SALT LAKE CITY—A 10-count federal indictment unsealed Thursday charges Christopher D. Hales, age 29, of Midvale, with mail, wire, and bank fraud and with money laundering in connection with an alleged mortgage fraud scheme. The indictment involves two properties, one in Lindon and one in Salt Lake City.

The indictment alleges Hales and other unindicted co-conspirators executed a scheme to produce income from false appraisals to artificially inflate the purchase price of the residences. Hales arranged to purchase the homes through straw buyers and took the false equity proceeds stemming from those sales for himself, the straw buyers, and the co-conspirators.

For the Lindon property, the indictment alleges that Hales arranged for a false lien to be attached, ostensibly to renovate the house to the increased value pre-determined by Hales. Hales then arranged to obtain a loan that was approximately $194,000 more than the house was worth based on the false lien.

For the Salt Lake City property, the indictment alleges Hales and his co-conspirators arranged first for the house to be appraised at more than $250,000 than its market value, obtained a loan relying on that false appraisal and distributed the alleged fraudulent proceeds among themselves. Approximately 10 months later, Hales and other co-conspirators arranged for the house to be purchased by a straw buyer with another false appraisal that reset the house’s value at an additional $250,000 above the previous fraudulent price. According to the indictment, those proceeds were again then distributed among Hales and his co-conspirators.

For both properties, Hales used false appraisal values, false income statements, and false claims of renovations to the properties to obtain the inflated loans, the indictment alleges.

This specific investigation, which is ongoing, is being conducted by the U.S. Department of Housing and Urban Development – Office of Inspector General, the FBI, and the U.S. Postal Inspection Service, as a part of the Utah Mortgage Fraud Task Force.

Individuals who believe they have information about financial fraud crimes related to this investigation and/or Mr. Hales can contact Special Agent Dave Smith with HUD-OIG at 801-524-6092.

Hales was arrested on a federal warrant Thursday. He had an initial appearance in federal court Thursday afternoon. A detention hearing is set for Tuesday at 10:30 a.m. before U.S. District Judge Brooke Wells. The potential maximum penalty for each wire and mail fraud count (two counts of each) is 20 years in prison. The potential maximum penalty for the four bank fraud counts is 30 years per count. The potential maximum penalty for the two money laundering counts in the indictment is 10 years per count.

Indictments are not findings of guilt. Individuals charged in indictments are presumed innocent unless or until proven guilty in court.

SALT LAKE CITY—A federal grand jury returned a 15-count indictment Wednesday afternoon charging Joshua Lee Butcher, age 28, of Salt Lake City, with bank fraud and false statements to a financial institution in what the indictment alleges was a scheme to get construction loans approved using false pretenses.

This week’s indictment follows an investigation by the FBI and the Utah Mortgage Fraud Task Force.

According to the indictment, Salt Lake Credit Union and Transwest Credit Union approved and funded construction loans relying on what they believed to be true and accurate borrower financial information which met their respective loan underwriting standards.

The indictment alleges Butcher worked with both credit unions to broker loans for new home construction ranging from approximately $384,000 to $637,000. Butcher met with potential borrowers to obtain necessary financial information for the completion of a loan application. In these meetings, borrowers provided Butcher with accurate information about their income and assets. At times, borrowers also provided supporting documentation. Based on this information, the indictment alleges Butcher knew borrowers would not qualify for construction loans in the range they were seeking.

The indictment alleges that Butcher prepared and submitted false loan applications on behalf of the borrowers to the credit unions to induce approval and funding of construction loans under false pretenses and to cause the payment of broker fees to him which he was not entitled to receive.

The indictment alleges that in order to qualify borrowers for the construction loans, Butcher falsified loan applications by overstating borrowers’ income and, at times, identifying assets which borrowers did not own. Additionally, construction loans offered by the financial institutions he was working with were intended to be used for homes occupied by borrowers as their primary residence as opposed to an investment intended to be resold at a profit shortly after the completion of construction, according to the indictment. Despite knowing some borrowers were not intending to use the home as a primary residence, Butcher falsified the application to show the property would be the borrower’s primary residence. The indictment also alleges he provided false employment information for borrowers.

The indictment alleges eight counts of bank fraud and seven counts of false statements to a financial institution. The potential maximum penalty for each bank fraud count is 20 years in prison and a fine of $250,000. The potential maximum penalty for each false statement count is 30 years in prison and a fine of $1 million. Butcher will be issued a summons for an initial appearance in federal court.

An indictment is not a finding of guilt. Individuals charged in indictments are presumed innocent unless or until proven guilty in court.

Press Releases | Salt Lake City Home

Frustrated by the wave of fraud that by one estimate took $750 million out of Utahns’ pocketbooks last year, regulators, law enforcement officials and attorneys are organizing a free “Fraud College” next month in Utah County for the public to call attention to the problem and to try to combat it.

But the one player that all agree has to lend its loud voice to the proceedings if they are to be as effective as possible will be largely silent — the LDS Church.

This is Utah, after all, where The Church of Jesus Christ of Latter-day Saints claims about 60 percent of residents as members. Beyond the numbers, there is the church’s organization into close-knit local wards led by male authority figures where members’ social and religious lives revolve around shared beliefs in the sacredness and uniqueness of their religion.

Those characteristics make Mormons vulnerable to what regulators and government investigators label “affinity fraud” in which groups who through shared associations develop bonds of trust that can be easily exploited by con artists. Though other faiths are similarly vulnerable, that is particularly true in the insular Mormon culture of Utah.

“There’s this notion that if you pay your tithing and do what you’re supposed to do, the windows of heaven will be open to you and God will pour you out a blessing such that there’s not room enough to receive it,” said Keith Woodwell, a church member and director of the Division of Securities, the state’s chief investigator of investment fraud. “So it’s very easy for someone who has [fraud] as their motive to use that doctrine and say, ‘Look, you’re a member in good standing and you pay your tithing and you’re entitled to be blessed.’ “

Choosing not to participate

But the church, after initially signaling to organizers that it would be a key player in the fraud conference that is drawing representatives of other faiths, has chosen not to send a high-ranking authority to speak.

A church spokesman declined to say why it was not participating.

Mark F. Zimbelman, a Brigham Young University professor of accounting who teaches a class about how frauds are committed, will be the LDS member on the interfaith panel at the Fraud College. But he said will not be speaking for the church.

The church’s decision is a disappointment for organizers, who wanted a strong LDS presence to send a message about safe investments.

“I don’t think any church has done enough, including the Mormon Church,” said attorney Brent Baker, a former Securities and Exchange Commission lawyer and a specialist in securities fraud cases.

Discouraged by the level of fraud in Utah and the inability of government to deal with the problem, Baker and fellow attorneys, state regulators and others saw the Fraud College set for June 30 at Utah Valley University in Orem as a way educate Utahns and give them the tools to evaluate pitches and make decisions about whether to invest.

The sessions will include an interfaith panel in which representatives of several faiths are scheduled to participate. But organizers saw the involvement of the LDS Church as crucial, given the level of fraud perpetrated in its ranks and what many perceive as its muted response to the problem.

“I think more needs to be done” by the church, said Francine Giani, a church member and executive director of the state Department of Commerce. “A couple of years ago we saw a statement that was read over the pulpit that I was happy about, but we should see more and we should see it often.”

By Tom Harvey – The Salt Lake Tribune

SALT LAKE CITY — A Davis County man involved in a multimillion dollar mortgage fraud scheme was sentenced to less than five years Wednesday — a reduced sentence he was granted for working with the government.

Lyle Clay Smith, 44, was sentenced to 56 months in federal prison, five years of supervised release and ordered to pay almost $2.5 million in restitution by U.S. District Judge Dee Benson.

Smith, who was indicted alongside Ronald William Haycock Sr. and Jamis Melwood Johnson in March 2009 on charges ranging from mail fraud to conspiracy, pleaded guilty to one count of conspiracy in October.

According to the indictment, the men recruited straw buyers with good credit scores to allow them to use their names to purchase homes in Highland, Draper, Salt Lake City, Sandy, Pleasant Grove, Provo, Alpine and Farmington, then falsified loan applications and inflated not only the appraisal values but also the straw buyers’ incomes.

It is believed the men had 11 victims. Straw buyers were told they would have no financial risk and would not have to make payments or even occupy the home, but were left with mortgages that they could not repay and mortgage lenders who were left with outstanding loan balances far greater than the properties were worth, the indictment states.

Prosecutor Scott Thorley said the government was recommending a reduced sentence for Smith because he accepted responsibility for his actions, had turned himself in and was “candid” when it came to the scheme.

But he told the judge the sentence needed to send a message to others contemplating similar conduct.

“This type of conduct, repeated over and over again, is exactly the type of conduct that has shaken our economy,” Thorley said.

While there was some debate in court about whether Smith knew that what he was doing was illegal, as he said he initially believed it wasn’t, Smith apologized in court for the “stress and anxiety” his actions caused the straw buyers and his family.

Haycock and Johnson are currently scheduled to stand trial in August and Smith is expected to testify. If convicted, those men will also have to pay part of the $2,384,974 restitution as well.

By Emiley Morgan

Salt Lake City FBI and Utah Division of Real Estate Name Top Five Mortgage Scams in 2010
Special Agents and State Investigators Warn Utahns to Beware

• Is someone letting you live in a home for free?
• Did a builder offer you deep discounts to move into a newly constructed house?
• Has a company offered to refinance your mortgage for a fee?

If the answer to any of these questions is “yes,” then you may be a victim of a scam. FBI special agents and the state investigators with the Utah Division of Real Estate have compiled a list of top five mortgage related scams in 2010.

1. Reverse Mortgage Scam: Reverse mortgages can be a legitimate way for senior citizens to take equity from their homes without a monthly payment. However, con artists convince senior citizens they can live in a home for free, obtain a home loan under the occupant’s name, and disappear with the equity, leaving the victim to repay the mortgage.

2. Short Sale Fraud: A “short sale” transaction involves a lender agreeing to sell a property for less than the mortgage amount. Fraud occurs when a distressed homeowner finds a prospective buyer and they secretly set a low sale price. Unbeknownst to the lender, the buyer is willing to pay more for the property and the homeowner pockets the difference.

3. Builder Bailouts: Simply put, builder bailouts are a “kick-back” scheme. They may be more common in a troubled real estate market where builders may have a surplus of unsold properties. The builder offers excessive “incentives” to the purchaser. These incentives are disclosed as a down payment which leads the lender to believe there is equity in a home. Under these circumstances the builder and the buyer are committing fraud.

4. Loan Modifications: The FBI Salt Lake City Field Office issued a consumer alert about loan modifications in the fall of 2009. Special agents and state investigators are concerned homeowners may fall for this same scam in 2010. Companies charge up to $2000, promising to make a homeowner’s mortgage payment more affordable. But some homeowners report that they didn’t get what they paid for. For more information on loan modification scams please find the 2009 news release at: http://saltlakecity.fbi.gov/pressrel/pressrel09/slc110409.htm.

5. Affinity Fraud: Affinity fraud is an ongoing concern for the Salt Lake City FBI Field Office and the Utah Division of Real Estate. Fraudsters who promote affinity scams frequently are, or pretend to be, members of a particular religious, ethnic, or professional group. They often enlist respected community or religious leaders from within the group to spread the word about the scheme. They convince those people that a fraudulent investment is legitimate and worthwhile. Many times those leaders become unwitting victims of the fraudster’s ruse.

Short Sale Fraud   Short Sale Fraud    Short Sale Fraud    Short Sale Fraud   Short Sale Fraud

SALT LAKE CITY — Officials are warning Utahns to be watchful this year because a number of mortgage scams are surfacing, costing homeowners and lenders thousands of dollars.

The Federal Bureau of Investigation in Salt Lake City and the Utah Division of Real Estate recently issued an alert detailing the top mortgage scams to look out for this year.

The list is released annually to keep Utahns up to date on the most common and newest frauds.

“Fraudsters are modifying their schemes,” said Michelle Pickens, an FBI special agent.

“They’re doing some of the same things, but they’re coming up with different ways to apply them.”

Although homeowners are most often the target, one recent scam highlighted in the report, known as Short Sale Fraud, is also duping banks.

The scam works this way: A bank will strike a deal with a homeowner who is facing foreclosure to sell the home for a lesser amount than is owed. The homeowner then negotiates a different price that allows them to pocket some of the money.

“The homeowner is part of the fraud,” Pickens said. “Say there’s $300,000 owed on a mortgage. The homeowner approaches the bank and says, ‘I can’t pay for the home, but I have someone who will pay $250,000 for it.’ ”

If the bank agrees, Pickens said, the homeowner then sells the home for a price in between the two figures, pocketing the difference without reporting it.

Pickens said authorities are also very concerned about a fast-growing scam aimed at seniors.

Reverse mortgages are legitimate and allow a homeowner to convert home equity into cash. The arrangement is sometimes attractive to seniors, who can use the extra money to supplement income from retirement savings or Social Security.

Con artists persuade seniors they can live in a home for free, while at the same time taking out loans under the occupant’s name and collecting equity on the home. The homeowner is then responsible to repay the mortgage.

The FBI released a similar alert in November that warned homeowners to be wary of companies that promise foreclosure rescue plans at a high cost.

Officials say they received positive feedback from that campaign.

Pickens said, “We received a lot of calls from people asking things like, ‘How do I know if this is legitimate?’”

Special Agents and State Investigators Warn Utahns to Beware

• Is someone letting you live in a home for free?
• Did a builder offer you deep discounts to move into a newly constructed house?
• Has a company offered to refinance your mortgage for a fee?

If the answer to any of these questions is “yes,” then you may be a victim of a scam. FBI special agents and the state investigators with the Utah Division of Real Estate have compiled a list of top five mortgage related scams in 2010.

1. Reverse Mortgage Scam: Reverse mortgages can be a legitimate way for senior citizens to take equity from their homes without a monthly payment. However, con artists convince senior citizens they can live in a home for free, obtain a home loan under the occupant’s name, and disappear with the equity, leaving the victim to repay the mortgage.

2. Short Sale Fraud: A “short sale” transaction involves a lender agreeing to sell a property for less than the mortgage amount. Fraud occurs when a distressed homeowner finds a prospective buyer and they secretly set a low sale price. Unbeknownst to the lender, the buyer is willing to pay more for the property and the homeowner pockets the difference.

3. Builder Bailouts: Simply put, builder bailouts are a “kick-back” scheme. They may be more common in a troubled real estate market where builders may have a surplus of unsold properties. The builder offers excessive “incentives” to the purchaser. These incentives are disclosed as a down payment which leads the lender to believe there is equity in a home. Under these circumstances the builder and the buyer are committing fraud.

4. Loan Modifications: The FBI Salt Lake City Field Office issued a consumer alert about loan modifications in the fall of 2009. Special agents and state investigators are concerned homeowners may fall for this same scam in 2010. Companies charge up to $2000, promising to make a homeowner’s mortgage payment more affordable. But some homeowners report that they didn’t get what they paid for.

5. Affinity Fraud: Affinity fraud is an ongoing concern for the Salt Lake City FBI Field Office and the Utah Division of Real Estate. Fraudsters who promote affinity scams frequently are, or pretend to be, members of a particular religious, ethnic, or professional group. They often enlist respected community or religious leaders from within the group to spread the word about the scheme. They convince those people that a fraudulent investment is legitimate and worthwhile. Many times those leaders become unwitting victims of the fraudster’s ruse.

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

The FBI just released a comprehensive new report on real estate and mortgage fraud, and, as you might expect given everything we talk about here on Flipping Frenzy, it isn’t a pretty picture. The information contained in the report can get quite technical, with plenty of charts, graphs, and hard numbers. Regardless, it’s worth the read–see “The 2007 Mortgage Fraud Report.” Among the Report’s key findings:

1. Real Estate and Mortgage Fraud is clearly on the rise. Although there is no central way to track the total extent of the problem, the FBI received 46,717 Suspicious Activity Reports related to real estate and mortgage fraud last year—compared to 35,617 in 2006 and just 6,936 in 2003. Only 7% of these reports documented an exact dollar amount in terms of losses, but even so, the total loss from this 7% was $813 million. The FBI’s caseload has also escalated. By the end of fiscal year 2007, the Bureau was handling just over 1,200 real estate and mortgage fraud investigations—a 47% increase from 2006 and a whopping 176% increase from 2003.
2. The downward trend in the housing market will continue (see forecasts provided by the Mortgage Bankers Association in the report), providing further incentive for shady real estate industry insiders to look for dishonest ways to turn a profit and growing opportunities for scam artists to prey on vulnerable homeowners.
3. The subprime lending crisis is a contributing factor to real estate mortgage fraud, both directly and indirectly. Subprime loans, designed for people with poor or limited credit histories, now represent more than 13% of all outstanding loans–double the percentage of five years ago. These high-interest, high-risk loans contributed to the 2.2 million foreclosures filed during 2007, up 75% from 2006. The trouble actually began when home prices were rising a few years ago, leading to relaxed lending practices throughout the industry and the exaggeration of assets by industry insiders and borrowers under their charge anxious to qualify for loans, both of which contributed to fraud.
4. The top 10 hotspots nationwide for mortgage fraud in 2007, carefully mapped from multiple public and private sources, were:
   
   1. Florida
   2. Georgia
   3. Michigan
   4. California
   5. Illinois
   6. Ohio
   7. Texas
   8. New York
   9. Colorado
   10. Minnesota

   Other states significantly affected include: Arizona, Maryland, Utah, Nevada, Missouri, Indiana, Tennessee, Virginia, New Jersey, and Connecticut. The north-central region of the United States had the largest share of fraud, followed by the west and southeast regions.



5. The latest mortgage scams run the gamut: from builder-bailout schemes where developers unload excess inventory through financial trickery, to foreclosure rescue schemes that trick homeowners into signing over the deed to their house; from seller-assistance scams that use false appraisals to sell homes, to identity theft that leads to home equity credit lines being opened and drained.

The FBI’s report also briefly recounts the agency’s own response to the problem, including the Bureau’s participation in the Department of Justice’s Mortgage Fraud Working Group, through which the agency says it is helping to identify large-scale real estate industry insiders and criminal enterprises conducting systemic real estate fraud

The purpose of the The 2007 Mortgage Fraud Report is to provide insight into the breadth and depth of real estate and mortgage fraud crimes in the United States. The report updates the 2006 Mortgage Fraud Report and addresses current fraud projections, issues, and hot spots (as noted above). The objective of the report, according to the FBI, is to provide FBI program managers with relative data to justify real estate and mortgage fraud investigative and preventive resources and for investigators to identify real estate and mortgage fraud activity.

The Mortgage Bankers Association (MBA) yesterday announced that the Mortgage Asset Research Institute (MARI) has completed its 10th Periodic Mortgage Fraud Case Report to MBA. The report examines the current state of residential mortgage fraud and misrepresentation in the U.S. based on participating subscribers’ reports to MARI.

The report, which sites Florida as topping the MARI Fraud Index list for the second consecutive year and Nevada climbing to the No. 2 ranking, was released during MBA’s annual National Fraud Issues Conference in Chicago.

Clearly, the current market conditions, compounded by mortgage fraud, are having a detrimental impact on our entire national economy. The MARI report provides critical insight for those in the real estate finance industry to better understand the factors contributing to these circumstances so that our communities are better protected.

According to the Mortgage Fraud Case Report, “The conditions in the mortgage industry for the last half of 2007 made the year one for the record books.” Overall, 2007 marked the lowest volume of mortgage loan originations since 2002, the highest number of delinquencies and foreclosures, rapid and near complete shutdown of the non-conforming secondary market and hundreds of announced closures of mortgage originators.

Highlights in the Mortgage Fraud Case Report include:

• In addition to Florida and Nevada, the remainder of this year’s top ten (in order): Michigan, California, Utah, Georgia, Virginia, Illinois, New York and Minnesota
• Colorado showed the greatest improvement from prior years’ rankings, dropping out of the top ten for the first time in five years
• The most common types of fraud found in 2007 originations continue to be in the areas of employment history and claimed income
• The continuing unsettled state of the mortgage market as a whole does not bode well for any improvement in avoiding fraud in the coming year

The complete Mortgage Fraud Case Report is available both on the MBA Website, and MARI’s Web site.

Ex-Utah mayoral candidate charged with real estate fraud: The Utah Attorney General’s Office charged a former Eagle Mountain mayoral candidate with fraud on Wednesday. Richard Culbertson, 55, and his wife Kathleen Culbertson, 51, were charged in a mortgage fraud case in which they allegedly used their daughter and son-in-law’s names to buy a home. According to the Attorney General’s Office, the Culbertsons used someone else’s names to obtain multiple home loans and also inflated their income on applications by more than $10,000 per month. One loan was earmarked for remodeling and landscaping work, but the $59,324 was pocketed by Richard Culbertson instead.

Squatters, scams plague foreclosures: Call them signs of a tattered economy – indicators that something’s amiss including in the San Fernando Valley: squatters inhabiting foreclosed homes, a record number of cars being repossessed, a growing number of family heirlooms being left behind at local pawn shops. With more than 80,000 foreclosures in California during the last quarter of 2007 setting a state record – up 115 percent over the previous year – property owners have struggled to keep squatters and thieves off their vacant properties.

Sacramento realty fraud unit’s funds decline; complaints rise: The funding for real estate fraud investigations and prosecutions has dwindled to the lowest level since 2001 in Sacramento County, even as the two detectives who investigate the crimes say they’re fielding a mounting number of complaints. In real estate fraud units, investigators’ and prosecutors’ salaries are funded with $2 fees paid each time certain deeds are filed in the county recorder’s office. The real estate downturn corresponds with a nose dive in the recording fees. In fiscal 2001, the county collected $460,000 in such fees, but is now on track to collect only about $400,000 by the time this fiscal year ends in June.

Pennsylvania official pushes mortgage reforms: The state’s top banking regulator is pushing a slate of reform measures to end predatory lending, staunch mortgage fraud and foreclosures across the state. “We’re hoping the (reform) package will be completed and become law sometime this year,” said Steven Kaplan, secretary of banking. “Pennsylvania consumers need more protection from mortgage fraud.” Mortgage fraud in the Pittsburgh area was highlighted a month ago when 24 people were charged with operating lending scams by the U.S. Attorney General’s office here. It is conducting more than 50 mortgage-fraud examinations as part of its newly formed Western Pennsylvania Mortgage Fraud Task Force.

New York politicians offer a good first step: It’s too soon to declare New York’s subprime mortgage crisis over and done with – an estimated 28,000 New Yorkers statewide remain at risk of losing their homes to foreclosure – but Gov. Spitzer and Attorney General Andrew Cuomo this week announced reforms that will make it much harder to repeat the abuses of recent years. At the root of the mortgage crisis was the tendency of bankers, brokers, appraisers and other real estate professionals to bend lending rules and home price estimates to the breaking point in order to book loans and walk off with lucrative fees. In many cases, people without sufficient income to repay a loan ended up with mortgages – only to fall behind on payments and lose their homes.

Indictment names four Texans in mortgage fraud case: A federal grand jury in Houston has indicted four people in connection with a $15 million mortgage fraud scheme carried out over four years, the U.S. Attorney’s Office said Wednesday. According to the indictment, Carlos Paul Gonzalez and Ken Russell Browder, who ran Advantage C&R Funding Group and First Advantage Funding Group, would find people with good credit to pose as home buyers and apply for mortgages. Though the borrowers didn’t qualify for the loans and didn’t plan to live in the homes, the applications were doctored to gain approval from lenders, the indictment alleges. The homes were spread throughout the Houston area, according to the indictment.

Real Estate and Mortgage fraud is funding crime in the United Kingdom: The UK’s Association of Chief Police Officers (ACPO) says property sales are also being used launder money made from drugs, trafficking and prostitution. Average UK mortgage fraud losses are £700m a year and the figure is growing. False valuations and bogus applications were among the methods used, said the intelligence report being sent to the financial industry and police forces.

Michigan AG’s ties to mortgage firms may explain inaction on foreclosures: Evidence is surfacing that home loan institutions have, based on demographic studies, steered minority homeowners into high-risk subprime mortgages. That opens the door to possible prosecution of civil rights violations in addition to the abuse of fair lending laws. With calls increasing for state attorney generals to sue guilty lenders, Michigan Attorney General Mike Cox may be compromised. His list of campaign contributors includes a number of mortgage interests.

25 Indicted in Chicago mortgage fraud scheme: Federal authorities have charged 25 people in what is considered one of the largest mortgage fraud schemes in Chicago area history. Following a four-year investigation, the FBI and U.S. Attorney’s office alleged in three indictments that more than 150 homes were involved in fraudulent mortgage transactions worth $25 million.

Colorado real estate agents get lesson in fraud: Summit County, Colorado, real estate agents got a lesson in identity theft prevention this week at a workshop detailing a nationwide problem quickly seeping into the industry. Janet Elkins, a fraud specialist at Alpine Bank, gave a quick tutorial on how individuals can prevent against identity theft, as well as how business can make smarter choices to prevent thieves from getting their foot in the door.

Ogden, Utah, businessman charged with real-estate fraud: The Utah Attorney General’s Office has filed criminal charges against an Ogden businessman accused of bilking hundreds of investors out of more than $140 million. Val Edmund Southwick, 62, was charged in Salt Lake City’s 3rd District Court today with nine counts of securities fraud, a second-degree felony. Prosecutors accuse him of bilking 817 investors out of millions in a commercial real-estate investment scheme. The federal Securities and Exchange Commission filed a separate civil action against Southwick over his Ogden-based business, VesCor Capital, which it alleges was a “massive Ponzi scheme.”

State cracks down on mortgage brokers: Colorado regulators Friday announced their first actions against mortgage brokers under a new set of state laws aimed at curbing unscrupulous lending practices. In one case, the state’s Division of Real Estate issued a cease-and-desist order against Cade Emerson Lee, who it accused of acting as an unregistered mortgage broker in Colorado despite having been convicted of felony securities fraud.

Mortgage fraud spiraling out of control in London, England: “Endemic” mortgage fraud on new homes has triggered a wave of repossessions and forced a widespread crackdown by regulatory authorities. Initiatives to address lenders’ concerns that residential mortgage fraud is on the rise are either under way or will be launched by the Council of Mortgage Lenders, Financial Services Authority–the City watchdog–the Royal Institution of Chartered Surveyors and police forces around the country.

Michigan tax accountant sentenced in $21 million mortgage fraud case: A Dearborn Heights, Michigan, tax accountant, convicted of stealing $21 million in a mortgage fraud scheme, was sentenced in federal court Thursday to five years in prison. U.S. District Judge David Lawson sentenced tax accountant Kalil Khalil, 36, to 60 months in prison for wire fraud based on a two-and-a-half-year scheme to defraud mortgage lenders.

Kingpin of $30M mortgage fraud scam in Canada jailed: The kingpin of a $30-million mortgage fraud believed to be the largest in Alberta (Canada) history was sentenced Thursday to six years in prison. Gohar (Carmen) Ahmed Pervez, 45, pleaded guilty to 54 counts of fraud that netted him more than $1.8 million in profit in less than five years. He received two-for-one credit for the two years he has served in the remand centre and is now slated to spend two more years behind bars.

Texas couple indicted for $3 million real estate fraud: A Navarro County, Texas, grand jury handed down indictments against three individuals Thursday, in connection with what prosecutors are calling “an organized mortgage fraud scheme.” Lynn Marriott, 54, and Kandace Y. Marriott, 51, both of Gun Barrel City, along with Karen Hayes, 56, of Kemp, were indicted for the first degree felony. Cpl. Mark Nanny of the Corsicana Police Department uncovered the operation, subsequently bringing in the Housing and Urban Development department (HUD) to the investigation. The defendants were doing business as One Way Home & Land, dealing with manufactured housing. Prosecutors allege the company falsified residential loan applications in order to assure the buyers’ loans were approved by mortgage lenders.

Imagine buying your dream home. Your credit is a bit shaky but you manage to secure a subprime loan with an adjustable rate mortgage. A few years later, interest rates jump and you can no longer afford to pay your mortgage. You see an advertisement in a local newspaper for a business that’s willing to help–the ad states they can pay your mortgage for a modest monthly fee while you take the necessary time to get back on your feet. But here’s the bad part: It’s a scam. The company just takes your money and runs!

This is just one of the real estate and mortgage fraud-related schemes the FBI is concerned about, and according to senior criminal investigators at the Bureau, the problem is only going to worsen over the next 18 months. These scams–which I write about in my latest book, Foreclosure Self-Defense For Dummies–include plenty of shenanigans with mortgages and subprime loans and are costing this great nation of ours tens of billions of dollars a year, if not more.

“Greed is definitely not good for our economy right now,” says Ken Kaiser, the FBI’s top criminal investigative executive. “It’s hurting homeowners. It’s hurting honest businesses. And it’s hurting investors and markets around the world.”

With those thoughts in mind, the FBI says it is now squarely focused on proactive initiatives designed to crack down on the largest of these financial crimes, and is even shifting resources as trends emerge, all the while working hand-in-hand with a host of government and private sector partners.

In particular:

• As we wrote last week, the FBI is now investigating 14 corporations involved in subprime lending as part of its “Subprime Mortgage Industry Fraud Initiative” launched last year. The companies being investigated come from across the financial services and real estate industry, from mortgage lenders to investment banks that bundle loans into securities sold to investors.
• The Bureau now has more than 1,200 open real estate and mortgage fraud cases (that’s up about 40% from last year), mostly involving fraud for profit, where straw buyers and real estate industry insiders rig schemes to buy properties that are illegally flipped or allowed to go into foreclosure.

The FBI also says suspicious activity reports–for potential real estate and mortgage fraud–have increased from 3,000 in 2003 to 48,000 in fiscal year 2007, and are projected to reach more than 60,000 such reports in 2008.

Finally, the FBI’s latest “hotspot list” for real estate and mortgage fraud includes: California, Texas, Arizona, Florida, Ohio, Michigan, and Utah (Utah is new to the list); and, on a somewhat surprising note, the Bureau now says it sees no links whatsoever to organized crime syndicates, street gangs, or terrorist groups in its real estate and mortgage fraud case portfolio.

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

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

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

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

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

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

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

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

• Nightmare on Highbury Court: A dispute over bricks led to bankruptcy, eviction, jail and fractured lives; first of two parts. Life was good for Roland and Marie Dreilich in the summer of 1999. In their mid-30s at the time, they’d already purchased two homes, taking advantage of the booming real estate market of the 1990s to acquire equity and move up the housing ladder.
• Real estate lawyers asleep at the fee switch: Most puzzlingly of all, is the fact that real estate fraud is actually less prevalent today, than it was when Bill 152 was a glint in the McGinty government’s eyes. Over the past two years, lawyers and title insurers have put into place far more stringent controls and fraud has declined accordingly.
• Mortgage meltdown linked to fraud: The desire to make a “quick buck,” along with extremely lax lending practices, are considered to be among the chief reasons for the recent decline in the nationwide mortgage and housing markets, according to a Utah title company executive.
• Grandview man gets one year for mortgage fraud: The second of three defendants in the mortgage fraud scheme involving former Kansas City Councilwoman Saundra McFadden-Weaver was sentenced Thursday to one year in federal prison. Ricky Hamilton, 53, of Grandview, also was ordered by U.S. Chief District Judge Fernando Gaitan of the Western District of Missouri to pay $144,234 in restitution.
• Stock Market & Stocks: Fraud a Major Concern as Economy Worsens: The people who pay the price for Wall Street abuse need to know what to do if they have been victims of Wall Street or mortgage fraud and abuse, what to do to protect themselves so they can live now, sustain and grow for a secure future, and other steps they can take to best prepare for what we believe is the inevitable recession.
• FBI Launches Mortgage Fraud Task Force in the Nation’s Capital: The FBI is launching a mortgage fraud task force in its Washington field office, joining a widening net of state and local investigators digging into the market crisis. Investigators are seeking to uncover evidence of overvalued home appraisals, shoddy lending practices and alleged irregularities in the packaging and sale of groups of loans that were marketed to ordinary investors, state investment funds and big Wall Street banks.
• Foreclosure Fraud: Freddie Mac Warns Borrowers with Video Dramatization on ‘YouTube’: Can a custom made video posted to YouTube keep troubled borrowers from losing their homes to fraud artists? Freddie Mac aims to find out. One of the nation’s largest investors in residential mortgages, Freddie Mac decided to produce an Internet video dramatizing a common foreclosure fraud scheme after a new survey found one in four delinquent borrowers go to the Internet before their bank or lender for information about avoiding foreclosure. Freddie Mac’s anti-fraud video can be found at http://www.youtube.com/AvoidFraud.
• Six face federal indictments in Provo, Utah mortgage fraud scheme: Six people have been indicted on federal charges for an alleged mortgage fraud scheme that inflated the value of high-end homes in an affluent Provo neighborhood. Prosecutors say the six formed a network of mortgage brokers, investors, real estate agents, appraisers, straw buyers and escrow agents to fraudulently obtain loans secured with property worth less than the loans.
• In Modesto (Calif.), Fraud Destroyed The American Dream For Many: The terms of the loans may have been unusual. But for many of the immigrants who signed up for them, they were simply a way to afford the $300,000 and $400,000 new homes along streets with names like Rancho Encantado and a litany of saints.
• Lousy credit? Buy somebody else’s: The Bush administration came up with one fix for some sub-prime borrowers who are in trouble. A San Diego company offers another: Buy a better credit score. With one or more of the “seasoned primary accounts” that TradeLine Solutions Inc. began selling this week, the company’s website says, you can “dramatically increase your credit score” for as little as $1,199.

Thirty miles south of Salt Lake City, in the town Eagle Mountain, Utah, Richard Culbertson, whose real estate license was recently revoked over allegations of Real Estate Fraud, is still running for mayor. From Caleb Warnock at the Provo, Utah-based Daily Herald:

E.M. candidate charged with fraud

Casting himself as the hero in a vast conspiracy, Eagle Mountain mayoral candidate Richard Culbertson insisted during a candidate debate on Wednesday that despite state investigators charging him with real estate fraud, voters must choose him to protect them from land speculators.

Earlier in the day, the Utah Department of Commerce, Division of Real Estate issued a news release saying that Culbertson’s real estate license had been revoked by the state’s Real Estate Commission on Wednesday “over loan fraud.”

“Culbertson forged signatures, falsified loan papers and used a straw buyer in equity skimming scheme,” said state officials in a media statement. “According to the Division of Real Estate’s investigation, Culbertson admitted to using a ‘straw buyer‘ (i.e., using a false identity or the identity of another person) to purchase a home for his personal residence. He also admitted using a straw buyer to purchase other properties at artificially inflated values in order to obtain money in excess of the sales price and acquire cash at closing for his personal benefit.”

Speaking at the candidates’ debate at Eagle Mountain City Hall on Wednesday night, Culbertson put a different spin on the state’s action.

“When I determined that I would run for mayor of Eagle Mountain several months ago, it was because I felt that my hometown had fallen into the hands of land speculators who were systematically taking away the unique features that made us want to make Eagle Mountain our hometown,” Culbertson said, reading his statement to the crowd before the debate. “We would hold developers to their promises and prevent land speculators from reaping huge windfall profits by getting the City Council to remove established use restrictions. From the moment we took that position, a massive effort was undertaken to destroy our credibility with the voters by operatives of the land speculators.

“I have had my life investigated back to my birth with the intent to destroy me and those I’ve campaigned with. Anyone who thinks these recent events are not politically motivated is unaware of the history of this town. There are forces here that rival the politics of Chicago and New York City.”

Culbertson went on to say he believed his real estate transactions were “completely legal and ethical at the time. Though I fully believe the origin of this investigation was politically motivated, I have cooperated fully with the investigators and provided them with complete information.”

“In this process,” he continued, “it became evident to me that unless I alone took full responsibility for whatever had occurred, innocent people would be drawn into the investigation, being possibly charged with a crime and harmed for something that was completely innocent. I have alone accepted responsibility in order to protect the people I deeply care about and willingly accept the consequences, whatever that may be. The question now is, what will the citizens of Eagle Mountain do at the ballot box.”

Later in the debate, Culbertson said he had asked state investigators not to release their findings because news of their findings would damage his campaign. He said he believed that investigators had agreed to his request and was saddened that the state had allowed the fraud charges to come to light.

The Division of Real Estate said they had referred Culbertson’s case to federal and state authorities for review. Culbertson said he had not been contacted by the county attorney’s office or by federal authorities, but believed he was now the subject of a county attorney investigation. Daily Herald calls to the county attorney’s office were not immediately returned. Melodie Rydalch of the U.S. Attorney’s Office said she believed any investigation would be handled by the county attorneys.

According to state officials, “in at least one transaction, Culbertson diverted proceeds from the purchase of the property to a Limited Liability Company (LLC) to conceal the true terms of the transaction from the lender. As part of this fraudulent equity skimming scheme, Culbertson falsified loan documents, including forging signatures and providing false income information.”

Just hours before the debate, Culbertson was ordered to pay the Division of Real Estate a $40,000 administrative fine. The Real Estate Commission is a five-member licensing panel of real estate industry professionals.

“The Division’s investigation of Mr. Culbertson has uncovered numerous individuals involved in the same scam and the Division is moving forward to take action in those cases,” said Derek B. Miller, Director of the Division of Real Estate, in a statement to media. “According to the Division of Real Estate’s investigation, Culbertson’s actions are part of a larger loan fraud ring within Eagle Mountain and surrounding Utah County areas, involving real estate agents, mortgage lenders, appraisers and members of the general public.”

Eagle Mountain officials declined to comment on the alleged loan fraud ring. City spokeswoman Linda Peterson released a statement saying the city had only learned of the investigation from the state’s news release.

“The Utah Division of Real Estate has told us that to the best of their knowledge no Eagle Mountain city employees are subjects of this ongoing investigation,” said Peterson. “As we have no jurisdiction in this matter, we are unable to comment any further.”

In an e-mail to the Daily Herald before Wednesday night’s debate, Eagle Mountain Councilwoman Heather Jackson, who is opposing Culbertson for the mayoral seat, said “this is a very trying time for Richard and his family. I am sorry that our wonderful community of Eagle Mountain is once again drawn into the public eye for less than favorable reasons.”

But in the debate Jackson was a bit more pointed.

“I have said since the beginning of my campaign that I have nothing to hide,” she said. “I will stand as a beacon of honesty and integrity and do my best to stay out of the press in any negative way.”

When asked during the debate how he would improve the city’s image in the media, Culbertson said he would “promote the good things” of Eagle Mountain and develop a relationship with the media. “I never said I was a knight in shining armor,” he continued. “Ninety percent of people base their life on rumor and innuendo and other people’s opinions. If you are, please change.”

If the Utah Division of Real Estate’s allegations are to be believed–and I have no reason whatsoever to doubt them–and Richard Culbertson truly believed that using a straw buyer and enabling artificially inflated prices was within the lines, then there’s no better poster child for the renewed call for mandatory fraud education for Realtors than Richard Culbertson himself.

A Salt Lake City, Utah, man has been sentenced to serve nearly three years in federal prison for his role in a scheme that defrauded GreenPoint Mortgage Funding and Wachovia Mortgage Corp. out of millions of dollars. In sentencing 42-year-old Rob Ellertson, U.S. District Judge Dee Benson also ordered the former real estate industry insider to pay $2,759,573 in restitution to the mortgage and title insurance companies he defrauded.

Ellertson, who pleaded guilty in March of this year to two counts of wire fraud, admitted that from May of 2002 to September of 2003, he aided and assisted co-defendant Corey Nance with a scheme to obtain money and property from mortgage companies and lending institutions by means of false and fraudulent pretenses, representations, and promises. Judge Benson will sentence Nance, who also pleaded guilty to two counts of wire fraud, in mid-November.

According to the plea agreement reached with Ellertson, Nance purchased empty lots in Salt Lake and Summit counties in the name of one of his businesses. He then recruited straw buyers to act as borrowers on loan applications and supporting documents submitted by Nance to Ellertson. Nance paid the straw buyers a fee for the use of their names and financial information, while Ellertson, through his company, Equity, brokered the loan packages with GreenPoint and Wachovia, knowing all along that the transactions were fraudulent.

Nance, the plea agreement states, altered and falsified the loan and supporting documents. For example, Nance prepared and completed all loan applications on behalf of the straw borrowers. He misrepresented the straw borrowers’ income and represented that the straw borrower intended to occupy the property as his or her primary residence when he knew full well there was no residence on the property to occupy. Nance, or a licensed appraiser acting in concert with him (it’s not clear who), prepared and completed appraisal reports that significantly overstated the fair market value of the property. Other misrepresentations contained in appraisal reports included overstated comparable properties, fictitious floor plans, and fictitious photographs of a residence on one of the properties.

According to Ellertson’s plea agreement, Nance provided the loan and supporting documents to Ellertson. With the full knowledge of the numerous false and misleading representations, Ellertson then submitted each loan package to either Wachovia or GreenPoint. Relying on the false and fraudulent information, the Wachovia and GreenPoint approved loans for the straw borrowers, were then forwarded from the straw borrowers to Nance for his personal use.