An indictment unsealed last week by the Department of Justice charged four individuals for devising and executing a loan origination and kickback scheme that totaled $11 million.
Mary Armstrong, an unlicensed mortgage broker, Teresa Rose, a real estate agent, William Fountain, Armstrong’s assistant, and Justin Mensen were all charged with conspiracy to commit wire fraud and to launder money.
According to the indictment, the defendants carried recruited investors for their scheme through advertisements in the Los Angeles Times and other online websites encouraging them to purchase homes in Ramona, Calif. and surrounding communities.
The advertisements offered investors who had good credit the opportunity to buy homes with no money down. As part of the scam, investors were told the defendants would make the mortgage payments for these homes using income they generated by renting and managing the properties.
In reality, these “investors” were really straw buyers who were promised $10,000 for each property they purchased, the indictment said.
The defendants were able to obtain mortgages with 100% financing for the properties by falsifying loan applications on behalf of the straw buyers.
For example, the bogus loan applications falsely inflated the straw buyers’ incomes from fake employers and used fraudulent companies to verify the information on these documents. Furthermore, the defendants included phony W-2’s and pay stubs to support the inaccurate income claims.
Most of the profits the scammers made from this scheme resulted from convincing the sellers to inflate the purchase price of the properties by approximately $100,000, which was supposed to be used for home repairs. However, the indictment said no improvements were ever made to any of the purchased assets.
Instead, the indictment said the funds were diverted to bank accounts controlled by the defendants. Additionally, the individuals allowed nearly all of the properties to fall into foreclosure because they made a few, if any, of the mortgage payments.
The defendants acquired at least 16 properties in California and Washington state as part of this scheme. In total, they secured over $11 million in mortgage loans, skimmed over $1.5 million in bogus construction kickbacks and earned hundreds of thousands of dollars in additional proceeds through commissions and fees listed as part of the closing costs for each transaction.
As a result of the foreclosures and defaults caused by the defendants’ failures to make the mortgage payments they promised, the defrauded lenders suffered losses of approximately $5 million. Fannie Mae was one victim that purchased five of these fraudulently obtained mortgages on the secondary market that eventually defaulted, causing the enterprise to take a loss.
