A former attorney and three mortgage brokers are among a group of South Floridians charged in a $6 million scam that could land them behind bars for up to 20 years.

Jerry Velazquez, 38, of Miramar; Guillermo Moran, 38, of Miami Beach; Carolina Visbal, 32, of Miami Beach; and Rodolfo Landires, 37, of Miami, allegedly submitted fraudulent loan applications and closing documents to purchase several properties, mostly condos, in Miami-Dade County, according to a news release from the U.S. attorney for the Southern District of Florida.

Moran, Landires and Visbal, all mortgage brokers, allegedly recruited straw buyers to purchase the properties at an inflated price.

Velazquez, who was disbarred in 2007, allegedly handled the closings on the fraudulent loans. It is alleged he would, among other things, create two sets of closing documents – one that was given to the seller and reflected the true closing price, and another that was sent to the lender and reflected the inflated sale price.

As a result, lenders issued more than $6 million in mortgage loans.

A former Cape Coral police sergeant has received three years probation in federal count for his participation in a $4.2 million mortgage fraud scheme.

U.S. District Judge John E. Steele sentenced James J. O’Brien, 37, to the probation, plus $468,750 in restitution and 180 days on detention, Monday. O’Brien had pleaded guilty to one count of loan and credit application fraud.

The charge carried a maximum sentence of 30 years in federal prison.

“As for his sentence, we know that he had a severe medical situation, so obviously that was taken into account,” Steve Cole, the spokesman for the U.S. Attorney’s Office, Middle District of Florida, said Tuesday.

Cole would not comment further on the case.

O’Brien participated in the “cash-out” mortgage fraud conspiracy with a group of individuals that included Stephen Petrovich, 35, a former detective with the CCPD and the son of former Cape Coral Police Chief Rob Petrovich. The scheme took place from 2007-08 and involved eight Cape properties.

The group reported “inflated sales prices to lenders and falsified applications for loans based on the higher prices, then pocketed the excess loan proceeds at closing,” according to court documents. O’Brien pocketed about $95,000, which he used to refinance his residence, pay bills and loans, and buy a car.

Attorney Peter D. Aiken, of Fort Myers, represented O’Brien. Aiken was unavailable for comment Tuesday, according to his office staff.

Assistant U.S. Attorney Nicole Waid prosecuted the case.

O’Brien submitted his voluntarily resignation with the CCPD in May. Hired in August 1999, his annual salary was $71,448. Prior to resigning, O’Brien had been on administrative duty pending an outcome in the federal investigation.

O’Brien is the last defendant connected to the case to be sentenced.

Stephen Petrovich of Cape Coral was sentenced July 6 to 24 months for one count of conspiracy to commit bank fraud and wire fraud and 24 months for one count of money laundering by U.S. District Judge Charlene Honeywell. The sentences will run concurrently, according to the U.S. Clerk’s Office.

The charges of one count of conspiracy to commit bank fraud and wire fraud and one count of money laundering carried a maximum sentence of 30 years.

Tyler Forrey, 28, of Cape Coral, was sentenced July 26 on the same two counts. He received 18 months for each count, to be served concurrently. Honeywell handed down the same sentence on the same two counts to Troy Bossert, 32, of San Antonio, Texas, on July 19. They also run concurrently.

On June 21, Honeywell sentenced Steven Reese, 32, of Cape Coral to the same 18 months each for the two counts, to be served concurrently. Ryan O’Brien, 34, also of Cape Coral, received 15 months each for the same two counts on June 28. Again, Ryan O’Brien’s sentences will run concurrently.

By TIFFANY REPECKI

Two Prior Lake men have pleaded guilty in federal court in Minneapolis for their roles in a scheme that defrauded mortgage lenders out of more than $2.5 million by causing them to make loans based on false information. Appearing before United States District Court Judge David S. Doty earlier today, Beau Wesley Gensmer, age 28, pleaded guilty to one count of wire fraud and one count of money laundering in connection to that crime. Christopher Glenn Kennedy, age 31, pleaded guilty to the same charges on August 6, 2010. Gensmer and Kennedy were indicted on April 21, 2010. A third co-defendant pleaded guilty earlier in the case.

In their respective plea agreements, Gensmer and Kennedy admitted that from July of 2007 to September of 2008, they executed the mortgage-fraud scheme. They admitted that in April of 2007, a multi-unit condominium building was built in Prior Lake by a development company owned by one of Gensmer’s relatives. The units were listed for sale but were removed from the market after only a couple of units were successfully sold. Later during the summer of 2007, Gensmer and Kennedy admittedly solicited three individuals to purchase multiple condominium units as “investments.” Gensmer and Kennedy assured the “investors” that they would pay nothing to buy the properties because the down payments and monthly mortgage payments would be provided to them by Gensmer and Kennedy. Moreover, Gensmer and Kennedy admitted they recruited the investors by telling them that the condos would be rented for a time but ultimately sold at a profit, and that the investors would share in that profit.

In order for the investors to qualify for their mortgage loans, Gensmer and Kennedy caused accountants to prepare tax returns that reflected inflated income figures. Those returns and other fraudulent documents were then knowingly submitted to potential mortgage lenders by the defendants. Gensmer and Kennedy also temporarily deposited money into the bank accounts of some of the investors to make it appear to potential lenders that the investors had more cash on hand than they actually did. As a result of those actions, ten mortgage lenders funded the purchase of 18 condominium units by the three investors. Eventually, Gensmer and Kennedy stopped supplying the property purchasers with monthly mortgage payments, causing the loans to go into default and then into foreclosure.

The defendants admitted that due to their actions, mortgage loan lenders wire transferred funds on 15 different occasions. The men also admitted that on two occasions, they used some of those fraudulently obtained funds as down payments to a title company for additional condo purchases, and that the title company was owned in part by individuals with an ownership interest in the entity that originally constructed the condo building.

For their crimes, the defendants face a potential maximum penalty of 20 years in federal prison on the wire fraud charge and 10 years on the money laundering charge. Judge Doty will determine their sentences at a future hearing, yet to be scheduled.

This case is the result of an investigation by the Federal Bureau of Investigation, the Internal Revenue Service–Criminal Investigation Division, and the Prior Lake Police Department. It is being prosecuted by Assistant U.S. Attorneys Tracy L. Perzel and William J. Otteson.

Note, this law enforcement action is in part sponsored by the interagency Financial Fraud Enforcement Task Force. The Task Force was established to wage an aggressive, coordinated, and proactive war on financial crimes. It includes representatives from a broad range of federal agencies, regulatory authorities, inspectors general, and state and local law enforcement who, working together, bring to bear a powerful array of criminal and civil enforcement resources. The Task Force is working to improve efforts across the federal executive branch; and along with state and local partners, its members will investigate and prosecute significant financial crimes, ensure just and effective punishment for those who perpetrate financial crimes, combat discrimination in the lending and financial markets, and recover proceeds for victims of financial crimes.

A Miami federal jury has found Mayelin Salas, 36, Miami Springs, and Lucy Segurola, 51, Miami, guilty in a $21 million mortgage fraud scheme.
The women were among 41 people charged in six separate mortgage fraud cases in July 2009.
According to the evidence presented at trial, Salas was an employee of State Mortgage Lending in Doral, which was owned and operated by Magile Cruz.
Cruz pleaded guilty and was sentenced in January 2009 to more than 10 years in prison.
Cruz’s other companies included Star Lending Mortgage, Sherley Title Services, Doral Title Services, and Professional Title Express, all in Miami-Dade County.
According to evidence presented at trial, Salas participated in a fraud scheme in which they provided false duplicate HUD-Settlement Statement Forms, which inflated the real purchase price of a property that Salas was buying. Salas received $5,000 from Cruz for her participation.
Segurola acted as a straw borrower on at least three loans totaling more than one million dollars and allowed her credit information to be used to apply for the loans, according to evidence presented at trial. Segurola was paid $15,000 for her participation.
The women face up to 20 years in prison along with fines and mandatory restitution. Sentencing has been scheduled for Oct. 22.

The causes of the real estate meltdown and ensuing banking crisis and recession are complex. You can blame Wall Street insiders who bundled toxic subprime loans and sold them to unsuspecting investors. You can blame the rating agencies. You can blame banks for taking on too much risk and failing to keep enough capital for a rainy day. You can blame consumers for taking on too much debt and believing that real estate values only go up. Or we can look locally. A recent federal indictment, with an Oak Park connection, casts light on another reason that big banks needed a federal bailout, and why Fannie and Freddie went bust: fraud.

The indictment alleges that between 2004 and 2008, seven individuals, including Stephen Iwerebon of Oak Park, participated in a $35 million mortgage-fraud scheme involving more than 120 homes, mostly in poor South Side neighborhoods [Oak Park man indicted in $35 million mortgage scheme, News, July 28]. According to the indictment, the defendants provided false loan applications and supporting documents to banks on behalf of purchasers they had recruited. These documents included phony salaries, jobs, rent histories and bank statements. The purchasers did not have to put any of their own dollars down for earnest money, were paid to attend closings and, in some instances, would not even have to make mortgage payments.

Iwerebon ran a real estate development company that allegedly purchased properties, rehabbed them and then resold them to the purchasers who were part of the scheme. Also, he was allegedly involved in the creation of false loan documents. Post-closing, he allegedly paid kickbacks from the sale proceeds to the scheme organizers. Those kickbacks were the grease that made the scheme work. These were not fancy houses. The home sales mentioned in the indictment ranged in sale price from $87,000 to around $250,000. Most eventually ended up in foreclosure.

Let’s look at one property mentioned in the indictment. In September 2005, Iwerebon’s company sold a two-flat at 6004 S. Aberdeen in the Englewood neighborhood of Chicago for $198,162 to a purchaser who was part of the scheme. By 2008, the building was vacant and, according to county records, had a market value of about $114,000.

So who are the victims of this alleged fraud? Clearly the banks. They lent out $35 million. After foreclosure sales, the banks were still out $16 million because the value of these homes had declined by just under 50 percent. But the real victims are the neighbors around these properties, those who now live next to a boarded-up building. Those who want or need to sell their homes, but cannot afford to because their mortgages are underwater. And many of these neighborhoods, such as Englewood, have few resources to pull themselves back from economic ruin.

And this is not an isolated case. The feds have indicted more than 100 individuals in similar schemes in Chicago, totaling in the hundreds of millions of dollars in damages. But the true cost to people in these neighborhoods is unquantifiable. These are just allegations, and the feds will have to prove them in court. But if true, they represent a conscious exploitation of some of the poorest neighborhoods in Chicago, and of the people who live there.

By Jack Crowe

Prosecutors Believe Mortgage Fraud Is Responsible For Many Foreclosures

Many Valley families are losing their homes and their good credit scores as victims of mortgage fraud.

A CBS 5 News investigation reveals banks are doing little to help the victims.

Prosecutors believe mortgage fraud is responsible for a large portion of the foreclosures seen across the Valley. “We’re indicting more people than we ever have in the past,” said U.S. Attorney Dennis Burke, who is in charge of enforcing laws against mortgage-related fraud.

“We’ve indicted 50 people since March,” added Burke.

Sean Miller lost all of his savings — trying to save his home — and with a foreclosure on his record, his credit is shot. Burke’s office indicted the man who sold Miller his home, but Miller said the banks gave him no sympathy as a crime victim.

“I tried working with hem, but they would just not hear it,” said Miller.

Marge Peck, Miller’s realtor, tried to short-sell the house but said the bank refused to cooperate - even turning down good offers. “”Sean should not have a foreclosure, a foreclosure on a fraudulent loan. How does that happen?” asked Peck.

Miller’s home was supposed to be an investment, sold to him by a so-called friend. But the sale price was inflated by about $75,000. The scheme involved the seller, loan officer, and appraiser conspiring to make money, according to Burke’s office.

“Everybody involved in this knew there had been fraud and they didn’t care,” Peck said about the banks.

The indictment against the people involved in Miller’s case shows a total of 36-properties that were sold at inflated prices, in some cases to unsuspecting buyers.

Burke said he believes the banks should give some leeway to victims of mortgage fraud - to keep them from being victimized again.

“I think there needs to be protections for those folks, and I think that’s what the banks need to be doing,” Burke said. “There are some very sympathetic victims here, but there are also folks who were part of the scams and there were people who should have known better,” he added.

Miller cooperated with investigators, helping to catch the suspects, and held onto his house for years - before finally losing it. “I tried for almost five years to hang onto it,” he said.

“Potentially, people can go to jail for this crime, serve their sentence, get out…and still the victims have no credit,” Miller said.

SOUTH BEND — Tracy Gardner noticed something wrong when a March 2009 mortgage escrow account statement said the balance was $0 — $2,200 less than what should have been in the account.

She began calling Chicago-based American Escrow to see if the company had paid the homeowner’s insurance.

“I called every day and got the runaround,” Gardner, an Osceola resident, said Thursday. “They were like, ‘Oh, it’s in the queue. It’s in the queue and it’s going to go out’ and it never went out.”

That’s how Gardner and her husband, James, found out they were victims of fraud.

The Gardners used the Chicago-based company, which filed for bankruptcy last year, to handle the payment of their insurance bills and taxes.

But the company was apparently collecting money and not paying clients’ bills.

American Escrow filed for bankruptcy, and its former chief financial officer is now serving time in federal prison for wire fraud, according to Indiana Attorney General Greg Zoeller.

Zoeller was in South Bend Thursday with local victims of American Escrow to highlight the state’s efforts to attain restitution for the 97 victims who came forward across Indiana.

Because of the company’s bankruptcy, there were no assets to collect for victims, Zoeller said.

So the Indiana General Assembly set aside $150,000 for a restitution fund.
Now, after months of borrowing and shuffling their money around, the Gardners have been fully repaid.

“This is a rare day when we have 100 percent restitution,” Zoeller said.

A rarer day perhaps than Zoeller had realized.

Ruth and Dick Hesser of Mishawaka spoke up at the news conference to say they haven’t been as lucky as other Hoosier victims.

The Hessers have received only half of their money back.

The Hessers are still working with Zoeller’s office to receive the other half of their restitution, and they now manage their own “escrow,” putting money aside to pay their own bills.

“It gives us more peace of mind,” Ruth Hesser said. “It does upset you. It just makes us more leery. Here’s somebody we thought was good but wasn’t. It takes the confident feel away.”

Like the Hessers, Zoeller said he was working to prevent a recurrence of the problem.

“The second thing (the law passed by the legislature) did was to require licensing and registration for everybody involved in escrowing of funds,” he said.

“We’re going to try to put together a restitution fund particularly for people who are willing to step up, file a complaint and work with my office as witnesses,” Zoeller said. “The people who are victims, if they’re willing to work with us, can quit being victims and they can be advocates for justice.

“It serves at least a lesson to be careful whenever you’re putting money into a private company to make sure there’s a bond available. That bond ends up being your insurance policy.”

By Stephanie Kuzydym:

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

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

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

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

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

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

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

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

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

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

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

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

By Carri Geer Thevenot

California Woman, Florida Man Indicted

KANSAS CITY, MO—Beth Phillips, United States Attorney for the Western District of Missouri, announced that a California woman and a Florida man were indicted by a federal grand jury today for their roles in a credit history fraud that allegedly contributed to a nearly $3 million mortgage fraud scheme in Lee’s Summit, Missouri.

“Credit history fraud is a new and troubling criminal scheme,” Phillips said. “By supplying false credit information, they artificially boost credit scores and create a fraudulent credit history that enables their customers to commit financial fraud. Today’s indictment marks the first time this district has charged a credit history fraud case, and signals our determination to prevent such schemes from proliferating.”

Karen Washam-Hawkins, 48, of Carson, California, and Gerald William Bartlett, 38, of Tampa, Florida, were charged in a six-count indictment returned by a federal grand jury in Kansas City, Missouri.

Washam-Hawkins, a real estate agent, allegedly obtained and sold false Social Security numbers to enable individuals to create false credit histories in order to deceive lenders and obtain loans. Bartlett, through his Tampa businesses, provided fraudulent account and payment information to a credit bureau to falsely enhance the creditworthiness of individuals in order for those individuals to deceive lenders and obtain loans.

According to today’s indictment, beginning in late 2004 to early 2005 and continuing through Aug. 15, 2006, several customers of Washam-Hawkins and Bartlett benefitted from the credit history fraud scheme in order to fraudulently purchase six properties in Lee’s Summit in a mortgage fraud scheme totaling $2,959,200.

Washam-Hawkins allegedly supplied Shade Jerome Howard of Anaheim,Calif., with false Social Security numbers. Howard then gave Bartlett those false Social Security numbers, along with other identity information, and requested positive credit information for those individuals in order to enhance their creditworthiness. Bartlett, using the names South Florida Management Group and Consumer Financial Group, allegedly reported false account and payment information to a credit bureau.

According to today’s indictment, this scheme allowed Howard, along with Ronald E. Brown, Jr., of Gladstone, Missouri, and Daryle A. Edwards of Overland Park, Kansas, to enhance their creditworthiness in order to deceive lenders and obtain mortgage loans for residential properties in Lee’s Summit. Brown purchased three residential properties totaling $1,339,700. Howard purchased two residential properties totaling $1,201,000. Edwards purchased a residential property for $418,500.

In addition to the conspiracy, today’s indictment charges Washam-Hawkins and Bartlett with three counts of transferring funds obtained by fraud across state lines. Washam-Hawkins is also charged with two counts of wire fraud.

Phillips cautioned that the charges contained in this indictment are simply accusations, and not evidence of guilt. Evidence supporting the charges must be presented to a federal trial jury, whose duty is to determine guilt or innocence.

This case is being prosecuted by Assistant U.S. Attorney Linda Parker Marshall. It was investigated by the Federal Bureau of Investigation.

Defendant Used Stolen Identities for Short Sale “Buyers” When He Sought Forgiveness of $2.2 Million in Loans

ATLANTA, GA—BRENT MERRIELL, 38, of Atlanta, Georgia, was sentenced today by United States District Judge Jack T. Camp to federal prison on charges of making false statements to the Federal Deposit Insurance Corporation (FDIC) and aggravated identity theft.

“The FDIC serves a critical role by insuring the assets of hard-working Americans. Mr. Merriell used stolen identities, created fictitious buyers, and negotiated phony short sale deals for properties, all in an effort to defraud FDIC of millions of dollars he owed on mortgages,” said United States Attorney Sally Quillian Yates. “This double fraud has landed him in federal prison.”

MERRIELL was sentenced to three years and three months in prison to be followed by five years of supervised release. MERRIELL was convicted of these charges on March 23, 2010, upon his plea of guilty.

According to United States Attorney Yates, the charges and other information presented in court: MERRIELL obtained millions of dollars in loans from Omni National Bank as mortgages on numerous properties. Omni later failed and was taken over by the FDIC. Beginning in October 2009, MERRIELL faced foreclosure on 14 different properties subject to Omni mortgages. In response, MERRIELL asked the FDIC to forgive $2.2 million in loan payments and instead allow him to “short sell” the properties to seven new purchasers at significantly reduced amounts. The seven new purchasers, however, were phony: the seven names MERRIEL presented to the FDIC were, in fact, stolen identities whose names were forged on sales contracts and counterfeit loan commitment letters. Under this scheme, if law enforcement had not intervened, Merriell would have retained control of the properties, and could then rent them for amounts in excess of the substantially reduced mortgage payment, or resell them at a profit.

A “short sale” occurs when a lender such as Omni Bank agrees to the sale of property—on which the current owner has defaulted—to a third party for less than the full amount due on the loan. Lenders are willing to accept “short sales” as a means of mitigating their losses on troubled loans. The MERRIELL “short sale” fraud was discovered through a sting operation conducted by the Special Inspector General for the Troubled Asset Relief Program (SIGTARP) with the assistance of the FDIC.

Other Omni-related prosecutions to date include:

JEFFREY L. LEVINE, 68, of Atlanta, Georgia, who pleaded guilty on January 14, 2010, to causing materially false entries that overvalued bank assets to be made in the books, reports, and statements of Omni, is scheduled to be sentenced on September 14, 2010, at 2:00 p.m., before United States District Judge Jack T. Camp.

DELROY OLIVER DAVY, 37, of Lithonia, Georgia, who pleaded guilty on May 11, 2010, to bank fraud and conspiracy to commit bank fraud, mail and wire fraud in connection with a scheme to fraudulently obtain millions of dollars of mortgage loans from Omni and other lenders, is scheduled to be sentenced on September 14, 2010, before United States District Judge Jack T. Camp.

CHRISTOPHER BERNARD LOVING, 32, of McDonough, Georgia, who pleaded guilty on June 24, 2010, to making false statements to agents of the Office of the Special Inspector General for the Troubled Asset Relief Program and the FDIC in connection with an investigation regarding Omni construction contracts, is scheduled to be sentenced on August 24, 2010, before United States District Judge Jack T. Camp.

MARK ANTHONY MCBRIDE, 44, of East Point Georgia, was sentenced on April 1, 2010, to over 16 years in prison for obtaining fraudulent loans from many lenders, including Omni.

This investigation is part of President Barack Obama’s Financial Fraud Enforcement Task Force. President Obama established the interagency Financial Fraud Enforcement Task Force to wage an aggressive, coordinated, and proactive effort to investigate and prosecute financial crimes. The task force includes representatives from a broad range of federal agencies, regulatory authorities, inspectors general, and state and local law enforcement who, working together, bring to bear a powerful array of criminal and civil enforcement resources. The task force is working to improve efforts across the federal executive branch, and with state and local partners, to investigate and prosecute significant financial crimes, ensure just and effective punishment for those who perpetrate financial crimes, combat discrimination in the lending and financial markets, and recover proceeds for victims of financial crimes.

This case was investigated by special agents of a mortgage fraud task force formed for Omni-related cases, made up of the Special Inspector General for the Troubled Asset Relief Program (SIGTARP), Housing and Urban Development Office of Inspector General (HUD-OIG), the United States Postal Inspection Service, the Federal Deposit Insurance Corporation Office of Inspector General (FDIC-OIG), and the Federal Bureau of Investigation. The task force is continuing to investigate a number of Omni-related matters.

Assistant United States Attorneys Gale McKenzie and Christopher Bly prosecuted the case.

For further information please contact Sally Q. Yates, United States Attorney, or John Horn, First Assistant United States Attorney, through Linda Isaac, U.S. Attorney’s Office, at (404) 581-6056. The Internet address for the HomePage for the U.S. Attorney’s Office for the Northern District of Georgia is www.justice.gov/usao/gan.

BALTIMORE—A federal grand jury has indicted Winnie Joanne Barefoot, a/k/a Winnie Jo Budzina, a/k/a Winnie JoAnne Conn, a/k/a Joanne Knopsnyder, a/k/a Olivia JoAnne Morgan, a/k/a Olivia JoAnne Barefoot Morgan, age 55, of Annapolis, Maryland, for bank, wire and mail fraud; Social Security fraud; and making false statements to the Social Security Administration. The indictment was returned on July 30, 2010 and unsealed the next day upon Barefoot’s arrest. Barefoot has a detention hearing tomorrow, August 3, 2010 at 10:30 a.m.

The indictment was announced by United States Attorney for the District of Maryland Rod J. Rosenstein and Special Agent in Charge Richard A. McFeely of the Federal Bureau of Investigation.

According to the seven-count indictment, from December 2005 to August 2009, Barefoot used the identity of Olivia JoAnne Morgan and her daughter to engage in fraudulent real estate and loan transactions, including transactions involving three properties in Annapolis and a business entity she operated.

Specifically, the indictment alleges that Barefoot used a forged power of attorney from her daughter to purchase property at 3528 Narragansett Avenue, Annapolis. Her daughter had not provided any such power of attorney nor had any intention of acquiring the property. Barefoot is alleged to have falsely increased the amount of the deposit to the sellers by $100,000, thus changing the loan-to-value ratio of the transaction; and falsely stated the amount of her daughter’s income and assets. As a result, a mortgage company lent $616,250 for the purchase of the property.

The indictment further alleges that Barefoot used the identity of Olivia JoAnne Morgan and other false information to apply for a mortgage loan to purchase property at 896 Coachway, Annapolis.

In February 2007, Barefoot is alleged to have submitted a fraudulent loan application to a bank to increase an existing home equity credit line from $1.3 million to $2.1 million, secured by property at 1588 Eaton Way in Annapolis where she resided with CWH from 2002 to 2009. Barefoot is alleged to have falsely represented in the loan application that she and her “husband” CWH each had monthly income of $25,000; that her net worth was over $10 million; and used a false social security number.

Barefoot is alleged to have submitted fraudulent applications for a $250,000 line of credit loan and a $120,000 commercial loan to operate Maryland Hyperbarics, LLC, a hyperbaric clinic. On one application in February 2007, she is alleged to have falsely represented that her income and the combined assets for herself and CWH was over $12 million; that the value of the Eaton Way property was $4 million and that it was unencumbered; and used a false Social Security number. In the other application she falsely represented that her monthly income was $30,861, her personal net worth was approximately $1.2 million and that she had not filed bankruptcy in the past 10 years, although in fact she filed bankruptcy in 1999. Barefoot secured the $250,000 line of credit using a forged indemnity deed of trust on the Eaton Way property that was purportedly signed by CWH.

Finally, the indictment alleges that on June 3, 2003 Barefoot applied to the Social Security Administration (SSA) for SSI benefits, claiming that she was disabled beginning in 1997 due to back problems. The indictment alleges that she falsely: denied ever having been accused or convicted of a felony, when in fact she was arrested in 1980 and convicted of federal and state felony offenses; and represented that she had no resources nor received any type of income. Barefoot was ultimately approved for SSI disability benefits in April 2007, and received more than $26,000 in benefits to which she was not entitled. In December 2008, Barefoot falsely represented to SSA representatives investigating her eligibility for benefit payments that she lived alone and that “Olivia Joanne Morgan” was her sister, who was married to CWH, and that they were getting a divorce so CWH spent a lot of time at her house on 896 Coachway, Annapolis.

As a result of the fraud schemes, the indictment seeks forfeiture of $4,061,000.

Barefoot faces a maximum sentence of 30 years in prison and a $1 million fine on each of three counts of bank fraud; 20 years in prison and a $250,000 fine on each of two counts of wire fraud; and five years in prison and a $250,000 fine for Social Security fraud and making false statements.

An indictment is not a finding of guilt. An individual charged by indictment is presumed innocent unless and until proven guilty at some later criminal proceedings.

United States Attorney Rod J. Rosenstein thanked Assistant United States Attorney P. Michael Cunningham, who is prosecuting the case.

MANHATTAN SUPREME COURT — Four individuals who were part of “one of the largest and most complex” mortgage fraud cases in the country were convicted on various charges related to a massive real estate scheme, the Manhattan DA said Friday.

The four guilty defendants used a Long Island-based mortgage company to convince banks to front them massive loans so they could purchase distressed properties, but instead they pocketed most of the money, according to prosecutors.

Aaron Hand, 38, Eric Shields, 45, Kenneth Law, 54 and Jerry Strklja, 35, were convicted on Friday after a month-long trial.

They were charged with stealing $100 million from banks and for defrauding home sellers, including some in Manhattan, prosecutors said.

“These defendants built a corrupt enterprise — complete with corrupt lawyers, bankers, appraisers, straw buyers and others — to control every aspect of the residential lending process,” District Attorney Cy Vance Jr. said in a statement.

They all face up to 50 years in prison when they’re sentenced in September.

Ten others who were indicted as part of the fraud pleaded guilty earlier this month.

By Shayna Jacobs

A Livingston County businesswoman and her employee are two of the 10 people charged Thursday for defrauding Michigan families out of thousands of dollars in a foreclosure-rescue scam.

Michelle Rene Garbuschewski, who also uses the name Michelle Justice and owns Howell’s Elite Mortgage Relief, is facing two counts of obtaining at least $1,000 but less than $20,000 under false pretenses while employee Lisa Marie Joboulian of Northville is charged with one count of the same offense, according to Livingston County District Court records.

In all, Attorney General Mike Cox’s office authorized 19 criminal complaints — a total of 69 charges — against 10 people and nine Michigan mortgage companies for allegedly illegally charging homeowners facing foreclosure upfront fees for mortgage-modification assistance, or “foreclosure-rescue” promises, which is a violation of the Credit Services Protection Act.

Joy Yearout, a spokeswoman with the attorney general’s office, said none of the companies were coordinated, but were each separately operating similar scams.

The investigation against Elite Mortgage Relief began in May 2009, when the attorney general’s office received two complaints against the company and the women.

Yearout said the defendants claimed they would help two homeowners by working with their lenders in an attempt to modify the borrower’s mortgage. However, Garbuschewski and Joboulian are accused of pocketing the $8,000 fee they charged but not following through on their promises, Yearout said.

While many of the victims lost their homes to foreclosure, the two victims in the Livingston County cases did not, Yearout noted.

“These companies took advantage of struggling Michigan families trying to hold onto the American dream,” Cox said.

Cox urged any consumers who paid fees to the companies and individuals charged by his office, or any other mortgage-modification company, for services that were not provided to file a consumer complaint online with the attorney general’s Consumer Protection Division at www.michigan.gov/ag or call (877) 765-8388.

Michigan Attorney General Mike Cox today announced the filing of 19 criminal complaints containing 69 charges against illegal advanced fee “foreclosure rescue” operations accused of defrauding Michigan families of thousands of dollars. Several of those complaints involve Wayne and Oakland county businesses and residents caught in the statewide sting.

The complaints accuse nine Michigan mortgage companies of illegally charging homeowners facing foreclosure upfront fees for mortgage modification assistance. After paying the upfront fee, borrowers found that the companies made no real attempt to secure a modification and were subsequently unable to get their money back. Many victims lost their homes to foreclosure.

The charges include multiple counts of felony and misdemeanor false pretenses and violations of the Michigan Credit Services Protection Act. “False pretenses” is the crime of obtaining money or property through knowingly making false statements intended to deceive the victims into delivering title to property.

“These companies took advantage of struggling Michigan families trying to hold onto the American dream,” said Cox.

Wayne County complaints involve Livonia resident Guy Humeniuk, Livonia-based Modification Company (aka The Modification Center in Livonia) and Westland-based Federal Modification.

Oakland County complaints involve West Bloomfield residents Steven Barry Ruza (aka Steven Barry) and Kevin Nafso, Commerce Township-based Global Loan Modification, Southfield-based Flagstone Partners Inc. and Legal Researchers, Highland resident Chris Martin, and Highland-based Home Rescue Corporation.

In 2008, Cox created a mortgage fraud unit, teaming with the Michigan State Police and other law enforcement agencies to tackle consumers’ complaints. His office has charged 46 people or companies with a mortgage fraud-related offense in the last 23 months.

David B. Fein, United States Attorney for the District of Connecticut, today announced that a federal grand jury sitting in New Haven has returned an 11-count indictment charging STEVEN J. KOTTAGE, 44, and GENARO R. HATHAWAY, 46, both of Weston, and MARY ELLEN DURSO, 53, of Milford, with conspiracy and other offenses stemming from the defendants alleged involvement in mortgage fraud.

The indictment alleges that KOTTAGE and HATHAWAY, who are married, conspired to commit wire fraud relating to a home on Fire Island, New York. HATHAWAY, a former attorney in Connecticut and New York, and KOTTAGE purchased and financed the property in the name of KOTTAGE’s mother by filing false loan applications to Wells Fargo Home Mortgage. In each instance, HATHAWAY served as the closing attorney on behalf of KOTTAGE’s mother and Wells Fargo. The indictment further alleges that HATHAWAY subsequently purchased the property from KOTTAGE’s mother’s estate in his own name and, in so doing, made a materially false loan application to H&R Block Home Mortgage to obtain a separate mortgage. Rather than using the sale proceeds due and owing to KOTTAGE’s mother’s estate to pay off the outstanding loans issued by Wells Fargo, KOTTAGE and HATHAWAY used those proceeds to pay off an obligation arising from a separate real estate transaction in which HATHAWAY served as the closing attorney for the seller. The losses resulting from this alleged conspiracy exceed $500,000.

The indictment further alleges that KOTTAGE, HATHAWAY, and DURSO conspired to commit bank fraud by filing a materially false loan application to Washington Mutual to refinance a condominium in Hillsboro Beach, Florida. DURSO served as the straw owner for the condo in order to obtain the fraudulent loan proceeds for the benefit of KOTTAGE and HATHAWAY.

The indictment also charges HATHAWAY with tax evasion in 2005 and DURSO with filing false tax returns from 2004 to 2008.

The indictment charges KOTTAGE and HATHAWAY with two counts and DURSO with one count of conspiracy, a charge that carries a maximum term of imprisonment of 30 years on each count. The indictment further charges KOTTAGE and HATHAWAY with two counts of wire fraud, a charge that carries a maximum term of imprisonment of 30 years on each count. KOTTAGE, HATHAWAY and DURSO are each charged with one count of bank fraud, which carries a maximum term of imprisonment of 30 years. The one count of tax evasion against HATHAWAY carries a maximum term of imprisonment of five years, and the five counts of filing false tax returns against DURSO carry a maximum term of imprisonment of three years, on each count.

U.S. Attorney Fein stressed that an indictment is not evidence of guilt. Charges are only allegations, and each defendant is presumed innocent unless and until proven guilty beyond a reasonable doubt.

This case is being investigated by the Federal Bureau of Investigation and the Internal Revenue Service – Criminal Investigation. The case is being prosecuted by Assistant United States Attorney David T. Huang.

In July 2009, the U.S. Attorney’s Office and the Federal Bureau of Investigation announced the formation of the Connecticut Mortgage Fraud Task Force to investigate and prosecute mortgage fraud cases and related financial crimes occurring in Connecticut. In addition to investigating past mortgage fraud schemes, the Task Force will focus on emerging crime trends that are associated with the growing tide of foreclosures, including foreclosure rescue schemes, and short sale schemes. Citizens are encouraged to report any suspected mortgage fraud activity by calling 203-333-3512 and requesting the Connecticut Mortgage Fraud Task Force, or by sending an email to ctmortgagefraud@ic.fbi.gov.

The Connecticut Mortgage Fraud Task Force includes representatives from the U.S. Attorney’s Office; Federal Bureau of Investigation; Internal Revenue Service – Criminal Investigation; U.S. Postal Inspection Service; U.S. Department of Housing and Urban Development, Office of Inspector General; Federal Deposit Insurance Corporation, Office of Inspector General, and State of Connecticut Department of Banking.

To report financial fraud crimes, and to learn more about the President’s Financial Fraud Enforcement Task Force, please visit www.stopfraud.gov.

Steve Stoll, a politically connected Republican attorney in Fort Lauderdale arrested last month in a mortgage fraud case, is now under investigation by the Florida Bar.

Florida Bar spokeswoman Karen Kirksey declined to provide specifics except to confirm that Stoll and fellow lawyer Stephen Orchard, also indicted in the fraud case, are under investigation.

In June, a federal indictment detailed how a group of attorneys, police officers and mortgage brokers falsified documents to obtain $16.5 million in loans they used to buy and flip properties.

Stoll’s attorney, Robert Nicholson, who has said his client is innocent, was unaware the Bar was investigating but wasn’t surprised. “The Bar as a matter of course opens an investigation anytime a licensed attorney is charged with a criminal offense.”

Stoll and his wife, Rebecca Stoll, a former North Broward Hospital District commissioner, are familiar names in Broward political circles. They have supported candidates in recent years, including Gov. Charlie Crist in 2006 and in 2009 and Bill McCollum in 2009, and raise money for the Fort Lauderdale Museum of Discovery and Science.

– AMY SHERMAN

Read more: http://www.miamiherald.com/2010/07/25/1745631/gop-lawyer-steve-stoll-under-inquiry.html#ixzz0v2arBQq2

Certain U.S. markets are expected to continue to see incidents of mortgage fraud grow. In fact, LexisNexis Risk Solutions has identified five markets in Florida as being the weakest and most vulnerable to mortgage fraud. Other markets listed as targets for fraud include cities and suburbs in New Jersey, Virginia and Arizona.

Despite continual increases in foreclosure rates, criminals and con artists are taking advantage of these markets’ conditions by focusing on new types of scams like rescue schemes, which often involve the purchase of a home from a lender whose about to go into foreclosure.

In this exclusive interview, Jennifer Butts, an author of the Mortgage Asset Research Institute Annual Case Report on Mortgage Fraud, which is published by LexisNexis’ Mortgage Asset Research Institute, shares insights from her research regarding:

* New fraud schemes hitting the market, as well as traditional schemes that continue to plague lenders;
* The transparency and standardization benefits that collaboration between Fannie Mae and Freddie Mac are expected to bring to lending and appraisal practices;
* How financial institutions can do a better lending job when they identify risks and verify transaction participants.

Butts manages the research, processing and presentation of all data maintained by the Mortgage Asset Research Institute, a group within LexisNexis Risk Solutions that is devoted to the use of information for mortgage fraud detection and prevention. She is an author of the MARI Annual Case Report on Mortgage Fraud, as well as other periodic fraud trend analyses. Butts is a frequent industry speaker and contributor on issues facing the mortgage industry. She has been quoted by industry and mainstream press, such as such as the Associated Press, USA Today, CNN Money, The Washington Post and the Los Angeles Times. She is a member of the Mortgage Bankers Association Fraud and Ethics Committee and the Quality Assurance Subcommittee, for whom she frequently presents mortgage fraud trends.

The United States Attorney’s Office for the Middle District of Pennsylvania announced that an Atlanta, Georgia resident was sentenced to 18 months in federal prison by Senior U.S. District Court Judge William J. Nealon for her role in a Luzerne County mortgage fraud scheme in 2005 and 2006.

According to United States Attorney Peter J. Smith, Nancy Barlet, age 52, previously pleaded guilty to a charge of mail fraud as an aider and abettor. Barlet admitted to providing false employment and income information on mortgage applications for numerous properties in the Wilkes-Barre area in 2005 and 2006. The fraud involved mortgages worth more than $400,000.

Barlet was charged in a criminal information filed by the United States Attorney’s Office in October 2008. The charge resulted from an investigation by the Federal Bureau of Investigation and Wilkes-Barre Police.

Judge Nealon also ordered Barlet to serve three years of supervised release following her prison sentence, and pay a special assessment of $100. The amount of restitution will be determined within 90 days.

U.S. Attorney Smith noted that the case was prosecuted by Assistant U.S. Attorney Francis P. Sempa.

A 44-year-old South Holland man is due in court today after his federal arrest on charges that he led a mortgage fraud ring that bilked lenders out of at least $16 million.

Kenneth Steward was arrested Tuesday by FBI agents and U.S. Postal Service inspectors. Six other people also were accused of being part of the ring, which allegedly affected 120 residential properties, mostly on the South Side.

Steward also faces Cook County mortgage fraud charges that were filed in 2003. Andy Conklin, spokesman for the Cook County state’s attorney, also said Steward was charged in 2009 with aggravated unlawful use of a weapon.

Conklin said Steward’s 2003 charges are the subject of a current bench trial in Cook County.

Federal officials said Steward bought and sold homes from mid-2004 to mid-2008 and hired straw buyers for whom co-defendants would generate false documents to give to lenders. The officials said Steward operated various business, including a property renovation company called Jireh Development.

Steward is scheduled for a hearing at 1 p.m. today before U.S. Magistrate Judge Michael Mason. The six others are to be arraigned Tuesday.

They were identified as: James Wilson, 62, of Chicago; Vanessa Mayes, 41, of Chicago; William Bart Rusk, 52, of Woodridge; Stephen Iwerebon, 45, of Oak Park; Emmit Suddoth, 38, of Chicago, and Lennell Willis, 47, of Frankfort.

BY DAVID ROEDER

Dr. Fred Bloom unwittingly sold this house into what may have been a mortgage-fraud ring.

I may be on the losing end of a $200 million mortgage-fraud scheme.

Earlier this year, my colleagues and I bought a tiny slice of a toxic asset, a bond backed by a bunch of bad mortgages. We’ve been using the asset as a window into the housing boom and bust.

Recently, a group of reporters at the Sarasota Herald-Tribune told us that one of the mortgages in our asset was part of a real-estate scheme being investigated by the FBI.

That told me that, to understand how the scheme worked, I should learn the story of the house on Cove Terrace.

The house is a nice Florida place — red-tile roof, pool, boat dock. In 1999, it was owned by Dr. Fred Bloom, a doctor who unwittingly sold the house into what may have been a mortgage-fraud ring.

Bloom spent a happy decade raising kids here. In 2000, he sold the house for $600,000 — much less than he’d hoped. The buyer was represented by Craig Adams, a real-estate agent known in Sarasota as a guy who could make deals happen.

Two weeks later, Adams re-sold the house for $725,000.

“I was really upset!” Bloom says. He thought his real-estate agent had misled him about the value of the house. But there was more to the picture than he knew.

According to Matthew Doig, an investigative reporter who has written about mortgage fraud for Sarasota Herald-Tribune, this is what happened:

Adams had a group of friends and associates. One would buy a house. Then he’d sell it to another, for a higher price. Then it would get sold again, at a price that was still higher. The sales often wouldn’t get listed publicly and Adams would set the prices.

With each sale, someone would take out a loan that was more than big enough pay off the previous loan. The players would split the remaining cash.

“After Dr Bloom is out of the picture, that house is completely controlled by Craig Adams,” Doig says. “Every time it is, sold Adams is representing both the buyer and seller.”

I called Adams seeking comment, but he didn’t return my calls.

In four years, Bloom’s house had six owners — and the sale price went from $600,000 to more than $2 million.

Dr. Bloom became more and more confused by the escalating price. The house didn’t look better. In fact it looked worse:

“The yard was really in disrepair,” he said. “It looked like it was vacant.”

This kind of scheme is common during housing booms, according to Guy Cecala, of the trade magazine Inside Mortgage Finance. But passing a house back and forth, and taking out ever bigger loans, has to end badly for someone.

By 2007, Bloom’s old house was owned by yet another associate of Craig Adams — a guy who wound up defaulting on more than $2 million in loans. The bank foreclosed on the house.

The banks clearly lost big time. They kept handing out the loans because they were caught up in the bubble too.

At the height of the bubble, a third of the people buying houses were never planning to live there. That doesn’t mean all those loans were all fraudulent.

At the same time, mortgage fraud can be something as simple as saying you’re going to live in a house you never plan to set foot in.

The FBI is looking into more than 3,000 cases of mortgage fraud. And in Sarasota they’re doing it with help of Craig Adams: The Sarasota Herald-Tribune has reported that he’s gone from real estate genius to FBI informant.

By Fred Bloom, Chana Joffe-Walt/NPR