IRS FOCUSING ON 6,000 COMPANIES AT RANDOM OVER NEXT THREE YEARS FOR PROPER PAYMENT OF EMPLOYMENT TAXES
FACTS
Approximately 200 to 300 specially trained IRS examiners will conduct the audits. It is expected to be a comprehensive audit meaning time consuming. They will look at employment tax records and tax returns. The returns to be focused on are for calendar years 2007 and 2008.
Importantly enough the IRS will focus on worker classification. Did you pay the person as an independent contractor when in realty under the 20-point test of the IRS, the person is really an employee? If so, expect to pay the taxes that were not deducted unless you have proof the person paid them. The signing of an independent contractor agreement does not make the person an independent contractor. The IRS looks to the 20-element test to determine W-2 vs. 1099 status. (msktaxalert33010)
MORAL
If the IRS is coming in for an audit do not do it yourself. Use competent tax counsel or your CPA.
PHOENIX WOMAN SENTENCED TO TWO YEARS IN FEDERAL PRISON FOR MORTGAGE FRAUD
FACTS
On May 10, 2010, April J. Lucero of Phoenix was sentenced to two years in prison for her conviction in a mortgage fraud scheme in her hometown. Lucero pleaded guilty to one count of conspiracy to commit mail, wire and bank fraud, a felony, related to her participation in a two-year conspiracy involving the purchase of 37 properties using fraudulent loan documents. Seven other co-conspirators were also charged and have pleaded guilty for their involvement in the conspiracy.
The case against Lucero was based on an investigation by the FBI, which indicated that from 2005 through March 2007 she conspired to commit mortgage fraud in Phoenix. Lucero fraudulently submitted mortgage loan applications, on behalf of straw buyers, under false pretenses, obtaining and disbursing the proceeds of fraudulently obtained loans, including directing portions of the proceeds in the amount of $735,000 to a bank account in Lucero's control. Lucero used her skill as a loan officer to prepare the mortgage loan applications for a borrower misrepresenting salary, assets and liabilities. Lucero used the proceeds from the fraud for personal expenses. Lucero received a lesser sentence due to her early guilty plea and cooperation. The entire conspiracy resulted in a loss to lending institutions of approximately $9.5 million. (usattyaz51110)
MORAL
She cooperated and still wound up in prison for two years. Like I have said before the federal prison system does not have any parole.
FIVE CALIFORNIA DEFENDANTS CHANGED THEIR NAMES TO CONCEAL SCHEME THEY MADE FALSE STATEMENTS TO FINANCIAL INSTITUTIONS
FACTS
On May 7, 2010 a federal grand jury returned an indictment charging Jake Weather, Glenn Watkins, Kevin Watkins, Frederick Davis and Paul Yearby Jr, with 11 counts of mail fraud relating to their alleged operation of a mortgage fraud scheme that involved the defendants changing their names to Muslim names in order to obtain new credit and to conceal poor credit histories and other liabilities in their birth names.
The indictment alleges that Glenn Watkins legally changed his name to "Rasheed Khaleb" to fraudulently purchase two homes. Once those homes fell into foreclosure, he legally changed his name to "Jason Johnson." Likewise, the indictment alleges that Kevin Watkins changed his name to "Jamal Ali" then to "Calvin Carter." Their uncle, Frederick Davis, allegedly changed his name to "Ammar Rashad," to purchase a home, and then to "Corey Green" once that home fell into foreclosure. Paul Yearby Jr. legally changed his name to "Malcom Ali" in order to execute the fraud scheme.
According to the indictment, Jake Weathers, an unlicensed mortgage broker operating as "Weathers & Associates," devised the scheme to defraud in order to obtain loan brokerage commissions and other cash payments from sellers made outside of escrow (i.e., they were not disclosed to the title company or to lenders). Weathers also is charged with knowingly providing to lenders false documents such as W-2 tax forms, wage earning statements, bank statements, and other documents, to support loan applications that stated borrowers earned significant income through employment with a company owned by Weathers, "C Auto Brokers." Losses are estimated at over $1 million.
In a separate case, the grand jury returned a four-count indictment charging Nathaniel Blanton with making false statements to financial institutions in connection with four mortgage loan applications on two residential properties in Roseville and Lincoln. The indictment alleges that Blanton submitted loan applications that falsely inflated his income and cash assets by tens of thousands of dollars.
These cases are the product of extensive investigations by the Federal Bureau of Investigation and the IRS-Criminal Investigation. The investigations are ongoing.
In the Weathers case, the maximum statutory penalty for each count of conspiracy to commit mail fraud and mail fraud is 20 years in prison, a $250,000 fine, and three years of supervised release. In the Blanton case, the maximum penalty for each false statement count is 30 years in prison, a $1 million fine, and three years of supervised release. (usattyedca5710)
MORAL
I keep repeating myself. See your attorney now before the FBI sees you later. If you were involved in creative mortgage loans they will find the loans. Notice the highlight on "after an extensive investigation" and "the investigation is still ongoing."
SAN DIEGO MAN CONVICTED OF 160 COUNTS OF MORTGAGE FRAUD
FACTS
On March 25, 2010, William Hutchings of San Diego was convicted by a jury of 160 felony counts of conspiracy, rent-skimming, grand theft and failing to follow state mortgage laws. Hutchings faces about 49 years in prison.
He was accused of tricking hundreds of desperate homeowners facing foreclosure into signing over their deeds was convicted of real estate fraud after jurors heard from dozens of witnesses who lost their homes.
Hutchings told property owners they could escape foreclosure through a couple of unheard-of maneuvers. More than 400 homeowners fell victim to the scam, he said.
Many of the scam victims were Latinos recruited by people working with Hutchings. Five of the people working with Hutchings have pleaded guilty. Four others are scheduled to go on trial May 18, 2010.
At the meetings, Hutchings would give his pitch in English, and it would be translated into Spanish. Notaries were present to make the proceedings look official, the prosecutor said. FBI agents and investigators from the District Attorney's Office serving arrest warrants interrupted one meeting.
Hutchings told people they could escape foreclosure in one of two ways, He told some that by filing a federal "land grant" or "land patent" they could transfer the property to the federal government, continue living there, and then get it back when creditors were frustrated by being unable to foreclose. He charged them $10,000 for the process. Such land grants have not existed since the end of the Mexican-American War in 1848. The second method involved people signing over deeds to their homes to companies he controlled, then pay rent to him to continue living there. Neither method prevented foreclosure, and by the time of trial, the majority of victims had lost their homes, Robinson said. In some cases, Hutchings persuaded his victims to pull out of short sales or stop loan modification procedures, according to witnesses at the trial.
Hutchings represented himself after firing his lawyer halfway through the trial. Robinson said Hutchings argued to jurors that his program would have worked had it been allowed to continue. He is scheduled to be sentenced on May 21, 2010.(sduntrib32510)
MORAL
Overall 10 people are indicted and scheduled for trial, convicted or pleaded guilty. Hutchings is looking at a lot of time in a federal prison.
CONNECTICUT MAN INDICTED FOR MORTGAGE FRAUD
FACTS
On May 14, 2010 a federal grand jury indictment was unsealed charging Syed A. Babar, also known as "Ali," 28, with one count of conspiracy to commit wire fraud and two counts of wire fraud. The charges stem from a mortgage fraud conspiracy that Babar is alleged to have headed.
The indictment alleges that, between February 2007 and April 2010, Babar, along with a mortgage broker, a real estate appraiser, two attorneys, and others, engaged in a scheme to obtain millions of dollars in residential real estate loans, including loans insured by the Federal Housing Administration, through the use of sham sales contracts, false loan applications and fraudulent property appraisals.
The indictment alleges that Babar recruited and paid straw purchasers to nominally purchase homes. Babar and his co-conspirators then directed the straw purchasers to enter into sales contracts with the sellers of homes for a price higher than the actual price that the seller would receive. Members of the conspiracy submitted false documentation in connection with loan applications, including fraudulent appraisals. The indictment further alleges that Babar and others created a fictitious construction company called "Sheda Telle Construction LLC," in order to divert fraud proceeds to it and, in some cases, to falsely justify the artificially inflated sales price of houses based on renovations purportedly made to the property that did not occur. Contrary to the representations made on the loan applications, it is alleged that the straw purchases never occupied the houses as their primary residences. They defaulted on the loans they obtained and let the houses go into foreclosure. According to statements made in court, it is alleged that Babar and his co-conspirators conducted this scheme on more than 25 properties. It is alleged that various lenders suffered a loss of at least $2.5 million.
United States Magistrate Judge Donna F. Martinez in Hartford ordered Babar detained while the case is pending. The charges of conspiracy to commit wire fraud and wire fraud carry a maximum term of imprisonment of 20 years on each count. (usattct51410)
MORAL
With a mortgage broker, an appraiser and two attorneys involved, I would imagine the investigation is ongoing. Interestingly enough note how the indictment alleges that checking the box "primary residence" and not occupying the property is a federal felony.
FOUR MORE IN FLORIDA ARRESTED FOR MORTGAGE FRAUD
FACTS
On May 10, 2010 a superseding indictment was unsealed charging defendants Anson Joachin a/k/a A. J. Alexandre, John Fisher, Tracey Balli and Delano McLennon for their participation in a multi-million-dollar mortgage fraud scheme. The case is before U.S. District Court Judge Ursula Ungaro in Miami. Defendant Anson Joachin was arrested on Friday, May 7, 2010, in Atlanta, where he made his initial appearance and was ordered detained pending his removal to the Southern District of Florida.
All the defendants are charged with conspiracy to commit mail fraud and wire fraud, in violation of Title 18, United States Code, Section 1349. Defendants Anson Joachin and Tracey Balli are charged with four counts of substantive mail fraud and four counts of substantive wire fraud, in violation of Title 18, United States Code, Sections 1341 and 1343. Defendant John Fisher is charged with two counts of substantive mail fraud and two counts of substantive wire fraud. Defendant Delano McLennon is charged with two counts of substantive mail fraud and two counts of substantive wire. In addition, defendants Tracey Balli and Delano McLennon are charged with one count of making a false statement to a government agency, in violation of Title 18, United States Code, Section 1001. If convicted of the conspiracy count, the substantive mail fraud counts and the substantive wire fraud counts, the defendants face a maximum statutory penalty of 20 years' imprisonment on each count. The false statement count carries a maximum penalty of five years' imprisonment.
According to the superseding indictment, the defendants engaged in a scheme by fraudulently causing real property to be bought and sold through straw buyers who obtained high value mortgages based upon fraudulent mortgage loan applications. Defendant Anson Joachin orchestrated the scheme, in which defendant John Fisher, a licensed mortgage broker, and Tracey Balli, a loan processor, participated. Defendant Balli recruited straw buyers, including Delano McLennon, to join the scheme.
In the indictment it is alleged all of the defendants submitted and caused to be submitted fraudulent documents to various mortgage lenders. Based on these false documents, the mortgage lenders issued approximately $2,300,000 in loans to the defendants and their co-conspirators. (usattysdfl5110)
MORAL
Have you noticed how much attention Florida has been getting lately? Personally I could do without all this dubious attention. Remember, they are all innocent until proven guilty in a court of law.
FORMER GEORGIA MORTGAGE BROKER GETS 25 YEARS IN FEDERAL PRISON FOR MORTGAGE FRAUD
FACTS
On May 4, 2010, Edward William Farley of Hoschton, Ga., was sentenced to serve 25 years in federal prison on charges of bank fraud and conspiracy involving mortgage fraud, a real estate investment Ponzi scheme with over 100 victims, a check-kiting scheme, and bankruptcy fraud. Walter Julius Herman of Dunwoody, Ga., was also sentenced to serve over two years in federal prison on charge of bank fraud involving real estate appraisals he submitted in the Farley mortgage fraud scheme. Losses on the mortgage loans were estimated at $23 million.
The mortgage fraud scheme run by Farley relied on others to pull off the scam, but he relied on the complete and ill-placed trust of the victims in an aggressive real estate Ponzi scheme offering investors high rates of returns.
Farley was sentenced to 25 years in prison to be followed by five years of supervised release, and ordered to pay restitution of $24,131,857. Farley pleaded guilty to these charges on Nov. 5, 2009.
Hermann was sentenced to two years and nine months in prison to be followed by five years of supervised release, and ordered to pay restitution of $2,023,077. Hermann was also prohibited from requesting reinstatement of his appraiser's license during his prison sentence or during his supervised release. Hermann pleaded guilty to this charge on Dec. 16, 2009.
Farley, a former mortgage broker, defrauded mortgage lenders through same day flips of properties.
Farley paid appraiser Hermann to fraudulently inflate the value of each property by $50,000 to $100,000, and recruited often unqualified investor/borrowers to purchase them from one of his companies. False income, employment, bank deposits, bank statements, W2's and/or leases often supported the loan applications of these investor/borrowers. However, as is common with flips, Farley did not purchase the properties he was selling to the investors/borrowers until after the fraudulently obtained loan proceeds on the second subsequent purchase had been disbursed. During the first purchase, he purchased the properties for up to $100,000 less than the amount of the inflated mortgage loans he had arranged for the investor/borrowers in the "second" purchase. As a result of the defendant's lies and manipulations, the lenders lost millions of dollars in this flip scheme.
In a separate real estate investment/Ponzi scheme, Farley operated under the name "Alliance Resource Management" in Lawrenceville, Ga., to conceal his new source of income from prior victims. He falsely represented that ARM was in the business of purchasing primarily residential properties which were being renovated and sold at a profit, when in reality ARM had insufficient equity and income to do so. Real estate investors and lenders, including private investors, corporate lenders, and banks were induced to participate through Farley's false promises that their investments and loans were fully secured by a first security position in property, plus a personal guarantee, and sometimes title insurance. Farley also provided promissory notes falsely promising those ARM lenders an interest rate between 14% to 60%. The same property was used to fully secure multiple investors and lenders, causing losses in excess of $20 million.
Farley also fraudulently obtained $1.2 million from Washington Mutual Bank in a check kiting scheme by transferring funds he did not have among several ARM bank accounts, and withdrawing scheme proceeds before the "insufficient funds" checks were returned. He then used $400,000 in investor funds solicited for property refinance loans to address his check-kiting problem. The evidence also showed that Farley diverted assets of ARM to himself after a bankruptcy petition was filed, and concealed that diversion from the United States Bankruptcy Court and ARM creditors.
A co-defendant related to Farley's Ponzi scheme, Trent Edward Wright, was a real estate closing attorney used by Farley in his scheme to issue title policies without paying off prior security holders. Wright pleaded guilty to mail fraud on Dec. 17, 2009, and was sentenced on March 12, 2010, by Judge Batten to serve one year and nine months in prison, to be followed by three years supervised release, and ordered to pay restitution of $2,409,760. (usattyndga5410)
MORAL
Farley was a "busy little beaver, wasn't he?" Now he is busy for the next 25-years.
MARYLAND CONTROLS FEES OF MORTGAGE BROKERS
FACTS
Effective Oct. 1, 2010 Maryland enacts House Bill 1254 which amends the charges mortgage brokers are authorized to impose upon a borrower. (alrgs42010)
MORAL
If you are licensed in Maryland I would be absolutely certain you track the date because on Oct. 1, 2010 you could be in deep trouble as a mortgage broker if you overcharge under the new law.
NEVADA DIVISION OF MORTGAGE LENDING OFFERS SETTLEMENT TO FIRST OPTION MORTGAGE FOR USING UNLICENSED MORTGAGE AGENTS
FACTS
First Option Mortgage is a Georgia Limited Liability Company registered with the Nevada Secretary of State. It has an active license as a Nevada Mortgage Broker. The MLD alleges that First Option Mortgage employed or otherwise used the services of Adan Xavier Saldana as a mortgage agent while Saldena was not licensed by MLD and was not exempt from licensing. MLD also alleges it had received information from a former employee of First Option that First Option was employing individuals as "trainees" who were in fact holding themselves out, and conducting activities as mortgage agents. The MLD determined that First Option did employ three trainees as mortgage agents without these three being licensed or exempt from licensing as mortgage agents. Upon further investigation MLD alleges it found yet a fourth person acting as a mortgage agent when the fourth person was not licensed by MLD.
The stipulation seeks an admission by First Option that the allegations of using four people as mortgage agents without them being licensed are true. The MLD offered to settle the matter for $30,000 as an administrative fine. First Option has taken corrective action and if it signs the stipulation admitting to the allegations, $15,000 of the fine shall be suspended for 24 months from the date of execution of the agreement as long as First Option full complies with all MLD laws and regulations governing mortgage brokers (NRS 645B and NAC 645B) and there is no repeat of the violation of the same nature during the next two examinations by MLD. The initial $15,000 is to be paid on the signing of the agreement. In addition First Option is to pay $1,680 for its costs of investigation and $142.55 for attorney fees. (posted mld office May 2010)
MORAL
It is not known if First Option has agreed to the settlement at this time or intends to go to hearing. But it is a warning to all licensees to not use unlicensed people for mortgage loans unless they want to pay administrative fines like those set out above. These are just allegations and must be proven unless First Option elects to sign the offered stipulation admitting the allegations in the stipulation.
MLD OFFERS SETTLEMENT TO JAMES B. NUTTER & CO. FOR MAKING LOANS ON NEVADA PROPERTIES BEFORE IT WAS LICENSED AS A NEVADA MORTGAGE BANKER
FACTS
James B. Nutter & Co. is a Missouri corporation and is active in Nevada. Nutter was not issued a mortgage banker license until May 27, 2010 as alleged by the MLD. Until January 26, 2010 Nutter had only one office in Nevada licensed by MLD to conduct Nevada mortgage banker activity. On January 26, 2010 Nutter was issued a license to conduct mortgage banker activity form its office located in Kansas City, Mo. Unless exempt and a certificate of exemption has been issued by the State of Nevada, all mortgage bankers must be licensed to lend money using Nevada Real Property as security for the loan.
MLD alleges that Nutter conducted mortgage banker activities involving five loans on properties in Nevada out of its' Missouri office prior to the Missouri office being licensed by the MLD on Jan. 26, 2010. MLD proposes an administrative fine of $10,000 for the five violations as alleged by MLD to be paid upon signing of the agreement. (posted MLD May 2010)
MORAL
Do not lend money from unlicensed locations or you may find the fine is more than the profit from the loan. These are just allegations and must be proven unless Nutter elects to sign the offered stipulation admitting the allegations in the stipulation.
THE INFORMATION CONTAINED HEREIN IS NOT LEGAL ADVICE.
AN ATTORNEY SHOULD BE CONSULTED IF YOU DESIRE LEGAL ADVICE
