Fraud Files IV

Real Estate Fraud Right Here at Home
"Most sellers are also buyers. Sellers are often buying a larger or more expensive house or a house in a different area, and coordinating the sale of the first property with the purchase of the second one can be tricky. A recent California appellate decision illustrates what happens when an unscrupulous or incompetent real estate agent gets involved in one of these situations."

"In Strebel vs. Brenlar Investments, a Sonoma County jury found that fraud was perpetrated on the sellers and buyers. This case, decided Jan. 11, 2006, helps establish what damages a seller or buyer can obtain from a real estate agent (especially a dishonest one)."

Here are the facts:
"In August 1999, when the market was escalating rapidly, John P. Strebel entered into a contract to buy a house in Sonoma for $420,000. Strebel did not know that the property had tax liens and judgments against it that exceeded the purchase price. Haya Smith, working for Frank Howard Allen & Co. (Brenlar Investments), was the dual agent representing the buyer and seller of the property."

"The agent knew about the liens and judgments, but the jury found that she concealed this information from Strebel, the buyer. When Strebel found out about the tax liens, Smith told him not to worry, because the sellers were working to reduce the liens. Smith assured the buyer that the sellers were ``taking care of it and escrow would close; they were moving forward with the transaction.'''

"Believing that his purchase was going through, Strebel put his San Bruno home on the market and ultimately sold it in August 1999 for $424,950. That sale was contingent upon his purchase of the Sonoma property."

"The San Bruno home's escrow was to close on Sept. 3, 1999. After receiving further assurances from Smith that the purchase of the Sonoma house was on track, Strebel sold his San Bruno home as scheduled, moved out, and put his belongings into storage."

"It wasn't until October 1999 that the sellers of the Sonoma house told Strebel they could not sell the property because of the outstanding tax liens. Unfortunately, because of the escalating market, Strebel couldn't find another house, and by September 2001, he was effectively priced out of the Sonoma real estate market."

"Strebel's claim for damages was based on the lost appreciation of the San Bruno house between its sale in 1999 and the trial in 2003. The jury awarded Strebel $183,427 for that lost appreciation."

"What happened in this case happens all the time."

"When you're buying a property while selling your home, make sure the two transactions are connected. If you sell, but then your purchase deal falls through, you're in an awkward position, at the very least."

"On the other hand, it's no better if you succeed in buying a house but can't get your own home sold. Some real estate agents will suggest that you get a bridge loan in order to make payments on three mortgages."

"Generally, that's an unwise choice."

"So, seller and buyer beware -- when you're buying and selling at the same time, it's like trading baseball cards. Make sure you get the card you want before letting go of your card, or you could end up empty-handed."

ABC News
Mortgage woes invite scammers

"Janice McKay supports eight family members by working two jobs in Brooklyn, N.Y., and when she lost one of her jobs, she started falling behind in her mortgage payments."

'"I was stressed and anxious," she said. "I felt like things were closing on me."

"So when a sales team came to her door offering to take over her payments, she jumped at the chance. The catch was that she had to sign her home over to them. They promised it was only temporary. But they did not pay the mortgage and McKay is now facing foreclosure."

"Authorities say scams like this are on the rise as more homeowners find themselves in trouble.
That's because buyers tempted by adjustable-rate mortgages back when interest rates were low are now facing much higher payments."

"That has made them easy prey for unscrupulous lenders."

"Most people are at risk of foreclosure in the first five years of owning their home, experts say. Often unexpected things happen, like having a baby or having to make a major repair in the house."

"Nationally, more than 323,000 homes were in some stage of foreclosure during the first quarter of this year, up 72 percent from a year ago."

"Janice McKay has taken legal action to try and save her home. She warns others that it is easy to get duped when you are vulnerable."


Scammed in Colorado
"Investors from Castle Rock to Fort Collins who have filed a succession of lawsuits alleging real estate fraud by a group of Windsor-based companies specializing in real estate debt relief soon may get help from federal and state officials."

"Dozens of investors -- including Kelly Young, widow of slain Denver detective Donald Young -- have filed lawsuits, hoping to recoup millions of dollars in losses as a result of real estate deals gone sour."

"Now, state and federal regulators and prosecutors are looking into the operations of Darin V. DeVoe, who operated through companies -- including Home Owner's Solutions, Home Owner's Trust and The DeVoe Group -- that are named in a dozen or more lawsuits alleging fraud, breach of contract and deceptive business practices."

"But DeVoe can't be found, leaving investors scrambling to salvage their credit and avoid foreclosures -- and even bankruptcy, attorneys said."

"Danny and Kay Baca of La Salle are among investors who meet in a monthly support group in Greeley to find out the latest. They claim to have been caught up in a "nightmare" of financial dealings with DeVoe and companies, including The DeVoe Group, Home Owner's Solutions, Home Owner's Mortgage, Home Owner's Trust and several other firms that they claim in lawsuits were involved in numerous real estate scams."

"Many investors said they met DeVoe through church groups or friends and, after doling out tens of thousands of dollars each on homes and condo investments, they're wondering how it all unraveled -- and watch as many of the investment properties go into foreclosure.
From 2002 to 2006, investors have filed lawsuits in Denver, Douglas, Grand, Larimer and Weld counties. DeVoe hasn't officially answered most lawsuits, and in many cases, he hasn't been served because he can't be found."

"DeVoe, through his Windsor-based Home Owner's Solution business and others, approached investors and explained how his companies were set up to help people avoid foreclosure and keep their homes. Most investors said they weren't promised a financial windfall, but expected to earn about $50 to $100 in monthly "profits" on each home in which they invested, attorneys said."

"The complaints allege DeVoe and his companies would find people in financial trouble -- often homeowners facing foreclosure. Those homeowners would borrow money -- in an agreement similar to a second mortgage -- and sign a quit-claim deed and promissory note. Contracts noted that homeowners' houses could be taken if payments weren't made, and the homes were leased back to residents with an option to buy, the complaints allege."

"Investors claim in the lawsuits that DeVoe would sell homes to investors at "inflated prices," requiring investors to take out mortgages. He then gained possessions to the homes through little-used "land installment contracts," and purportedly managed them, promising to maintain the homes, find renters if necessary, and pay homeowners' association fees and taxes. DeVoe would pay investors monthly payments, including a small "profit."'

"But when investors stopped getting their payments from DeVoe, according to the lawsuits, they were stuck with homes they couldn't sell. They claim they also ran into trouble with the Internal Revenue Service over federal taxes and were sued by various homeowners' associations for non-payment of dues."


Texas AG warns home buyers of scam
The Texas Attorney General's Office is warning home buyers to beware, saying that companies are placing bogus signs in front of homes that are not for sale.Officials said most of the complaints have come from non-English speaking home buyers.The scammer usually poses as a real estate agent, then convinces the customer to write a check for the deposit on a home that's not for sale.The office said to make sure extensive research is done before handing over any checks or money.If you have been a victim of this scam, contact the Texas Attorney General's Office.

Building Home for Disabled Vet not profitable to Mercedes Homes
"Most nights, Kenneth LaCruz tugs himself into bed in the couch in his living room.
Upstairs, a king-sized bed beckons. But LaCruz, a 44-year-old disabled veteran with multiple sclerosis, can't climb up the stairs to reach that bed."

"He put down a $1,000 deposit to buy a new wheelchair-accessible house in Brandon, with help from a $50,000 grant from the U.S. Department of Veterans Affairs that helps disabled veterans purchase functional homes."

"Instead, LaCruz said, builder Mercedes Homes sold the property he had contracted to buy - and kept his deposit. Another family built on the lot and lives there today."

"Hillsborough County sued Mercedes Homes in 2003 for discrimination based on his disability, saying the builder violated the county's human rights ordinance by refusing to build a home for LaCruz. The case is still pending in Hillsborough Circuit Court."

"As a young man, LaCruz wanted to build a career in the military. In the late 1970s, the Marines sent him to Okinawa, off the coast of Japan, and California. He switched to the Air Force and worked on cargo planes until 1985. But a growing numbness on the right side of his body cut those aspirations short. He joined the U.S. Postal Service. In 1992, LaCruz bought a two-story house in Lakeview Village. The numbness worsened, and doctors diagnosed multiple sclerosis.
By 2001, LaCruz could no longer get upstairs without help. He began looking for a livable, one-story home."

"He met Brandon real estate agent Tommy Lovett, another former Marine. In a training accident, he had been paralyzed below the waist. The two men formed a fast bond.
With Lovett's help, LaCruz found Woodberry, a gated subdivision in Brandon where neighbors take walks on quiet streets."

"In it, they found the perfect home: a four-bedroom Jacqueline Bay model by Mercedes Homes. With grants from the VA, LaCruz planned to build a house on Berry Bramble Drive. It would conform to VA specifications: doorways at least 3 feet wide and hallways 4 feet wide, a wheelchair-friendly concrete platform outside the front door and a roll-in shower."

"LaCruz and Lovett say that those early discussions with Mercedes real estate agent Barbara Lanz came with a warning."

"The men allege that while they were talking about a house for LaCruz, Lanz said that Mercedes Homes had experienced problems working with another disabled client and would not want to work with LaCruz."

"In June 2001, LaCruz reached an agreement with Mercedes to buy the home for $243,000. The contract signed by LaCruz and Lanz has a list of modifications including ramps, grab bars, shower specifications and other amenities. Weeks after the contract, a Mercedes Homes architect showed LaCruz drawings for a standard Jacqueline Bay model, without modifications for a disabled client."

"After LaCruz objected, architects drew another set of plans. LaCruz rejected those too. The redrawn plans bore little resemblance to the modifications that Mercedes had already agreed to make, Lovett said."

"LaCruz and Lovett lodged a complaint with the Office of Fair Housing and Equal Opportunity, part of the U.S. Department of Housing and Urban Development, which investigates complaints of discrimination in housing, and with the county's Equal Opportunity Office."

"In January 2003, the sides met to come to an agreement. Instead, Lovett said, a Mercedes representative told him that the company had sold the property on Berry Bramble Drive.
"Their idea was to crush us," said Lovett, who spent the next two years writing letters to government officials and politicians about the case. He also published a book, Doors Wired Shut, about the case."

"In March 2003, Hillsborough County's Equal Opportunity Office filed a lawsuit against Mercedes Homes with funds supplied by HUD. The county's human rights ordinance and the federal Fair Housing Act prohibit making a home unavailable based on disability or refusing to negotiate. The discrimination suit is the first of its kind that has gone to court, said Gail Williams, a county equal opportunity specialist."

"Williams declined to discuss the county's case against Mercedes Homes, but said that builders cannot legally deny reasonable housing to a disabled person."

"Last July, Mercedes attorney Patrick Roche wrote to LaCruz's attorney offering to build a Jacqueline Bay model home in a different subdivision in Valrico for "a substantial increase" from the $243,000 price agreed to in 2001. He also said LaCruz could accept a less expensive model in the subdivision. LaCruz refused."

"Since then, he's begun to look for another house. He has narrowed his choices down to properties in Valrico and Apollo Beach. "I needed a fresh start," LaCruz said.
Driving home on Lakewood Drive, he inevitably passes the Woodberry subdivision.
Houses in the neighborhood have multiplied since 2001, leaving LaCruz all too aware of the financial windfall he has missed."

'"I think, this is where I'm supposed to be," he said. "This is where my family is supposed to be."
He keeps his eyes straight ahead."


Senior Scammers in Reno
"A Reno investment company is accused of intentionally defrauding seniors out of more than 800 thousand dollars. This is not the first time the people involved have been accused of this scam."

"Nationwide Consulting runs ads in the Reno Gazette-Journal promising 12 to 42 percent returns on investments. The problem is, once investors give the money they claim they never see it again."

"Attorney Ann Hall is representing those investors who answered these ads, which are intentionally targeted towards seniors."

"There's a group of investors who came to see us because they have been bilked out of more than 800 thousand dollars."

"According to the lawsuit, Ernst Behr or Nationwide Consulting promised quick money by investing in currency exchange and revamping distressed real estate to be sold at a profit.
But Hall says no money was ever invested and that the properties never existed."

"The plaintiffs invested money for three years, but say they never saw any return, and when they asked to see proof of where the money went they say they were showed none.
Hall, "This is a serious case of fraud, misrepresentation, breach of contract, breach of good faith, there are several causes of action that we are going after."'

"Behr and Nationwide Consulting have previously been sanctioned in Colorado for similar complaints. They have also been the focus of a federal investigation of cheating people out of more than a million dollars."


Real Estate Fraud Investigations Increase
"In recent years, the booming real estate market has helped increase mortgage fraud and other phony real estate related schemes. The perpetrators of these schemes range from mortgage brokers looking to make a fast buck to drug dealers laundering their ill-gotten gains. Every year, these fraudulent schemes victimize individuals and businesses from many walks of life, including struggling low-income families lured into home loans they can’t afford, legitimate lenders saddled with over-inflated mortgages and honest real estate investors fleeced out of their investment dollars."

"Through federal tax fraud investigations and money laundering charges, the Internal Revenue Service is playing a key role in the fight against real estate fraud."

"The number of real estate fraud investigations initiated by IRS Criminal Investigation (CI) doubled in just two years. Similarly, the average prison term handed out by federal judges to defendants in these schemes nearly doubled over the same period (from 24 months in FY 2001 to 46 months in FY 2003)."

"In addition, the IRS has more than 4,000 returns under audit involving individuals and entities associated with the real-estate business."

Some of the more common schemes seen by IRS criminal investigators include:

'“Property Flipping” — A buyer pays a low price for property, 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."

"In these real estate fraud cases, money laundering is often the mechanism used to hide income from the government. Money laundering is the process of attempting to make money earned illegally appear to be legitimate. Many criminal tax investigations focus on money laundering because it is often inseparable from tax evasion."

Case Summaries
"The following case summaries are based on public record court documents on file in the judicial district in which the cases were prosecuted."

"On April 24, 2003, in Indianapolis, Ind., Paul A. Dailey, owner of Platinum Mortgage Brokerage Firm of Indianapolis, was sentenced to 105 months in prison, followed by three years supervised release, and ordered to pay $3.7 million in restitution. Dailey pled guilty to conspiracy to commit mail fraud and money laundering."

"He operated Platinum Mortgage in Indianapolis from 1998 until May 2001, during which time the company brokered more than 100 fraudulent residential mortgages on properties principally in Center Township in Indianapolis. Dailey and other members of the conspiracy, 13 of whom have been convicted, recruited several real-estate appraisers and closing agents to assist in the fraudulent scheme."

"Basically, the properties were appraised for two to three times their true value. Straw purchasers obtained loans on the property well in excess of their true value, the members of the conspiracy shared the profits and the purchasers defaulted on the loans, leaving the properties abandoned and boarded up. After mortgage lending companies refused to lend money to the Platinum Mortgage customers, Dailey moved to Detroit and opened another mortgage brokerage company, Monumental Mortgage, and continued the scheme there. The total amount of loss attributed to the schemes is more than $8 million."

"On July 3, 2003, in Indianapolis, Jeffrey Neely was sentenced to 170 months in prison, three years supervised release and ordered to pay restitution of $2,055,000. He had pled guilty to conspiracy, mail fraud and money laundering. Neely was indicted, along with six other defendants, in a mortgage-fraud and money-laundering conspiracy involving loans obtained through Investors Mortgage Group (IMG) on residential properties in Indianapolis from July 1999 to June 2002."

"Neely was one of the owners of IMG and was the leader and organizer of the criminal activity, who recruited closing agents, appraisers, investors and other persons to assist in the scheme. During the course of the scheme, about 75 fraudulent loans were obtained on properties. Almost all of the loans went into default, resulting in losses to the lender of about $3,000,000."

"On Aug. 18, 2003, in Greenbelt, Md., Alton F. Bivins was sentenced to 57 months in prison, three years of supervised release and ordered to pay restitution of $297,188. As the loan officer for the First Capital Acceptance Corporation and Mortgage Corporation of Maryland, Bivins assisted his sister, Karen Bivins, and Donald Osorio in spending their drug proceeds to purchase real estate."

"As the loan officer, Alton Bivins submitted false loan applications and documentation, including false W-2's and false employment verification, to obtain the mortgage loans. The drug proceeds of Osorio and Karen Bivins were used for down payments and closing costs to complete the transactions. The properties involved were valued at over $1.1 million."

"On Sept. 17, 2003, in Des Moines, Iowa, Steven Tod Davis was sentenced to 37 months in prison on bank fraud and money laundering charges. Davis was also ordered to serve five-years supervised release, fined $10,000 and ordered to pay restitution of $1,860,403.50. At his plea, Davis said he formed a company called Eastgate Development to purchase and develop a 40-acre parcel of land in Ames, Iowa."

"The land was to be developed into commercial lots for resale. During November and December of 1997, he raised a total of $1.2 million from 24 investors, each of whom contributed about $50,000 for the purchase of the land. Davis further admitted that in May of 1998, he obtained a $1.8 million line of credit from the First National Bank, and in June of 1999 obtained a $1.5 million line of credit from the Hardin County Savings Bank."

"He explained to both financial institutions that the purpose of the loans was to develop the infrastructure of the property. Davis said he used about $1.8 million of the loan money for purposes other than developing the property, including using the money for his own personal use and injecting funds into other business ventures. He also admitted that he used $300,000 of the money to make a payment on a jet aircraft loan with another financial institution."