Tuesday, February 20, 2007

Two Virginia Residents Allege Property Flipping In Class Action Suit

A class action lawsuit filed in October by two Martinsville residents who allege to have been scammed in a property flipping operation is the subject of a media report in today's Martinsville (Virginia) Bulletin, at martinsvillebulletin.com.

The suit, filed and currently working its way up the system in an Indiana Federal Court, alleges that some of the defendants bought modestly priced homes, inflated the property appraisals, and resold them to unwitting buyers for the inflated price.

The alleged ringleaders have been accused of recruiting unwitting "straw buyers" by inviting them to participate in a real estate investment club and who were told the club would buy rental property in the Indianapolis area, finance the purchases with loans that required no down payment or cash contribution from participants, and manage the properties at no cost to participants. Further, the participants were told that the properties would throw off enough rental income to both cover the house payments and pay profits to them, according to court filings.

Included in the allegations for one or more of the 21 named defendants are charges of fraud, theft by deception, civil conspiracy, negligence against the appraisers, negligent misrepresentation against the appraisers, and violations of both state and federal racketeering (RICO) statutes.

Indiana resident Robert Penn and Ace Appraisal Services are listed on the suit as the lead defendants among the 21 defendants named in the suit. To read more, see Another lawsuit alleges fraud.

To read the lawsuit, click here for Copy of Lawsuit - Watkins, Hairston, et. al. v. Robert Penn, Ace Appraisal Services, et al.

For a related ABC News Nightline story, see Giant Scam? Real Estate Dreams Dashed (Investment Club Turns Into a Nightmare Idea); or watch video - Nightline Online: Town's Boom & Bust.

Is The Sub-Prime Mortgage Market In Trouble?

It appears that the sub-prime mortgage market, which reportedly accounts for 20% of all new loans, is currently in the throes of a meltdown as ResMae Mortgage Corp. of Brea, California, filed for bankruptcy last week, becoming at least the 20th mortgage company to be sold or closed as delinquencies rise and the market for home loans to high-risk borrowers contracts.

Apparently, $308 million in loans that the company originated and sold off to Wall Street powerhouse Merrill Lynch & Company have gone sour prior to the expiration of the "early payment default" buy back period, during which Merrill can demand that ResMae buy back the loans. Merrill has exercised its rights to demand of ResMae a buy back of those bad loans. In bankruptcy filings, the company attributes its "crippled" operations on the buyback demands that have been made of it.

Reportedly, other Wall Street big shots like J.P. Morgan Chase & Co., HSBC Holdings PLC and others are also trying trying to force mortgage originators to buy back the same high-risk, high-return mortgages that the big banks were eagerly buying over the last couple of years. In particular, HSBC, which has recently added $1.76 billion to cover unanticipated losses from delinquencies and foreclosures on the sour mortgages it's stuck with, has reportedly sued several small mortgage originators in federal court in Illinois after they refused HSBC's repurchase requests.

In addition, other mortgage companies have either announced cutbacks in subprime production, quarterly losses, or sharply-elevated delinquency rates. Some major banks have announced staff reductions in subprime and moved to tighten underwriting rules.

(I wonder if these sub-prime mortgage market problems have anything to do with the proliferation of inflated, bogus appraisals, see Is The Real Estate Appraisal Profession In Trouble?, or so-called "stated income" loans (aka liars' loans), see Problems With Stated Income (Liars') Loans???)

Fasten your seat belt. The problems are only just beginning.

Sources:
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Missouri FBI Active In Mortgage Fraud Investigations

Receipt of numerous allegations about mortgage fraud schemes in the Springfield area has resulted in active investigations by the FBI, according to an article in the Springfield Business Journal Online Edition, reported at sbj.net.

Disproportionately high list prices for homes in some subdivisions and an upsurge in foreclosures has the local real estate community buzzing with speculation about possible widespread fraud.

Reference to one incident is made where, subsequent to a 2005 civil lawsuit against Realtor Charles Walker filed by a former business partner in which possible fraud-related allegations were made, authorities (local, state and federal) seized computers and documents from Walker's office pursuant to a search warrant.

To date, Walker has not been arrested, no charges have been filed against him, and officials will not comment on any possible criminal investigation of Walker himself, although reportedly, a joint FBI and IRS investigation into his business dealings is active.

To read the entire article, see:

FBI investigating alleged mortgage fraud in Springfield
(Abnormally high sale prices and foreclosures cause concern in real estate circles)
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Monday, February 19, 2007

New Hampshire Couple Battling Foreclosure Rescue Operator Over Home

A Manchester, New Hampshire couple with five young children is currently engaged in two court battles with MAK Investments, a local foreclosure rescue operator, over title and possession of the couple's home, according to a story on the Concord Monitor Online, at concordmonitor.com.

Further, the New Hampshire Banking Department issued a cease-and-desist order to the company last summer, in which it claims that MAK's lending practices violate state banking laws. The Department's staff attorney handling the case also asserts that MAK has used unethical business practices, like changing the terms of loans discussed verbally with homeowners when it comes time to sign the paperwork.

In investigating the company, the state found that over 10 homeowners facing foreclosure have lost their homes to MAK. A March hearing is scheduled where fines could be issued, restitution could be ordered and, in a few of the cases, homeowners might be able to get their homes back, according to a state spokesman. The state is also reportedly investigating two other companies for engaging in similar foreclosure rescue practices. For the whole story, see

Predatory lenders
(A growing fear of foreclosure has led many to lose their property to mortgage 'rescuers')
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South Carolina Manufactured Home Dealer Facing Fraud Allegations

Glenn Vaught, owner of Conway, South Carolina manufacured home dealer G&E Home Center has been named in two lawsuits by mortgage lenders in the past five months containing allegations that, in ten deals, he took over $1.5 million in loan proceeds for non-existent homes, according to an article in The Sun News' online presence, MyrtleBeachOnline.com. Two mortgage brokers have also been named in the suits as participants in the alleged fraud. No home buyers or appraisers were named in either suit.

The following points were reported in the article:

One of the brokers, Nancy Peterson, claims to have been duped by Vaught in the transactions she was involved in and, reportedly, is cooperating with the mortgage lender in one case (although she remains as a named defendant). She reportedly did confess, however, to being "a little too trusting and a little too lazy" in the application process by obtaining prospective buyers' loan application documentation from Vaught rather than getting the paperwork directly from the home buyer/borrowers thmselves.

The other broker, Mike Fortenberry, was unlicensed to originate these loans, now lives in Tennessee, and did not return telephone calls and e-mail messages.

Vaught is facing at least three other lawsuits brought by his home buyer customers, in addition to the two by the lenders.

Falsified borrowers' income statements, altered bank balances, phantom downpayments, and altered appraisals were involved in the fraud, according to court documents. The appraisers whose property valuations were allegedly altered are reportedly cooperating with the mortgage lender in one suit.

(There is no indication in the article as to the existence of any law enforcement investigations into the allegations made in the civil suits.) For the entire story, see

Conway home seller accused of loan fraud
(Horry's manufactured house problems continue to mount)
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Sunday, February 18, 2007

Is The Real Estate Appraisal Profession In Trouble?

In his blog, Whitecaps, blogger Bill McCrory of Coeur d'Alene, Idaho writes of appraisal fraud in real estate in which he includes links to a series of Realty Times articles that describe ways that appraisers are both:
  • pressured by lenders, loan officers, mortgage brokers and real estate agents to "not come up short" on their property valuations, and
  • stifled in their attempts to do something about ongoing frauds.

Links are also included to:

  • a 69 page report by the Federal Financial Institutions Examining Council that listed appraisal fraud "at the top of a list of third party mortgage fraud schemes that included such intriguing names as builder bailout, chunking, double selling, equity skimming, false down payment, fictitious mortgage loan, land flip, phantom sale, and straw borrower" and
  • a 12 page article that explains how widespread appraisal fraud puts homeowners at risk.

For more, including the aforementioned links, see:

Appraisal Fraud in Real Estate
("You cannot participate in the real estate business without committing felonies.")

In related Information...

1) See an online Appraiser's Petition containing the names of approximately 9,500 appraisers petitioning the Appraisal Subcomittee of the Federal Financial Institutions Examination Council ("FFIEC") for assistance in dealing with the pressure put upon them by lenders and others in the real estate industry to satisfactorily "hit the mark" on their property appraisals.

The mission of the FFIEC Appraisal Subcomittee "[i]s to ensure that real estate appraisers, who perform appraisals in real estate transactions that could expose the United States government to financial loss, are sufficiently trained and tested to assure competency and independent judgment according to uniform high professional standards and ethics." (see Mission of the ASC)

2) See Senate panel backs bill to crack down on appraisal fraud, an Associated Press article reporting about Senate Bill 85 currently pending in the Colorado state legislature that, if passed, would seek to prosecute anyone who pressures an appraiser to inflate property values.

The measure would prohibit mortgage brokers from pressuring or compensating an appraiser for an inflated appraisal. Violators would be fined $1,000 for their first offense and between $1,000 and $2,000 for later offenses. Appraisers, real estate agents and investors who participate in an appraisal scheme could also be prosecuted or sued and subject to triple damages. Mortgage brokers who have been sued and prevented from working in other states for unfair trade practices would lose their right to practice in Colorado as well.

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Saturday, February 17, 2007

Houston Area Law Enforcement Going Undercover To Fight Mortgage Fraud

The division chief over major fraud in the Harris County, Texas District Attorney’s Office has announced that they are beginning to go undercover to infiltrate mortgage fraud groups to fight mortgage fraud. “If you are involved in this type of crime, you just might be dealing with a Houston police officer,” said division chief Lester Blizzard. One undercover bust, involving an investigation of a title closing agent, has recently been made. To read more, see Mortgage fraud: the new white-collar crime, reported by KHOU-TV Channel 11 at their website, KHOU.com.

Click here for KHOU-TV's video report on the new undercover investigations, by Jeff McShan.

For a recent undercover bust involving Boston police and federal investigators, see

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Friday, February 16, 2007

New York Lawyer Pleads Guilty To Stealing $20 Million From Clients, Banks

Pleasantville attorney Anthony Bellettieri pleaded guilty in a White Plains Federal Court to one count of bank fraud and one count of mail fraud. A plea agreement entered into with federal prosecutors calls for a likely sentencing range of 10 years and one month to 12 years and seven months. In addition, Bellettieri agreed to pay up to $22 million in restitution to those he bilked and forfeit the properties he purchased with the ill gotten gains. Reportedly, the stolen money was lavishly spent on vacation condos, home improvements, a family wedding, high salaries for his law firm's employees, and new cars. Sentencing is May 18. To read more, see:

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Former NBA Great Mentioned In Atlanta Mortgage Fraud Trial

Former Atlanta Hawk great Dominique Wilkins has had his name thrown around in sworn testimony in the Atlanta Federal Court trial of Phillip E. Hill, Sr. and others involving an alleged "straw buyer" mortgage fraud flipping scam that has reportedly cost mortgage lenders tens of millions of dollars. To read more, see:


Go here for other posts on the Phillip E. Hill property flipping operation.

"Straw Scams" Lure Home Sellers & Buyers

Home sellers can find themselves lured into a "cash back" mortgage fraud "straw scam" by an unethical "buying team" (comprised of an agent, a knowing straw buyer, loan officer, and appraiser) making "above asking price" purchase offers (see for example, "Cash Back" Mortgage Fraudsters Target Home Sellers In Weak Markets).

Home buyers can also get lured into this scam. Sometimes, the scam will involve identity theft (see for example, Two charged with identity theft), where a knowing "straw buyer," when applying for the mortgage loan, uses the stolen identity of someone else who ends up being an "unknowing buyer" (and who only finds out about his/her victimization after the transaction is funded). Other times, the buyer is simply duped into believing that they are making a "hassle-free" real estate investment (see for example, Dayton Area Task Force Fighting Flipping). At times, the buyer will purchase the property and be paid a "fee" after the transaction is funded (see for example, Guilty plea in mortgage scam, where "buyers" were offered $1,000 for each deal they participated in).

These are just some examples of how people can unwittingly find themselves involved in mortgage fraud scams.
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Five Reverse Mortgage Scams To Watch Out For

For those looking for a basic understanding of what to look out for when protecting yourself against a possible reverse mortgage scam, see Five Reverse Home Mortgage Scams To Watch Out For.

Go here for other posts on reverse mortgage problems. zebra
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Thursday, February 15, 2007

Two Plead Guilty In Augusta Area "Cash Back" Fraud

Robert C. Thigpen and Erich J. Haskell pleaded guilty in an Augusta, Georgia Federal Court yesterday to a "cash back" scheme where HUD money was obtained and diverted to themselves and third party buyer Vance Johnson. The money was earmarked for repairs that were never done.

Reportedly, Augusta attorney William O. Key Jr. was in on the arrangement and served as the closing attorney on the fraudulent transactions. Mortgage fraud charges against him are currently pending.

To read more, see Two plead guilty to mortgage fraud, reported by The Augusta Chronicle.
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More On Minnesota "Cash Back" Fraud Investigation

This post follows up on the Minnesota mortgage fraud investigation referenced in my Tuesday post, Feds Probing "Cash Back" Scam Involving Over 60 Deals, involving closing agent Jill Lehn.

Reportedly, Ms. Lehn has written a four page article for the upcoming March issue of Minnesota Realtor magazine which details her misdeeds while working as a closing agent at First Advantage Title Company.

Lehn and co-defendant Isadore Stewart, a Bloomington real estate investor who has also pleaded guilty to one count of wire fraud in relation to three properties he purchased at inflated prices, are continuing their cooperation with the Internal Revenue Service in an ongoing investigation expected to net more arrests.

For more, see:

the St. Paul Pioneer Press report (at twincities.com)

Mortgage fraud's 'very hard lesson' (Jill Lehn pleaded guilty and lost her real estate license. Now she's sharing her story in a magazine article) (no longer available online).

and the Star Tribune story (at StarTribune.com)

Anatomy of a real estate fraud (A simple favor plus $3 million in fraud add up to regrets - and a pending prison sentence - for a former metro-area mortgage closer) (no longer available online).

California Home Equity Sales Contract Act - Articles & Cases

The Home Equity Sales Contract Act is the California statute (section 1695 of the California Civil Code) that regulates home sales contracts between home sellers facing foreclosure and their prospective buyers.

For two online articles that refer to this statute, see:

Seller in Default, Buyers Take Care, and
Preforeclosure Sales in California

In addition, for those of you who like reading court cases (available online courtesy of Findlaw.com), see:

Boquilon v. Beckwith, 49 Cal. App. 4th 1697; 57 Cal. Rptr. 2d 503; (Cal. App. Ct., 1st Dist., Div. 2, 1996)

  • about a California real estate agent who violated this law. The case involved a husband and wife facing foreclosure who sought out a real estate agent to discuss a refinancing of the home. The agent convinced the homeowners to deed the property over to her, after which the agent refinanced the property, but paid no equity to the homeowners and eventually evicted them. The homeowner was awarded damages against the real estate agent of approximately $39,500. In addition, the court found the real estate agent liable for an additional $19,500 in attorney's fees to be paid to the homeowner's attorney.

In re Phelps (2001) 93 Cal.App.4th 451 , 113 Cal.Rptr.2d 217 (Cal. App. Ct., 4th Dist. Div. 2)
  • about an individual who pleaded guilty to criminal violations of the Act. Subsequent thereto, the individual filed a petition for writ of habeas corpus. The court found that the individual's "[c]ounsel rendered constitutionally deficient assistance in advising, or permitting, him to plead guilty to violating the "Home Equity Sales Contracts" law." The appellate court granted the petition for writ of habeas corpus. The individual was permitted to withdraw his plea of guilty and the matter was sent back to the lower court for further proceedings.

Segura v. McBride (1992) 5 Cal.App.4th 1028 , 7 Cal.Rptr.2d 436 (Cal. App. Ct., 1st Dist. Div 4)
  • a case which raised "first impression questions concerning the class of persons regulated pursuant to [the Home Equity Sales Contract Act], as well as the measure of damages available thereunder."
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North Carolina "Cash Back", "Straw Buyer" Scam Nets 2

Businessman James Thomas Davis was sentenced to 200 months in prison in Raleigh Federal Court on conspiracy and fraud charges for his role in a mortgage fraud where he would target builders who had new homes on the market and offer them more than the asking price for the homes. In exchange, the builders would allow Davis to keep the difference between the asking price and the inflated offer, according to investigators.

Mr. Davis was convicted after a jury trial. Residential home builder David Layton, who admitted to prosecutors to conspiring with Davis in using phony real estate closing documents in the sale of the homes, was reportedly sentenced to four months in prison.

The scheme:
  • involved the use of "straw buyers" in consummating the bogus sales,
  • recruited renters to live in the properties and pay rent under a "rent-to-own" arrangement, and
  • used what essentially was a pyramid scheme by luring additional straw buyers and tenants to obtain new money to cover the cash shortfall between the monthly rents collected by the scammer and the higher house payments made to mortgage lenders.

To read more, see Two sentenced in mortgage fraud scheme, reported by The News & Observer, at newsobserver.com.

Go here for other posts on "rent to own" scams. rent to own lease purchase option scams zebra

Wednesday, February 14, 2007

Some NY Attorneys In Hot Water For Real Estate Related Fraud

Eight lawyers or former lawyers from the Lower Hudson Valley have been charged, pleaded guilty, sentenced, or investigated by state or federal prosecutors in the past two months, according to an article in The Journal News, reported at nynews.com.

Among the lawyers in hot water is Pleasantville attorney Anthony Bellettieri, who is currently under a federal investigation in the theft of more than $10 million from real estate escrow accounts of clients. Further, J.P. Morgan Chase has sued him and his firm in December, saying $17 million was stolen through a check-kiting scheme. The attorney representing Bellettieri's law partners - Robert Fonte and Tara Anne Laudonio - claims that his clients are also victims in the case.

For the full story, see Lots of lawyers are making headlines, but as defendants.

For other recent attorney related investigations for real estate fraud, see:

For other stories involving real estate related fraud by attorneys and closing agents, see this collection of reports at The Mortgage Fraud Blog, presented by The Prieston Group.
Go here for stories on other alleged escrow agent mishandling of funds. sneaky slick escrow agents alpha

$29 Million In Bad Loans In Chicago "Straw Buyer" Scam; Ringleader, 3 Appraisers Plea Guilty

Mohammad "Mike" Taghie Kakvand pleaded guilty in Chicago Federal Court Monday to one count of wire fraud in a mortgage fraud scam where units in 33 Chicago apartment buildings were sold off as renovated condominiums at artificially inflated prices using "straw buyers" who ultimately defaulted on $29 million in loans. A sentencing agreement with prosecutors has yet to be worked out. Sentencing is scheduled for May 9.

Bogus appraisals misrepresented the condition of the units as being rehabilitated when, in fact, no renovation had ever taken place. Real estate appraisers Thomas M. Groh, Eric L. Dorsey and Britt J. Pierre, have already pleaded guilty for their roles in the operation.

A fifth individual, Syed Ali Mohammed Razvi, was also charged in the fraud and is currently on the lam.

In addition to mortgage lenders such as Washington Mutual and Wells Fargo, the scheme victimized the community by reportedly
  • displacing renters,
  • leaving decaying, crime-plagued buildings,
  • increasing real estate taxes on surrounding property owners as a result of the artificial inflation of home prices, and
  • decreasing the amount of available rental housing.
To read more, see Guilty plea in mortgage scam, reported by the Chicago Sun-Times at suntimes.com.
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