages as part of what they say was a mortgage servicing Ponzi scheme. The Joneses said Snyder failed to monitor and supervise his companies, which did not credit them properly for payments and pre-payments of interest and principal on their mortgages. They further alleged that, following the bankruptcy of Snyder’s companies, the defendants in the case–the companies listed above–failed to notify them properly that they had taken over as servicing agents on the mortgage loans and demanded payments from them in amounts substantially higher than owed on the loans serviced by Snyder’s companies. The Joneses also claimed that each defendant was guilty of having committed numerous RESPA violations.

Specifically,the Joneses alleged that they applied for and closed on two separate Equity Slide Down mortgages through Snyder’s companies–one for each of their two properties–in 2002 and 2005, respectively. They alleged that at all times after closing they remitted their monthly mortgage payments to Snyder’s company and that they were current on all payments owed and had pre-paid a large portion of the principal balance by way of a large principal reduction payment made soon after closing.

They further alleged that in September 2007, after the bankruptcy filing of the Snyder’s company, they learned for the first time that SunTrust and Countrywide claimed to hold their respective mortgages and notes. According to the Joneses, SunTrust and Countrywide demanded payment for amounts that were duplicative and excessive and that failed to credit properly the payments and pre-payments they had made to the Snyder. The Joneses say that the Snyder’s companies were the “servicing agents” of each Defendant, as defined by the Real Estate Settlement Procedures Act (RESPA), and that Snyder’s companies were otherwise the Defendants’ agents under Pennsylvania agency law.

More specifically, the Joneses alleged that:

1. Each defendant employed one or more of the Snyder’s companies to originate, close, and service all the mortgage loans at issue.
2. Each Defendant knew the Joneses were making all mortgage payments to the Snyder Entities.
3. Each Defendant knew it was sending all mortgage statements and federal tax forms to Snyder rather than to the Joneses.

In dismissing the suit, U.S. District Judge Giles said the Joneses’ recollections were trumped by documents they signed stating payments would be made to mortgage bank ABN Amro Mortgage Group, meaning, Snyder was not ABN’s agent and ABN had no duty to oversee him.

A Dearborn Heights, Michigan, tax accountant has been sentenced serve five years in prison and ordered to pay more than $11 million for his role in a mortgage fraud scam that defrauded lenders nearly $22 million in loses. Kalil Khalil, 36, according to court documents and information released by the United States Attorney for the Eastern District of Michigan, admitted that during a 2½-year period beginning in January 2001, he participated in the preparation of fraudulent loan applications and related documents that were submitted to mortgage lenders. Each of Khalil’s loan packages was fraudulent in one or more of the following ways:

• The purpose of the loan was not to buy or refinance a residence
• The borrower described on the application was not the true borrower
• The description of the borrower’s employment was false
• Documents purporting to substantiate the borrower’s employment (W-2 Forms, check stubs) were bogus
• The appraisal was inflated and forged
• Title to the property was not free and clear
• The title company purporting to guarantee clear title was merely a name used by Khalil and his codefendant, Tariq Hamad, to carry out the scheme
• Photographs were included that depicted a property other than the property identified in the loan application

Many of Khalil’s fraudulently prepared loan packages were approved and the loan proceeds were wired from the mortgage lenders, which were located outside of the State of Michigan, to bank accounts controlled by Khalil and Hamad that were located in metropolitan Detroit in the names of straw title companies. Khalil used most of the fraud proceeds to buy and sell stocks.

In addition to his prison sentence and order to pay approximately $11.1 million restitution to mortgage lenders and a legitimate appraisal company whose name he used on bogus appraisals, Khalil received a three-year term of supervised release following his exit from prison. He also agreed to forfeit his interest in bank and securities accounts containing about $300,000 that were seized by the government as part of its investigation.

Khalil’s codefendant, Tariq Hamad, 37, of Dearborn, pleaded guilty to one count of wire fraud in December 2006 and was sentenced in September 2007 to 9 years’ imprisonment and ordered to pay restitution in the amount of $11.4 million. The judge in the case, U.S. District Judge David M. Lawson, noted that he would have imposed a similar term of imprisonment on Khalil had it not been for Khalil’s substantial cooperation with the government in unrelated investigations being supervised by the U.S. Attorney’s Office.

Following up on a story FlippingFrenzy.com first report on September 25th, a Marietta, Georgia closing attorney who admitted that he was a member of a mortgage fraud ring that federal prosecutors say included more than a dozen people, is now cooperating with the government in a trial that began earlier week in U.S. District Court. From Law.com:

Following up on a post from September 25, on Tuesday, federal prosecutors identified real estate closing attorney James F. Stovall III — formerly a partner in the now-defunct law firm, King, Taylor & Stovall — as the lawyer who finalized as many as 50 fraudulent home sales. The sales were part of a scheme that bilked banks out of at least $20 million in 2000 and 2001, prosecutors said.

Stovall is the most recent Georgia attorney caught using his law practice to perpetuate mortgage fraud, a crime that has cost the country’s banks hundreds of millions of dollars. As a warning to other real estate lawyers, U.S. District Judge Thomas W. Thrash Jr. in 2005 sentenced disbarred DeKalb County attorney Chalana C. McFarland to 30 years in prison for her role in a mortgage fraud scheme that cost lenders more than $11.5 million — the toughest sentence to date handed down in Georgia on dozens of mortgage fraud defendants who have faced federal prosecution here since 2000.

This year, two other Georgia real estate closing attorneys pleaded guilty to charges associated with yet another, wide-ranging mortgage fraud scheme in which they played roles similar to Stovall’s — but on hundreds, rather than dozens, of properties.

In August, Thrash sentenced one of those two lawyers, J. Christopher Halcomb of Cumming, to 37 months in prison and ordered him to pay more than $15 million in restitution. He has also been disbarred. The other lawyer, Andrew E. Wolf, is still awaiting sentencing.

Click here for more information on Stovall and the mess he helped to create.

New York State Attorney General Eliot Spitzer last week announced that his office had filed a lawsuit alleging that a group of real estate industry insiders, including mortgage brokers, attorneys, and appraisers, pursued a fraudulent real estate flipping scheme targeting minority neighborhoods in Brooklyn, NY. In addition, Spitzer’s office announced that it has entered into consent decrees with some of the defendants that will provide substantial monetary relief to victims and stringent oversight of future real estate activities by the settling defendants.

According to the lawsuit, defendants Isaac Katz and Yoel Silberstein devised a scheme in which they purchased distressed properties in the Brooklyn neighborhoods of Crown Heights, Bedford-Stuyvesant, East Flatbush, East New York and Bushwick, and then enlisted the services of a front-man, mortgage brokers, and real estate lawyers to dupe purchasers and lending institutions in order to obtain significant resale profits.

The lawsuit alleges that defendant Amenophis Alleyne found prospective minority buyers with excellent credit to purchase the properties. The minority buyers, many of whom were Alleyne’s family and friends, were told that the properties were “investment opportunities” that could be purchased with no money down. They were also assured that rental income they would receive from prospective tenants would more than cover any mortgage payments.

According to the complaint, the mortgage brokers and defendants Theodore Welz and Shaya Saks, induced banks into issuing loans for properties by preparing loan applications that misrepresented the borrowers’ true income and assets and falsely stated that the borrowers were making significant down payments. Spitzer’s office says the banks were also provided with false appraisals, prepared by real estate appraisers including defendants Jeffery Richardson and Erik Johnson, which significantly inflated the values of the properties.

Defendants Benzion Frankel, Rephoel Weitzner, Devon Clarke, and Joseph Treff, the real estate attorneys who represented the lenders, the buyers, and the sellers at the closings, prepared loan documents and public filings (including deeds and real estate transfer tax records) that allegedly misrepresented the actual sales prices of the properties.

Katz and Silberstein stand accused of reaping substantial profits from their fraudulent scheme, which was carried out dozens of times between 2002 and early 2006. In one case identified in the suit, they purchased a property for $205,000 and sold it later the same day for $370,000. The buyers, the lawsuit alleges, were unaware that their “no money down” deals were being accomplished only by hiding the true nature of the transactions from their lenders. As a result, many buyers were saddled with large, high-interest-rate mortgages they could not afford. Some ended up in default and foreclosure, ruining their once-excellent credit. The lawsuit further alleges that the scheme artificially inflated market prices of homes in the affected neighborhoods as appraisers, sellers, real estate brokers and others seeking to value properties in those areas relied on the false sales prices reported in deeds and other public records.

The Attorney General has entered into consent decrees resolving the lawsuit against defendants Katz, Silberstein, Welz and Saks. The decrees requires:

1. Payment of nearly $1.8 million in restitution and penalties;
2. A detailed accounting of the real estate transactions conducted by the mortgage fraud ring;
3. Extensive monitoring of future real estate activities by defendants Katz and Silberstein; and
4. Significant restrictions on mortgage brokering activities by defendants Welz and Saks.

The funds remitted pursuant to the decrees will be used to compensate victims of the scheme who file complaints with the Attorney General. Any remaining funds will be retained by the State as penalties.

The United States Attorney for the District of Colorado announced yesterday that Lakewood, Colorado, real estate agent William Mendez, age 41, has been sentenced to serve a little over four (4) years in federal prison for his role in a massive mortgage fraud scam involving illegal aliens. U.S. District Court Judge Wiley Daniel additionally slapped Mendez with a fine totaling more than $1.2 million.

Mendez was indicted by a federal grand jury back in September of 2005. He pled guilty in March of this year, and as part of his plea agreement, agreed not to work in any facet of real estate, whether as a broker, lender, mortgage banker or investor.

Seven other people were indicted for participating in the fraud, which involved preparing hundreds of false and fraudulent residential home loan applications for illegal aliens that were insured by HUD through the Federal Housing Administration. According to the U.S. Attorney, Mendez also made payments to loan officers to insure the approval of the applications.

According to the Mendez’s plea agreement, starting back in 1999, he began developing practices that allowed him and his other real estate agents and employees to assist clients whom they knew to be illegal aliens or otherwise unqualified, to receive home mortgages to purchase homes.

Since 2003, the U.S. Attorney’s office in Denver has brought 12 indictments, charging 84 defendants with mortgage fraud–and most of these cases involve illegal immigrants, says U.S. Attorney’s spokesman Jeff Dorschner, according to the Denver Post.

As FlippingFrenzy.com was the first to report yesterday morning, a Buffalo, NY, landlord did indeed plead guilty to Grand Larceny in the Third Degree, a class D felony, and Scheme to Defraud in the First Degree, a class E felony, in connection with fraudulent real estate deals in upstate New York. Fifty-one year-old Robert Palano now faces two to seven years in prison, and in related civil actions has agreed to pay $1.5 million in restitution and penalties and to be permanently barred from owning investment properties in Buffalo. Michael Heigel, Palano’s real estate appraiser for many of his schemes, also plead guilty to charges and agreed to pay $55,000 in restitution.

A 15-month civil investigation by New York state’s Attorney General’s office revealed that, between 1998 and 2002, Palano fraudulently obtained more than $4 million dollars in mortgage loans on 104 rental properties he owned on the East Side of Buffalo. After pocketing the loan proceeds, Palano took off for Florida, leaving at least ten lenders with defaulted loans secured by properties worth far less than the debt, and renters being evicted through foreclosures.

The investigation revealed that Palano used Heigel to do all of his appraisals which were grossly inflated over the true market value.

The charges in the criminal case arise out of a series of 29 fraudulent loan applications submitted by Palano between March and November 2002 to GMAC Mortgage Corporation. According to legal documents, Palano lied on the applications when he declared that he was not at that time a party to any civil litigation. In fact, Palano was then the defendant in an unrelated mortgage fraud case brought by The Associates First Capital Mortgage Corporation.

By December 2003, Palano had defaulted on all 104 loans and as a result, lenders were left holding collateral that was inadequate to pay off the balance. The consequent foreclosures resulted in the eviction of dozens of families from the rental properties and caused further blight of the neighborhoods as boarded up houses were left vacant for months.

Many of the defaulted loans covered by the civil settlement had been resold by the lenders to Fannie Mae, the federally-chartered institution that buys mortgage loans for the purpose of increasing the availability and affordability of housing for low- and moderate-income Americans. The terms of the civil settlement require Palano to pay $1.4 million to Fannie Mae to reimburse its losses.

This is the second time New York’s Attorney General’s office has cited Palano in a mortgage fraud case. A 2001 investigation the found that Palano orchestrated a real estate scheme that targeted African-American, first time home buyers. In resolving that case, Palano agreed to pay $225,000 in restitution to his victims and The Associates First Capital Mortgage Corporation agreed to reduce the mortgages of 130 properties by a total of $1.6 million. The Associates First Capital Mortgage Corporation later civil action against Palano in this matter was the litigation he failed to report.

For those of you following the Edwards’ case, here’s an article from one of our local newspapers (Catherine Kavanaugh reporting for the Daily Tribune):

The eviction hearing for longtime residents Brenda and Terry Edwards was postponed Tuesday so the judge can review a legal brief raising more issues related to their mortgage fraud case. The Edwardses have lived 32 years in a Hilldale Avenue bungalow. They paid it off in 1997, but the couple became tenants in the house last year following a home equity scam.

The Edwardses unknowingly gave away the 79-year-old dwelling when a shady lender slipped sales documents into paperwork the couple thought they were signing for a $10,000 home equity loan. The residents ended up selling their house to the lender’s accomplice who didn’t make any payments and let the property go into foreclosure. It was sold at auction last summer to U.S. Bank National Association for $137,724. The bank wants the couple out, while the Edwardses’ attorney, Scott F. Smith, is asking 44th District Judge Terrence Brennan to set aside the eviction.

“I want to give everyone a full opportunity to present every argument they have,” Brennan said.

While the motion to set aside the eviction is pending in district court, Smith said he will file for a quiet title in Oakland County Circuit Court. This process determines the rights of all parties who are in dispute over a property.

The Edwardses contend they never intended to sell their house. They said they did not receive a penny from the transaction set up by their lender, who allegedly walked away from the deal with at least $33,000 from a forged check cashed in the Edwardses’ name at a Novi bank.

Novi and Royal Oak police as well as the Federal Bureau of Investigation are looking into criminal aspects of the transaction while the property rights issues proceed in district and circuit courts. Friends and neighbors of the Edwardses showed up in court to offer their moral support. The couple’s daughter, Tracy Wallaert, said she appreciates everyone who has encouraging words for her parents.

“I figured people would follow this, but more like gossip as in look what the Edwardses’ are dealing with now,” Wallaert said. “But fortunately they really care. A lot of people think: This could be me. When you take out a loan you feel it’s a secure process.”

The Edwardses needed the home equity loan to pay back taxes. The lender did cover that debt but when it came to finalize how the couple would repay it, other documents, including a two-page warranty deed, were put in front of them to sign.

Ralph Roberts, a mortgage fraud expert, is helping the Edwardses through the legal process, and he said the seven-week postponement on the motion to set aside the eviction is the “second-best thing that could have happened.”

“We can go to the circuit court for other remedies,” he said. “Some parties have clean hands, some don’t. This will take time to sort out.”

I must say, having been present in the courtroom for yesterday morning’s proceedings, Judge Brennan did a really good job, and it was especially nice to see his genuine concern for Brenda and Terry. For my part, I attempted to talk to U.S. Bank National Association’s attorney about setting up a Rent Escrow account for the Edwards’ but they wanted nothing to do with that suggestion.

It’s a shame, really, because all indications are that the Edwards’ will win this battle. They were clearly taken advantage of, and if U.S. Bank National Association was smart, they’d be doing everything within their powers to help–not get in the way of–the Edwards reclaiming their property.

For anyone who might be interested, here’s an update to the piece I wrote back on the 20th of March about the husband and wife who recently turned to me for help with a real estate fraud-related issue.

From The Daily Tribune:

The couple who unwittingly sold their house in a mortgage fraud scam finally got some good news. LaSalle Bank has offered to pay Brenda and Terry Edwards $33,000 for a check cashed in their name with forged signatures.

“We don’t know if we’ll take the money. We might just set it aside for now because we want the house back,” said Ralph Roberts, a mortgage fraud expert who is helping the pair through the court system.

The Edwards’s thought they were signing documents to repay a $10,000 home equity loan when an unscrupulous lender slipped in a purchase agreement. The husband and wife ended up selling their Hilldale Drive bungalow to a third party who was part of the scam called equity stripping.

The “straw buyer,” who got paid off by the lender, didn’t keep up his mortgage payments and the Edwards’ house went into foreclosure and was sold at auction last year. The buyer then sought a termination of tenancy order against the Edwards’s in 44th District Court. The couple has until Tuesday to leave the house they paid off in 1997 or face eviction unless an injunction they requested late last week in Oakland County Circuit Court is granted.

Roberts said he hopes the injunction will prevent an eviction while the fraud case is investigated. “The Edwards’s have gotten some good news. It’s not great news but it’s working that way,” Roberts said.

It’s really nice to see a reporter (in this case, Catherine Kavanaugh) and her newspaper (The Daily Tribune) following up on a story as impacting as the Edward’s. In fact, since the original article first appeared back on the 19th of March, the Edward’s, Catherine Kavanaugh, and I have all received numerous phone calls and inquires from concerned neighbors wondering what they can do to help the Edward’s and protect themselves from similar scams. Everyone surrounding this case seems to clearly understand that real estate and mortgage fraud is a deadly killer, and everyone wants to help.

I think it was the British writer Jane Austen who said, “Every man is surrounded by a neighborhood of voluntary spies.” When it comes to spotting, stopping, and recovering from real estate fraud, that’s actually a very good thing!