FACTS
Because of the large number of repurchase demands by investors suspicious activity reports involving mortgage fraud rose by 31% in the first quarter.
The Financial Crimes Enforcement Network said that the number of SARs based on potential loan fraud totaled almost 25,500 during the first three months of this year. And according to FinCEN's analysis of the reports, nearly nine out of every 10 were based on activities which occurred more than two years prior to their filings.
FinCEN Director James Freis attributed the rise to the additional reviews being conducted by lenders who have been requisitioned to take back poorly performing mortgages.
In its first quarter analysis, the agency said a large number of SARs center on fake documents and payment methods that customers and third parties submitted to lenders in an attempt to have their obligations eliminated. Also, a review of some 70 reports filed less than 90 days after the questionable incident tended to involve loan modification and foreclosure rescue scams, flopping and falsified claims of identification theft.
The latest report from FinCEN also found that California dominated the mortgage fraud rankings, while Miami slipped to sixth after five straight years as either No. 1 or No. 2. (nmn62811)
MORAL
Notice how the prosecutors are now focusing on the 2006 and 2007 loans, modifications and refinancing? It may be best if those that were overly creative began to see their own attorneys now. Later is usually too late.
RESPA VIOLATION CAUSES HOME WARRANTY COMPANY TO SETTLE CLASS ACTION
FACTS
Fees paid to real estate brokers and real estate salespersons as referrals are referred to in the news as “kickbacks” and violate Section 8 of the Real Estate Settlement Procedures Act. Warranty coverage was allegedly purchased by potentially thousands of homeowners from American Home Shield Corp. between May 20008 and March 2010. Home warranty policies offer repairs and replacements for owners when specified home systems and appliances malfunction. Plaintiff attorneys allege there may be as many as 500,000 consumers that are members of the class. Plaintiffs alleged in the class action that American Home Shield violated federal law by paying kickbacks to realty brokerage firms and agents for promoting warranty policies to their customers. RESPA prohibits payments for referrals of settlement services in connection with most mortgage transactions. It also bans the giving or receiving of fees or other compensation when no substantive services are rendered.
American Home Shield denied any wrongdoing and settled to limit its exposure to litigation costs. The complaint filed by homeowners in Alabama involved payment of a $524 fee at closing for a one-year home warranty from American Home Shield. American allegedly paid a portion of that amount to the realty agent. It is alleged that payments such as these are rarely disclosed to buyers or sellers but have been common in the industry for years. Fees to realty brokers and agents allegedly range from $60 to $80.
HUD has said in an interpretive rule during the summer of 2010 that a real estate broker or agent actively promoting a home warranty company and its products to sellers or prospective home buyers for compensation is considered to be making a referral that violates federal law unless the agents provide substantive services beyond their normal duties. (lat7311b11)
MORAL
If you are a big enough target with plenty of money, the class action lawyer will look at the fees you pay to others very closely for disclosure and to see if you performed a service. If not look for a lawsuit charging you with violations of Section 8(a) or 8(b) of RESPA.
TWO ARRESTED IN PHOENIX FOR $17 MILLION MORTGAGE FRAUD
FACTS
During the week of June 27, a federal grand jury in Phoenix returned an indictment against mortgage broker Michele Marie Mitchell and her alleged associate, Jeremy West Pratt. The indictment charged Mitchell and Pratt each with one count of conspiracy and one count of wire fraud.
The indictment alleges that Mitchell portrayed herself as a mortgage broker, loan officer, and real estate investor. She allegedly did business at an office on East Vista Bonita Drive in Scottsdale. Pratt is alleged to be the president of and involved in construction and remodeling work. The indictment charges that as part of their alleged conspiracy, Mitchell and Pratt recruited people with good credit scores to act as straw buyers to ostensibly purchase one or more properties as investments. Mitchell and Pratt allegedly enticed the straw buyers by offering to pay a kickback of up to $15,000 per property or to make the mortgage payments until the property could be resold for a profit, or both. In addition, the indictment charges that the defendants submitted false loan applications and supporting documents to induce lenders to fund loans. Then, at the close of escrow, they enriched themselves by directing a portion of loan proceeds, or “cash back,” to a company which one of them controlled.
The indictment goes on to allege that between October 2005 and February 2007, Mitchell and Pratt obtained mortgage financing for 17 properties and induced lenders to fund approximately $17 million in loans, resulting in over $2.4 million dollars in cash back. The indictment charges that the defendants failed to make the mortgage payments as promised and that each of the 17 properties went into foreclosure.
Conviction for the crimes of conspiracy and wire fraud each carries a maximum penalty of 30 years in prison, a $1 million fine, or both. This case has been assigned to United States District Judge James A. Teilborg.
MORAL
Notice again it is within the last seven years and during the “stated income” period. Thus stating that the borrower stated the income does not get the broker off when the prosecutors can use the borrowers to prove they did not state the income.
EIGHT NORTHERN CALIFORNIA REAL ESTATE INVESTORS AGREE TO PLEAD GUILTY TO BID RIGGING AT FORECLOSURE SALES
FACTS
Eight California real estate investors have agreed to plead guilty in two separate conspiracies to rig bids and commit mail fraud at public real estate foreclosure auctions in Northern California.
On June 30, charges were filed in U.S. District Court for the Northern District of California in Oakland, Calif., against Thomas Franciose, William Freeborn, Robert Kramer, Thomas Legault, David Margen, Brian McKinzie Jaime Wong and Jorge Wong.
The felony charges allege the real estate investors participated in a conspiracy to rig bids by agreeing to refrain from bidding against one another at public real estate foreclosure auctions in Contra Costa County and Alameda County, Calif. While some of the conspirators participated in the conspiracies in both Alameda and Contra Costa Counties, the collusive activity occurred independently in each county, and some individuals only participated in the conspiracy in one county.
The department said that the primary purpose of the conspiracies was to suppress and restrain competition to obtain selected real estate offered at Alameda and Contra Costa County public foreclosure auctions at noncompetitive prices.
According to the court documents, the real estate investors conspired with others not to bid against one another at public real estate foreclosure auctions in Northern California, participating in a conspiracy in various lengths of time between May 2008 and January 2011. After the conspirators’ designated bidder bought a property, the conspirators would hold a secret, and private auction at which each participant would bid the amount above the public auction price he was willing to pay. The department said that the secret, private auctions took place at or near the courthouse steps where the public auctions were held. The highest bidder at the private auction won the property. According to the court documents, the difference between the public auction price and that at the second auction was the group’s illicit profit, and it was divided among the conspirators, often in cash.
In addition, the eight conspirators were charged with using the U.S. Mail in carrying out their conspiracy to defraud financial institutions by paying potential competitors not to bid competitively in the public auctions for foreclosed properties, according to court filings.
Franciose, Jaime Wong and Jorge Wong were charged with one count each of bid rigging to obtain selected real estate at foreclosure auctions in Alameda County and one count each of conspiracy to commit mail fraud.
Freeborn and Legault were charged with one count each of bid rigging to obtain selected real estate at foreclosure auctions in Contra Costa County and one count each of conspiracy to commit mail fraud.
Kramer, Margen and McKinzie were each charged with two counts of bid rigging to obtain selected real estate at foreclosure auctions in Alameda and Contra Costa Counties and two counts each of conspiracy to commit mail fraud.
Each violation of the Sherman Act carries a maximum penalty of 10 years in prison and a $1 million fine for individuals. Each count of conspiracy to commit mail fraud carries a maximum sentence of 30 years in prison and a $1 million fine. The maximum fine for the Sherman Act charges may be increased to twice the gain derived from the crime or twice the loss suffered by the victim if either amount is greater than the $1 million statutory maximum. (usattyndca63011)
MORAL
In case you did not know it, bid rigging at California public foreclosure sales is also against state law. I have heard rumors that some people at some of the auctions actually have been threatened if they bid at the auction.
CONNECTICUT MAN GETS FIVE YEARS IN FEDERAL PRISON FOR MORTGAGE FRAUD
FACTS
On June 7, Thomas Gallagher was sentenced in Hartford to 60 months of imprisonment, followed by three years of supervised release, for his participation in an extensive mortgage fraud conspiracy that defrauded lenders of approximately $4 million.
Between approximately August 2006 and May 2010, Syed Babar led a mortgage fraud scheme during which participants obtained approximately $10 million in residential real estate loans, including loans insured by the FHA, through the use of sham sales contracts, false loan applications and fraudulent property appraisals. As part of the scheme, Babar arranged for straw buyers to purchase houses they did not intend to occupy at fraudulently inflated prices and to apply for loans in the amount of the fraudulently inflated prices. The loans were supported by fraudulent appraisals and a variety of fraudulent information about the buyer, including information about his or her occupation, income, assets, liabilities, and intention to occupy the house as a primary residence. Babar and his co-conspirators also created a fictitious construction company called “Sheda Telle Construction LLC”—which trial testimony revealed means “ring the bell and run” in Babar’s native language—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, in fact, did not occur. Babar and his co-conspirators then split the fraud proceeds generated from the scheme.
Gallagher, who operated Autumn Appraisals LLC in West Haven, created fraudulently inflated property appraisals in exchange for payments, often in cash, of thousands of dollars per home. The payments were well beyond the basic appraisal fee of about $375 that was disclosed in appraisals and on federal mortgage documents. In order to support the fraudulently inflated sale prices, Gallagher represented to the lenders that certain properties were “totally” or “recently renovated,” and in good condition with no need for any repairs. However, some of the homes had no sheetrock or plumbing, were charred by fire, had holes in the walls, had no thermostat, or had electrical wires hanging out of the walls. In certain cases, where a picture could reveal conditions inconsistent with his written descriptions, Gallagher provided the lenders with digitally altered photographs instead of ones that showed the true state of the properties. At times, Gallagher also falsified the sale history of a property.
The investigation revealed that Gallagher was involved in 29 fraudulent real estate transactions that defrauded lenders of approximately $4 million. On March 21, Gallagher pleaded guilty to one count of making a false statement to the government in connection with an FHA-insured loan.
On February 1, Babar pleaded guilty to multiple federal charges related to his leadership of this extensive mortgage fraud scheme. He awaits sentencing. (usattyct6811)
MORAL
Pleads guilty to one count and gets five years in prison. Pretty hefty sentence.
FTC HAS FLORIDA FEDERAL COURT BAN THREE MEN AND THEIR COMPANY FROM MORTGAGE MODIFICATIONS AND ORDER THEM TO PAY NEARLY $19 MILLION FOR CONSUMER REFUNDS
FACTS
Pursuant to a settlement with the Federal Trade Commission, a federal court has banned three men and their company—First Universal Lending LLC, Sean Zausner, David Zausner and David J. Feingold—from the mortgage modification business and ordered them to pay nearly $19 million for consumer refunds. The defendants allegedly deceived distressed homeowners with phony claims that they would negotiate with lenders to modify their mortgages and make them more affordable.
The FTC sued First Universal Lending and its owners in November 2009 as part of a continuing federal-state crackdown on mortgage foreclosure rescue and loan modification scams. As alleged in the FTC’s complaint the defendants encouraged homeowners to stop making mortgage payments, saying lenders would not negotiate unless they were at least a few months behind in their payments. After charging consumers up to $7,000 in up-front fees, the defendants often did little or nothing to help them, the agency charged. The court subsequently halted the defendants’ operation, froze their assets, and ordered them to disable their Web sites and computers.
In addition to imposing a judgment of more than $18.8 million against the defendants, the settlement bans them from the mortgage relief services business. It also permanently prohibits the defendants from misrepresenting material facts about any good or service, violating the Telemarketing Sales Rule, selling or using customers’ personal information, failing to properly dispose of customer information, and collecting payments from their customers.
The FTC filed the proposed consent judgment in the U.S. District Court for the Southern District of Florida. The court entered the consent judgment on May 25. This consent judgment is for settlement purposes only and does not constitute an admission by the defendant that the law has been violated. Consent judgments have the force of law when approved and signed by the District Court judge. (ftc62111)
MORAL
If anyone out there is doing or has done modifications from 2009 on, it is more likely than not that a regulatory state or federal agency has or will be auditing you. As a precursor to that, it general takes agency 12 to 24 months to file accusatory pleadings after an audit. A word to the wise.
LAS VEGAS PROSECUTORS STATE HUSBAND-WIFE TEAM INVOLVED IN MORTGAGE FRAUD TO THE TUNE OF $107 MILLION
FACTS
When it comes to real estate and mortgage fraud during the boom years in Las Vegas, prosecutors say the husband and wife team of Steven W. Grimm and Eve E. Mazzarella were involved in a big way—to the tune of $107 million. The two await trial currently set for August. However, a new lawsuit alleges further wrongdoing by Grimm.
Dubbed "the Bonnie and Clyde of mortgage fraud" by Bloomberg News prosecutors say the couple was involved in bank fraud, mail fraud and wire fraud as the two engineered deals involving inflated property values and straw purchasers, defrauding lenders along the way. As alleged by federal prosecutors, Mazzarella was a real estate broker and she and Grimm, a mortgage broker, controlled numerous limited liability companies.
They allegedly recruited straw buyers to buy homes at inflated prices and induced lenders to provide mortgages based on false representations about the income, assets and employment of the buyers. The straw buyers would then transfer the properties to another entity controlled by the defendants and would receive a fee, prosecutors said. The defendants would then re-sell the property, again at an inflated price, the government alleges. This alleged scheme involved 432 straw buyer transactions, the government said. Of 227 properties ultimately controlled by the defendants, at least 118 went into foreclosure, causing millions of dollars in losses to lenders, prosecutors said.
Grimm, Mazzarella and a third defendant, Melissa R. Beecroft, a mortgage company manager, have pleaded innocent. A trial set for last month has been rescheduled for August. Prosecutors are seeking asset forfeitures of $107 million for a conspiracy charge in the case.
Mazzarella is known as a former housemaid. Grimm was a truck driver. Both entered the real estate industry and then cashed in on the Southern Nevada real estate boom before their indictment in 2008. Mazzarella, in the meantime, has filed for personal bankruptcy protection and lists her status as "separated." The bankruptcy at least temporarily shields her from lawsuits.
The new lawsuit was filed in Clark County District Court on June 14, by Fidelity Title Insurance Co., against Grimm and two Nevada limited liability companies managed or owned by Grimm: Select Equities LLC and WP Davenport LLC. The lawsuit describes how in February 2006, a couple arranged to sell their Las Vegas home to an individual and then planned to purchase a new property from WP Davenport. Lawyers Title Insurance Co., as escrow agent, was told by the sellers to send $100,000 of the sales proceeds to WP Davenport. Grimm then sent new instructions to Lawyers Title, on WP Davenport letterhead, re-directing the $100,000 to be paid to Select Equities rather than WP Davenport, the lawsuit alleges. "Shortly thereafter, the sellers advised Lawyers Title that they did not authorize the requested re-direction of said escrow funds made by Grimm," the suit alleges. "The proceeds in question were stolen from the sellers." Lawyers Title settled with the sellers, paying them their missing $100,000, and Fidelity later purchased Lawyers Title, the suit says. "Grimm fraudulently misrepresented to Lawyers Title that he had the authority to re-direct the escrow funds," the suit charges. Noting the larger criminal case against Grimm and Mazzarella, the new suit says: "Grimm and his wife Eve Mazzarella have employed straw buyers to defraud mortgage companies in the past.'' "Grimm, WP Davenport and Select Equities all created straw buyers and were involved in mortgage rescue scams," the suit says.
Grimm and his companies haven’t yet responded to the lawsuit, which seeks the return of $100,000 the title company claims they pocketed. He's represented in the criminal case by a public defender. An attorney for the title company, Brooke Bohlke of the law firm Callister + Associates in Las Vegas, said Wednesday it’s not known if Mazzarella was involved in the transaction at issue in the lawsuit.
In her bankruptcy filing, Mazzarella listed 58 more lawsuits pending in Clark County District Court – many involving her, Grimm and their company Distinctive Real Estate & Investments. Grimm and Mazzarella have been free on bond in the San Diego area awaiting trial. Mazzarella filed for Chapter 7 bankruptcy liquidation on April 13. In an updated bankruptcy filing this month, she listed $28,542 of assets against liabilities of $113,529. The liabilities could be higher though, as several claims by lenders and entities suing her are listed as unknown amounts. (vegas inc. 6-29-11)
MORAL
The original criminal case was filed in March 2008 and has been ongoing since. It is over three years now. It will be interesting to see the outcome.
OWNER OF A LAS VEGAS ACCOUNTING FIRM ARRESTED FOR MORTGAGE FRAUD
FACTS
On June 21, Cedric Nelson, a Las Vegas man who owns and operates a local accounting company was arrested on mortgage fraud charges.
Nelson is charged in a criminal indictment with two counts of wire fraud. Nelson owns and operates Certified Bookkeeping and he was formerly employed by the IRS. According to the indictment, Nelson allegedly devised a scheme to defraud financial institutions for his own use and benefit. Nelson applied for and caused straw buyers to apply for mortgage loans using false and fraudulent information concerning employment, income, assets, and intent to occupy the homes, in order to induce the mortgage lender to fund the loans.
In August 2006, Nelson purchased a home for $590,990 using false information. In March 2007, Nelson then sold the same home to a straw buyer for $900,000, and caused false information to be placed in the straw buyer’s loan application. The indictment alleges that the financial institution would not have funded the loan had it known the straw buyer’s true information, including that the straw buyer did not intend to occupy the house. Nelson allegedly made about $90,000 from this fraudulent mortgage loan transaction.
If convicted, Nelson faces up to 20 years in prison and a $250,000 fine on each count. (usattynv62111)
MORAL
Notice the prosecutors are now using the 2006 loans. Stated income? How many more are they working on?
NEW JERSEY MAN GETS 13 YEARS IN PRISON FOR MORTGAGE FORECLOSURE RESCUE SCAM
FACTS
On June 20, Gennaro Rauso was sentenced to 160 months in prison for several mortgage fraud related charges. Rauso owned and operated a real estate management company that purported to help financially distressed homeowners with their foreclosure problems. He pleaded guilty in July 2010 to the mortgage fraud scheme, willfully failing to file tax returns on behalf of D&B Property Investors, defrauding the government of taxes owed on more than $1.6 million in income, and other fraud schemes involving credit cards and cashier’s checks.
Between January 2005 and December 2008, while operating D&B Property Investors, Rauso sought out homeowners who were facing foreclosure and offered to help them. In a flyer mailed to these homeowners, Rauso claimed that he could help homeowners fight the mortgage companies on their behalf, while at the same time helping them to rebuild their credit so they could keep their home. Once a homeowner agreed to participate, Rauso had the homeowner transfer the title of the home over to him for a nominal sum. Rauso then had the homeowner sign a lease, making the homeowner a tenant who paid rent to Rauso. He then delayed and obstructed the foreclosure process by, among other things, filing federal bankruptcy petitions. During this time when foreclosure was delayed, Rauso collected monthly rent payments from the homeowners, but made no payments to the mortgage companies. Ultimately, Rauso used more than 200 homeowners and their properties in his scheme to defraud mortgage companies, resulting in Rauso pocketing at least $400,000 in diverted or lost mortgage payments. With respect to at least four of the homes involved, the mortgages were federally insured by the Federal Housing Administration, resulting in substantial claims paid by the FHA once the mortgages defaulted. (usattedpa62011)
MORAL
THIRTEEN YEARS! Notice how the sentences are getting tougher? Notice that the feds are going back seven years to 2005 and coming forward. These were the years of stated income loans as well. You have seen me write this moral before. Stated income. Stated Fraud. FBI investigates and guess what the borrower says?
THE INFORMATION CONTAINED HEREIN IS NOT LEGAL ADVICE.
AN ATTORNEY SHOULD BE CONSULTED IF YOU DESIRE LEGAL ADVICE
