Fraud in the Real Estate and Mortgage Industry - A series of reports
Real estate fraud rises in US
A cooling market exposes scams that cost the industry at least $606 million last year.
By Patrik Jonsson
The Christian Science Monitor
December 14, 2006
On Monday, a dejected Matt Cox stepped into federal court in Atlanta in handcuffs. His bogus real estate empire from Tampa, Fla., to Nashville, Tenn., lay in shambles.
Mr. Cox, a college-educated artist with a penchant for plastic surgery, is charged with bank and wire fraud for bilking as much as $25 million from banks in several schemes, including stealing the identities of homeless people and securing mortgages based on inflated appraisals, then walking away without paying a cent.
He is emblematic of the little-known shady side of the real estate business. When the market was booming and with reputations at stake as they marketed mortgage portfolios, huge lenders were loathe to publicize the fraud, especially since a rising market often erased their losses. But as the market cools and losses mount, lenders are becoming more open - and are taking more steps to detect fraud, analysts say. These moves are allowing prosecutors from Orange County, Calif., to DeKalb County, Ga., to expose hundreds of schemes that have wrecked individuals' credit scores, dotted neighborhoods with foreclosures, and left banks - as well as taxpayers - holding the bag for hundreds of millions of lost dollars.
"Boom periods provide very, very fertile territory for abuses and those abuses become very clear when the psychology of the market changes," says James Hughes, a policy analyst at Rutgers University.
Real estate fraud has now firmly emerged on the FBI's radar as the country's fastest-growing white collar crime - all, in essence, polite forms of bank robbery. Industry losses ran to at least $606 million last year, it says. And the Treasury Department's suspicious-activity reports are up 35 percent this year. The Internal Revenue Service's criminal case numbers in mortgage fraud have been doubling every two years through the first half of this decade.
If the downturn continues past 2007, experts say the implications for the economy could be dire."Real estate fraud is going to make the S&L crash look like two cars in the parking lot that bumped into each other at five miles an hour," predicts Ralph Roberts, the author of "Flipping Houses for Dummies," in Warren, Mich.
Georgia is a major hot spot of mortgage fraud, where metro Atlanta has become known as the mortgage fraud capital of the US, according to rankings by Fannie Mae.
Here in Atlanta, as elsewhere, the problem has many causes. New automated lending procedures, aimed at eliminating discrimination, has made it easier for fraudulent applications to slip through. The decline of local banking in favor of nationalized mortgage syndicates also contributes to fraud, as does the recent move toward sub-prime, high-interest loans. Opportunity for both large and small scams by a coterie of real estate professionals, combined with secretive and decentralized lending structures, means the system is ripe for abuse, experts say. And the drive to get a piece of the pie clouds the judgment of even law-abiding citizens, prosecutors say.
"Everyone forgets what their mama told them: 'If you have to lie to get it, you're probably breaking the law,' " says Barbara Nelan, an assistant US Attorney in Atlanta.
For example, authorities extradited a California real estate developer from Samoa on Tuesday to face charges that he and four accomplices bilked banks of over $50 million. The indictment says the developer purchased tony homes in upscale Bel Air and Pebble Beach, recruited buyers to take out inflated mortgages based on phony appraisals, and then "flipped" the homes for up to triple their actual value.
In Conway, Ark., two women were found guilty Monday of falsifying lending documents to make buyers appear more qualified than they were in order to sell them mobile homes. In Denver, criminals coming out of prison were pulling real estate scams they learned behind bars.
In over 80 percent of the cases, scammers are helped by an insider, the FBI says. One of them was Jerome Mayne, a former loan officer who spent time in prison before becoming a motivational speaker in Eden Prairie, Minn. "The buyer they sent me was completely full of holes, fake everything, and I knew darn well that these guys were slippery enough to try to pull it off," says Mr. Mayne. A bottle of expensive booze and $500 cash helped grease the wheels, he admits.
Unraveling such gangs takes time and expertise, which has become the focus of law enforcement and industry professionals across the country. Working in their favor, at least, are solid paper trails.
"Usually when we complete an investigation, we end up with a spectrum of actors, from closing attorneys to brokers to appraisers, organizers, recruiters, and straw buyers," says Ms. Nelan. "It's fairly sophisticated, and it takes a lot of people to do it."
One of the toughest things for prosecutors is sorting out who's guilty. One group of recent perpetrators turned out to be clueless senior citizens in Alabama, who OK'd ploys to inflate their income in order to "invest" in real estate, says Linda Finley, a civil attorney who prosecutes such fraud cases in Atlanta. "It's gotten to the point where it's really hard to figure out who the actual victims are."
Critics say what's needed is a national lenders' clearinghouse and more federal regulation. Still, law enforcement can have a quick impact. Indictments against developer Philip Hill, who's charged with using up to 22 associates to do hundreds of fake deals in and around Atlanta, have alone caused the metro area to go from having four of the top 10 "fraud zones" in the country to two, according to Fannie Mae. His trial is scheduled to begin Jan. 9.
industry closes ranks against fraud
September 25, 2007
leaders of two Realtor associations prepare to launch a task force on fraud
today, agents and others in the industry say recent publicity and the threat of
prosecution have iced some shady real estate operations, while driving others
The California Department of Real Estate recently revoked the license of one mortgage broker whose clients bought multiple houses with full financing, and then let them fall into foreclosure. The department also has opened an investigation in connection with another real estate agent similarly tied to at least 56 foreclosures, according to a home appraiser who advised the department.
but smaller groups appear to have curtailed their activities and others have
disappeared altogether, according to two local appraisers who have followed the
That's partly because mortgage lenders ---- at least those that remain in business ---- have created "blacklists" of mortgage brokers whom they suspect of orchestrating fraudulent loan applications, said Todd Lackner, a San Diego appraiser who has advised state and local law enforcement agencies investigating potential real estate fraud in Southwest County. And some title companies have become wary of certain real estate agents, Lackner said.
Most notably, questionable investment groups have begun to avoid the Multi-Regional Multiple Listing Service, a database used by most local real estate agents. That move allows the investor groups to escape attention but it also limits the number of houses they can buy and sell, according to agents and appraisers who have followed their activities.
"The MLS boards are hammering down on it and the government agencies are watching them," Lackner said.
Several leaders in the real estate industry, however, say they are dismayed that law enforcers haven't done more to prosecute cases of apparent fraud.
The anti-fraud task force, expected to convene for the first time today, aims to put pressure on law enforcement agencies, some of its members say. The task force includes leaders of Realtor associations whose members do business in Southwest County and the Riverside-San Bernardino area, the associations' attorney and possibly a representative of the Multi-Regional Multiple Listing Service.
The Southwest Riverside County Association of Realtors reported one particularly large series of suspicious house purchases to law enforcement agencies in late 2004 or early 2005, said John Giardinelli, a Canyon Lake attorney who advises both Realtor associations. Giardinelli's office has since compiled a file of suspicious transactions in a binder several inches thick.
Gene Wunderlich, chairman-elect for the Southwest County association, said local agents have become increasingly wary of buyers whose agents insist on large cash kickbacks for buyers, a common feature among the deals the Department of Real Estate has investigated. But Wunderlich and other agents have often noted that an agent listing a house is obligated to inform her clients, the would-be sellers, of all offers regardless of their source.
But by meeting regularly to discuss suspicious transactions, leaders of the real estate associations will be able to identify patterns more quickly and more effectively and pass the information on to authorities, members of the task force said.
The initiative comes amid an unprecedented wave of foreclosures that threatens to swamp housing markets in outlying suburbs that were booming just three years ago. Lowered lending standards helped hundreds of thousands of families buy homes, but they also drew shady investment groups that hoped to make easy money in the market frenzy, according to real estate professionals.
Such investment groups may have helped to drive prices higher in 2004 and 2005, helping to put extra money in the pockets of ordinary sellers at the time, appraisers said in recent weeks. But they're also intensifying the housing hangover of 2007, with a large pool of sellers having to compete for a limited number of buyers, the appraisers say.
In Southwest County, about 5,000 houses are in the foreclosure process, according to foreclosureradar.com.
Real estate agents have said they're concerned that the rash of foreclosures has many potential buyers sitting on the fence until prices fall further, a situation that makes selling a house even more difficult. Fraudulent sales have become a particular target of frustration, Giardinelli said.
"The Realtors sense that they're being affected to the extent that this strike force has become a necessity," he said.
Terry Hugh Mahon, 69, Broken Arrow, Oklahoma, was convicted by a federal jury in connection with a fraudulent investment scheme involving rebate coupons and home mortgages. His co-defendant, Grover Harold Phillips, 70, Stillwater, Oklahoma, pled guilty to conspiracy and money laundering in connection with this scheme.
On November 14, 2007, a federal grand jury indicted Mahon and a co-defendant, Grover Harold Phillips, on charges of conspiracy, mail fraud, and money laundering. Phillips operated through a Nevada business trust called Amsterdam Fidelity Business Trust; Amsterdam’s offices were at Phillips’s home in Stillwater, Oklahoma. Mahon operated through a Nevada corporation called Rebates International, Inc.; the offices of Rebates International were in Hollister, Missouri.
From 2000 to 2003, Phillips and Mahon worked with other people, including Emzie Huletty of Oklahoma City, to sell cashback rebate coupons that would supposedly allow purchasers to pay off their home mortgages in five years. The evidence at trial proved that Mahon and the other conspirators made false representations that if victims paid 17% of the value of their homes to conspirators, they would receive rebate coupons worth the entire value of their homes. The money that they paid was to be invested in high-yield trading programs that conspirators claimed could generate approximately 60% interest per year. At the end of five years, the victims could supposedly redeem these rebate coupons for face value and pay off their mortgages. Many victims re-financed their homes, oftentimes on very unfavorable terms, in order generate the 17% required to participate in the program.
The jury heard more than two days of testimony, including evidence offered by victims who took out mortgages so that they could pay tens of thousands of dollars into the program. The evidence demonstrated that the only investment in anything resembling a high-yield trading program was a $50,000 payment in April of 2002 to OsGold, a massive Ponzi scheme that folded in the wake of a federal investigation. The jury also heard evidence that Mahon and other conspirators siphoned off hundreds of thousands of dollars that were supposedly to be invested for the benefit of coupon holders.
After deliberating just over an hour, the jury convicted Mahon on all four counts in which he was charged. These included conspiracy to commit mail fraud, using a commercial interstate carrier to commit fraud, engaging in a financial transaction over $10,000 in criminally derived proceeds, and engaging in a financial transaction designed to conceal the nature of the funds involved. As a result of these convictions, Mahon could be sentenced to twenty years in prison on the conspiracy, fraud, and concealment counts and ten years in prison for engaging in a transaction over $10,000 in criminal proceeds. He also faces a forfeiture judgment in the amount of $1,061,294.85 and fines of more than $1,000,000. Federal law will also require Mahon to pay restitution to the victims of his offenses.
After the jury returned its verdict, U.S. District Court Judge Stephen P. Friot determined that Mahon should be detained pending sentencing. He was immediately placed in the custody of the U.S. Marshal’s Service. Sentencing will take place in approximately ninety days.
Phillips did not stand trial. On Friday, March 21, 2008, he entered pleas of guilty to conspiracy and engaging in a financial transaction involving more than $10,000 in criminally derived property. His sentencing will also take place in approximately ninety days.
Emzie Huletty, who operated EASE Corporation, Vision Services, Inc., and Sunset Financial Group, all located in Oklahoma City, pled guilty to mortgage fraud on March 24, 2006, and is currently incarcerated in federal prison.
“These defendants, aided by others, concocted a scheme whereby they falsely promised buyers and homeowners that if they took out a new mortgage or refinanced their existing mortgage, they could pay it off in just five years with one catch – they had to buy a bogus cashback rebate coupon,” stated United States Attorney John C. Richter. “This coupon promised financial freedom but delivered financial misery. I want to commend the FBI and IRS Criminal Investigative Division for their fine work in making sure these con-artists were held accountable.”
Real Estate/Mortgage Fraud: Facts, Figures and Closed Cases
IRS Criminal Investigation (CI)
Federal investigators have identified an increase in frauds and schemes in the real estate business. These schemes victimize individuals and businesses, including low-income families lured into home loans they cannot afford, legitimate lenders saddled with over-inflated mortgages and honest real estate investors fleeced out of their investment dollars.
Special agents with IRS Criminal Investigation are uniquely equipped to investigate these types of mortgage fraud and illegal real estate crimes because they are skilled financial investigators whose mission is to 'follow the money.'
Some of the common real estate fraud schemes include:
Property Flipping — A buyer pays a low price for property, and then resells it quickly for a much higher price. While this may be legal, when it involves false statements to the lender, it is not.
Two Sets of Settlement Statements — One settlement statement is prepared and provided to the seller accurately reflecting the true selling price of the property. A second fraudulent statement is given to the lender showing a highly inflated purported selling price. The lender provides a loan in excess of the property value, and after the loans are settled, the proceeds are divided among the conspirators.
Fraudulent Qualifications — Real estate agents assist buyers who would not otherwise qualify by fabricating their employment history or credit record.
The income earned from these types of real estate fraud schemes is often laundered to hide the money from the government. Money laundering is simply a process of trying to make illegally earned income appear to be legitimately earned. IRS Criminal Investigation follows the money and collects evidence to prove applicable tax and/or money laundering violations. Once they have obtained the evidence, IRS agents forward their investigation to the Department of Justice for criminal prosecution.
If a criminal investigation is not warranted, the IRS can also take civil action. Each year the IRS audits thousands of tax returns involving individuals and entities associated with the real-estate business.
|Avg. Months to Serve||
How to Interpret Criminal Investigation Data
|*Incarceration may include prison time, home confinement, electronic monitoring, or a combination.|
The following case summaries are based on public record court documents on file in the judicial district in which the cases were prosecuted:
Mortgage Fraud Defendant Sentenced to 76 Months in Prison
On March 13, 2008, in Erie, Pa., Robert L. Dodsworth was sentenced 76 months in prison, to be followed by three years of supervised release, and ordered to pay a $50,000 fine and over $57,000 in restitution on his conviction of conspiracy and money laundering. According to information presented to the court, Dodsworth and others conspired to falsify mortgage loan applications for home buyers who could not have otherwise obtained a mortgage. Dodsworth and others also accompanied prospective home buyers to the buyers' banks and deposited money into the buyers’ accounts to make it appear as if the buyers had higher account balances. In conjunction with his plea and sentencing, Dodsworth agreed that the amount of loss attributable to his conduct was more than $1 million. Dodsworth also admitted that he was a manager and supervisor of the conspiracy.
Second-in-Command in Massive Mortgage Fraud Scheme Sentenced to 7 Years in Prison; Ordered to Pay Over $40 Million in Restitution
On February 14, 2008, in Atlanta, Ga., Leslie Rector was sentenced to 84 months in prison to be followed by three years of supervised release, and ordered to pay $40.226 million in restitution. Rector was convicted by a trial jury on March 14, 2007 on charges of conspiracy, loan fraud, mail and wire fraud, and money laundering. According to the information presented in court, Rector was the right-hand man of co-conspirator, Phillip E. Hill, and assisted Hill in orchestrating a massive mortgage fraud scheme that targeted the Atlanta area from 2000 through 2003. The criminal activities related to mortgages obtained in the sale of over 50 homes and over 250 condominiums in eight Atlanta-area condominium complexes. Each property was sold at an inflated price to a “straw purchaser” who applied for a mortgage loan based upon the inflated price. Such a fraudulent transaction is called a mortgage “flip.” The straw purchasers who participated in these mortgage flips were paid a kickback out of the excess loan proceeds for the use of their name and credit. The victim lenders granted the loans based upon numerous false representations and documents regarding the credit qualifications of the straw purchaser as well as false representations that the straw purchaser had paid a down payment, would reside in the home, and would be responsible for the loan payment. In addition, the lenders were induced to make the loans based on fraudulently inflated appraisals. Some of the properties were “flipped” more than one time. Hill was sentenced in September 2007 to 28 years in prison. Also convicted at trial with Rector and Hill were eight other co-defendants. In addition, 11 other individuals pleaded guilty to mortgage fraud charges related to the same scheme before trial.
St. Louis City Man Sentenced to 44 Months in Prison on Mortgage Fraud and Money Laundering Charges
On January 16, 2008, in St. Louis, Mo., Dack Daugherty was sentenced to 44 months in prison and ordered to pay $576,390 to twenty-one different banks and mortgage companies on conspiracy and money laundering charges in connection with a mortgage fraud ring. According to court documents, Daugherty and a number of others, including real estate appraisers and loan officers, arranged for the fraudulent purchase of 52 properties. As part of the scheme, Daugherty convinced corrupt appraisers to inflate the values of properties he would arrange to buy. He then convinced corrupt loan officers to make up favorable information about the income and assets of the buyers that he had lined up. In all, Daugherty admitted to defrauding lenders of more than $500,000 and agreed to pay that money back. Daugherty also admitted laundering the proceeds of the scheme through a local credit union. In an unusual twist, Daugherty admitted to a second fraud scheme, which resulted in an increased sentence. In a rare post-plea filing, Daugherty admitted going on a "spending spree" as his criminal indictment for mortgage fraud loomed, borrowing hundreds and thousands of dollars for classic cars, a grand piano, motorcycles, commercial equipment and even a high-end Jacuzzi spa. Just as his borrowers did in the fraud scheme, Daugherty lied in his credit applications for these items and, after successfully deceiving the lenders, never made a payment on any of these purchases. Most of the items have been successfully repossessed.
First Defendant in LHS Mortgage Fraud Case Sentenced
On December 28, 2007, in Minneapolis, Minn., Mario Augustin Lewis was sentenced to 54 months in prison and ordered to pay $437,814 in restitution. Lewis pleaded guilty earlier this year to one count of wire fraud and one count of money laundering in connection with a mortgage fraud scheme and one count of maintaining a drug-involved premises in connection with a marijuana grow operation that was discovered in one of the residences that Lewis purchased as part of the scheme. Lewis, a former employee of mortgage broker LHS, Inc., admitted that between 2004 and 2006, he received more than $400,000 in concealed payments through fraudulent real estate transactions. Three other individuals, Ronald Joseph, an owner of LHS, Inc., Jillian Lehn, a closing agent, and Isadore Stewart, have pleaded guilty and are awaiting sentence. Between 2004 and 2006, the scheme involved approximately 40 separate real estate transactions in which lenders were provided with fraudulent loan applications on behalf of the proposed buyer. Among other things, the fraudulent loan applications misrepresented the terms of the proposed real estate transactions by overstating the actual property purchase price and concealing payments that were made from the loan proceeds to the buyers and other individuals. After a loan was approved based on the false documentation, loan proceeds were provided to a title company. The conspirators then worked with Lehn, the closing agent, to disburse some of those proceeds to the property buyer and other third parties, including Lewis and Joseph. The payments were concealed through false settlement statements. In total, these real estate transactions were worth approximately $18 million in loan proceeds and produced approximately $3 million in fraudulent, concealed payments.
Four Mortgage Fraud Defendants Sentenced to Prison
On November 20, 2007, in Atlanta, Ga., three defendants were sentenced for their roles in a mortgage fraud scheme. Eric Friedman, of Atlanta, Ga., was sentenced to 70 months in prison, to be followed by three years of supervised release, and ordered to pay $1,689,222 in restitution; Brianne Friedman, Tucker, Ga., was sentenced to 12 months and one day in prison, to be followed by six months of home confinement and then three years of supervised release, and ordered to pay $196,058 in restitution; and Timothy Bauer, of Braselton, Ga., was sentenced to 12 months probation and ordered to pay $545 in restitution. Co-defendant Michael Hipe, of Cumming, Ga., was sentenced on November 16, 2007, to 30 months in prison, to be followed by three years of supervised release, and ordered to pay $289,370 in restitution. According to the indictment and evidence in court, beginning in 2000, Eric Friedman and Michael Hipe became involved in a mortgage fraud scheme in order to finance “Hipe Motors,” an Atlanta-based used car business in which Hipe was an investor and Eric Friedman ran daily operations. They purchased and sold properties to finance Hipe Motors, drawing money out of each loan under false pretenses. Some of the lenders were part of the sub-prime mortgage industry. For each property, the defendants obtained a loan in their own names or in the names of family or friends using false financial information and tax returns to qualify for the loans. Also, between 1996 and 2002, Eric Friedman illegally evaded paying $659,739 in federal income taxes by concealing his income and assets from the Internal Revenue Service.
Arkansas Woman Sentenced for Mortgage Fraud and Filing a False Tax Return
On November 19, 2007, in Little Rock, Ark., Debby Cossitt was sentenced to 30 months in prison, followed by three years of supervised release, and ordered to pay $120,000 in restitution to victims of her fraud and $9,560 to the Internal Revenue Service. The Judge also barred Cossitt from working in the loan industry during her period of supervised release. In December 2006, Cossitt pleaded guilty to one count of conspiracy to commit mortgage loan fraud and one count of filing a false income tax return for 1998. Cossitt, owner/manager/operator of several manufactured home sales companies in Searcy, Batesville, Jonesboro, and Harrison, Arkansas, admitted to fraudulently submitting falsified mortgage loan applications and supporting document to lenders in order to increase sales. These misrepresentations included falsified customer bank statements with inflated balances, falsified cashier’s checks reflecting an inflated customer down payment, inflated W-2 forms, falsified pay stubs or wage and earning statements, and falsified customer loan applications. Additionally, Cossitt participated in “telephone audits” with mortgage lenders, impersonating customers and/or directing customers to make misrepresentations directly to lenders. These actions allowed higher credit risk customers to appear more qualified for mortgage loans. Additionally, Cossitt admitted to not reporting over $32,000 in income on her 1998 federal income tax return. This income was derived from cash sales for wheels and axles no longer needed once manufactured homes were delivered to customers. During Cossitt’s sentencing hearing, evidence was presented which revealed that even after her plea in December 2006, Cossitt continued to commit the similar fraudulent loan actions to which she pled guilty to as part of the scheme.
Defendant Sentenced for Role in Mortgage Fraud Scheme
On October 17, 2007, in Anchorage, Alaska, Azem Limani was sentenced to 18 months in prison for violations of wire fraud and engaging in monetary transactions in criminally derived property related to a mortgage fraud scheme. In addition to prison time, Limani was ordered to pay $190,000 in restitution to Countrywide Home Loans and FNMA. According to the information presented to the court, Limani engaged in a wide ranging mortgage fraud scheme using a number of others to obtain a series of nominee loans that hid the true borrower. Limani was aided in the scheme by his co-defendant, Kourosh Partow, who was a loan officer and branch manager of Countrywide Home Loans and arranged for fraudulent loans to be issued to the nominees by falsifying their income, assets and other matters on the loan applications. Partow was previously sentenced to a term of 25 months in prison.
Organizer of Massive Mortgage Fraud Scheme Sentenced to 28 Years in Prison
On September 21, 2007, Atlanta, GA, Phillip E. Hill, of Sumatra, Florida, was sentenced to 28 years in prison, to be followed by five years of supervised release, and ordered to pay $41,764,244 in restitution. Hill was sentenced for perpetrating a massive mortgage fraud scheme that targeted the metro Atlanta housing and condo market from 2000 through 2003. According to evidence at trial, Hill was the owner and operator of “We Build Atlanta, Inc.,” “The Estate Firm, Inc.,” “Estate Artistians of Georgia, Inc.,” “Estates Atlanta, Inc.,” and numerous other Georgia corporations. Hill held himself out to be a real estate developer and either individually or through one or more of the corporations he controlled, purchased and sold numerous residential properties in the Atlanta area. Hill oversaw the conspiracy, loan fraud, wire and mail fraud and money laundering activity related to mortgages obtained in the sale of over 50 homes and over 250 condominiums in eight Atlanta-area condominium complexes. These properties were all owned at one time by one of the Hill's entities. Each property was sold at an inflated price to a “straw purchaser” who applied for a mortgage loan based upon the inflated price. Such a fraudulent transaction is called a mortgage “flip.” The straw purchasers who participated in these mortgage flips were paid a kick-back out of the excess loan proceeds for the use of their name and credit. The victim-lenders granted the loans based upon numerous false representations and documents regarding the credit qualifications of the straw purchaser, as well as false representations that the straw purchaser had paid a down payment, would reside in the home, and would be responsible for the loan payment. In addition, the lenders were induced to make the loans based on fraudulently inflated appraisals. Some of the properties were “flipped” more than one time. Evidence showed that Hill generated in excess of $112 million in fraudulent loans during the time of the scheme. Hill alone received over $14 million in profits from the scheme. In addition to Hill, at least 20 other individuals have been convicted or pleaded guilty to charges associated with this multi-million dollar mortgage fraud scheme.
Owner of Ohio Mortgage Company Sentenced on Money Laundering and Income Tax Charges
On August 8, 2007, in Dayton, OH, Glen Hurst was sentenced to 30 months in prison, to be followed by two years of supervised release, and ordered to conduct 100 hours of community service. On May 25, 2006, Hurst pleaded guilty to conspiracy to launder money and income tax evasion. According to court documents and testimony, Glen Hurst was the owner/operator of American Funding Group, Inc. (American Funding), a mortgage brokerage firm in Dayton, Ohio. Earl Marshall, Janell Stephens, and others were clients of American Funding. Court documents further state that between August 1997 and March 2004, Hurst conspired with Marshall, Stephens, Debra Hurst, and others to launder the proceeds of an illegal source. Earl Marshall secured, either for himself or others, mortgage loans through American Funding. He provided information, much of it false, to American Funding, which was used to create fraudulent documents in support of loan requests. Glen Hurst was aware that these documents were based, at least in part, on false information provided by Earl Marshall and others. These loan requests were submitted to lenders and they were approved based in part on the fraudulent information. Glen Hurst willfully attempted to evade or defeat the income tax due to the IRS by failing to file a 1999 income tax return; failing to pay income tax to the IRS on the income he received; failing to file the 1999 corporate income tax return (Form 1120s) and Schedule K-1 with the IRS for American Funding; and by paying American Funding employee’s gross wages without any employment tax withholdings. All of this was done by Glen Hurst in an attempt to conceal his true source of income and the amount of income from the IRS. The total tax loss to the IRS in this case was $55,733. Additionally, on June 8, 2007, Debra Hurst, was sentenced to serve two years of probation and ordered to perform 50 hours of community service for willfully failing to file Employer’s Quarterly Federal Tax Returns, Forms 941, with the IRS. For the four quarters in 2003, Debra Hurst caused federal withholdings to be withheld from American Funding employees. However, she knowingly failed to file Forms 941 on each of the quarterly due dates reflecting these federal withholding amounts. American Funding employees were not issued Forms W-2 for the wages and withholding taxes attributable to them due to their employment.
Real Estate Closing Attorney Sentenced to Over Three Years in Prison in Mortgage Fraud Scheme
On August 8, 2007, in Atlanta, GA, Christopher Halcomb, a former Atlanta area real estate closing attorney, was sentenced to 37 months in prison, to be followed by three years of supervised release, and ordered to pay $15,619,742 in restitution. Halcomb was a real estate closing attorney for Phillip E. Hill of Blountstown, Florida, and also did legal work for Hill's related business entities. On March 14, 2007, Hill and nine co-defendants were found guilty by a federal jury of related mortgage fraud charges. According to the evidence presented in court, Halcomb participated in the mortgage fraud scheme orchestrated by Hill between early 2000 and early 2001. With the assistance of Halcomb, Hill and his co-defendants defrauded financial institutions and other mortgage lenders by fraudulently inflating property values and submitting false borrower qualifying information to obtain mortgage loans. In the overall scheme, the defendants conspired to use straw borrowers to apply for fraudulently inflated loans totaling over $100 million over a period of approximately three years. False employment, income, assets and liabilities were listed on loan applications to qualify the straw borrowers for these loans. Halcomb assisted Hill in defrauding the lenders and laundered the loan proceeds through escrow accounts. On January 8, 2007, the Georgia State Supreme Court disbarred Halcomb based upon his admission of his conviction and his voluntary surrender of his license to practice law in the state of Georgia.
Newport Beach Man Sentenced for Orchestrating Mortgage Fraud Scheme that Cost Lenders $9 Million
On July 2, 2007, in Los Angeles, CA, Kenneth Christopher Ketner was sentenced to 57 months in prison, to be followed by three years of supervised release, and ordered to pay $9,274,246 in restitution. Ketner who ran Mortgage Capital Resource Corporation (MCR) pleaded guilty in August 2006 to wire fraud and money laundering charges related to a scheme that cost lenders more than $9 million. According to court documents, Ketner and MCR used lines of credit from commercial lenders for the purported purpose of funding home loans for borrowers throughout the country. Rather than using the commercial lenders' money to fund mortgages as promised, Ketner diverted the money for his own use. To conceal that he had misappropriated the money, Ketner caused MCR to find new loans that lenders would agree to fund. Ketner then caused the money earmarked for these new loans to pay off the original borrowers whose funds he had misappropriated, thereby keeping the scheme alive.
Kansas City Businessman Sentenced for $17.5 Million Mortgage Fraud
On May 9, 2007, in Kansas City, MO, Jeffrey Tyler Wine was sentenced to 60 months in prison without parole for his role in a $17.5 million mortgage fraud scheme that involved 280 residential properties. In addition, Wine was ordered to pay $4,946,748 in restitution. In July 2006, Wine pleaded guilty to mortgage fraud conspiracy and money laundering. Wine admitted that from November 2001 to May 2005 he conspired with others to defraud mortgage lenders by inducing them to loan $17,558,440 to withholding amounts for the purchase of 280 residential properties. Wine was in the business of purchasing, rehabilitating, managing and selling residential properties in the metropolitan area through various business entities that he created and operated, including Sunrise Equities, Inc.; Sunrise Assets, LLC; Sunrise Investments Holdings, LLC; Brooklyn Properties, LLC; Arsenal Investments, LLC; Sunrise St. Louis, LLC; Woodland Properties and Larch Investments. According to court documents, co-conspirators, who included mortgage brokers, prepared false and fraudulent loan applications and supporting documents to submit to mortgage lenders in the names of victim-investors. Sometimes Wine and co-conspirators provided money to the victim-investors to deposit into their bank accounts to mislead the lenders regarding the buyers’ assets. They also furnished money for the victim-investors to take to closing to pay the buyers’ closing costs. While Wine and co-conspirators managed the rental properties, they submitted false monthly reports to victim-investors of rent received, expenses incurred, and income earned, and paid to the victim-investors the amount of income reflected. This induced victim-investors to purchase additional properties. Wine also pleaded guilty to money laundering, admitting that he engaged in a monetary transaction involving criminally-derived property, by drawing upon the funds obtained by fraud to purchase a 400-ounce gold bar for $177,000 in May 2005.
Defendant Sentenced to 46 Months in Mortgage Fraud Scheme
On April 11, 2007, in Charlotte, NC, Charles M. Gabriel, Jr., was sentenced to 46 months in prison and ordered to pay $278,367 in restitution. Gabriel pleaded guilty in December 2004 to one charge of conspiracy to defraud the United States. According to the Bill of Information, Gabriel created and used entities known as Southern Investment Properties, JW Settlement Services, SB Homes Carolina, DRE Settlement Services and NVG Carolina to induce prospective real property buyers to provide them with credit information in order to purchase real properties. Gabriel and his co-conspirators used a variety of methods to defraud mortgage lenders and real estate investors, including inflating the purchase price purportedly paid by buyers in obtaining mortgage loans in the name of those buyers. As part of this scheme, lenders lost approximately $2.4 million.
Indianapolis Man Sentenced to 37 Months in Prison for Mortgage Fraud Scheme
On February 23, 2007, in Indianapolis, IN, John Wagner, was sentenced to 37 months in prison and ordered to pay $1.75 million in restitution for his role in a mortgage fraud scheme. Wagner had pleaded guilty to conspiracy to commit mail fraud and money laundering. Wagner recruited “investors” for Romero Brice. Brice was sentenced to 87 months in prison on February 20, 2007 for fraudulently obtaining more than $4 million in loans from a Michigan lending institution. Brice bought properties in low income neighborhoods and then used “investors” to buy the properties at 3-4 times their fair market value. Wagner recruited numerous people, including his relatives to participate in the scheme. He held “investor” meetings and gave presentations to “investors” to convince them to participate in the scheme. “Investors” were encouraged to buy 3-4 properties at a time, for “no money down.” They were given $10,000 per property back at closing by Brice. For providing investors to Brice, Wagner received up to $2,000. Wagner was directly involved in 53 of the 83 fraudulent loans obtained by Brice.
Ohio Man Sentenced for His Role in Mortgage Fraud Scheme
On February 21, 2007, in Cincinnati, OH, Troy S. Clements was sentenced to 24 months in prison, three years of supervised release and fined $10,000 for his role in a $2.3 million mortgage fraud scheme. Clements pleaded guilty to money laundering and conspiracy to commit mail, bank and wire fraud. Clements and others recruited homebuyers by advertising that they could finance 100 percent of a house with no money down. When clients found a property that they wanted to buy, Clements reviewed the house for potential value and then bought it, if he determined that it could be refinanced for the final buyer. After buying the property, Clements would resell the property to the client borrower and have the client sign a note and mortgage due to a company that he owned called American Funding. The note and mortgage included an additional amount over what he paid for the property, referred to an “investor fee”. To pay off the note and mortgage, Clements directed employees of his mortgage company to arrange for refinancing loans to be obtained by the borrower from legitimate mortgage lenders. In order to obtain these loans, false documents were created and false information was supplied to lenders on loan applications. Clements laundered money by using the money acquired through illegally obtained mortgages and bought other properties with the money, which allowed him to continue the scheme.
Chicago Man Sentenced to 87 Months in Prison for Mortgage Fraud Scheme
On February 20, 2007, in Indianapolis, IN, Romero Brice, of Chicago, IL, was sentenced to 87 months in prison and ordered to pay $2.6 million in restitution for conspiracy to commit mail fraud and money laundering. Brice fraudulently obtained over $4 million in loans from a Michigan lending institution when he lived in Indianapolis, IN, by submitting false loan applications, fraudulent financial documents, and falsely inflating appraisals for the purpose of obtaining mortgage loans. The court found that the lender lost $2.7 million due to Brice’s fraudulent activities. As the owner Promise Land Mortgage, Brice bought properties in low income neighborhoods of Indianapolis and used “investors” to buy the properties at three to four times their fair market value. The investors were encouraged to buy several properties at a time, for “no money down.” Brice paid them $10,000 per property at closing. The Michigan lender approved and financed at least 83 loans, based upon the false documents submitted by Brice. False settlement statements (Forms HUD-1) were prepared and checks were issued to disburse loan proceeds. The falsely obtained proceeds were paid to Brice, primarily through a business he set up called Greenhouse Resources. Brice then kicked back money to the investors who purchased the properties and the recruiters who brought the investors into the scheme. False invoices were submitted to support the issuance of the checks, showing that Greenhouse and the individuals who had fronted the down payments were actually owed money by the sellers for services rendered. None of the loans were paid as agreed and the properties became the subject of foreclosure proceedings.
Multiple Defendants Sentenced in Mortgage Fraud Scheme
On February 20, 2007, in Hattiesburg, MS, Richard B. Lucas, Kimberly A. Castle, Kenneth Stalnaker, Loretta Joy Champ, Jacquelyne B. Mosley, Kenneth Fairley, Jr., and Michael T. Cox were sentenced for their involvement in a mortgage fraud conspiracy involving wire fraud in violation of federal law. In addition, Richard B. Lucas and Kimberly A. Castle were sentenced for conspiracy to commit money laundering. Lucas, the ringleader of the conspiracy, was sentenced to 168 months in prison, to be followed by five years of supervised release, and ordered to pay $1,326,727 in restitution to Countrywide Home Loans, Inc. Castle, who served as Lucas’s lawyer in handling all of the loan closings involved in the scheme, was sentenced to 48 months in prison, followed by three years of supervised release, and ordered to pay $1,390,250 in restitution. Stalnaker, a real estate appraiser who was charged with preparing inflated appraisals, was sentenced to 28 months in prison, followed by five years of supervised release, and ordered to pay $938,767 in restitution. Champ, who also prepared inflated real estate appraisals, was sentenced to nine months in prison, followed by three years of supervised release, and ordered to pay $152,089 in restitution. Mosley, another real estate appraiser, was sentenced to three years of probation with six months of house arrest. She was ordered to pay $120,000 in restitution. Fairley, who served as a straw buyer of properties for Lucas, was sentenced to five years of probation with six months of home confinement. He was ordered to pay $97,055 in restitution. Cox, who prepared bogus financial documents for Lucas, was sentenced to three years of probation with nine months of house arrest. He was ordered to pay $91,774 in restitution.
The five other defendants, Phillip N. Weary, William Vaston Fairley, Jafus Jones II, Kristy N. Packer, and Marcy Irby, pleaded guilty to federal charges and were sentenced on February 1, 2007. Weary, who was the nominal purchaser of all of the properties acquired as part of the scheme, was sentenced to 19 months in prison, followed by three years of supervised release and ordered to pay $925,540 in restitution. Fairley, who helped recruit investors, was sentenced to seven months in prison, followed by seven months in a halfway house and three years of supervised release and ordered to pay $355,475 in restitution. Jones, who also served as a recruiter for Lucas, received three years of probation with nine months of home confinement and was ordered to pay $128,120 in restitution. Packer, a straw buyer for Lucas, received five years of probation with six months of home confinement and was ordered to pay $191,888 in restitution. Irby, a straw buyer who testified about the scheme at trial, received 48 months of probation and was ordered to pay $101,673 in restitution.
Lucas arranged for Clark and Jones to recruit persons to serve as borrowers on mortgage loans for the properties with the understanding that the borrowers would put no money down and would often receive cash payments for use of their names and credit ratings. Where the borrowers’ credit histories did not support the mortgage loans, Lucas arranged for Cox to prepare false income statements and bank account information to be submitted to the lenders. In addition, Lucas arranged for Fairley, Packer, and Irby to acquire properties in their names.
Oklahoma Woman Sentenced to Prison for Bilking Investors of $3.3 Million
On January 29, 2007, in Oklahoma City, OK, Bobbie Stacy Andrews was sentenced to 46 months in prison and ordered to pay restitution of $2.6 million for defrauding investors of $3.3 million and laundering the scheme’s illegal proceeds. Andrews convinced investors that their $3.3 million would be used to buy mortgages for investment purposes; however, she actually used the money for her personal benefit and for business expenses. Andrews also admitted to engaging in a money laundering transaction over $10,000 with funds acquired through the wire fraud scheme. Andrews forfeited money seized from two bank accounts and forfeited a Harley Davidson motorcycle acquired with funds from the fraud.
Husband and Wife Among Defendants Sentenced on Fraud and Tax Charges in Mortgage Fraud Scheme
On January 19, 2007, in Miami, FL, Mary Jo Bellavia-Sabag, Sheila Henry and Howard Henry, husband and wife, Lindsay Jacobs, and Christe M. Eker were sentenced for their roles in a wide-ranging identity theft, mortgage fraud and real property theft scheme. The defendants had previously pleaded guilty to the following charges: Mary Jo Bellavia-Sabag pleaded guilty to money laundering and filing a false income tax return; Sheila Henry pleaded guilty to money laundering conspiracy; Howard Henry pleaded guilty to mail fraud; Lindsay Jacobs pleaded guilty to money laundering; and Christa M. Eker pleaded guilty to conspiracy to commit mail and wire fraud and filing a false income tax return. According court documents, the defendants and others orchestrated a scheme in which they created and used false deeds and other documents to fraudulently obtain title to various residential properties in Miami-Dade and Broward Counties. They then used the properties as collateral for mortgages, bank loans and personal lines of credit, obtaining more than $2.5 million in ill-gotten gains. On occasion, the defendants would re-sell the properties to unsuspecting buyers. Additionally, several of the defendants failed to report their illegally derived proceeds to the Internal Revenue Service. Mary Jo Bellavia-Sabag was sentenced to 50 months in prison; Sheila Henry was sentenced to 42 months in prison; Howard Henry was sentenced to 32 months in prison; Lindsay Jacobs was sentenced to 30 months in prison; and Christe M. Eker was sentenced to five months in prison. In addition, all defendants who pleaded guilty to tax charges were ordered to pay all income taxes due and owing.
Former Indianapolis Police officer and Two Indianapolis Area Businessmen Last of 16 Defendants to be Sentenced in Mortgage Fraud Schemes
On January 18, 2007, in Indianapolis, IN, Michael C. Smith, Joseph Britton and Mark Speckman were sentenced to prison following their jury convictions for conspiracy, wire fraud, and money laundering. Smith, a former Indianapolis police officer was sentenced to 57 months in prison, followed by five years supervised release, and ordered to pay approximately $1.1 million in restitution. Smith was convicted of two separate conspiracies to commit wire fraud and money laundering in connection with two mortgage fraud schemes ongoing in Indianapolis between 2001 and 2003. The schemes involved two separate mortgage brokerage companies – Quantum Investments and American Savings Mortgage (ASM). Smith worked part-time as a licensed real estate appraiser, providing inflated appraisals for loans to purchase real estate to the two mortgage brokerage companies. The appraisals were used to obtain loans on properties well in excess of their true value. Britton and Speckman were both sentenced to 33 months in prison, followed by three years supervised release, and ordered to pay $900,000 in restitution for their roles in providing properties for sale through ASM and then paying kickbacks to others in the scheme. Britton and Speckman bought properties, in the names of businesses that they either owned or were partners of, that were sold at approximately double their true value. After receiving the loan proceeds, they kicked back some of the money to the other involved in the conspiracy including the owners of ASM and the buyers of the properties.
Wilbraham Man Sentenced to Prison for Role in Multi-Million Dollar Mortgage Fraud
On January 18, 2006, in Springfield, MA, Michael Bergdoll was sentenced to two years and nine months in prison, to be followed by three years of supervised release and ordered to pay restitution in the amount of $318,000 to the victim lending institutions. On May 4, 2006, Bergdoll pleaded guilty to conspiracy to launder money and wire fraud in connection to his role in a land-flipping and mortgage fraud scheme. Had the case proceeded to trial, the Government’s evidence would have proven that Bergdoll conspired with others to purchase distressed properties and then re-sell the properties at artificially inflated values. Bergdoll induced prospective buyers by telling them they would not have to make any down payment and promising money back to the buyers at the real estate closing. The buyers were then referred to mortgage brokers who were involved in the land-flipping schemes. Since many of the prospective buyers did not have the financial ability to qualify for the loans, Bergdoll and his co-conspirators generated and produced false and fraudulent loans for the prospective buyers. The false documentation included false down payment information, fraudulent income information, and false documentation to show improvements to the properties that were never made. Bergdoll and his co-conspirators also used real estate appraisers involved in the scheme to generate false and fraudulent appraisals to support the loan amounts for the artificially inflated property values. Once the unwitting lending institutions approved the loan applications of the prospective buyers, Bergdoll and his co-conspirators then referred the buyers to attorneys also involved in the scheme. The attorneys generated false and fraudulent real estate closing documentation to facilitate and conceal the fraud. Bergdoll is the eleventh person to be sentenced for participation in this fraudulent land-flipping scheme.
Husband and Wife Sentenced on Tax Charges in Mortgage Fraud Scheme
On December 15, 2006, in Miami, FL, Scott Warren and Samantha Johnson, husband and wife, were sentenced following their roles a wide-ranging mortgage fraud scheme. Samantha was sentenced to 60 months in prison and Scott was sentenced to 12 months in prison. Together the Johnsons forfeited $500,000 in cash and were ordered to pay all income taxes due and owing. According to the indictment, Samantha Johnson and others orchestrated a scheme whereby they created and used false and fraudulent deeds and other documents to obtain title to residential properties in Miami-Dade and Broward Counties. They then used the properties as collateral for bank loans, personal lines of credit, and the like, obtaining in excess of $2.5 million. On occasion, the defendants would then profit by selling the properties to unsuspecting buyers. Additionally, the defendants failed to report their illegally derived proceeds to the Internal Revenue Service.
Three Corporations Ordered to Pay Over $7.5 Million in Federal Mortgage Fraud Case
On November 27, 2006, in Raleigh, NC, three corporations – Donald W. Gupton, Inc.; CRE Properties, LLC; and M & G Properties II, Inc. – were sentenced to five years probation and ordered to pay over $7.5 million in restitution. The corporations were also ordered to forfeit all property. Donald W. Gupton, president of Donald W. Gupton, Inc., pleaded guilty to commit mail fraud, wire fraud and making material false statements, as well as conspiracy to commit money laundering. His sentencing is scheduled for January 2007. Richard D. Meador and Donald Scott Carroll, co-conspirators with Gupton, have already been sentenced. On September 20, 2006, Meador was sentenced to 53 months in prison, three years of supervised release and ordered to pay $1,270,299 in restitution; Carroll was sentenced to 30 months in prison, three years of supervised release and ordered to pay $1,476,830 in restitution. According to information disclosed in court proceedings, Gupton, Meador, and Carroll falsified information on loan applications, provided false trade-in information and titles, provided false gift letters and false down payment information for prospective buyers. This lowered buyer’s debt to income ratio and allowed them to qualify for a loan. Between 1999 and 2002, the conspirators sold more than 150 manufactured homes resulting in HUD mortgages exceeding $11 million. Gupton used the proceeds from the fraudulent loan activity to purchase real and personal property for himself and to purchase properties placed in the names of CRE Properties, LLC and M & G Properties II, Inc.
Participant in $1 Million Mortgage Fraud Scheme Involving South St. Louis Properties is Sentenced to Prison
On November 22, 2006, in St. Louis, MO, James McMullen was sentenced to 38 months in prison for money laundering and conspiracy to commit bank and wire fraud in a mortgage fraud scheme that caused more than $1 million in losses. McMullen and co-defendants Rodney Tate and Reginald Mayes devised a scheme to buy property in St. Louis City for fair market value. The defendants arranged for false appraisals to inflate the property’s value, then paid people known as "straw buyers" who let them use their names and other financial information to “buy” the properties at inflated prices. The defendants prepared false loan applications which misstated the “straw buyers'” salary, employment history and financial assets and usually lied about their intention to occupy the property as a primary residence. Using this false information, financial institutions and mortgage brokers loaned them millions of dollars. Tate was sentenced in October 2006 to 57 months in prison and ordered to pay more than $1 million in restitution. Mays was sentenced to 36 months probation in early November.
Real Estate Attorney Sentenced for Laundering Drug Money
On November 3, 2006, in Seattle, WA, Joel Manalang, a real estate attorney, was sentenced to 18 months in prison, two years of supervised release and ordered to pay a $6,000 fine for money laundering. Manalang, a real estate attorney, operated an escrow business. Court papers allege that during 2003 and 2005, Manalang received large quantities of cash from clients under circumstances indicating to Manalang that the money was derived from drug trafficking. Manalang received the money in shoe boxes and duffle bags and assisted drug traffickers in the acquisition of real estate. On August 1, 2006, Manalang pleaded guilty and acknowledged that he knew the funds were derived from criminal activity. Additionally, he admitted that his actions were intended to conceal the true nature of the funds and from whom they were obtained. He also admitted to evading currency reporting requirements imposed by law. Manalang is one of four attorneys in the past year to plead guilty to financial crimes in connection to drug trafficking. James L. White, an attorney and Municipal Court Judge, was sentenced in December 2005, to 18 months in prison for money laundering. In a related case, A. Mark Vanderveen, an attorney, was sentenced to three months in prison and three months of home confinement for failing to file a currency transaction report as required by Federal law. Stephen J. Plowman pleaded guilty last month to failing to report cash transactions in excess of $10,000. He will be sentenced in January 2007.
Don’t let this happen to you.
The price for making the wrong choices about your real estate and mortgage activities can include stiff penalties and fines, and possible jail time. The IRS does not want this to happen to you.
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