A “builder bailout” real estate scheme where more than 100 condominium units with mortgages that went into default, resulting in foreclosures and millions of dollars in losses, has been stopped by federal authorities.
The scheme, which was operated out of Santa Ana, Calif.-based Excel Investments by six individuals, allegedly identified new condominium developments in California, Florida and Arizona where the builder-owners were struggling to sell units and arranged with the homebuilders to sell the properties in return for large commissions.
Overall, the scam was beneficial for all parties involved, the U.S. attorney’s office said in an indictment. The builders benefitted by making it appear that their condo units were selling and maintaining their value, while those involved with the fraudulent sale of the units were financially incentivized with the commissions that were concealed from lenders as they often misleadingly were referred to as “marketing fees.”
The indictment claims more than 100 transactions were completed. For each transaction, the defendants earned commissions of $50,000 to $100,000.
According to the indictment, the defendants bought units for themselves and relatives on behalf of “investors” with good credit scores who served as straw buyers. The straw buyers were recruited by presenting the scheme as an investment opportunity that required no downpayment and would generate income through rental payments.
To obtain mortgages for the properties, the defendants supposedly prepared loan applications with false information about the buyers’ employment, income and assets. The defendants allegedly submitted altered W-2 forms, paystubs and bank statements to support these false applications.
When many of the loans defaulted and led to foreclosure, the lending institutions suffered losses of at least $6.2 million. Freddie Mac and Fannie Mae purchased dozens of these loans on the secondary market and lost at least $2.37 million due to delinquencies, defaults and foreclosures that resulted from this scam.
So far, five defendants were arrested by federal investigators, including Aref Abaji, a real estate agent; Maher Obagi, the brother of Abaji; escrow agent Jacqueline Burchell; Mohamed Salah; and Mohamed El Tahir. A sixth defendant named in the indictment—mortgage loan officer Wajieh Tbakhi—is still being sought.
All six have been charged with conspiring to commit bank and wire fraud. The conspiracy charge in this indictment carries a statutory maximum sentence of 30 years in prison and a potential $1 million fine. Furthermore, each defendant is facing 20 years in jail and an additional $250,000 fine for the wire fraud charges.