FACTS
Short sale fraud is estimated to rise by 25% in this year of 2011. Unnecessary losses related to risky short sales are approximately $375 million annually according to CoreLogic. Tim Grace, senior vice president at CoreLogic, said it is common for a limited liability company to negotiate a short sale with the bank and have a buyer ready to purchase the same property simultaneously to this closing for approximately 30% more than the rate agreed upon by both the seller and the bank.
CoreLogic estimates that one out of every 52 short sales is suspicious of this type of fraud. The most commons states for this fraud are California, Arizona, Florida and Nevada.
To prevent short sale fraud from occurring, the mortgage holders should review all the necessary documentation to complete a short sale carefully and especially all the disclosures to resell the property at a higher price. The borrower should they are not aware of any other parties or contracts who may be associated with the property to ensure there is not another transaction arranged to take place. Additionally, an affidavit should be obtained from the listing and selling agents and brokers for the agents that they are neither aware of, nor taking part in any potential resale of the property and are not aware of any side agreements to resell the property by the purchaser at the short sale. Have the buyer make a specific representation that the property is intended to be held for a minimum amount of time and/or occupied by the purchaser and there is no intention to sell the property for a minimum time of say at least three to six months. This gives the mortgage holder “ammunition” to sue and possibly file criminal charges for bank fraud.
CoreLogic has a tool called the short sale monitoring solution that helps lenders detect short sale fraudsters before the short sale transaction is approved. The tool provides alerts to lenders if there appears to be a second prospective sale brewing on a property during the short sale process. If it appears there is another sale in the works, this is an indication to a lender that there might be an arranged flip. Participating lenders can receive a notification from CoreLogic if the property was flipped after they short sold the property. If the flip was contrary to any agreements signed during the short sale, the lender may have recourse to sue for breach of contract, fraud, or other causes of action against the selling broker and buyer at the short sale. (nmn62011)
MORAL
Although totally illegal and criminal in California there have been reported cases of collusion among bidders at foreclosure sales not to bid against each other so property has a deliberate deflated price and then rebid among themselves later at a private meeting. Additionally, there have been news reports of bidders being frightened off at foreclosure sales by others to keep the bidding artificially deflated.
TWO MEN FROM ARIZONA PLEAD GUILTY TO MORTGAGE FRAUD
FACTS
On June 14, Anthony Zandonatti and Andrew Silverstein, and both from Tucson, pleaded guilty to four felony charges in Pima County Superior Court to conspiracy, theft, money laundering and illegally conducting an enterprise. They were both accused of running a mortgage-fraud investment scheme that led to $2.9 million in foreclosure losses by lenders and prospective buyers. The plea agreement states the men will pay restitution of no more than $1 million. If one man doesn't pay, the other will be responsible for his share.
Judge Teresa Godoy could place the men on probation or send them to prison for two to 8.75 years. If they are placed on probation and later violate it, they could receive a maximum prison sentence of 25 years. Sentencing will be in early October 2011.
Zandonatti and Silverstein owned and operated AZI Rent2Own LLC, which claimed to specialize in mortgage investment and rent-to-own programs.
Between August 2004 and July 2008 the men recruited investors to purchase homes Silverstein was familiar with through his job as a real estate agent. Silverstein said he used his job to recruit financially unqualified investors to buy the homes, and then lied to lenders about the buyers' income and finances.
In his statement, Zandonatti said he would then act as a residential rental agent offering the property on a rent-to-own basis to prospective buyers. He admitted misrepresenting the terms of rental/purchase agreements to them.
The pair said they would have renters sign a one-year renters agreement and purchase agreement, but not tell them that Zandonatti and Silverstein didn't own the homes. Zandonatti and Silverstein would collect down-payments and rent and pocket the money. They would then flip the homes using straw buyers without telling the straw buyers, and/or investors and/or renters about the other's financial interest in the property, according to the indictment. Most of the 25 homes involved went into foreclosure because of the lack of mortgage payments. About 45 lending institutions and 31 renters were victimized.
Both men were named in a 46-count indictment in October charging them with conspiracy, fraud, theft, money laundering and illegally conducting an enterprise. Former Arizona Attorney General Terry Goddard filed a civil-fraud lawsuit against Silverstein, Zandonatti and several other defendants in July 2009. Silverstein reached a $120,000 settlement with the state in March 2010.
Judge Godoy told the men the restitution they pay will go to individuals, as the financial institutions have already been compensated. (azdlystr61511)
MORAL
Rent to own is a little different than the normal mortgage fraud. But to our Arizona clients, I suggest you check when or if you get loan applications to verify purpose. Remember, the FDIC is and has been for over one year sending letters, subpoenas and filing lawsuits to recover money from wholesale lenders and many brokers.
FEDERAL INVESTIGATORS STILL GOING “HOT AND HEAVY” ON MORTGAGE FRAUD CASES
FACTS
On June 16, a federal grand jury indicted Alonzo Jackson Brown III, a Fairfield, Calif., real estate executive on nine counts of mortgage fraud charges as part of the federal government's wide-ranging investigation into crimes that helped fuel California's mortgage meltdown. The allegations state that Brown took out loans in the names of unwitting friends and used the money to buy homes at inflated prices. His actions allegedly caused banks to lose at least $1.5 million.
Brown pleaded not guilty at his arraignment. Brown is a licensed real estate broker and is the owner of several businesses, including AJB Lex Corp., JB Investments AND AJB Construction.
The indictment alleges that from 2005 to 2007, Brown took out more than $3 million in loans in the names of two friends without their knowledge. The loans were then used to purchase five homes in Fairfield, including a $1.2 million residence. Four of the five properties were owned by Brown. Brown initially made mortgage payments but abruptly stopped, resulting in foreclosure lawsuits by the lenders, the indictment said. (modbe61711; sacbujl61711)
MORAL
The prosecutors added, "We have more investigations under way." I have to admit we are kept busy.
NEVADA MAN SENTENCED FOR MORTGAGE FRAUD AND MORTGAGE FORECLOSURE RESCUE SCHEME
FACTS
On June 3, United States District Judge Lawrence J. O'Neill sentenced George Eggleston of Las Vegas to six years and nine months in prison, to be followed by three years of supervised release. Eggleston had previously pleaded guilty to charges he committed mortgage fraud and had operated a mortgage foreclosure rescue scheme to defraud homeowners facing foreclosure. The court also ordered Eggleston to forfeit $364,899, and to pay restitution to the victims of his offense. The actual amount of restitution has yet to be determined.
Eggleston, who did business as Nexxus and Global Legal Associates, admitted he told homeowners in California and elsewhere that he could save homes nearing foreclosure. Through his websites, he falsely and fraudulently represented that his companies used and managed attorneys to file lawsuits against foreclosing lenders for violations of state and federal laws. Eggleston claimed that Nexxus could stop and reverse any pending or completed foreclosure. Victims each paid Eggleston $1,000 per month for his services, and in total Eggleston received more than $100,000 for his fraudulent scheme. Eggleston used the money for his own personal expenditures and not for the benefit of his clients. Eggleston also submitted a false loan application to SunTrust Mortgage for a property located in Southern California. As a result of this fraudulent representation, Eggleston received the loan. When the home went into foreclosure, this resulted in a loss to SunTrust of $261,000. (usattyed6311)
MORAL
Over the past several months many have called me about attorneys filing lawsuits against banks, finance companies and should they join the lawsuits. I have expressed the opinion that I question the viability of the lawsuits and in one case at least have read one lawsuit and judgment that is questionable at best. The point is investigate before you invest.
SAN DIEGO HOMEOWNER GOES TOO FAR IN TRYING TO SAVE HIS HOME FROM FORECLOSURE
FACTS
On June 15, Marc Uribe pled guilty to forging the signature of a Federal judge, a felony. Uribe entered his guilty plea in federal court. The plea is subject to final acceptance by United States District Judge Larry Alan Burns before or at the time of sentencing.
Uribe created a fake court order in order to forestall the foreclosure of his Mission Valley home. The order purported to be part of a civil lawsuit that Uribe and his wife brought against various lenders in federal court. The order created by Uribe instructed the lenders that they were temporarily prohibited from foreclosing on the Uribes' home. In fact, Uribe had not filed a civil lawsuit, had falsified the court order, and had forged the signature of a federal judge on the false court order. Uribe admitted to the forgery during his guilty plea, and admitted to mailing the order to one of the lenders.
Uribe’s sentencing is scheduled for Sept. 9, before Judge Burns. (usattysdca61511)
MORAL
There were other things he could have done legally such as file a legitimate lawsuit a notice of lawsuit which would normally stop a foreclosure because lenders do not like to foreclose while there is a cloud on title. Now it appears he will plead to a felony on Sept. 9, lose whatever job he may have, bring shame to his wife and children (if any). All he needed to do was consult with a competent attorney who would have advised him differently and definitely not with the road he decided to take.
MISSISSIPPI MORTGAGE BROKER GETS 16 YEARS IN FEDERAL PRISON FOR MORTGAGE FRAUD.
FACTS
On June 9, it was announced that Mark J. Calhoun was sentenced to 16 years and eight months in Federal prison. Also sentenced were his co-defendants, J. Larry Kennedy, who got five years in jail, and Keith M. Kennedy, who got six. The judge also ordered forfeiture in the amount of $10 million for each defendant.
Two other defendants, who pled guilty, were also sentenced. Mark Calhoun’s daughter, April, received six months home confinement while Willie Jones got 37 months in prison.
A federal jury convicted former mortgage loan originator Mark J. Calhoun and former loan closing agents J. Larry Kennedy and Keith M. Kennedy of conspiracy to commit mail and wire fraud, conspiracy to launder money, multiple counts of wire fraud, and multiple counts of money laundering in relation to their roles in a mortgage fraud conspiracy and scheme.
Between September 2004 and at least through September 2006, while operating in the Jackson-metro area as Loan Closing & Title Services Inc., the Kennedys and their co-conspirators provided fraudulent loan documents to various lenders; thereafter, the Kennedys disbursed proceeds from the fraudulent loans to Mark J. Calhoun, April Calhoun, Willie Jones, and their respective companies, as fictitious creditors. On some of the fraudulent loans the Kennedys falsely notarized loan documents during the loan closing process that were relied upon by the lenders to demonstrate that the specific borrower personally appeared at the loan closing and signed the closing documents in the presence of the loan closing agent in order to retrieve the mortgage loan proceeds. (usattysdms6911)
MORAL
I wrote about this case earlier regarding the delay in the sentencing. It appears the delay did not matter much since one of the defendants has 16 years to think about it.
TWO LOAN PROCESSORS IN PENNSYLVANIA RECEIVE PRISON SENTENCES FOR A $6 MILLION MORTGAGE FRAUD
FACTS
On June 20, Kirk Kirby and Sholonda Johnson pled guilty in the Eastern District of Pennsylvania to three counts each of wire fraud in connection with a fraudulent scheme. Kirby was sentenced to 60 months in prison, while Johnson was sentenced to 30 months.
Kirby pretended to be a licensed mortgage broker by being the owner of Invictus Financial Group. Between June 2006 and December 2007, Kirby found properties across the country that he was interested in purchasing, but needed unsuspecting investors to help him acquire the assets. Kirby recruited individuals close to him who made a steady income, such as local church members, fraternity brothers and friends, as investors who purchased the properties located in Pennsylvania, New Jersey, Georgia, Arizona and Nevada. Similarly to a Ponzi scheme, Kirby promised the investors that there was no risk of loss and guaranteed returns.
Kirby acted as a dual agent where he negotiated one price with the seller and a higher price for the investor, with the difference in profit being inherited by the defendant. For every asset acquired by an investor, a different lender was used to close the deal because the defendants created false documents to obtain loans in order to acquire the properties.
Johnson served as the loan officer at several mortgage brokerage companies. Johnson concealed from the lenders that the defendants had obtained multiple mortgages in one investor’s name. The defendant promised investors that he would manage all responsibilities of the property, such as finding tenants, collecting rents, conducting repairs and maintenance, and making mortgage payments. Also, if the property was not rented and failed to cover the mortgage payments, Kirby falsely told investors that he had an insurance policy to cover their losses. When the defendant could not make the required mortgage payments, the investors were forced to default on the property.
In addition to the prison terms, U.S. District Court Judge Harvey Bartle III ordered Kirby to pay restitution of more than $3.9 million and at least $2.4 million to be paid by Johnson. (nmn62011)
MORAL
Here the government went back to loans that occurred six years ago. Notice the sentences (as time progresses with you reading the e alert) have substantially increased. The government is and does take the mortgage fraud fallout and near wreckage of the economy because of it very, very seriously and is asking for stiffer and stiffer sentences as time progresses.
THE INFORMATION CONTAINED HEREIN IS NOT LEGAL ADVICE.
AN ATTORNEY SHOULD BE CONSULTED IF YOU DESIRE LEGAL ADVICE
