Real Estate/Mortgage Fraud: Facts, Figures and 2010 Closed Cases

Every part of the mortgage lending process presents another window of opportunity for people in our industry who, by the very nature of their job description, are exposed to unscrupulous loan originators, builders, real estate agents, borrowers, processors, underwriters, appraisers, lender account reps, and title closers. Each one of these positions or areas, needed to obtain a mortgage, leaves an opportunity for fraud.

Federal investigators have identified an increase in frauds and schemes in the real estate business. These schemes victimize individuals and businesses, including low-income families lured into home loans they cannot afford, legitimate lenders saddled with over-inflated mortgages, and honest real estate investors fleeced out of their investment dollars.

Special agents with IRS Criminal Investigation are uniquely equipped to investigate these types of mortgage fraud and illegal real estate crimes because they are skilled financial investigators whose mission is to 'follow the money.'

Some of the common real estate fraud schemes include:

• Property Flipping — a buyer pays a low price for property, and then resells it quickly for a much higher price. While this may be legal, providing false statements to the lender 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.

The income earned from these types of real estate fraud schemes is often laundered to hide the money from the government. Money laundering is simply a process of trying to make illegally earned income appear to be legitimately earned. IRS Criminal Investigation follows the money and collects evidence to prove applicable tax and/or money laundering violations. Once they have obtained the evidence, IRS agents forward their investigation to the Department of Justice for criminal prosecution.

If a criminal investigation is not warranted, the IRS can also take civil action. Each year the IRS audits thousands of tax returns involving individuals and entities associated with the real-estate business. Complex financial investigations may take several years to complete. For example, the data shown for sentenced investigations within a given fiscal year may represent investigations actually initiated in a previous fiscal year.

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:

Pennsylvania Man Sentenced for His Role in Mortgage Fraud Scheme

On March 10, 2010, in Pittsburgh, Pa., Matthew Yurchison, of Champion, Pennsylvania was sentenced to twelve months and one day in prison on his conviction of wire fraud conspiracy and willful failure to file income tax returns. According to information presented to the court, Yurchison participated in a mortgage fraud scheme involving closing loans where Yurchison and his co-conspirator were supposed to pay off other mortgages, but instead used that money for their own purposes. As a result, there ended up being two mortgages on properties when there was only supposed to be one. Thus, when it came time to foreclose on the properties, the second lending institutions were not in the first lien position and they suffered over $670,000 in losses. In addition, Yurchison and his co-conspirator applied for, and obtained, loans based on false information and by forging signatures of borrowers and others. Yurchison also failed to file his tax returns for two years.

Pennsylvania Man Sentenced for Fraud, Money Laundering and Tax Offenses

On March 5, 2010, in Pittsburgh, Pa., Kenneth Fox, of Irwin, Pennsylvania, was sentenced to 41 months in prison, to be followed by three years of supervised release. Fox pleaded guilty in September 2009 to charges of a wire fraud conspiracy, money laundering conspiracy, and failure to file income tax returns. According to court documents, while acting as a closing agent for real estate transactions, Fox failed to pay obligations associated with the real estate as directed by the lender. He used those funds for his own benefit and the benefit of his co-conspirator. In addition, Fox's conspiracy included using the proceeds from more recent transactions to pay liabilities associated with older transactions. The conspiracy also involved the submission of fraudulent loan applications and other false documents to lenders that overstated the borrowers' income and assets and the value of the properties serving as collateral for the loans. Fox also willfully failed to file an income tax return for 2005.

Massachusetts Man Sentenced for Mortgage Fraud

On February 23, 2010, in Boston, Mass., Michael Hicks, of Quincy, Mass., was sentenced to 42 months in prison, to be followed by three years of supervised release; an order of restitution was deferred for up to 90 days. Hicks pleaded guilty in November 2009 to charges of wire fraud and money laundering in connection to a mortgage fraud scheme in which he recruited straw buyers to purchase two properties which ultimately went into foreclosure, causing a loss to lenders of more than $1 million. According to court documents, if the case would have proceeded to trial, the evidence would have established that in August 2007, Michael Lee purchased a house in Dorchester, Mass., for $400,000 and converted the house into three condominiums, which allowed him to sell the units individually. At Lee’s request, Hicks, through a Pennsylvania associate, recruited a “straw buyer” to purchase all three units. The straw buyer provided his identifying information to the Pennsylvania associate who forwarded it to Hicks. Hicks used this information to apply for mortgages for the purchase of the three units. In the loan applications, Hicks falsely represented that the straw buyer intended to make each unit his primary residence, that he was self-employed as a contractor, and that he had an annual income ranging, in the various applications, from $156,241 to more than $379,000, all in an effort to secure mortgages for $370,000 for each of the three units. Hicks also created a fictitious business for the straw buyer, falsely verified the straw buyer’s employment status for the mortgage applications, and arranged for false income tax returns to be submitted with the applications. Hicks also arranged for a straw buyer for another multi-family dwelling. For recruiting both buyers, Lee paid Hicks a total of $180,500 which Hicks was ordered to forfeit prior to sentencing. Michael Lee is under indictment and his investigation is pending.

Mortgage Fraud Nets 30 Month Prison Sentence

On February 10, 2010 in Las Vegas, Nev., Shauna Labee was sentenced to 30 months in prison, to be followed by three years of supervised release, and ordered to pay $1,123,674 in restitution. Labee pleaded guilty in June 2008 to charges of mail, wire and bank fraud in connection with a conspiracy to defraud financial institutions by submitting mortgage loan applications that contained materially false and fraudulent information. Beginning on or about April 2005 and ending in or about April 2006, Labee conspired with Steven Grimm, Eve Mazzarella, and others to make materially false and fraudulent representations on mortgage loan applications. Labee and Grimm recruited straw buyers to pose as property purchasers. Through these straw buyers, Grimm obtained control over numerous properties. Grimm sent straw buyers to Labee to complete mortgage loan applications and related paperwork to finance the property purchases. Labee put false and fraudulent information in the straw buyers’ loan applications and supporting documentation regarding the straw buyers' employment, income and assets. This false information caused the straw buyers to qualify for loans for which they would not have qualified without the false and fraudulent information. The total loss suffered by the financial institutions was greater than $ 17,000,000.

Five Who Targeted Homeowners in Default Sentenced in $13 Million Mortgage Fraud Case

On February 17, 2010, in Los Angeles, Calif., Martha Rodriguez, of Downey, California, was sentenced to 120 months in prison for orchestrating a real estate fraud scheme that falsely promised to help homeowners in default on their mortgages and caused nearly $13 million in losses. The scheme ran from May 2003 until November 2005. A second defendant, Edward Seung Ok, of Huntington Beach, was sentenced to 180 months in prison. According to court documents, Rodriguez, Ok and three others used computerized foreclosure databases to locate victims, who were then promised refinancing services. The scheme was operated through Rodriguez’s real estate and escrow agencies, Silvernet Properties in Downey and Bellasi Escrow in Seal Beach. Instead of obtaining refinancing, Rodriguez and her co-conspirators submitted loan applications in the names of “straw buyers” who were purportedly buying the properties. In some cases, the defendants paid the straw buyers for the use of their personal information. In other cases, the defendants used personal information of people without their knowledge. The loan applications for these straw buyers – which always contained false information – caused a series of lenders to fund more than 100 mortgages worth more than $40 million. The loan proceeds were used to pay off the loans in default, sometimes to make a few mortgage payments on the new loans, and to provide some instant cash to homeowners. However, the remaining proceeds, typically representing the bulk of the homeowner’s equity, were skimmed off by Rodriguez and her co-conspirators. Even though they were promised that they would be able to keep their homes, the victim homeowners usually lost title to their homes. The lenders suffered losses when the straw buyers then failed to make loan payments and the new loans went into default. Lenders were often unable to foreclose because the straw buyers did not know the properties were in their names. The scheme targeted commercial lenders and more than 100 homeowners across the Southland. Three other defendants in this case were also sentenced: Cynthia Valenzuela was sentenced 12 months and one day in prison; Vladimir Stefanovic was sentenced to 18 months in prison; and Maria G. Juarez was sentenced to 36 months in prison.

Ohio Mortgage Broker Sentenced to Six Years in Prison

On February 12, 2010, in Columbus, Ohio, Jonathan Boyd, a mortgage broker, was sentenced to 72 months in prison, three years of supervised release, and ordered to pay $468,855 in restitution to 12 victim financial institutions, as well as $211,954 to the Internal Revenue Service (IRS) for his role in a mortgage fraud scheme. In November 2008, Boyd was found guilty at trial on two counts of income tax evasion, one count of conspiracy to commit wire fraud, and four counts of wire fraud. Boyd was indicted with eight other individuals in August 2007 for allegedly conspiring to exaggerate the value of real estate properties in and around Columbus, Ohio to lending institutions as well as prospective purchasers. According to court documents, prospective buyers were recruited based on their lack of knowledge largely because of real estate and investment practices. The defendants allegedly used fraudulent documents to misrepresent the credit worthiness of those purchasers to lending institutions in order to get the institutions to approve excessive mortgage loans secured by the inflated-value properties.

Minnesota Woman Sentenced for Stealing more than $470,000 through Mortgage Fraud Scam

On February 11, 2010, in Prior Lake, Minn., Roseann Wagner, a licensed insurance agent, was sentenced to 20 months in prison on one count of wire fraud and one count of failure to file a tax return. According to court documents, Wagner was sentenced for stealing more than $470,000 designated for payment of title insurance premiums and recording fees. Wagner was charged on October 13, 2009, and pleaded guilty on October 23, 2009. In her plea agreement, Wagner admitted operating a scheme to defraud mortgage lenders, borrowers, and a title insurance underwriter from January 2007 to December 2007. In a mortgage transaction, title insurance protects the lender’s financial interest in the property. The person or entity obtaining a mortgage is required to pay title insurance premiums and other recording fees as part of the closing costs. The cost of those premiums is included in the amount financed by the lender. Wagner accepted more than $470,000 from lenders at hundreds of residential real estate closings, knowing the money was to be used to pay closing costs, including title insurance premiums and recording fees. Instead, however, she used the money for her own benefit. Wagner also failed to file a tax return or pay taxes on more than $270,000 in 2007. The tax loss from her failure to report income was at least $70,000.

Former President of Mortgage Company Sentenced to 13 Years in Prison in Fraud Scheme; Nearly $30 Million in Losses at HUD

On February 1, 2010, in Riverside, Calif., John Richard Varner, of Hesperia, California, was sentenced to 156 months in prison for defrauding the United States Department of Housing and Urban Development and private lenders by fraudulently obtaining hundreds of federally insured loans and selling those mortgages to private lenders in a scheme that caused tens of millions of dollars in losses to the federal housing agency. In addition to the prison sentence, Varner was ordered to pay $29,749,239 in restitution. Varner, the former president of Mortgage One Corporation, based in Hesperia, was convicted last April of one count of conspiracy to defraud HUD, one count of bank fraud and two counts of subscribing to false income tax returns. Varner was the fifteenth defendant convicted as a result of the scheme. According to information presented in court, from 1997 until 2002, Mortgage One and M-1 Capital were both in the business of approving, funding and then selling home mortgage loans, typically obtaining mortgage insurance on the loans from the Federal Housing Administration, which is an agency within HUD. Mortgage One and M-1 Capital obtained FHA mortgage insurance for their loans without HUD review due to their status as HUD-approved Direct Endorsement Lenders. They obtained and kept Direct Endorsement Lender status by submitting false documents, including bogus audits, to HUD. Varner and his co-defendants defrauded HUD by submitting fraudulent loan application documents in order to qualify the loans for FHA insurance. The loans went to borrowers who either did not meet the FHA requirements to qualify for the mortgages or were only “straw buyers.” Mortgage One and M-1 Capital sold the funded loans to banks, such as the FDIC-insured Firstar Bank, N.A. and Chase Manhattan Mortgage Corporation, using the same fraudulent documents. As a result of the scheme, HUD lost $23,628,857 on 905 fraudulent loans and a total of $29,638,011 when interest paid by HUD during the foreclosure and resale process is included. Varner was found guilty of filing false tax returns for the years 1999 and 2000 when he failed to report income that he used for personal expenses such as a Corvette, a $153,000 RV, jewelry and more than $150,000 deposited into a personal investment account.

Florida Man Sentenced to 22 Years in Prison in Mortgage Fraud Scheme

On January 22, 2010, in Orlando, Fla., Garry S. Martin was sentenced to 264 months in prison and ordered to pay more than $1 million in restitution to his victims. Martin pleaded guilty in July 2009 to charges of conspiracy to commit money laundering in connection with various mortgage fraud schemes and violating the terms of his supervised release from a prior conviction in 2006 for engaging in mortgage fraud. The terms of Martin’s supervised release for his 2006 conviction prohibited him from offering various real estate services. However, Martin maintained his real estate sales agent license and obtained his real estate broker’s license. He also formed various companies, including Antigua Housing and Management, Inc. (Antigua H&M), Antigua Real Estate, Antigua Abstract LLC (Antigua Abstract), GSM Financial LLC, and Savvy Professional Title Company (Savvy), each with its principal office listed at the same address in Orlando, Florida. Through those companies, Martin conducted various schemes, including foreclosure fraud, reverse mortgage fraud, and sham transactions, to defraud financial institutions out of more than $5 million. Through Antigua H&M, Martin obtained money from people facing foreclosure by promising that Antigua would bring their past due mortgages current through refinancing and forward their payments to their lenders. He then used the foreclosure payments himself and did not pay the banks. Through Savvy and Antigua Abstract, Martin marketed reverse mortgages to seniors, sent fraudulent financing packages to support the mortgage applications, arranged the mortgage closings himself, and then diverted mortgage proceeds to his personal use. Martin also created wholly fictitious agreements between fake buyers and fake sellers to receive mortgage proceeds.

Four Sentenced in Mortgage Fraud Scheme

On January 22, 2010, in Dayton, Ohio, four people were sentenced for their roles in an extensive mortgage fraud scheme that affected 210 residential properties. Kenneth O. McGee was sentenced to 32 months in prison and fined $12,500; his father, Edward McGee was sentenced to three years’ probation and fined $140,000; Robert Mitchell was sentenced to 32 months in prison and fined $12,500; and Kamal J. Gregory was sentenced to 10 months in prison and fined $12,500. All defendants pleaded guilty to various federal charges of conspiracy to commit mail fraud, wire fraud, money laundering, and/or conspiracy to commit money laundering. The defendants were part of a conspiracy that operated and controlled various Dayton-based real estate mortgage and title insurance related businesses and corporations that schemed to defraud 33 mortgage lending institutions out of over $7 million in loan. This scheme involved manipulating documents associated with real estate sales and closings in order to fraudulently obtain excess mortgage loan proceeds generated from the sale of residential properties for the personal benefit of the co-conspirators.

Unlicensed Orange County Mortgage Broker Sentenced to Nearly Six Years in Prison in $40 Million Fraud Scheme

On January 11, 2010, in Santa Ana, Calif., Jared Tornow was sentenced to 70 months in prison for tax evasion, mail, credit card and mortgage fraud that caused more than $7 million in losses. According to court documents, Tornow provided mortgage services from 2001 until 2006 through several companies, including Lucrativo Real Estate Solutions, which he operated with Mikhail Kosachevich during the last two years of the scheme. Tornow solicited home buyers and assisted them in obtaining mortgages, often by submitting fraudulent paperwork to lending banks. As a part of the scheme, Tornow and others inflated borrowers’ income and assets on loan applications, leading lenders to believe that their clients were creditworthy; including creating false W-2 forms, paycheck stubs, bank statements and other documents. Relying upon the false statements made on loan applications by Tornow and others, lenders issued more than $40 million in residential loans to Tornow’s clients. When a number of the properties went into foreclosure, the banks suffered losses of more than $7 million. Tornow and his co-conspirators received hundreds of thousands of dollars in commissions and payments from loans that were funded based upon their false statements and submission of fraudulent documents to lenders. Tornow concealed his commission income from the IRS and failed to pay more than $300,000 in federal income taxes.

Man Sentenced to Nine Years in Prison in Multi-Million Dollar Mortgage Fraud Scheme

On January 11, 2010, in Brattleboro, Vt., Benjamin Osmanson, former operator of the Highgate Manor, in Highgate, Vermont, was sentenced to 108 months in prison, to be followed by five years of supervised release, and ordered to pay over $12 million in restitution. Osmanson pleaded guilty in September 2009 to three counts of conspiracy, wire fraud, and money laundering related to his scheme to defraud mortgage lenders by submitting false loan applications in the names of “investors.” Osmanson’s co-defendant, Jillian Protzman pleaded guilty on August 17, 2009, to two counts of conspiracy and money laundering, and was sentenced to six months in prison and ordered to pay 30% of $12 million owed in restitution. Former Florida realtor Margaret Giresi, who pleaded guilty in September 2008 to related conspiracy charges, was sentenced to three years of probation. Two mortgage brokers involved in the scheme, Mike Otis and Chris Whitfield pleaded guilty earlier this year in Louisville, Kentucky, and is awaiting sentencing. According to court documents, from at least as early as January 2006 through at least April 2007, Osmanson and Protzman orchestrated the purchase of at least 50 properties in California, Florida, Kentucky, and Vermont in the names of at least 10 investors, obtaining more than $26 million in loans to support the purchases. According to the indictment, Osmanson recruited friends, family members, and acquaintances to “invest” in real estate. Osmanson and Protzman then submitted fraudulent loan applications in the names of the investors to obtain fully-financed mortgage loans. The indictment states that Osmanson, Protzman, and others sought loans from multiple lenders, and closed the loans for each investor within a short period of time, in order to preserve the appearance of the investor’s good credit until the transactions were complete. The indictment further alleges that Osmanson and Protzman enriched themselves with “rebates,” “fees,” and commissions connected to the fraudulent property purchases, and continued to recruit investors and submit applications for new loans even after the loans to the initial investors began to fail. The over $12 million in restitution ordered represents the outstanding losses to the lending institutions after foreclosure sales on the involved properties.

Leader of $47 Million Mortgage Fraud Scheme Sentenced to Prison

On January 8, 2010, in Seattle Wash., Viktor Kobzar was sentenced to 60 months in prison followed by three years supervised release and along with co-defendants ordered to forfeit a Lamborghini, two BMWs, a 31-foot yacht and several bank accounts worth $2.4 million for conspiring to commit bank fraud, mail fraud, wire fraud and filing a false personal income tax return. According to court documents, Kobzar was a mortgage broker who, with co-defendant Vladislav A. Baydovskiy, operated two brokerage companies, Nationwide Home Lending LLC and Kobay Financial Corporation; and established a third company, Emerald City Escrow, to close transactions involving the fraudulently obtained loans. The defendants secured through “straw buyers” and otherwise unqualified purchasers at least sixty-eight loans, representing at least $46 million in loan proceeds, based on false and fraudulent representations. Employees and principals at Kobay and Nationwide prepared and submitted falsified loan applications and related verification documents to lenders in a scheme to conceal the fact that buyers were otherwise unqualified to obtain purchase money loans. Relying on the fraudulent information, lenders extended loans that exceeded the value of the property and the borrower’s ability to re-pay the loan. Employees and principals of Emerald City diverted some of the fraudulently obtained loan proceeds to themselves and others associated with the scheme.

Ringleader and Others Sentenced in Massive Indiana Mortgage Scheme

On January 4, 2010, in Indianapolis, Ind., Robert Andrew Penn was sentenced to 84 months in prison for his part in a multi-million dollar mortgage fraud scheme in the Indianapolis area. According to court documents, between 2003 and 2005, at least 136 fraudulent loans, totaling more than $16.6 million, were obtained by Penn and his associates who operated businesses which were created to illegally obtain loans on residential real estate properties in the Indianapolis area. Penn controlled and directed the activities of the other people involved in the illegal activities, some of whom have already been sentenced for their parts of this scheme. Those include:
• Timothy Brown - 37 months imprisonment
• Stephen Scott Brown - 37 months imprisonment
• Jerry Jaquess - 30 months imprisonment
• Tamara Scott - 24 months imprisonment
• Mark Roth – 43 months imprisonment

Father and Son Sentenced in Mortgage Fraud Scheme

On January 4, 2010, in Raleigh, N.C., Daniel Adam Rooks, aka Adam Rooks was sentenced to 87 months in prison, to be followed by five years of supervised release. Alford Rooks, Adam's father, was sentenced to five years probation. Adam and Alford Rooks were indicted in December 2008 with others on charges of conspiring to commit wire fraud and mail fraud, aiding and abetting wire fraud, and conspiring to launder money. As stated in the Indictment, from approximately January 1998 until about April, 2004, the defendants devised a scheme to defraud home buyers, banks and other lenders to obtain money and property from the home buyers and lenders by materially false and fraudulent pretenses. Adam Rooks bought about four tracts of land in Whiteville, N.C., subdivided the properties, put trailers on them, and sold them to low income people from around the area. In the beginning, Adam Rooks was selling these properties himself with the aid Alford Rooks and others. He partnered with two mortgage brokers to finance the mobile homes. Adam Rooks falsely stated to the buyers the estimated cost of the property, the payment amounts and his ability to secure loans. After taking their Social Security numbers and names, he would then turn the information over to the other brokers and they would falsify the loan applications, sending them in for approval. Most of the properties initially sold by Adam Rooks were foreclosed by leaders who were co-conspirators. The defendants began purchasing the foreclosed proprieties and solicited others, often times other mortgage brokers, as 'investors' to purchase the new price-depressed foreclosed properties and resell them quickly at prices inflated by false and fraudulent real estate appraisals.

We must be vigilant against fraud, recognizing its signs and taking proactive, definite, and realistic steps to not only prevent it but also punish it.
It starts with me.
It starts with you.
It starts with us…

You are all encouraged to report any suspected mortgage fraud activity to authorities, www.PreventLoanScams.org

Michael S. Richardson
Director/Mortgage Fraud Services
www.mortgagefraudsolutions.com
Author of "An American Epidemic, Mortgage Fraud a Serious Business"
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The information above is compiled from the IRS -A collection of recent news releases, statements and other items related to IRS compliance and enforcement efforts.