From NC to California – Mortgage Fraud Week In Review – By Business Ethics Speaker Chuck Gallagher

With the highly publicized melt down of the credit market and an environment of recession related to the housing market, it’s no wonder that the media is ripe with fraudulent schemes being exposed, prosecuted and sentenced. Here’s a snapshot of the week in review for mortgage fraud.

A mortgage broker (Michael D. Pahutski), a real estate investor (Stephen D. Hawfield) and an attorney (Victoria L. Sprouse) were all indicted in Charlotte, NC (see indictment here: http://www.mortgagefraudblog.com/images/uploads/NCSprouseIndictment.pdf) for perjury, conspiracy to commit money laundering, mail, wire and bank fraud. According to the indictment, Sprouse and Pahutski participated in a scheme to obtain money and property by means of false and fraudulent pretenses. Specifically, they prepared false mortgage applications and supporting documents to submit to lenders for approval.

Based on the indictment, it would be hard for these three, especially the attorney and mortgage broker to escape the consequences of their actions. Likely outcome – guilty.

Now Florida is on the scene for mortgage fraud in this week in review.

Then the Miami-Dade Mortgage Fraud Task Force arrested Rafael Diaz for mortgage fraud. Seems Mr. Diaz enlisted the help of a straw buyer, loan processor and others to help with the fraudulent purchase of some Florida property. The property was closing for $800,000 while Diaz was trying to steal a million dollars from the unsuspecting lender and seller.

According to the Mortgage Fraud Blog: Mortgage Fraud Task Force Chair and Miami-Dade Police Department Chief Counsel Glenn Theobald said, “Prosecuting the parties involved in these schemes is more effective and efficient now with the passage of the new mortgage fraud law that went into effect on October 1.”

More than likely another conviction as the Mortgage Fraud Task Force is effective in their investigations.

Oops…Minnesota now on the radar screen.

Universal Mortgage, Inc. along with it’s president and four loan officers have been charged with theft and racketeering in a 25 count criminal complaint. Seems that, according to the complaint, this group participated in a 4.9 million dollar mortgage fraud scam. 24 homes were involved in the scheme where loan applications were falsified for straw buyers. Most of the homes involved have gone into foreclosure.

This case is one of the largest filed in the past month or so.

Now to Washington, DC – a man, George Cowser, age 60, was sentenced to nearly six years in prison. He entered a guilty plea. Cowser was sentenced to 71 months for mail fraud and 12 months for First Degree Fraud – the sentences to be served concurrently. Creative as it might have been, Cowser committed fraud by selling property he did not own or obtain mortgages on property that was not his.

According to the mortgage fraud blog:

“Cowser fraudulently claimed to many potential buyers that he owned dozens of properties throughout the District of Columbia, even though, in truth, he did not own any real property in the District of Columbia and he was not a registered real estate agent. During its investigation, the government also discovered that prior to his arrest, Cowser had executed at least 14 forged quit claim deeds to various other properties in the District of Columbia; each of these forged deeds that contained the false signature of the true owner of the property. Although Cowser did not record these deeds, he did use these forged deeds to defraud other investors out of money.

Moreover, Cowser was on release to the community pending trial with a condition of not engaging in similar fraudulent sales of real estate. Shortly before his trial, however, Judge Robertson ordered Cowser taken into custody based on Cowser‘s allegedly engaging in such sales while on release.”

Finally to California…

Jean Garcia, age 50, of Auburn, California was arrested on federal felony wire fraud and money laundering charges. If convicted the maximum penalty is potentially 30 years. According to Matthew Stegman, Assistant US Attorney, Garcia made false statements on a loan application for purposes of refinancing a home – then engaged in monetary transactions using criminally derived funds.

Every choice has a consequence. It seems that each week we see variations of similar themes – need, opportunity and rationalization. When those three components are together – the perfect fraud storm can take place. What’s the outcome of the perfect storm? Most of the time – Disaster!

I know very well the consequence of actions. I am not proud of my past, having spent time in federal prison for unethical behavior. However, I do know that, from lessons hard learned, every choice has a consequence. In many cases, choosing ethical behavior should be the answer, but reality is – removing one of the components of the perfect storm can be the link to reducing fraud.

Some of the folks mentioned above may have just been bad apples to begin with. However, I suspect that most were good people at heart who somehow found the allure of money obtained unethically to be too much. When the “opportunity” is removed…most will move past feelings of temptation and never find themselves in the situation those listed above find themselves in as we move the to end of 2007.

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