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Mortgage Industry Fraud Insights from Patrick Crowley




May 1, 2005

"Fancy digs and gambling trips."

That's what a South Carolina businessman is accused of paying for with millions of dollars he allegedly received in a massive $35 million bank fraud case.

Howard Lee Ray, who operated Bargain Equipment Sales Inc. in North Charleston, S.C., has been sentenced to five years in prison by a federal judge. Ray and his business partner, Thomas M. Christensen, have pleaded guilty to a single count of conspiracy to commit wire fraud, according to the Associated Press.

Christensen has not been sentenced.

Ray has admitted to helping falsify his company's financial records to receive a $35 million loan from Deutsche Financial Services in St. Louis.

The fall from grace is stunning. Ray's company had annual revenues of more than $190 million, but it failed in May of 2001 and declared bankruptcy.

Geoff Levy, a court-appointed bankruptcy trustee, reportedly told the AP that the lender has recouped about $20 million of the loan but $15 million is still unaccounted for.

"We know there were large expenditures," Levy said, "fancy digs and gambling trips, that type of stuff."

Ray has been ordered to pay $16 million in restitution.

read story from The Kansas City Star

An alert real estate company helped Maryland police catch a woman accused of stealing an identity to get a $400,000 mortgage loan.

The Charles County Sheriff's office says Leticia Jonelle Miller applied for the mortgage using the name of another woman.

A real estate company said it found discrepancies that gave hints that the Miller wasn't who she said she was.

The company contacted the woman with the name Miller had used in applying for the loan. And sure enough, the victim said she had not applied for a mortgage and frankly did not know what the real estate company was talking about.

A mortgage company in Missouri said it had approved a loan in the victim's name, police said, according to a report posted on Southern Maryland Online.

When Miller met with a real estate agent at the house police showed up and arrested her. She is charged with three counts of forgery and two counts of using another person's identification. She is being held on a $100,000 bond.

read WFLS News article

read article from Southern Maryland Online

Taking clients' money that was supposed to go pay off mortgages but instead using it for personal expenses has landed a Boston-area lawyer in trouble.

Attorney Edward J. O'Connell, 41, of Melrose, Mass., stands accused of stealing more than $1.3 million in seven property transactions in which he was handling the closings, according to the Massachusetts Attorney General's office.

He even took $80,000 from the East Cambridge Land Trust, a land conservation charity. O'Connell was treasurer of the charity.

O'Connell has been indicted on eight counts of larceny over $250 and one count of fraudulent appropriation of corporate funds by an officer.

O'Connell allegedly didn't pay off first mortgages of more than $450,000 in two of the last closings he handled.

O'Connell ran the scheme between July of 2002 and May of 2003. He was disbarred in Massachusetts in the fall of 2003 after the investigation was revealed.

He was reportedly using the money on personal and business items, including taxes and exposes at his firm, according to a dispatch in the Boston Herald.

read story at Boston Herald

read announcement from Massachusetts Attorney General

The owner of Xtreme Mortgage Associates is in some extreme trouble with Florida law enforcement.

Melissa Sant, who owns the Kissimmee mortgage brokerage, has been arrested for allegedly using phony documents to earn commissions of more than $20 million in loans that should never have been approved, according to the Florida Department of Law Enforcement.

Authorities said as much as 80 percent of the loans brokered by Xtreme Mortgage involved fraud. They also said she allegedly defrauded lenders out of millions of dollars.

WFTV.com reported that investigators called Sant's scam one of the most sophisticated mortgage fraud schemes they've seen.

Sant used bogus W-2 forms, incomes statements, title work and employment verifications to qualify borrowers for loans even though they should not have received funding, investigators allege. In some cases the borrowers did not even know Sant was falsifying the documents.

Sant is free on bond but she faces charges of organized fraud of $50,000 or more, grand theft of $100,000 or more and seven counts of mortgage fraud.

read story at Orlando Sentinel

read article at WFTV

read Florida Department of Law Enforcement announcement

April 28, 2005

The more than 100 people stung in a Pennsylvania fraud scheme run by a mortgage broker and home improvement contractor are getting some satisfaction.

Attorney General Tom Corbett has announced that broker Mark Campisi is shelling out $50,000 in restitution for his part in a scam that authorities said led to a 400 percent increase in foreclosures in Butler County, according to a dispatch from the Oil City Derrick newspaper.

In addition to a mortgage brokerage Campisi controlled other lending and finance companies that were also accused of wrongdoing.

The state sued Campisi November of 2001 for fraud after the paper exposed questionable lending practices that led to a number of foreclosures. The money he paid was part of a consent decree with the attorney general's office. Campisi admitted no wrongdoing.

The state has also placed restrictions on the other companies Campisi operated, including Bankers Financial Services, Atlantic Credit Inc. and USA Financial Services.

Iron City Builders, a home improvement company from Pittsburgh, helped land customers for Campisi. It was banned from conducting business in the state under a deal cut with regulators last year.

Appraisers Reid Baker of Allison Park and Richard Bauer of Titusville are still being investigated, according to the paper.

read story at TheDerrick.com

The pair behind the largest mortgage fraud case in Broward County, Fla, history is finally going to jail.

Mary Christenson, 58, and Eric Johnson, 53, were convicted on 22 counts of breaking federal law in a 2003 trial that lasted six weeks. They have been free while the convictions were being appealed. But the U.S. Attorneys office in Miami has announced that the appeals have been exhausted and Christenson and Johnson have turned themselves in.

Christenson must serve 33 months and pay restitution of nearly 600 grand; Johnson will be in the pen for 30 months and face the same restitution amount as his partner in crime.

At $20 million the mortgage fraud was the largest in the history of Broward County, according to the Miami Herald.

The scam is common -- inflated appraisals and false mortgage applications are used to dupe lenders into giving mortgages on properties. The scammers pocket part of the money. In this case when the properties were foreclosed on -- which typically happens in flipping schemes -- low-income residents were booted from their homes, prosecutors said.

Christenson was actually buying the properties from her son, James, who was also charged. But he was killed in an automobile accident before the case went to trial.

About 50 properties were involved. Johnson's angle was that he processed the phony mortgage applications through his company, Atlantic Mortgage Corp., according to the prosecutors.

read Miami Herald article

read Department of Justice announcement

The Ponzi scheme is one of the oldest in the book, but it often works. At least for awhile. In fact, quite a long while -- 12 years -- for Houston investment broker Lester Pound.

Pound, 53, has been convicted on federal charges of six counts of mail fraud. He was running a Ponzi scheme from 1991 to 2003 in which promised he was investing clients' money in government backed zero coupon mortgage notes, according to an announcement from the U.S. Department of Justice. About 30 people fell prey to the scheme.

He'll spend 48 months in prison and was ordered to pay over $2 million in restitution.

A Ponzi scheme is, of course, a scam where the money from new investors is used to pay off previous investors giving the appearance that the investment is legitimate and paying a return. All along the operator is taking a cut, or all, of the money.

The scheme usually falls apart when there is no new money coming in.

The feds say once the Ponzi scheme, also known as a pyramid scheme, began to crumble Pound admitted to investors and the FBI that he had never invested any of the money in mortgage notes or anything else -- other that his own needs, including buying cars, renovating his house and paying college tuition.

read ABC13 Eyewitness News article

read Houston Chronicle story

read Department of Justice announcement

April 27, 2005

Here's a new twist on mortgage fraud -- a banker accused of bilking a mortgage company. Which begs the question, why didn't he just steal from his own bank?

According to the Greely Tribune in Colorado Fred Allison, 41, of Fort Collins, Colo., has been charged by local prosecutors with using phony documents to get a $40,000 loan from New Frontier Bank.

Rhonda Lesh, the owner of Lesh Mortgage Lending, was even a customer of the bank.

Allison, who was a vice president of the bank, has been fired. Police had already been looking for him in a case where he allegedly pawned his car at an auto dealership with a duplicate title. The paper reported he duped the dealer for $8,200.

Lesh was quoted as saying she received some of her money back, but that Allison "needs to be stopped."

"If I don't get another dime out of him, if I get a criminal record on him and make sure he never works at another bank again, or get some kind of knowledge in the public about him, that's good enough," she reportedly said.

read story at Greely Tribune

April 26, 2005

Here's another family taken down by the feds in mortgage fraud scheme, this one out of Kansas City.

Carl Long, 55, and his son, Anthony Long, 34, were in the mortgage business together through three companies -- Community HomeBanc, Community HomeBanc of American and First Equity Banc. Federal prosecutors said the duo conspired with builder Mitchell David Medlin, 43, who owned M&R Construction, on drafting a scheme to defraud both home buyers and lenders.

They allegedly used the promise of no down payments or closing costs to induce buyers to purchase duplexes and other property. Then they would inflate the appraisals and use other phony documents, convincing lenders that the buyers were putting up down payments and paying costs.

That resulted in the buyers taking out a larger loan and paying a higher price, in some cases 68% more that the properties' actual worth. The trio was pocketing the money they made on the inflated appraisals, according to the U.S. Attorney's office in Kansas City.

The case involved 135 fraudulent loans totaling more than $20 million. All three have pleaded guilty to charges and are facing prison sentences from 15 to 35 years in prison.

read story at The Kansas City Star

It gets bad when a father can't trust a son.

According to dispatches from TriCities.com in eastern Tennessee and The Associated Press police have charged a 63-year-old man with ripping off money that was supposed to pay for a new house for his 89-year-old father.

Bernard Gajewski has been charged with a felony theft of over $60,000. The case is a little bazaar is that the crime allegedly went down seven years ago.

Here's what happened.

Joseph Gajewski, the dad, sold his house in Omaha in 1998. He took the money and gave it to his son to buy him a new house in Rogersville, Tenn.

Instead the kid took out a mortgage in the name of his wife and son, spending some of the money on vehicles and other things. Dad has been living in the house and paying the mortgage, but it was supposed to be free and clear of any debt.

"The dad is kind of elderly and expected his sons to help him out and make this transaction for him," Rogersville Police Department Detective Travis Fields reportedly told AP. "Instead Bernard stole from his own father."

Police say they can't account for all of the missing money. Evidence in the case apparently came out in a lawsuit over a family dispute.

read AP story at TriCities.com

April 25, 2005

Real estate lawyers are supposed to make payments when they handle a closing. Andre Barrett, North Carolina real estate lawyer, is going to prison because instead of paying out money from closings he kept the cash.

Barrett, 34, who worked out of Fayetteville, N.C., will spend more than six years in prison and was ordered by a federal judge to pay nearly $2.1 million in restitution to the clients prosecutors say he ripped off -- including insurance companies and the federal government.

About 50 clients were victims of Barrett, who wrote checks to himself out of the trust accounts he was paid to administer. But also were also hurt by the fraud, including sellers, prior lenders, lien holders, title insurance companies and others who were owed money out of closing proceeds.

"As a result" of Barrett's actions, "many buyers and new lenders were defrauded by receiving clouded title and devalued security interests," federal prosecutors said in a statement.

The Fayetteville Observer reported that Barrett spent much of the stolen money on salaries for the 13 employees of his law firm, many of whom were family members.

Barrett ran his scam from January of 2001 to June of 2002.

read Associated Press coverage

read Department of Justice announcement

read The Fayetteville Observer article

Mortgage lenders were hit with more than $3 million in losses through a fraud scheme masterminded by a Virginia mortgage broker who is going to spend the next 46 months in a federal prison.

Court papers from a U.S. District Court in Alexandria, Va., show the scam run by Mary Jo Karczewski relied heavily fake documents that included phony IRS forms, income tax returns, appraisals, loan applications, W-2s and even bogus cancelled checks.

Karczewski, 41, lives in Kisseeme, Fla., but she previously owned Chesapeake Mortgage Financial Corp. Prosecutors say she submitted loan applications falsely stating that borrowers wanted to refinance the terms and conditions of unrecorded land contracts.

"The agreements falsely represented that the borrowers had previously purchased the properties from the actual seller," prosecutors said.

To back up her phony claims Karczewski created phony cancelled checks purporting to show that the borrowers had been making monthly payments to the sellers.

Using fake appraisals that inflated the values of the properties Karczewski and her co-horts bilked more than $2 million in cash-out borrower proceeds at closings.

The numbers on this one are pretty big: more than 40 false loan apps; $6.7 million in loans; losses to lenders of more than $3 million; and $3.1 million in restitution that Karczewski owes.

read Department of Justice Statement of Facts

read Plea Agreement

read Department of Justice news release

Patrick Crowley is a reporter and columnist for The Cincinnati Enquirer and fraud journalist for MortgageDaily.com.

Email Patrick at: PatCrowley@FraudBlogger.com
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