Mortgage Fraud – A Week in Review April 17- April 24: Comments by Chuck Gallagher

April 27, 2008

As each week passes the number of indictments and sentencing hearings seem to increase as the mortgage financial system seems to unravel. Some have claimed that the mess today will become larger and more costly than the Savings and Loan crisis of the ’80’s. Here’s a snapshot of the week.

San Franscisco: Mortgage Ponzi Scheme – Cheryl Hernandez Camus of Concord, California is alleged to have made a number of misrepresentations about a money lending investment, where she promised fixed returns and the return of the principle investment within a fixed period of time. The indictment alleges that Ms. Camus made one or more of the following material false representations and promises in order to induce the investor to give her money:

  • The investor’s money would be used to help finance real estate transactions, such as payment of closing costs or down payment;
  • The investor’s money would be used to pay medical costs;
  • The investor would receive a fixed monthly interest payment on the investment;
  • The investor would receive the return of the principle investment amount within a fixed period of time;
  • The loans would involve “really no risk.”
  • Ms. Camus screened the borrowers to ensure that money was only lent to borrowers who had the ability to repay;
  • Ms. Camus had been conducting similar transactions for three years and the returns had been “awesome.”
  • Ms. Camus would personally guarantee the investment;
  • The investment would be secured by a legitimate deed of trust.

Instead, according to the indictment, Ms. Camus used the money she obtained from investors for personal expenses and to pay back prior investors. Camus, if convicted, faces 20+ years in prison.

South Florida: Sentencing for Mortgage Fraud: Richard Weldon Crowder, II and Gary Mark Mills were sentenced to 108 months and 46 months imprisonment respectively for their roles in a multi-million dollar mortgage scheme. Co-defendant Karen Lynn Sullivan was sentenced yesterday to 50 months’ imprisonment.

Crowder is a former licensed mortgage broker and the former owner of America’s Best Mortgage Services, Inc., located in Coconut Creek, Florida. Mills is a former title attorney and the owner of Four Star Title Inc., located in Deerfield Beach, Florida. Sullivan is a former loan officer for Wachovia Bank.

To effectuate the mortgage scheme, Crowder identified residential properties, including luxury condominiums on South Beach, that were available for purchase. He then recruited buyers for the properties, representing that he could obtain 100% financing for their purchase. After finding a purchaser, Crowder would apply for equity lines of credit on their behalf with Wachovia. To induce Wachovia to issue the equity lines of credit, Crowder and Mills prepared fraudulent HUD-1 settlement forms. The forms falsely stated the buyers already owned the properties and also significantly understated the amount of the first mortgages on the properties. The fraudulent HUD-1 settlement forms were then given to Sullivan, who used the forms to facilitate the issuance of equity lines of credit from Wachovia.

Simultaneously, or shortly after obtaining the equity lines of credit from Wachovia, Crowder applied for the first mortgages on the properties. These applications overstated the buyers’ assets and income, and also included false verification of deposit forms prepared by Sullivan. To further induce the lenders to issue the loans, Mills prepared documents falsely representing that the buyers were using their own money for the down payments and closing costs. In fact, the buyers were using funds from the fraudulently obtained Wachovia equity lines credit or funds provided by Crowder. In total, the defendants caused the fraudulent purchase of seventeen (17) different luxury condominiums at The Continuum on South Beach and at The Point in Adventura using more than $37,000,000 in fraudulently obtained mortgage loans.

Palm Beach Co, Florida: Indictments in Sophisticated Mortgage Fraud Scheme: Berry Louidort, Lauren Jasky, and Ralph Michel, Palm Beach County, Florida were charged in a Criminal Complaint filed in federal court on April 22, 2008. The defendants are charged with bank fraud.

According to the Complaint, defendants Louidort, Michel and Jasky were involved in a sophisticated sub-prime mortgage fraud scheme in South Florida through which they submitted false qualifying information regarding potential borrowers to mortgage lenders. Among the false information the defendants submitted were false verification of earnings and false verification of deposits. As a result of these false submissions, defendants Louidort and Michel received approximately $6 million in loan proceeds.

This investigation began with an audit conducted by the Florida Office of Financial Regulation into 24 sub-prime mortgage loans in the period November 2006 to June 2007. The initial audit showed that the loans included what appeared to be excessively large fees paid to defendants Berry Louidort and Ralph Michel. The fees, ranging from $29,000 to $650,000, were described as marketing and/or assignment fees. In reality, the fees were kickbacks to defendants Louidort and Michel based on inflated sales prices. The audit also revealed that the majority of the suspect loans were originated by defendant Lauren Jasky, Senior Vice President of Compass Mortgage Services, located in Boca Raton, Florida.

Atlanta, GA: 5 Sentenced to Prison for Mortgage Fraud: Virginia Rose Novrit, Hilton Head, SC; Clarence Lorenzo Davis, Hilton Head, SC; Olympia D. Ammons, St. Louis, MO; Jerome Wings, Jr., Atlanta, GA; and Ronald Denzil Martin, Lithonia, GA were sentenced to prison for conspiracy, bank fraud, wire fraud, and money laundering in a multi-million dollar mortgage fraud scheme.

NOVRIT was sentenced to 3 years, 5 months in prison and ordered to pay $839,585 in restitution.

DAVIS was sentenced to 4 years, 3 months in prison and ordered to pay $839,585 in restitution.

WINGS was sentenced to 10 years, 2 months in prison and ordered to pay $8,577,845 in restitution.

AMMONS was sentenced to 5 years, 3 months in prison and ordered to pay $7,549,044 in restitution.

MARTIN was sentenced to 1 year, 1 day in prison and ordered to pay $423,595 in restitution.

From late 2004 through early 2006, NOVRIT, DAVIS, WINGS, AMMONS, and MARTIN participated in a mortgage fraud scheme that involved millions of dollars in fraudulently inflated mortgage loans being provided to unqualified straw borrowers. The straw borrowers were paid as much as $600,000 per property from fraudulently obtained loan proceeds through shell companies. NOVRIT and DAVIS together obtained mortgage loans totaling more than $4 million within a six month period to purchase eight properties. WINGS obtained mortgage loans totaling over $1.2 million to purchase a single property by providing the lender with false qualifying information. WINGS also recruited a number of other unqualified buyers into the scheme and obtained a share of the fraudulently obtained loan proceeds from those transactions for doing so. AMMONS was a loan originator for “Ace Mortgage Funding,” a national mortgage brokerage firm. AMMONS brokered fraudulent mortgages totalling over $7 million. MARTIN was paid $75,000 to act as a straw buyer and submit a fraudulent loan application for one property.

Kansas City, Kansas: Bonds Revoked in Mortgage Fraud Case: Wildor Washington, Jr. and Victoria Bennett were charged in November 2007 in an indictment alleging that Washington, Bennett and four co-defendants took part in a mortgage fraud scheme through businesses Washington owned including Heritage Financial Investments, Legacy Enterprises, B&L Custom Development and Liberty Escrow. According to the indictment, Hamilton and the conspirators prepared fraudulent loan applications and submitted them to lenders in Kansas, Texas, Ohio, Missouri and Michigan.

On Nov. 8, 2007, Washington and Bennett were released on bond subject to conditions including a prohibition against taking part in any illegal activities while on release. Subsequently, investigators obtained evidence that while on release Washington and Bennett were involved in further incidents of bank fraud and conspiracy to commit mail and wire fraud. Hence the two were taken into custody after their bonds were revoked.

Minnesota: Real Estate Owners Plead Guilty to Mortgage Fraud: Jonathan Edward Helgason, 45, Chisago City, and Thomas Joseph Balko, 37, Rogers, along with their company, TJ Waconia LLC, entered their guilty pleas to a scheme involving at least 162 properties, principally in north Minneapolis, and mortgage proceeds of approximately $35 million.

From approximately 2005 to 2007, Helgason and Balko executed a scheme to defraud and to obtain money by means of false and fraudulent pretenses. Using the TJ Group, Helgason and 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 Helgason and Balko without negotiation, oftentimes $20,000 to $60,000 more than that the TJ Group had paid.

People were told by Helgason and Balko that the investors were simply “lending” his or her credit to TJ Waconia. In exchange for “lending” their credit, the investor 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, Helgason and 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.

Newark, New Jersey: Ex-Mayor Convicted of Flipping: As reported earlier, Sharpe James was convicted by a Newark, New Jersey, jury on all corruption charges against him in connection with a scheme that enabled his girlfriend, Tamika Riley, to fraudulently obtain steeply discounted city-owned land and resell it for hundreds of thousands of dollars in profits.

Riley was convicted with James on the same five charges: three counts of mail fraud related to the sale of the city lots to Riley, one count of fraud involving a local government receiving federal funds, and one count of conspiracy to defraud the public of James‘ honest services.

The prosecution was built around the sale to Riley of municipally-owned properties in Newark, New Jersey. The properties, according to evidence and testimony, were steered to Riley by James, who had a long-running romantic relationship with her. Riley paid only $46,000 for a total of nine properties, and then quickly resold, or “flipped” the properties for more than $600,000.

Summary and Comments:

Issues related to the mortgage crisis and melt down of the sub-prime market is all over the media. The FBI has reported that resources are being diverted to handle the up serge of complaints and abuse that seems to arise daily. The map below was provided by the FBI to show the dominate areas for mortgage fraud.

Every choice has a consequence. As a white collar crime and business ethics speaker, I speak from first hand experience about the truth about consequences. Reality is – no one escapes the consequences of their choices. More and more, I find that my newest presentation is in demand: MORTGAGE FRAUD: Fact from Fiction. Prison is no fun and most of those mentioned above are facing several years plus substantial restitution for mortgage fraud conviction(s). It is true, you reap what you sow and in the environment we formerly came from, it seemed that the cards were stacked in favor of mortgage fraud.

IF you feel you’ve been a victim of mortgage fraud – please share your experience so other may benefit.

Mortgage Fraud Speaker – Chuck Gallagher – signing off…