Compliance

Kevin Carey, a former Somerville real estate attorney from Middleboro, Mass., pleaded guilty in Middlesex Superior Court to charges related to making false statements on mortgage applications and using the funds secured from the loans for his own purposes, rather than paying off existing loans. According to Massachusetts attorney general Martha Coakley, while practicing as a real estate lawyer in Somerville and Medford, Carey engaged in a scheme called "mortgage stacking" on four residential properties he or his family members owned. The scheme involved serially refinancing the loans on these properties, without paying off the existing loans. Carey was also the agent for a New England title insurance company, which allowed him to issue title insurance policies on mortgage transactions he processed. Sentencing is scheduled for Nov. 6.

Three individuals, including a New York City police officer, have been arrested in connection with a mortgage fraud scheme. Oneika Carthon of Brooklyn; Joe D. Green of Jamaica, Queens; and Samantha Girard of Roosevelt, N.Y., have each been charged with bank fraud. Ms. Girard has been an NYPD officer since March 2000. She has been on modified duty since February 2007 and was recently suspended. According to Rose Gill Hearn, commissioner of the New York City Department of Investigation, a police probe uncovered a fraudulent deed for a house in Brooklyn, which, together with other false documents, was allegedly used to obtain funds that were distributed to the three defendants, who were unavailable for comment. This supposed deed claimed to have transferred ownership from the original homeowner, who was deceased, to a man unknown to the former homeowner's family. There were irregularities in the deed, including the incorrect spelling of the deceased man's name and a signature that did not match his known signature. The defendants then allegedly obtained two mortgages using false income information totaling $600,000 to supposedly finance the purchase of the Brooklyn home. At closing, Mr. Green allegedly presented a phony stipulation indicating that a civil action contesting the property transfer had been discontinued. At the closing, $511,500 from the two mortgages was allegedly distributed to the three defendants. The complaint alleges that only three payments were ever made on the mortgages. The loans are now in default. The U.S. Attorney's office for the Eastern District of New York is prosecuting the case.

Jamilah Al-Bari of District Heights, Md., pleaded guilty to mail fraud arising from the fraudulent purchase of properties in Maryland and Virginia. According to Rod J. Rosenstein, U.S. attorney for the District of Maryland. Jamilah Al-Bari participated in a scheme with her brother, Osman Sharrief Al-Bari, and others to pay straw purchasers to purchase houses for them using false loan documents. While employed at M&T Bank, Jamilah Al-Bari created false documents purporting to verify assets for the straw buyers. She also sent false verification letters concerning the buyers' income and assets on M&T Bank letterhead to banks and mortgage lenders. She created a fictitious M&T Bank employee and used the fictitious name to sign some of the verification letters. Jamilah Al-Bari prepared false M&T Bank verification forms for straw buyers who purchased five properties in Baltimore and two properties in Virginia. She admitted her involvement in the scheme to M&T Bank investigators before her termination. The loss amount attributable to Jamilah Al-Bari was between $400,000 and $1 million. Most of the purchased properties have now gone into foreclosure. Sentencing is scheduled for Nov. 13. Osman Sharrief Al-Bari, a leader of the scheme, pleaded guilty in August and is scheduled for sentencing on Oct. 5. Co-defendants Timothy Reed, Terrence White, Sabrina Weinberg and Kara McIntosh have all pleaded guilty and await sentencing.

U.S. District Judge Alan S. Gold sentenced Adriana Cruz of Miami to 15 months' imprisonment, followed by 36 months of supervised release, for her role in a mortgage fraud scheme that resulted in the granting of two fraudulent home equity loans totaling $1 million. Judge Gold also ordered Cruz pay nearly $800,000 in restitution. According to Jeffrey H. Sloman, acting U.S. attorney for the Southern District of Florida, Cruz admitted that she and others simultaneously submitted two fraudulent loan applications, each at $500,000, to Bank of America and Wachovia Bank. The applications contained stolen identification information belonging to a co-conspirator's mother-in-law. In each application, the co-conspirators represented the mother-in-law as the purported borrower and pledged her house as collateral. The fraudulent applications were submitted to co-conspirators who worked as loan officers at the banks. When each loan application was submitted, neither bank was made aware of the other pending loan. The purported borrower's signatures were forged and Cruz obtained fake notarizations. After the loans were approved, the proceeds were made available to the co-conspirators. Cruz's co-conspirators previously pleaded guilty and have been sentenced in connection with this case.

U.S. District Judge Deborah K. Chasanow in Maryland sentenced the two final conspirators of the fraud scheme led by Michael K. Lewis that targeted financially vulnerable homeowners facing foreclosure through local television ads. Cheryl Brooke of Upper Marlboro, Md., was sentenced to 46 months in prison, followed by three years of supervised release. Winston Thomas of New Carrollton, Md., was sentenced to 37 months in prison, followed by three years of supervised release. According to Rod J. Rosenstein, U.S. attorney for the District of Maryland, Michael K. Lewis aired TV ads claiming he could help homeowners facing foreclosure improve their credit, save their homes from foreclosure and assist them with bankruptcy. Lewis and Thomas, a loan officer, told the homeowners that the credit of Michael's brother Earnest Lewis would be used to refinance their homes if they temporarily signed their homes over to Earnest. They could remain in their homes by paying inflated "rent" and fees, which were directly debited from their bank accounts to an account Brooke controlled. The Lewis brothers and Thomas lied about the amount of money that the homeowners would receive at settlement, what would be done with any equity in the homes and the need to file for bankruptcy protection and failed to inform the homeowners of the particulars of how the lease/buyback program worked, it is alleged. Thomas also allegedly submitted false financial and employment information to mortgage lenders. After financing was obtained, Brooke filed motions to dismiss the homeowners' bankruptcy cases so that the settlements could take place. Michael K. Lewis and Earnest Lewis were previously sentenced to 78 months and 54 months in prison, respectively.

Helen Sotiriadis and her daughter Irene Sotiriadis, both of Manteca, Calif., have been arrested on a charge of conducting a mortgage fraud scheme that caused $5 million in losses to lenders. Arrest warrants were issued after the FBI received information that the two suspects may have been intending to flee to Greece. According to Lawrence G. Brown, U.S. attorney for the Eastern District of California, Helen and Irene Sotiriadis are alleged to have recruited as many as 25 members of the Cambodian immigrant community to purchase homes they could not afford in and around Stockton and Modesto. The mother-daughter team allegedly promised the Cambodians that, after one initial high monthly payment, the homes would be refinanced to a payment of $1,500 per month. After the initial monthly mortgage payments of $4,000 came due, Helen and Irene Sotiriadis allegedly refused to return phone calls to the victims. Most of the homes quickly fell into foreclosure.

A New Jersey man responsible for digging up Social Security numbers and other personal data that was used to siphon millions of dollars from phony HELOC accounts at dozens of banks and credit unions has been sentenced to almost 11 years in prison. Yomi Jagunna, 44, pleaded guilty to selling Social Security numbers for $30 apiece to a group that may have siphoned as much as $5 million from financial institutions. Jagunna, who set up a sham collection agency to gain access to the Social Security numbers, was also ordered to pay $3.2 million in restitution. A Nigerian immigrant, he is one of 17 individuals charged in the nationwide HELOC scheme that fooled credit union and bank employees into transferring funds to accounts in at least seven countries, authorities said. Part of the scam involved using sophisticated dodges to circumvent the institutions' attempts to verify the wire transfers with telephone calls. In some cases, they convinced phone company employees to reroute their victims' calls. When the credit union or bank called the victim's home number, one of the suspects' cell phones rang, authorities said. Among the depositories harmed were Bank of America, JPMorgan Chase, Wachovia (now part of Wells Fargo), Navy Federal Credit Union in Virginia, and others.

Bernard B. Kerik, the former New York City police commissioner and commissioner of the New York City Department of Corrections, has been charged with making false statements on a loan application in connection with purchase of a Riverdale, N.Y., apartment. According to Michael J. Garcia, U.S. attorney for the Southern District of New York, Mr. Kerik, who was unavailable for comment, allegedly borrowed part of the downpayment from a Manhattan Realtor, but falsely denied that he had done so to the bank that extended him the mortgage loan for his purchase of the apartment.

After pleading guilty in June to charges connected to a scheme to use a stolen identity to buy a home, Shawn Cannon of St. Louis was sentenced to 60 months in prison. According to Michael W. Reap, U.S. attorney for the Eastern District of Missouri, between August and October 2005, Cannon, knowing he would be unable to qualify for a loan to purchase a home using his true identity, used fraudulent information, including a false Social Security number and false payroll information, to obtain a loan from Pulaski Bank to purchase a personal residence in Florissant, Missouri, for approximately $300,000. Cannon failed to make required payments. In December 2008, Cannon filed a Chapter 13 bankruptcy petition in U.S. Bankruptcy Court, again using the false Social Security number.

Effective Oct. 1, 2009, the Social Security Administration will be raising its fees for mortgage and financial companies to authenticate borrower Social Security numbers from $0.56 to $5.00 per verification. This price increase could significantly impair the industry's move to protect itself against identity-based mortgage fraud, according to fraud detection vendor Rapid Reporting. In a letter sent to Michael Astrue, Commissioner of the Social Security Administration by Congresswoman Kay Granger (R-Texas), Rep. Granger says this fee increase could lead to the de facto cancellation of the CBSV (Consumer-Based Social Security Number Verification) program, as it could significantly lead to fewer and fewer lenders using the program. According to that same letter, the decision to increase fees for the CVSB program was made by the Social Security Administration without collaboration with the U.S. Congress. Mr. Astrue denied Congresswoman Granger's initial request for a 60-day delay to evaluate the necessity of this fee increase. On Tuesday, Sept. 22, Congresswoman Kay Granger and key staff, which includes committees of oversight for the Social Security Administration, plan to meet with the SSA to discuss the negative repercussions this planned increase in fees will have on the mortgage industry and the nation as a whole, and intend to re-propose a delay in implementing these fees. Senate Majority Leader Reid, House Speaker Pelosi, House Majority Leader Hoyer and Senators Hutchinson, Harkin, Cochran and Cornyn have been contacted and are expected to support a delay in implementation as well.

The Federal Trade Commission has filed complaints against two loan modification companies for allegedly making false claims that they could obtain a mortgage modification in virtually all cases. One complaint, filed in the U.S. District Court for the District of Columbia, charges Nations Housing Modification Center and its principals, Michael A. Trap, Glenn S. Rosofsky, and Bryan P. Rosenberg, with violating the FTC Act and the FTC's Telemarketing Sales Rule by allegedly misrepresenting themselves as a government agency and falsely claiming to obtain mortgage mods for consumers. The FTC alleges that very few homeowners got mods and the defendants accepted advance fees for their services. The other complaint, filed in the U.S. District Court for the Central District of California's Southern Division, charges Infinity Group Services and its president, Kahram Zamani, with violating the FTC Act by falsely representing that they would obtain a loan modification in all instances and would allegedly obtain loan refinancing for an up-front fee. The FTC alleges that the company often failed to obtain loan mods and either failed to answer or return consumers' telephone calls or update them about their status. The defendants were unavailable for comment.

The country has seen a "drastic increase" in mortgage fraud cases as a result of the upheaval in the housing market, according to FBI director Robert Mueller. FBI agents are investigating 2,600 mortgage fraud cases as of July 31, up from 1,600 for all of 2008. Many of these investigations are focused on fraud perpetrated by industry insiders and most of the pending mortgage fraud cases involve losses of more than $1 million, Mr. Mueller told the Senate Judiciary Committee. "To meet this growing challenge, we have redirected investigative resources and assigned approximately 300 special agents the task of investigating mortgage fraud. In addition, we direct 15 task forces and 59 working groups that target mortgage fraud," he said. Mr. Mueller pointed out that the FBI is using innovative ways to generate new cases, "We employ statistical correlations and other advanced computer technology to identify patterns in the search for companies and persons engaged in activity that is indicative of fraud." FBI agents also analyze data compiled through Suspicious Activity Reports filed by financial institutions and through HUD-OIG reports.

Prosecutors in Vermont have secured the fifth conviction in a scheme that cost mortgage lenders over $11 million. Benjamin Osmanson of California and Sarita, Texas, pleaded guilty to charges related to his scheme to defraud mortgage lenders by submitting false loan applications in the names of "investors." According to the U.S. attorney's office for the District of Vermont, from at least as early as January 2006 through at least April 2007, he and co-defendant Jillian Protzman orchestrated the purchase of at least 50 properties in California, Florida, Kentucky and Vermont in the names of at least 10 investors, obtaining more than $26 million in loans to support the purchases. Osmanson recruited friends, family members and acquaintances to "invest" in real estate. He and Protzman then allegedly submitted fraudulent loan applications in the names of the investors to obtain loans. Osmanson, Protzman and others sought loans from multiple lenders and were said to have closed the loans for each investor within a short period of time in order to preserve the appearance of the investor's good credit until the transactions were complete. The defendants enriched themselves with commissions connected to the fraudulent property purchases and continued to recruit investors and submit applications for new loans, the investigation showed. During the plea hearing, Osmanson admitted his scheme caused more than $11 million in losses to the mortgage lenders as the properties went into foreclosure. Protzman pleaded guilty in August. Two mortgage brokers involved in the scheme, Mike Otis and Chris Whitfield, pleaded guilty earlier this year in the Western District of Kentucky. Florida realtor Margaret Giresi recently pleaded guilty in Vermont for her role in the scheme. Sentencing for Osmanson has not yet been scheduled.

A group of state and federal officials met in Washington to discuss trends and improve coordination in the efforts to combat mortgage fraud. Treasury Secretary Timothy Geithner hosted Attorney General Eric Holder, Housing and Urban Development Secretary Shaun Donovan, Federal Trade Commission Chairman Jon Leibowitz, Financial Crimes Enforcement Network Director Jim Freis and attorneys general from 12 states. They also spoke about proactive strategies to combat fraud against consumers in the housing markets as well as best practices to bolster coordination across state and federal agencies. This meeting follows up on an announcement by the Obama Administration in April of a multi-agency crackdown on foreclosure rescue scams and loan modification fraud designed to protect homeowners from predatory financial practices. "A clear lesson of this financial crisis is that American consumers need better protection against fraud," said Mr. Geithner, adding that government agencies "will not wait for problems to peak before we respond." Treasury, FinCEN and DOJ, HUD and FTC are working on taking proactive measures to curb abuse by coordinating information and resources across agencies to maximize targeting and efficiency in fraud investigations. Secretary Donovan announced that HUD has requested $37 million in its 2010 budget to combat fraud. FTC Chairman Leibowitz announced two new law enforcement actions in a continuing crackdown on mortgage foreclosure rescue and loan modification scams, bringing to 22 the number of these cases the Commission has filed since the housing crisis began. The FTC also announced developments in similar pending mortgage-related actions, several of which have involved coordinated casework from FinCEN.

Charles E. Townsend of Columbus, Ohio, pleaded guilty to money laundering in connection to a mortgage fraud scheme that exaggerated the values of properties in primarily low income neighborhoods in Columbus in order to secure funding from investors. According to William E. Hunt, acting U.S. attorney for the Southern District of Ohio, Townsend helped two co-conspirators, Aryeh Schottenstein and Jeffery Lieberman, fraudulently secure funding from Stillwater Investments Group of New York for real estate transactions involving Columbus properties. Townsend grossly exaggerated the value of properties in order to induce Stillwater to fund the real estate transactions and falsely promised to use certain funds provided by Stillwater to renovate houses involved in those transactions. In some of these transactions, Townsend also retained funds as purported "consulting fees" when no services were performed. Schottenstein pleaded guilty in May 2008 and was sentenced to 42 months in prison, followed by three years of supervised release. Lieberman pleaded guilty in April 2008 and was sentenced to 16 months in prison, followed by three years of supervised release. Sentencing for Townsend has not yet been scheduled.

The Shadow Financial Regulatory Committee is "sympathetic" to the Obama administration's plan to consolidate the consumer protection function of banking regulators into a new agency that would set the rules for depositories and non-banks alike. The academic group noted that the federal banking regulators did not do a "great job" of protecting consumers during the subprime lending crisis, and consumer protection will never be a "core mission" for the bank regulators. It will always take a "back seat" to safety and soundness concerns, committee member Robert Litan said. The Brooking Institutions senior fellow noted, however, that his group would make several changes to the Consumer Financial Protection Agency bill that has been introduced in the House. One important change would give the CFPA's lending rules preemption over state rules. The current bill allows the states to enact and enforce tougher rules. "At least in rulemaking, there ought to be [federal] preemption," Mr. Litan said. The bill also gives the CFPA authority to prevent unfair and deceptive and abusive practices. According to Mr. Litan, unfair and deceptive practices are well defined in case law, but abusive practices is new and should be dropped. "We think it is unnecessary and gives too much discretion to the agency," he added.

A federal grand jury has returned an indictment against a Mississippi real estate investor in connection with an allegedly fraudulent mortgage loan scheme. According to Stan Harris, U.S. attorney for the Southern District of Mississippi, Earline Y. Rawls is accused of devising a scheme that began in August 2006 and continued through March 2007, involving the purchase of four residential properties in Madison and Hinds County. The indictment alleges that the primary objective of the conspiracy was to induce approval, funding and distribution of more than $1 million in loan proceeds through the deceptive submission of fraudulent representations to Merchants and Farmers Bank, Community Bank of Mississippi and BancorpSouth. Prosecutors say Ms. Rawls, doing business as Heavenly Homes, manufactured fraudulent documents indicating business revenues of $1.3 million and a profit of $271,530 from January 2006 through November 2006. Ms. Rawls, who could not be reached for comment, allegedly submitted this information in furtherance of her scheme with non-indicted co-conspirators.

Rosario Divins, a self-proclaimed foreclosure prevention specialist from San Antonio, was sentenced to 350 months in federal prison, followed by three years of supervised release, for criminal contempt and mail fraud. In addition to the prison term, U.S. District Judge Fred Biery ordered that Divins pay $83,600 restitution to her victims. According to John E. Murphy, acting U.S. attorney for the Western District of Texas, Divins was convicted in June of seven counts each of criminal contempt and mail fraud. The jury found that since January 2000, Divins engaged in a fraudulent foreclosure prevention scheme. Testimony during the three-day trial revealed that Divins collected more than $80,000 in cash from individuals in desperate financial situations who responded to her mail-out offering to stop their residential foreclosures. Divins continued to implement her scheme despite three separate sanctions from the U.S. Bankruptcy Court for the Western District of Texas ordering her to stop misrepresenting herself and making false promises to her clients.

Mario Bernadel, a real estate investor from Phoenix, has been convicted of running a mortgage fraud scheme involving at least 32 residential properties in the greater Phoenix area. According to John J. Tuchi, interim U.S. attorney for the District of Arizona, participants in the scheme recruited unqualified straw borrowers, submitted fraudulent loan applications on their behalf, obtained mortgage loans in excess of the selling price and then took the excess amount of the loans out through escrow. Bernadel recruited and trained mortgage brokers, straw buyers and an escrow officer in the scheme and, following the funding of the loans, received cash back. The homes purchased through the scheme have been foreclosed or sold at a loss. Seven other co-conspirators were also charged and have pleaded guilty and await sentencing. The scheme resulted in $20 million in loans obtained by fraud and a loss of more than $2 million. Bernadel's conviction is part of "Operation Cash Back," in which 40 defendants were indicted and arrested. Bernadel is the 20th defendant to date who has been convicted. U.S. District Judge Stephen M. McNamee set sentencing for Nov. 30.

David Findel, the president and CEO of Morganville, N.J.-based Worldwide Financial Resources, is facing charges in an alleged $11 million mortgage-reselling fraud scheme. According to the Newark, N.J. office of the FBI, Mr. Findel, from Colts Neck, N.J., surrendered himself to the FBI and made his initial appearance before Judge Mark Falk, who released Mr. Findel on a $1 million secured bond. Originally started as a financial planning company, Mr. Findel expanded Worldwide Financial Resources to include home mortgage origination and banking services. This allowed WFR to both initiate and fund mortgages for its clients by borrowing money from a warehouse lender. To repay the lender, WFR would resell each mortgage it originated in the secondary mortgage market. When WFR experienced a liquidity crisis in January 2008, Mr. Findel allegedly conducted a scheme to defraud mortgage banks by reselling the same mortgages to multiple financial institutions. Once WFR sold a mortgage, Mr. Findel would allegedly create a second set of fraudulent mortgage documents and resell the same mortgage to a different secondary market lender. The complaint alleges that Mr. Findel, who was unavailable for comment, obtained more than $11 million from secondary market lenders through this scheme.