Fraud Files VIII

"A Des Moines real estate agent gets two years in prison for improperly padding his commission from a mortgage company."

"He was accused of orchestrating a scheme from his office to improperly pad his commission from California-based Homecomings Financial."

"Fazio insisted during the trial that the fraud was carried out by a former office manager whom prosecutors had given immunity."

"Fazio was sentenced to three years' probation upon his release from prison and will also forfeit more than 45 thousand dollars from the sale of a house that he bought using misleading documents in the name of his former girlfriend."


WASHINGTON (MarketWatch) -- Question: I recently put my house in Los Angeles and was offered $675,000 for my home (which was $24,000 below the asking price) under the stipulation that the contract would call for a price of $775,000 and that I would give the buyer back the extra $100,000 at the close of escrow. I was told the lender didn't need to know and that the buyer's agent would "take care of the appraisal." I mentioned to my broker that I thought this was a fishy deal but she said there was nothing wrong with it. It is quite disturbing that someone you hire to help you could even consider presenting such an offer. I asked to terminate my contract with her and was told it would cost me $5,000 to get out of my listing agreement. Now I have to start the process all over again. I'm hoping you might have some knowledge on who I can contact to file a complaint.

~Rob Ramirez

Answer: "Good for you! Too many people jump at the chance to do something like you describe without considering the consequences, which could be a hefty fine and even jail time. And not enough of those who refuse to take the bait take their stories to the authorities."

"I believe you are in California, in which case you should call the Department of Real Estate in Sacramento. The agency regulates both the real estate business and the housing-finance sector. Hopefully, you have kept copies of all your paperwork so you can hand it over to DRE's investigators. Also it might be a good idea to sit down and put on paper your recollection of exactly what transpired."

"One of the country's top fraud fighters, David McLaughlin, an assistant attorney general in Georgia who says his goal in life is to put bad people behind bars, is warning anxious sellers not to be fooled by fast-talking "buyers" into believing they can get away with scamming lenders."

"There is no free-ride," he told me recently. "In our world, if it's too good to be true, 99 percent of the time, it is."

"There's no question that mortgage fraud has become what McLaughlin calls the "crime du jour," perhaps even the new favorite among drug traffickers and career felons who can make millions without worrying that a rival mobster will put a gun to their heads and pull the trigger or a cop will push their faces into the sidewalk."

"There's also no question that the extent of the crime is much larger than the $1.2 billion a year the FBI says it is. Why? For one thing, it often takes months or even years before lenders figure out they've been victimized. For another, only federally insured institutions are required by law to file suspicious activity reports in which such fraud might be discovered."

"But McLaughlin thinks the lending business hasn't seen anything yet. With the inventory of unsold houses building daily in many markets and price gains beginning to slow or even disappear entirely, he worries that mortgage fraud is about to shift into high gear."

"Here's how this crime fighter thinks a typical scheme will go down: Hapless homeowner Harry wants to sell his house but so far there have been no takers. Harry's getting anxious because prices are starting to dip a bit in his neighborhood and if he doesn't sell soon, he won't make enough to move up the ladder to a bigger and better place."

"Or perhaps he more than "wants" to sell. Maybe he must sell because he bought at the top of the market and now it looks like he may lose his shirt."

"Whatever the seller's sad story, along comes a fake buyer who proposes a happy ending. He'll not only buy Harry's house, he'll pay $100,000 more than Harry's asking. All Harry has to do is give back the extra hundred grand in cash after the deal closes. The lender, Harry's told, will never know the difference."

Bite, says McLaughlin, and you're an accomplice to a felony.


Florida Huge Fraud Case

"Twenty-four people face charges in an identity theft ring where some participants, including a mortgage company owner, were involved in a mortgage fraud scheme on 180 properties. Philadelphia prosecutors allege that of the group of 24 involved, 10 people led by Allen Smith were charged with aggravated identity theft and bank fraud for using the personal information of hundreds of Commerce Bank, M&T Bank, PNC Bank, and Wachovia Bank customers."

"The group used social security numbers and bank account numbers to cash bogus checks and withdraw money from bank customers' accounts. 10 people were also charged with identity fraud and wire fraud for their part in a mortgage scheme."

"A group led by real estate investor Mahn Huu Doan, who used the name Bruce Doan, bought 180 properties in Philadelphia by using stolen identities and bogus documents to secure loans. Most of the loans were originated through Encore Mortgage Services. The owner of Encore Mortgage Services, Vincent Sirolli, is also charged in the case."


"A Newport Beach man pleaded guilty Wednesday to federal charges of wire fraud and money laundering after investigators uncovered a scheme that cost lenders more than $9 million. Kenneth Christopher Ketner, 57, ran Mortgage Capital Resource Corp., a company that offered home loans nationwide. The company obtained money from commercial lenders, but Ketner used the money to make car, credit card and boat payments. Ketner is likely to serve five years in prison under the plea deal."


"Two Utah men will be sentenced Sept. 11 for taking part in an equity-skimming investment scheme. Kevin Lawrence Wright, Washington County, and Michael Stephen Hurst, Davis County, previously pleaded guilty to third-degree felony securities fraud in 3rd District Court."

"Both were criminally charged with talking a Utah couple into buying a Bluffdale home for $590,000, but the couple was urged to get loans for $810,000 on the house. The Utah State Attorney General's Office said the investors were then told they could get $75,000 as a reserve for making mortgage payments, while Wright said the remaining equity would be invested in a mutual fund called Capital Enhancement Fund."

"The couple was told they could earn an 8 percent to 10 percent profit on the fund and could even get as much as 30 percent. However, after the house was purchased, no money went into the fund, according to the Attorney General's Office. Instead, a title company used the money to pay one of Wright's debts and gave money to Hurst, who spent it on a diamond scheme."

"Among other things, the investors were not told about Wright having three judgments against him for a total of $327,000, in addition to $56,000 in back state taxes."


"Two Grand Strand real estate agents who have been accused of mortgage fraud agreed to permanent revocation of their sales licenses Wednesday."

"Also, the state's Real Estate Commission denied a license application by a third area man who was accused of falsifying information on loan documents."

"Jack Barnhill and Karl Moser, both of Barnhill Realty Co., relinquished their real estate licenses just minutes before the commission was to hold disciplinary hearings against the men."

"Barnhill, the agency's broker-in-charge, and sales agent Moser were accused of falsifying a $10,000 down payment on loan documents for a home they wanted to sell last year to Robert Romaniello Jr."

"The commission also denied a license application by Henry Curtiss, who had been working for the past year with a provisional license for Exit Grand Strand Properties."

"Curtiss was among three Grand Strand men who agreed in May to permanently surrender their manufactured home sales licenses to avoid disciplinary hearings by the S.C. Manufactured Housing Board."

"Curtiss, a former salesman for Beach Homes, was accused of falsifying a $6,500 down payment in 2004 on a manufactured home sold to Bill and Susan Watts. Beach Homes owner Randy Conner and salesman Charles Michael Roy were the other men who turned their licenses in to the housing board."


"Last year, a mortgage broker in the Tacoma, Wash., area filed a false second lien against a property as it was headed to closing. The man planned to take advantage of an unsuspecting couple and quietly pocket $24,000 into his own account when the loan eventually funded."

"The Tacoma case was investigated and prosecuted, thanks to a special pool of funds earmarked for mortgage fraud. Other states, including California, also have adopted a Mortgage Lending Fraud Prosecution Account funded by a $1 or $2 surcharge tacked onto every recorded deed of trust in the state."

"According to the Washington state attorney general's office, this cash — about $1 million annually — allows authorities to more readily field complaints and scrutinize every step made by players in the mortgage lending process. Mortgage fraud investigations often involve recovery of files stored on computers and detailed analysis of voluminous loan documents and financial records. These processes can be quite costly and take several months to complete."

"Prosecutions also are rather lengthy because mortgage fraud schemes typically involve multiple layers of transactions and large volumes of data, all of which must be presented through numerous witnesses. Chuck Cross, director of consumer services for the Washington State Department of Financial Institutions, said the fund made possible eight mortgage fraud convictions in 2005, and another 35 cases are ready to go."

"Loan officers who submit false information about a buyer's qualifications to push through a deal may be guilty of theft by deception as well as other crimes, such as forgery, according to Rebecca Jacobsen of the Washington attorney general's office."

"When consumers think of forgery, they often visualize the signing of someone else's name on a check. However, it is forgery to create a false document, or materially alter a written document, with the intent to perpetrate a fraud. It is also forgery to offer or pass off as true a document known to be forged with the intent to carry out a fraud."

"For example, documents that are regularly created or altered in mortgage fraud schemes include "gift" letters that purport to explain the origin of down-payment funds, employment histories, income verifications and citizenship records."

"If a loan representative does not create or alter the documents but is aware that the documents are false, the representative still commits forgery by forwarding the false documents to a lender for use in making a financing decision. That includes a $24,000 fake lien that would have gone directly into a loan officer's pocket."