Compliance and Fraud

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Beazer Homes USA Inc., Atlanta, has agreed to pay the United States $5 million, plus contingent payments of up to $48 million to be shared with victimized private homeowners, to resolve allegations that it and Beazer Mortgage Corp. were involved in fraudulent mortgage origination activities in connection with federally insured mortgages. The settlement resolves the following allegations: that, when Beazer Mortgage Corp. made Federal Housing Administration-insured mortgage loans for homes built by Beazer Homes, the companies fraudulently and improperly required purchasers to pay interest discount points at closing but then kept the cash and failed to reduce interest rates; that it provided cash gifts to home purchasers through certain charities so purchasers could come up with minimum required down payments, with assurances the gifts would not have to be repaid, and then increased home purchase prices to offset the amount of the gifts; that it obscured which of its branches made defaulting loans to avoid FHA detection of excessive default rates; and that it ignored stated income requirements in making loans to unqualified purchasers. Beazer Homes operates in at least 21 states.

After pleading guilty to wire fraud and money laundering charges in September 2008 in connection to organizing a large mortgage fraud scheme, Ronald Luczak of Cape Coral, Fla., has been sentenced to 22 years in federal prison and ordered to pay $5.9 million in restitution to his victims. According to court documents, between September 2005 and December 2006, Luczak and his company obtained more than $30 million worth of mortgages on at least 37 Cape Coral properties. His company recruited 33 straw buyers and reported on the mortgage applications that the straw buyers were purchasing the properties and falsely inflated the properties' values, fraudulently reported the purported buyers' incomes and occupations, provided false schedules of real estate and assets supposedly owned by the buyers and falsely stated that the buyers intended to use the properties for their primary residences. Luczak and the company received more than $5.8 million from the scheme. Luczak's wife, Lisa Luczak and Sandra Mainardi, a New Jersey loan processor, previously were sentenced to 46 months each for their part in the scheme.

Six people have been charged in three separate, unrelated mortgage fraud cases in New Jersey, including two women accused of spearheading a conspiracy to use stolen identities to obtain more than $1 million in unauthorized mortgages, lines of credit and credit cards. State prosecutors indicted Yi Feng Reid, Yu Jane Chen, George Liu and Ji Gang Chen, accusing them of scheming to use the identities of other people to obtain mortgages and other types of loans. In another unrelated indictment, commercial loan broker Ramon Coscolluela was charged with allegedly falsifying five loan applications submitted to Commerce Bank in 2007 and 2008 on behalf of clients who allegedly paid him fees ranging from $1,000 to $6,000. In a third mortgage fraud indictment, Terrance Givens was charged with allegedly lying about his income and employment history on a mortgage application in 2005. The six defendants were unavailable for comment.

Pennsylvania Governor Edward G. Rendell signed a pair of bills to combat mortgage fraud by strengthening communication between homeowners and their lenders and encouraging employees at mortgage companies to report illegal activity. "These bills will provide increased protection for Pennsylvania consumers shopping for a mortgage or refinancing their homes," said Governor Rendell. "They represent a critical step forward in our strategy to combat mortgage lending fraud and abuse in Pennsylvania." The first law, Senate Bill 170, will prohibit a mortgage broker or originator from being the sole recipient of communications from lenders. This will help ensure that consumers receive monthly statements and other notices intended for them by their lenders. The second measure, House Bill 985, will shield mortgage company employees who report illegal activity or take part in an investigation from retaliation through reduced salaries, termination or other actions taken by their employer. Both bills take effect in 60 days.

Alshawntus Beck of Plainfield, Ill., Michelle Parker, Steven Corbett, Kevin Keller, Jimmie D. Johnson and Otis Robinson III, all of Chicago, were charged with allegedly engaging in a $3 million mortgage fraud scheme in the Chicago area. According to Patrick J. Fitzgerald, U.S. attorney for the Northern District of Illinois, the indictment alleges that between February and December 2006, Mr. Beck operated three companies that purported to be in the business of buying, repairing and reselling real estate. Through his companies and with the alleged help of the other defendants, Mr. Beck allegedly purchased several Chicago properties through fraudulent means, including recruiting straw buyers, submitting loan applications and documents with false and fraudulent information and creating false real estate appraisals. The indictment seeks forfeiture of $3 million from the defendants. Arrest warrants were issued for all six defendants, who were unavailable for comment. They will be ordered to appear for arraignment at a later date.

The U.S. Supreme Court has ruled state attorney generals have the right to bring judicial enforcement actions against nationally chartered banks. However, the court also ruled, in the case Cuomo v. Clearing House, that they do not have the right to issue subpoenas for information. The case began when then-New York Attorney General Eliot Spitzer asked a number of national banks to provide nonpublic information about their lending practices as it applied to fair lending laws. The case was pursued by his successor, former Housing and Urban Development secretary Andrew Cuomo. The Office of the Comptroller of the Currency opposed the move, along with the Clearing House Association. The ruling overturns in part two lower court decisions in favor of OCC. In a statement, the Council of State Bank Supervisors said "Statements that state enforcement is an inconsistent 'patchwork quilt' are unfounded and were effectively deemed unconvincing by the Court's decision today. State law enforcement authorities work in concert with officials from other agencies and states to bring enforcement actions that protect consumers." John Cooney, a partner at the law firm Venable LLC and former assistant solicitor general, said "The decision means that national banks will be subject to a greater risk of investigations and enforcement actions by State Attorneys General, unless they can persuade Congress to overturn the decision and grant the OCC express authority to preempt the states from applying their own fair lending and consumer protection statutes to national banks."

An Ohio man has been charged with mail fraud in connection with a scheme to fraudulently obtain mortgage loans. According to William J. Edwards, U.S. attorney for the Northern District of Ohio, from August 2003 through January 2005, Paul R. Tomko of Middleburg Heights, among others, allegedly executed a scheme to defraud lenders in connection with 12 mortgage loans totaling nearly $1.2 million on properties located in the Cleveland area. Mr. Tomko, who could not be reached for comment, also allegedly caused fraudulent loan applications to be processed through mortgage brokers. He's also alleged to have used straw buyers to purchase properties and to obtain financing in their names and cause fraudulent appraisals to be prepared that artificially inflated the properties' true values. The loan application packages that were submitted to the lenders allegedly included false and fraudulent documentation and information. It is further alleged that the lenders sustained significant losses as these mortgage loans went into default and the properties were sold through foreclosure.

Forty-one defendants, including LaSalle Title Co., are facing federal charges relating to various mortgage fraud schemes in five separate cases in Chicago. In some of the schemes, the defendants face charges that they allegedly falsely inflated the values of dilapidated homes in urban areas. In other schemes, defendants are charged with deals involving million-dollar condominiums in a Chicago high-rise and homes in affluent suburbs. According to Patrick J. Fitzgerald, U.S. attorney for the Northern District of Illinois, 37 individuals and four businesses, including LaSalle, which closed on allegedly fraudulent loans, are facing charges relating to five mortgage fraud cases involving more than $48 million in fraudulently obtained mortgages in the Chicago area, including two in the suburbs of Wheaton and Glenview. The various lending companies suffered millions of dollars in losses after the loans went into default and the properties were foreclosed upon. No one from LaSalle could be reached for comment.

A former National Football League and University of Georgia football player has been charged with fraud and money laundering in connection with his real estate ventures. According to Edmund A. Booth, Jr., U.S. attorney for the Southern District of Georgia, Arthur James Marshall, Jr., has been charged with eight counts of defrauding three banks in obtaining loans for seven different properties in Columbia and Richmond Counties. The indictment also charges Mr. Marshall with two counts of mail fraud for deceiving a mortgage lender and a homebuyer regarding the sale of two different properties. The indictment further charges Marshall with 11 counts of money laundering involving over a million dollars that he obtained from those fraudulent transactions. Mr. Marshall played in the NFL for five years as a wide receiver with the Denver Broncos and New York Giants and played at Georgia from 1988 to 1991. An initial appearance on these charges has not yet been scheduled. Mr. Marshall was unavailable for comment.

Taylor, Bean & Whitaker Mortgage Corp., Ocala, Fla., will pay $9 million to settle a dispute with 13 states and Washington, D.C., over how the wholesale lender handled certain nontraditional mortgages. Taylor, Bean, which is awaiting regulatory approval to buy Colonial BancGroup Inc. in Montgomery, Ala., also agreed to modify loans for certain customers and to hire an independent firm to review nontraditional mortgages originated in 2006 and 2007. The settlement resolves claims that Taylor, Bean altered applicants' incomes and assets to provide nontraditional mortgages. The mortgage lender did not admit wrongdoing as part of the settlement, which was reached with regulators in Arizona, Florida, Georgia, Idaho, Illinois, Louisiana, Maryland, Massachusetts, Mississippi, New Jersey, North Carolina, Pennsylvania, and Vermont.