Real Estate Professionals Arrested in Mortgage Fraud Scheme

Here is another example of a recent legal case involving mortgage fraud. I try to post case summaries in order to provide timely updates to real estate professionals on important issues.

On June 3, 2009, five people were arrested for their roles in a mortgage fraud scheme in the Washington State that bilked banks and property sellers out of more than $18 million. The arrests came as a result of an extensive investigation by United States Immigration and Customs Enforcement (“ICE”).

Humerto A. Reyes-Rodriguez, Alexis Ikilikyan, Micki S. Thompson, Mario Marroquin, and William S. Poff were indicted by a federal grand jury last month on charges of money laundering and conspiracy to commit bank and wire fraud (they were arrested on June 3, 2009). The indictment alleges that over a three-year period starting in 2004, they were responsible for 80 fraudulent loan transactions in communities throughout King County and Pierce County, Washington.

Mr. Reyes-Rodriguez and Ms. Ikilikyan were licensed real estate agents and mortgage loan originators. Mr. Poff is Ms. Ikilikyan's ex-husband and was a licensed notary and loan originator. Mr. Thompson was employed by Great American Escrow and acted as the closing officer for many of the fraudulent sales. Mr. Marroquin acted as a straw buyer and oversaw fictitious home repair companies.

According to court documents, the five defendants worked together to obtain financing from banks to purchase homes. At the same time, they convinced innocent home sellers to extend private loans to the buyer of the home to cover a portion of the purchase price.

The sellers did not know that the conspirators had already obtained financing from commercial lenders to cover the full cost of the home. When payments were not made, the properties fell into foreclosure. The homes were then sold for less than the total of all loans secured for the property. The sellers who had extended private loans to the buyers were left with nothing.

The conspirators also used straw buyers to purchase and resell properties and then submitted false information to the banks such as employment, income, citizenship status, assets and liabilities. They submitted bogus appraisals and hired fictitious home repair companies to do repair work on the properties. Proceeds from the home sales would go to the fake companies that had, in fact, done no work.

This case uncovered a group of real estate professionals who manipulated home sales for pure profit while some of the properties went into foreclosure and innocent private citizens were defrauded.

The conspiracy and money laundering charges are punishable by up to 20 years in prison and a $1 million fine. An indictment is merely a formal charge by the grand jury. Each defendant is presumed innocent unless and until proven guilty in court.

I will try to keep following this case and post an update when the case is ultimately resolved, hopefully with all of the defendants getting long prison sentences.

Source: U.S. Department of Justice press release (portions of press release used with permission)

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To learn more about a variety of real estate topics, please visit us at www.123ConEd.com. We are the leading online provider of Michigan real estate continuing education. All of our courses are fully approved and properly certified by the State of Michigan, and are offered online.

Copyright © 123 ConEd LLC 2009. All rights reserved.

Real Estate Professionals Arrested in Mortgage Fraud Scheme

Here is another example of a recent legal case involving mortgage fraud. I try to post case summaries in order to provide timely updates to real estate professionals on important issues.

On June 3, 2009, five people were arrested for their roles in a mortgage fraud scheme in the Washington State that bilked banks and property sellers out of more than $18 million. The arrests came as a result of an extensive investigation by United States Immigration and Customs Enforcement (“ICE”).

Humerto A. Reyes-Rodriguez, Alexis Ikilikyan, Micki S. Thompson, Mario Marroquin, and William S. Poff were indicted by a federal grand jury last month on charges of money laundering and conspiracy to commit bank and wire fraud (they were arrested on June 3, 2009). The indictment alleges that over a three-year period starting in 2004, they were responsible for 80 fraudulent loan transactions in communities throughout King County and Pierce County, Washington.

Mr. Reyes-Rodriguez and Ms. Ikilikyan were licensed real estate agents and mortgage loan originators. Mr. Poff is Ms. Ikilikyan's ex-husband and was a licensed notary and loan originator. Mr. Thompson was employed by Great American Escrow and acted as the closing officer for many of the fraudulent sales. Mr. Marroquin acted as a straw buyer and oversaw fictitious home repair companies.

According to court documents, the five defendants worked together to obtain financing from banks to purchase homes. At the same time, they convinced innocent home sellers to extend private loans to the buyer of the home to cover a portion of the purchase price.

The sellers did not know that the conspirators had already obtained financing from commercial lenders to cover the full cost of the home. When payments were not made, the properties fell into foreclosure. The homes were then sold for less than the total of all loans secured for the property. The sellers who had extended private loans to the buyers were left with nothing.

The conspirators also used straw buyers to purchase and resell properties and then submitted false information to the banks such as employment, income, citizenship status, assets and liabilities. They submitted bogus appraisals and hired fictitious home repair companies to do repair work on the properties. Proceeds from the home sales would go to the fake companies that had, in fact, done no work.

This case uncovered a group of real estate professionals who manipulated home sales for pure profit while some of the properties went into foreclosure and innocent private citizens were defrauded.

The conspiracy and money laundering charges are punishable by up to 20 years in prison and a $1 million fine. An indictment is merely a formal charge by the grand jury. Each defendant is presumed innocent unless and until proven guilty in court.

I will try to keep following this case and post an update when the case is ultimately resolved, hopefully with all of the defendants getting long prison sentences.

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To learn more about a variety of real estate topics, please visit us at www.123ConEd.com. We are the leading online provider of Michigan real estate continuing education. All of our courses are fully approved and properly certified by the State of Michigan, and are offered online.

Copyright © 123 ConEd LLC 2009. All rights reserved.

Lawsuit Filed Against Mortgage Lender Under False Claims Act

Here is another example of a recent legal case involving a fraudulent real estate scheme, this time committed by a mortgage lender. I try to post case summaries in order to provide timely updates to real estate professionals on important issues.

On June 9, 2009, the United States Department of Justice ("DOJ") filed a lawsuit against California mortgage lender Capmark Finance Inc., charging that Capmark violated the federal False Claims Act by making false statements on applications for federal mortgage insurance covering residential nursing homes. The lawsuit relates to a federal program under which the United States Department of Housing and Urban Development (“HUD”) guarantees mortgage loans used to acquire healthcare facilities such as hospitals and nursing homes.

The lawsuit alleges that Capmark made false statements in HUD applications to guarantee mortgage loans made to acquire the Canoga Care Center, a residential nursing home facility in California, and the Hudson Valley Care Center, located in New York. After accepting Capmark’s applications for mortgage insurance, HUD was forced to pay $25,895,701.21 when both the Canoga Care Center and Hudson Valley Care Center defaulted on their loans. Pursuant to the False Claims Act, the DOJ is seeking treble (triple) damages and penalties.

The lawsuit is an allegation of unlawful conduct. The allegations must still be proven in federal court. I will try to follow this case and provide an update when the case is resolved.

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To learn more about a variety of real estate topics, please visit us at www.123ConEd.com. We are the leading online provider of Michigan real estate continuing education. All of our courses are fully approved and properly certified by the State of Michigan, and are offered online.

Copyright © 123 ConEd LLC 2009. All rights reserved.

Attorney Sentenced to 5 Years in Prison in Mortgage Loan Fraud Scheme

Here is another example of a recent legal case involving a fraudulent real estate scheme committed by a real estate agent. I try to post case summaries in order to provide timely updates to real estate professionals on important issues.

On May 11, 2009, John A. Yanchek was sentenced to 60 months in prison and ordered to forfeit $7.6 million for conspiracy to commit loan fraud, bank fraud, and money laundering.

According to court documents, Mr. Yanchek was a licensed Florida attorney who did business as the law firm of John A. Yanchek, P.A., in Sarasota, Florida. Mr. Yanchek represented G & T Land Development LLC and Steeplechase Properties LLC, legal entities owned and/or controlled by his co-conspirators, that purchased and developed commercial real estate in the Sarasota area. Mr. Yanchek also functioned as a closing agent.

According to the plea agreement, Mr. Yanchek entered into a conspiracy to make false statements to federally-insured banks in connection with applications for commercial loans used to purchase vacant land for development. The object of the conspiracy was to obtain enough loan money to allow the conspirators to purchase the property without contributing any equity of their own and to receive excess loan proceeds for their personal use. Mr. Yanchek, as the closing attorney for the loans, made false statements to the banks regarding: (1) the financial resources of the borrower, (2) the amount and source of equity contributed by the borrower, (3) compliance with the seller's obligation to provide marketable title to the property, and (4) distribution of the loan proceeds.

Co-defendant Larry P. Nardelli was convicted on February 19, 2009, and is awaiting sentencing. Michael A. Tringali pleaded guilty and received a 41 month prison sentence. The third co-defendant Neil M. Husani remains a fugitive.

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To learn more about a variety of real estate topics, please visit us at www.123ConEd.com. We are the leading online provider of Michigan real estate continuing education. All of our courses are fully approved and properly certified by the State of Michigan, and are offered online.

Copyright © 123 ConEd LLC 2009. All rights reserved.

Real Estate Agent Sentenced to 46 Months in Prison in Scheme to Defraud Mortgage Lenders

Here is another example of a recent legal case involving a fraudulent real estate scheme committed by a real estate agent. I try to post case summaries in order to provide timely updates to real estate professionals on important issues.

On May 11, 2009, Oladipo Olafunmiloye, a real estate agent, was sentenced to 46 months in prison, to be followed by five years of supervised release, for bank fraud and money laundering in connection with a scheme to defraud mortgage lenders. At the sentencing, the judge found that Mr. Olafunmiloye’s fraudulent scheme incurred losses of $3 million and ordered him to pay restitution in that amount, as well as forfeit his interest in a Rolls Royce automobile and funds held in four bank accounts.

According to his plea agreement, Mr. Olafunmiloye owned a real estate company known as LAFA. From November 2004 to December 2006, Mr. Olafunmiloye organized a scheme in which co-defendants Sidney Okosun, Oyekunle Ikudayisi, Kolawole Aminu and others sought to fraudulently obtain mortgages and refinance loans to purchase properties for sale in Maryland and the District of Columbia that were owned by Mr. Olafunmiloye or LAFA. The defendants recruited individuals to act as purchasers who became owners of the properties in name only and made almost none of the payments related to the purchase of the properties, including down payments, closing costs and mortgage payments

Mr. Olafunmiloye supervised the submission of false statements on loan applications as to the straw buyers’ incomes and their intent to make the properties their primary residences, in order to induce mortgage lenders to make loans at more favorable rates. Mr. Olafunmiloye also provided capital to the other defendants in order to perpetuate the scheme. Once the purchase of the properties had been funded, Mr. Olafunmiloye defaulted on mortgage payments, which forced the lenders to foreclose, thereby incurring losses.

During the course of the scheme, Mr. Olafunmiloye also provided false information to obtain loans in his own name, including loans on five properties, all of which went into foreclosure, resulting in losses to the mortgage lenders of over $492,767. Finally, Mr. Olafunmiloye laundered money obtained from the fraud scheme, including 12 transactions from August 2005 to September 2006 totaling $308,311.

It’s amazing what some people will do to make money.

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To learn more about a variety of real estate topics, please visit us at www.123ConEd.com. We are the leading online provider of Michigan real estate continuing education. All of our courses are fully approved and properly certified by the State of Michigan, and are offered online.

Copyright © 123 ConEd LLC 2009. All rights reserved.

Real Estate Company Owners Sentenced in $35 Million Mortgage Fraud

Here is another example of a recent legal case involving fraudulent real estate loan schemes and bank fraud, all related real estate transactions involving real estate professionals. I try to post case summaries in order to provide timely updates to real estate professionals on important issues.

On April 16, 2009, the two owners (Jonathan Helgason and Thomas Balko) of a Minnesota real estate company were sentenced in federal court for mortgage fraud in connection with a scheme involving at least 162 properties, principally in north Minneapolis, and mortgage proceeds of approximately $35 million.

Mr. Helgason was sentenced to 96 months in prison and three years of supervised release. Mr. Balko was sentenced to 84 months in prison and three years of supervised release. Restitution will be ordered at a later date.

According to their plea agreements, Mr. Helgason, a licensed real estate agent, and Mr. Balko were the owners of numerous companies, including TJ Waconia, Total Title LLC, Complete Real Estate Services, Inc. and CityWide Management, LLC and Investor’s Warehouse LLC (collectively, “the TJ Group”).

From approximately 2005 to 2007, Mr. Helgason and Mr. Balko executed a scheme to defraud and to obtain money by means of false and fraudulent pretenses. Using the TJ Group, Mr. Helgason and Mr. Balko purchased approximately 162 properties throughout the Twin Cities metropolitan area, principally in north Minneapolis. They would then resell the property within a few weeks to an “investor” who would purchase the property, sight unseen, at a price set by Mr. Helgason and Mr. Balko without negotiation, often times $20,000 to $60,000 more than the TJ Group had paid.

According to the plea agreements, people were told by Mr. Helgason and Mr. Balko that the investors were simply “lending” their credit to TJ Waconia (one of their companies). In exchange for “lending” their credit, the investors would receive a kickback payment of about $2,500 and a promise of an additional payment after two years when the TJ Group was to repurchase the property from the investor.

Through the scheme, the defendants perpetrated a fraud on the lenders who were led to believe that the “investors” were the actual owners of the properties, when, in fact, the “investors’” ownership was in name only. During the two-year period during which the investor owned the property, the TJ Group was responsible for all payments and maintenance on the property. In some instances, Mr. Helgason and Mr. Balko also provided investors with funds to pay the buyer’s portion of the property purchase price and worked with others to provide lenders with false loan applications on behalf of the investors so that they would qualify for the loan.

The two men, on behalf of the investors, obtained approximately $35 million in mortgage proceeds to purchase the properties from the TJ Group. Ultimately, the scheme collapsed, and the TJ Group did not repurchase the properties or continue making payments to the investors in order to pay their mortgages. The investors were left owning properties with mortgages that exceeded their property’s market value.

This case was the result of an investigation by Federal Mortgage Fraud Task Force, including the Federal Bureau of Investigation and the U.S. Postal Inspection Service. It was prosecuted by the United States Attorney's Office.

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To learn more about a variety of real estate topics, please visit us at www.123ConEd.com. We are the leading online provider of Michigan real estate continuing education. All of our courses are fully approved and properly certified by the State of Michigan, and are offered online.

Convictions in Real Estate Loan Scheme Case

Here is another example of a recent legal case involving fraudulent real estate loan schemes and bank fraud, all related real estate transactions involving real estate professionals. I try to post case summaries in order to provide timely updates to real estate professionals on important issues.

On May 4, 2009, three people (Todd Gongwer, Lance Parker, and Joel Lee) plead guilty to conspiracy to commit bank fraud. Mr. Gongwer, a licensed real estate agent, also plead guilty to tax evasion. Mr. Parker also plead guilty to illegally structuring cash transactions.

According to the plea agreements and evidence presented during the plea hearings, from 2005 through 2007, the defendants and others negotiated and participated in real estate deals in which each of them purchased a luxury home for a falsely inflated purchase price from real estate builder Thomas Parenteau in exchange for an undisclosed or disguised kickback. Mr. Gongwer admitted to using nominees to purchase at least two other luxury homes for inflated prices with kickbacks.

In each transaction, the buyers misrepresented their income and assets in order to obtain approximately 90% financing of the inflated purchase price. The buyers, seller Mr. Parenteau and Mr. Parenteau’s real estate agent, Bonnie Helt, attempted to justify the inflated purchase prices by creating and signing false work change orders and addendums that created the appearance that the inflated price represented additional substantial work to be completed on the homes. However, no such agreement was actually intended by any party, and the documents were not disclosed to the lenders. The object of each transaction was to use the loan proceeds in excess of the actual purchase price to fund hundreds of thousands of dollars in kickback payments to the buyers. The loans associated with the real estate purchases of Mr. Gongwer, Mr. Parker and Mr. Lee have all gone into default.

Mr. Gongwer and Mr. Parker also admitted to conducting a similar transaction involving Mr. Parker’s purchase of 15 condominium units in three buildings located in Columbus, Ohio, from Mr. Parenteu’s associate and architect, William Tarcy. Mr. Tarcy plead guilty to conspiracy to commit bank fraud and agreed to forfeit assets related to the offense in March 2009. Mr. Tarcy’s sale of the condominiums also involved inflated purchase prices, fraudulently obtained financing by Mr. Parker, and substantial kickback payments to Mr. Parker as the buyer.

Mr. Gongwer accepted responsibility for causing a fraud loss between $2.5 million and $7 million. Additionally, Mr. Gongwer plead guilty to tax evasion for failure to report income he received. According to his plea agreement, Mr. Gongwer worked for RE/MAX Affiliates Inc. in 2004, and was paid approximately $158,333.32 in gross income. Mr. Gongwer deposited that income into nominee accounts in order to conceal his receipt of that income from the IRS. Mr. Gongwer also failed to file income tax returns for tax years 2000 through 2005. The tax loss caused by his conduct is between $200,000 and $400,000.

Mr. Parker and Mr. Lee each accepted responsibility for causing a fraud loss between $400,000 and $1 million. Mr. Parker also plead guilty to structuring transactions to avoid federal reporting requirements. During 2007, Mr. Parker engaged in cash transactions in amounts less than $10,000 for the purposes of withdrawing cash from his bank accounts in order to finance gambling vacations in Las Vegas and to avoid federal currency transaction reporting requirements.

Sentencing of all three defendants for a date after the July 2009 trial of Tom Parenteau, his accountant Dennis Sartain and his realtor Bonnie Helt, who were charged in April 2009 in a tax fraud and money laundering scheme. Mr. Gongwer faces a maximum sentence of 10 years in prison and a maximum fine of $500,000. Mr. Parker faces a maximum sentence of 10 years in prison and a maximum fine of $500,000. Mr. Lee faces a maximum sentence of five years in prison and a maximum fine of $250,000.

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To learn more about a variety of real estate topics, please visit us at www.123ConEd.com. We are the leading online provider of Michigan real estate continuing education. All of our courses are fully approved and properly certified by the State of Michigan, and are offered online.

Copyright © 123 ConEd LLC 2009. All rights reserved.

Criminal Charges in $70 Million “Dream Home” Mortgage Fraud Scheme

Here is another example of a recent legal case involving mortgage fraud. I try to post case summaries in order to provide timely updates to real estate professionals on important issues.

A federal grand jury has indicted four defendants for their participation in a massive mortgage fraud scheme that promised to pay off homeowners' mortgages on their "Dream Homes," but left them to fend for themselves. The indictment was unsealed on April 27, 2009.

According to the indictment, from 2005 to 2007, the defendants allegedly used corporate names such as "Metropolitan Grapevine LLC," "Metro Dream Homes," "POS Dream Homes," and "POS DH LLC" (collectively, “MDH”) to target homeowners and new home purchasers to participate in a purported mortgage payment program called the "Dream Homes Program." To participate, an investor had to provide a minimum of $50,000 for each home enrolled in the program, in addition to an "administrative fee" of up to $5,000. In exchange, the program promised to make the homeowner’s future monthly mortgage payments, and pay off the homeowner’s mortgage within five to seven years. Thereafter, the homeowner and MDH would own an equal interest in the home.

The indictment identifies the following people and alleges that Andrew Hamilton Williams, Jr. was the founder and owner of MDH; Michael Anthony Hickson was the chief financial officer; Isaac Jerome Smith was the president; and Alvita Karen Gunn was the vice president of operations. The information alleges that Carole Nelson was the chief financial officer of POS Dream Homes.

The indictment further alleges that Dream Homes Program representatives explained to investors that the homeowners’ initial payments would be used to fund investments in automated teller machines (ATMs), flat-screen televisions that would show paid business advertisements, and "Touch-N-Buy" electronic kiosks that sold telephone calling cards and other items. To give the Dream Homes Program a veneer of legitimacy and financial success, the defendants marketed the program through live presentations at luxury hotels in Maryland, Washington, D.C., and Beverly Hills, California, among other locations. The defendants allegedly told some of the investors that they should not worry about the price of the homes or monthly mortgage payments because MDH would make mortgage payments on their behalf.

The indictment alleges that the defendants failed to advise investors that:

• the ATMs, flat-screen televisions and kiosks never generated any meaningful revenue;
• the defendants used the funds from later investors to pay the mortgages of earlier investors (Ponzi scheme); and
• MDH had not filed any federal income tax returns throughout its existence.

The defendants also allegedly failed to advise investors that their investments were being used for the personal enrichment of select MDH employees, including the defendants, to:

• pay salaries of up to $200,000 a year as well as their mortgages;
• employ a staff of 10 chauffeurs and maintain a fleet of luxury cars; and
• travel to and attend the 2007 NBA All-Star game and the 2007 NFL Super Bowl, staying in luxury accommodations in both instances.

Nor were investors told that investor funds were allegedly used to:

• pay off investors in a prior failed ATM investment venture that Mr. Williams had founded called Bankcard Group;
• make multiple donations of up to $50,000 each to charitable organizations to allegedly give MDH the appearance of being financially successful; and
• fund investments in third-party businesses that had not been disclosed to investors.

On August 15, 2007, the Maryland Securities Commissioner issued a cease-and-desist order to Mr. Williams, MDH and other related companies directing them to immediately cease the offering and sale of unregistered securities in connection with their promotion of the Dream Homes Program. Despite that cease-and-desist order, the defendants continued to hold additional meetings in which they allegedly made additional misrepresentations about the financial success of MDH’s operations.

And, because these guys were not content to settle just for mortgage and bank fraud alone, they decided to also add perjury to the list of charges. On September 4, 2007, the defendants filed a legal challenge in federal court in Maryland to the cease-and-desist order. The indictment alleges that at a hearing on September 12, 2007, Mr. Hickson testified that the financial success of the Dream Homes Program did not rely upon new investor funds, when in fact Mr. Hickson knew that the sole source of meaningful revenue for MDH was new investor funds (hence, the perjury).

As a result of the scheme, more than 1,000 investors in the Dream Homes Program invested approximately $70 million. When the defendants stopped making the mortgage payments, the homeowners were left to attempt to make the mortgage payments MDH had promised to make in full.

An indictment is merely a formal charge by the grand jury. Each defendant is presumed innocent unless and until proven guilty in court. The four indicted defendants face a maximum sentence of 20 years in prison for the fraud conspiracy; 20 years in prison on each of the 15 counts of wire fraud (for a possibility of 300 years); and 20 years in prison for conspiracy to commit money laundering. Mr. Hickson also faces a maximum sentence of five years in prison for making false statements. Mr. Smith also faces a maximum sentence of 30 years in prison for bank fraud arising out of his alleged misrepresentation of his income in order to obtain a bank loan to purchase a new Bentley automobile. The indictment seeks forfeiture of the fraud proceeds, including $70 million.

This prosecution is being brought jointly by the Maryland and Washington, D.C. Mortgage Fraud Task Forces, which are comprised of federal, state and local law enforcement agencies in Maryland, Washington, D.C., and Northern Virginia. The Task Forces were formed to promote the early detection, identification, prevention and prosecution of various kinds of mortgage fraud schemes.

I will try to keep following this interesting case and post an update when the case is ultimately resolved, hopefully with all of the defendants getting long prison sentences.

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To learn more about a variety of real estate topics, please visit us at www.123ConEd.com. We are the leading online provider of Michigan real estate continuing education. All of our courses are fully approved and properly certified by the State of Michigan, and are offered online.

Copyright © 123 ConEd LLC 2009. All rights reserved.

Realtor, Home Builder and Accountant Indicted in Tax Fraud and Money Laundering Scheme

Here is another example of a recent case involving a real estate professional (and two others) who thought that she could make a few quick bucks by falsely inflating the purchase price of homes in an effort to defraud lending and financial institution out of millions of dollars. As with all of these types of schemes, the law eventually caught up with her, and she now faces criminal charges that could result in 105 years in prison and a fine of nearly $3 million.

On April 21, 2009, a federal grand jury returned an eighteen-count superseding indictment charging Thomas E. Parenteau, Dennis G. Sartain, and Bonnie Helt-Adams, all from Ohio, with tax fraud, bank and wire fraud, money laundering and obstruction of justice.

Mr. Parenteau and Mr. Sartain were originally indicted in September 2008, for obstruction of justice, conspiracy and witness tampering and have been detained since their arrests at that time. The superseding indictment includes additional allegations and adds Ms. Helt-Adams as a co-defendant.

According to the superseding indictment, Mr. Parenteau operated and controlled a number of Columbus-area businesses that were owned in the name of his wife, including Advanced Precast Building Systems LLC, Parenteau Builders LLC, Your Home Source LLC, and MKP Investments LLC. Mr. Sartain had been Mr. Parenteau’s primary accountant since 2000. Ms. Helt-Adams is a licensed real estate agent who listed and sold many of Mr. Parenteau’s luxury homes and formally joined Your Home Source, LLC in 2005.

The superseding indictment alleges that Mr. Parenteau and Mr. Sartain prepared and filed four false income tax returns for Mr. Parenteau’s mistress that generated over $700,000 in fraudulent refunds, which went to Mr. Parenteau. The superseding indictment also charges Mr. Parenteau and Mr. Sartain with conspiracy to commit money laundering related to $18 million in fraudulently obtained loan proceeds secured against Mr. Parenteau’s home at 4500 Dublin Road (known as Loretta Estate), which was a 27,000 square foot residence that sits on 4.8 acres on the Scioto River in Dublin, Ohio.

In addition, the superseding indictment alleges that Mr. Parenteau and Ms. Helt-Adams engaged in a scheme to defraud lending and financial institutions out of millions of dollars by falsely inflating the purchase price of the homes Mr. Parenteau built and sold in exchange for paying large undisclosed or disguised kickbacks to the buyers after their purchases.

Finally, the superseding indictment alleges that, after learning of the IRS investigation into the tax, bank fraud and money laundering schemes, Mr. Parenteau, Ms. Helt-Adams and Mr. Sartain engaged in a scheme to obstruct justice by concealing computers, creating false documents, destroying or altering evidence, tampering with a witness, lying to federal and local investigators and otherwise obstructing justice.

An indictment is merely a formal charge by the grand jury. Each defendant is presumed innocent unless and until proven guilty in court. If convicted, Mr. Parenteau faces a maximum sentence of 150 years in prison and a fine of over $4 million; Mr. Sartain faces a maximum sentence of 60 years in prison and a fine of over $1.5 million; Ms. Helt-Adams faces a maximum sentence of 105 years in prison and a fine of nearly $3 million.

I will try to follow this matter and provide an update when this case is wrapped up.

Participants in Mortgage Fraud Scheme Sentenced to Prison

On February 4, 2009, four people were sentenced for their roles in schemes that fraudulently secured more than $2.6 million in mortgage loans in 2003, 2004 and 2005.

• Donald F. Green was sentenced to 36 months in prison, followed by five years of supervised release, and ordered to pay $1,282,514 in restitution to Stillwater Capital Partners and 23 victim banks, jointly with his co-conspirators, and ordered to pay $230,376 in restitution to the Internal Revenue Service (IRS). Mr. Green plead guilty to one count each of conspiracy, income tax evasion, and bank fraud.

• George T. Jordan was sentenced to 12 months and one day in prison, followed by three years of supervised release, 416 hours of community service, and ordered to pay $1,182,691 in restitution to ABN Amro. Mr. Jordan plead guilty to one count of conspiracy and one count of money laundering.

• Aryeh M. Schottenstein was sentenced to 42 months in prison, followed by three years of supervised release, 416 hours of community service, and ordered to pay $3,740,173 in restitution to the victim financial institutions. Mr. Schottenstein plead guilty to one count each of conspiracy and money laundering.

• Jeffrey M. Lieberman was sentenced to 16 months in prison, followed by three years of supervised release, and ordered to pay $400,000 in restitution to Stillwater Capital Partners. Mr. Lieberman plead guilty to one count each of conspiracy and money laundering.

Mr. Jordan was a real estate agent who generated a mortgage fraud scheme, selling houses at inflated prices and splitting the excess funds received from the mortgage lender with his co-conspirator, Mr. Griffin. Mr. Schottenstein and Mr. Lieberman solicited funds from private investors interested in renovating houses in distressed neighborhoods. A substantial amount of those funds was used to purchase houses from Mr. Green, who owned hundreds of houses in distressed areas of Columbus, Ohio, at prices well in excess of their true values. Mr. Griffin helped locate “straw buyers” for those houses and also received funds for renovation purposes.

Mr. Schottenstein and Mr. Lieberman owned a company called Parkview Bank. One of Parkview Bank’s business purposes was to locate financing for real estate investors seeking to buy and renovate houses in Columbus. Parkview Bank needed a source for the financing for this venture. In 2003, Mr. Schottenstein and Mr. Lieberman met with the managing partners for Stillwater Asset Backed Fund to convince them to provide the funding. They were successful. Parkview Bank and Stillwater Asset Back Fund entered into an agreement whereby Stillwater Asset Bank Fund would provide the funding for Parkview Bank’s deals

Rather than abide by the agreement and locate legitimate investors, Mr. Schottenstein used Mr. Griffin to recruit straw-buyers to pose as real estate investors. Using straw-buyers was quicker and easier than locating legitimate real estate investors thereby making it easier to generate more loan origination fees. The straw-buyers were told by Mr. Griffin they did not need to renovate the houses or make monthly interest payments. Mr. Griffin assured them he would take care of all the details.

Mr. Griffin also recruited straw buyers in 2002 and 2003 for Jeff Pearson, now deceased. Mr. Pearson bought dozens of low-income distressed houses in Columbus for amounts at or near their fair market value. The houses were in need of renovation. Very little if any renovation was done to the houses. The houses were sold to Mr. Griffin’s straw-buyers for two to three times the amounts Mr. Pearson had paid only a few weeks or months earlier. Despite having good credit, the straw-buyers usually had little income. At the closing on the straw-buyers’ purchases of the houses, the title companies issued large checks payable to Mr. Pearson as proceeds from the sales.

All four men we sentenced to lengthy prison terms for their involvement in this complex mortgage fraud case.

Kansas Real Estate Agent Gets 12+ Years in Federal Mortgage Fraud Case

Here is yet another example of a mortgage fraud scheme.

On January 10, 2009, David Kostelec, a Kansas real estate agent, was sentenced to 154 months (that's 12.8 years) in federal prison and ordered to pay $1.3 million in restitution for leading a scheme to fraudulently acquire $12 million in home loans.

Mr. Kostelec plead guilty in October 2008, to one count of conspiracy to commit wire fraud and money laundering, one count of wire fraud, one count of providing false information to lenders and one count of aggravated identity theft.

In his plea, Mr. Kostelec admitted that, from 2002 through 2005, he and others conspired to defraud lenders by submitting fraudulent loan applications and false real estate appraisals and attempted to conceal the crimes by laundering the money through accounts at various banks.

Mr. Kostelec submitted false and fraudulent appraisal reports to lenders containing inflated property values and forged signatures of licensed appraisers. Conspirators stole the identities of licensed appraisers by searching the Internet for information including the appraisers’ state license numbers.

After closing, the conspirators used straw entities including Alexandra Enterprises and Hyde Park Development to receive the money from escrow companies. Then they moved the money to personal accounts.

As part of his plea agreement, Mr. Kostelec admitted the following:

• In July 2002, he submitted a fraudulent appraisal inflating the value of a house in the 1800 block of Timber Valley Drive in Linn Valley, Kansas.

• In April 2003, he submitted a false loan application in his son’s name claiming his son was the owner of a house in the 1600 block of N. 24th Street in Kansas City, Kansas. In fact, Andrew Kostelec lived with David Kostelec at another address.

• In July 2004, he fraudulently caused a lender to deposit $57,101 into an escrow account in Kansas for the purchase of a house in the 2000 block of Cypress in Kansas City, Kansas.

• In October 2005, he submitted a loan application falsely stating that the borrower had an income $15,221 a month. In fact, the borrower made significantly less and lived mainly on Social Security retirement benefits.

• In January 2008 he falsely stated he had power of attorney to obtain a loan in his son’s name for $575,000 for the purchase of real estate properties in Kansas City, Missouri, and Miami, Florida.

Deceptive Mortgage Ads (What They Say and What They Leave Out)

As real estate professionals, we are often asked to help prospective home buyers find a mortgage broker to help them get financing in order to buy a home. We are also sometimes asked for recommendations when someone simply wants to refinance a current loan. Because of this, we need to be aware of the numerous mortgage scams out there right now so we do not inadvertently send an unwitting client (buyer) to a deceptive mortgage broker.

You may have seen or heard ads with offers of low rates or payments. Whether you see them on the Internet, on television or in the paper, or whether they come by fax or mail, some of these ads look like they’re from a mortgage company or a government agency. Regardless of where you see the ads, remember that while the offers are tempting, some are terribly flawed -- they don’t disclose the true terms of the deal as the law requires.

The Federal Trade Commission ("FTC") advises that when shopping for a home loan, it’s important to understand all the terms and conditions of a proposed loan. Always start with what is in the ad itself. Make sure to read what’s between the lines as well as what’s in front of your eyes.

What The Ads Say

To help you recognize an offer that may be less than complete, you need to know the ";buzz words"; that should trigger follow-up questions, as well as information to insist on after you’ve read an ad. Here are a few examples of buzz words (underlined) that should catch your attention:

• A Low “Fixed” Rate: Ads that tout a “fixed” rate may not tell you how long it will be “fixed.” The rate may be fixed for an introductory period only, and that can be as short as 30 days. When you shop for a mortgage, you need to know when and how your rate, and payments, can change.

• Very Low Rates: Are the ads talking about a “payment” rate or the interest rate? This important detail may be buried in the fine print, if it’s there at all. The interest rate is the rate used to calculate the amount of interest you will owe the lender each month. The payment rate is the rate used to calculate the amount of the payment you are obligated to make each month. Some offers advertise a low payment rate without telling you that it applies only during an introductory period. What’s more, if the payment rate is less than the interest rate, you won’t be covering the interest due. This is called “negative amortization.” It means that your loan balance is actually increasing because you’re not paying all the interest that comes due, and the lender is adding the unpaid interest to the balance you owe.

• Very Low Payment Amounts: Ads quoting a very low payment amount probably aren’t telling the whole story. For example, the offer might be for an Interest Only (I/O) loan, where you pay only the amount of interest accrued each month. While the low payment amount may be tempting, eventually, you will have to pay off the principal. Your payment may go up after an introductory period, so that you would be paying down some of the principal – or you may end up owing a “balloon” payment, a lump sum usually due at the end of a loan. You must come up with the money when a balloon payment is due. If you can’t, you may need another loan, which, in turn, means new closing costs, and potentially points and fees. And if housing prices are falling, you might not be able to refinance to lower your payments.

• Mortgage rates near 30-year lows! Rates as low as 1%! You are paying too much! Who doesn’t want to reduce their mortgage payments? Loan amount $300,000 - pay only $900 per month!: Ads with “teaser” short term rates or payments like these don’t often disclose that a rate or payment is for a very short introductory period. If you don’t nail down the details in advance about your rates and payments for every month of the life of your loan, expect payment shock when the rate and payment increase dramatically.

• Important Notice From Your Mortgage Company. Open Immediately - Important Financial Information Enclosed. Please do not discard - account information enclosed: Appearances can be deceiving. Mailers that have information about your mortgage and your lender may not be from your lender at all, but rather from another company that wants your business. Companies can legally get your information from public records. Before you respond to any offer, review it carefully to make sure you know who you’re dealing with.

• You are eligible to take part in an exclusive interest rate reduction program. This financial institution has been licensed to negotiate your existing adjustable mortgage to a new fixed rate mortgage. You must contact us immediately regarding this notice: Some businesses use official-looking stamps, envelopes, forms, and references to make you think their offer is from a government agency or program. If you’re concerned about a mailing you’ve received, contact the government agency mentioned in the letter. If it’s a legitimate agency – and not one that just sounds like a government agency – you’ll find the phone number in the Blue Pages of your telephone directory.

What the Ads Don’t Say

The APR: The Annual Percentage Rate is a critical factor in comparing mortgage offers from different lenders. It is the total cost of the credit expressed as a yearly interest rate. This rate is different than the simple interest rate on your loan note, because the APR includes all costs of the credit such as points and processing fees. Knowing the APR makes it easier to compare “apples to apples” when considering mortgage offers. Look for the APR for the loan. The amount may not be in the ad at all; it may be hidden in the fine print, or it may be available deep within a website after multiple clicks.

Important Payment Information: It’s hard to know what you don’t know, and often some of the most important information you need isn’t in the ad, is hidden in the fine print, or is available only at a website after many clicks. To make an informed judgment about any mortgage offer, you need to know (or ask):

• What will the monthly payment be for every month of the loan, and could it increase? When could it increase? What would your new payment be? Could your monthly payment increase more than once?

• Does the monthly payment include an escrow amount to pay for your property taxes and homeowners insurance? Or must you pay these costs on your own? If you have to pay on your own, ask your lender for an estimate so you can budget accordingly.

• What is the term of the loan (for example, 15 years? 30 years?)? How many payments will you have to make? Would the loan be paid off at the end or would you still owe a “balloon” payment?

• Will you have to pay prepayment penalties to refinance and pay off the loan early? If so, how much, and when would they apply? If the loan has an introductory or teaser rate, can you refinance, without penalties, before the rate resets and your payment increases?

For More Information

The Federal Reserve Board has several helpful publications and a mortgage comparison calculator at www.federalreserve.gov/consumers.htm. You can also contact your local attorney general office.

Denver Real Estate Agent Sentenced to Federal Prison for Mortgage Fraud Scheme

Here is yet another example of a mortgage fraud scheme.

On February 6, 2009, Colorado real estate agent Linda Edwards was sentenced to 41 months in prison, ordered to pay $646,521 in restitution, and forfeit $139,854 for wire fraud, false statements, and false use of a Social Security number. Ms. Edwards was indicted in February 2005 and found guilty following a jury trial in July 2008.

According to the criminal indictment, Ms. Edwards, aided and abetted by others, devised a scheme to defraud and to obtain money and property by means of fraudulent representations and promises from mortgage companies that funded federally insured loans. As part of the scheme, Ms. Edwards, and others working with her, located buyers to buy residences, but were unable to qualify for a mortgage using the buyers’ accurate credit history, income and employment, and/or other financial information.

Ms. Edwards, and others working with her, would assist the buyers who could not legitimately qualify for an FHA-insured mortgage by: (i) obtaining a false Social Security number for the buyer, which would conceal the buyer’s unfavorable credit history; (ii) creating false W-2s or other income documents, which would inflate or wholly create income that would purportedly be available for the buyer to make mortgage payments; (iii) creating false verifications of rent (“VOR”) or employment (“VOE”) to support false information about the buyer; (iv) creating false alternate credit letters, which would create an appearance that the buyer had a history of paying debts timely; and (v) creating false “gift letters,” which falsely stated that the buyer had an appropriate source of funds for the down payment, and/or other false financial information.

Some people never cease to amaze me with the lengths they will go to to make a few dollars.