Hard Money Lender Sentenced for Fraud

Allison Tussey —  March 16, 2011 — 6 Comments

Kenneth A. Schneider, 57, Weston, Connecticut, appeared for sentencing at a federal court session in Missoula, Montana, on March 10, 2011, before U.S. District Judge Donald W. Molloy. Schneider was sentenced to a term of 63 months in prison, a Special Assessment of $100, Restitution in the amount of $1,774,096.67, Forfeiture of his house and bank accounts and Supervised Release for a term of 3 years.

Schneider was sentenced in connection with his guilty plea to wire fraud.

In an Offer of Proof filed by Assistant U.S. Attorney Timothy J. Racicot, the government stated it would have proved at trial the following:

For the past several years, perhaps beginning as early as 2003, Schneider, doing business as American Bridge Funding, Inc., represented himself as “specializing in problematic and opportunistic commercial direct bridge loan funding[.]” He advertised in national and regional publications like USA Today and the Salt Lake City Tribune, and also relied on referrals. He claimed to be capable of funding large-dollar, hard-money loans (usually for a few million dollars) to individuals or entities wishing to borrow against a parcel or parcels of real property.

Schneider required an up-front application fee that was normally eith! er $7,500 or $10,000. Once he received the application fee, he visited the site of the real property and met with the potential borrowers. The site visits were followed by a commitment letter, which stated: “I am pleased to advise you of our commitment to provide financing. This commitment supersedes all previous communications and correspondence without limitation.” The letter detailed the amount of the loan, the collateral for the loan, the interest rate and repayment terms, and specified a closing date with the tag line, “time is of the essence.” The letter also encouraged the borrowers to hire an attorney licensed in New Jersey to represent their interests and obligated the borrower to pay Schneider‘s legal fees “provided in connection with this transaction.” The letter specified that the commitment would be effective only after it was fully executed and delivered to Schneider along with a commitment fee (which was 1% of the loan amount, but was sometimes waived).

After Schneider visited the property and sent the commitment letter, he became difficult to contact and eventually often communicated one or more problems with the collateral property, such as environmental issues, lack of ownership of mineral rights, or the borrowers’ inability to obtain flood insurance for an undeveloped parcel of real property. Many borrowers asked for their commitment or application fees back, but Schneider almost always refused.

During the time period alleged in the indictment, Schneider swindled in excess of $1.5 million from approximately 130 victims. Included among those victims are two residents of Missoula County and one resident of Ravalli County, who combined to pay Schneider $37,750 in application and commitment fees for a loan that never closed. On December 8, 2008, Schneider sent a terms sheet to one of the Montana victims and on December 23, 2008, the terms sheet was executed and $10,000 was wired into Schneider‘s JP Morgan Chase bank account. Schneider sent the commitment letter that same day (December 23, 2008). The remaining $27,750 was wired between January 2 and 9, 2009.

Schneider traveled to Montana to visit the collateral property on January 14, 2009. He gave every indication that he would fund the loan and did not express any concerns about the collateral. Following the site visit, Schneider complained that the owner of the collateral property did not also own the mineral rights. The victims attemp! ted in vain to assuage Schneider‘s concerns, but eventually substituted a different parcel of land that did not have a severed mineral estate. Schneider responded with a second commitment letter, but later raised an issue about a stream that crossed the second parcel. The victims then attempted to substitute a third parcel, but never received a response from Schneider. At that time, the victims requested a refund, but Schneider responded that he deserved the money he had received, for what he characterized as “break up fees.”

During the time period alleged in the indictment, January 2008 until July 2010, Schneider spent in excess of $140,000 in fraudulently obtained funds on the mortgage for his residence in Connecticut, more than $394,000 advertising for his business, at least $94,000 on an apartment in New York City, and countless other sums on ATM and debit withdrawals.

When he was arrested in July 2010, Schneider acknowledged that his business was a fraud. He provided a hand-written statement in which he admitted that he “participated in a scheme to support [his] family,” and that he “never intended to provide funding” to any of the victims that he encountered.

The investigation was conducted by the U.S. Secret Service.

The United States Attorney’s Office announced the sentence. 

“The result in this case brings an end to a far-reaching fraud scheme an! d was made possible through the efforts of the United States Secret Service and the persistence of the victims. The U.S. Attorney’s Office and federal agents are committed to combating fraud across the state of Montana and the United States. This case involved victims from across the country, which demonstrates the scope of the defendant’s conduct and the need for a federal response. Today’s sentence should send a strong message to the community – fraud will not be tolerated in Montana and will result in prison sentences.” United States Attorney Michael W. Cotter.
Because there is no parole in the federal system, the “truth in sentencing” guidelines mandate that Schneider will likely serve ! all of the time imposed by the court. In the federal system, Schneider does have the opportunity to earn a sentence reduction for “good behavior.” However, this reduction will not exceed 15% of the overall sentence.

 

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Allison Tussey

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6 responses to Hard Money Lender Sentenced for Fraud

  1. the ira rules will help you in your real estates.

  2. investment property loans May 1, 2011 at 5:58 am

    the investment property loans will help you in the flipping of properties.

  3. private hard money lenders April 22, 2011 at 9:34 am

    The private hard earned money lenders are solemnly doing their jobs to finance people who cannot raise big capitals for their businesses. They are essential to the community.

  4. private hard money lenders April 22, 2011 at 8:26 am

    I think private money lenders are there to help you. They are there to help you in financing your investments and businesses.

  5. Earn a sentence reduction for “good behavior”? No way!

  6. Hard Money Mortgage Loan March 21, 2011 at 11:08 am

    Hard Money Lenders should always obey the law so that they can keep themselves out of trouble and their respect will also be maintained and so will be the respect of all the Hard Money Lenders.

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