Loan Kiting Scheme Gets Group Indicted on Fraud Charges

admin —  March 22, 2010 — 1 Comment

Nancy Hernández-Chavez, her daughter, Noemí Pérez-Hernández, Manuel “Manolo” Vargas-Colón, Iris Yadith Ortíz-Rodríguez, Eric Samuel Pastrana-Miray, and Luis Fernando Capó-Ramos, all from Puerto Rico, have been charged with conspiracy, bank fraud, mail fraud, and money laundering.

The indictment alleges that from approximately October 2006 through September 2007, New York Mortgage Bankers (NYMB), acting through its management team consisting of all of the above named defendants, engaged in a loan kiting scheme that involved more than $4.4 million in loan proceeds.

During the entire period of the conspiracy, NYMB sold some 29 residential mortgage loans to investor banks in the secondary market without having cancelled the underlying mortgages on those properties. The failure to cancel the existing mortgages on those 29 properties, resulted in: (1) those NYMB clients who refinanced their existing mortgages ended up having two mortgages over their property; (2) those individuals who sold their homes to NYMB clients ended up continuing to have a mortgage in their name over the property that they had just sold; and (3) the banks in the secondary market were fraudulently led to believe that they had acquired a first mortgage over the respective real estate properties, when in truth and in fact, the most that they acquired was a second mortgage, and sometimes a third mortgage, over those same properties.

In an effort to conceal the existence of the conspiracy to defraud, the above named defendants commissioned the payment of the monthly payments on the underlying loans rather than cancelling the underlying debt. The effect of making those monthly payments on each of the 29 mortgages was to lull the investors in the secondary market into thinking they had acquired a first mortgage, and the borrowers and sellers into thinking that their respective underlying mortgages had been satisfied.

Nancy Hernández-Chávez, was the President and sole stockholder of NYMB. She is currently serving a six-year sentence in the Puerto Rico Womens’ Detention Center, located in Vega Alta, Puerto Rico, for having pled guilty to violating one count of Title 7, Laws of Puerto Rico Annotated, Section 1057a(5). As part of her plea agreement, 460 charges of aggravated illegal appropriation pending against her were dismissed with prejudice by state authorities. NYMB, meanwhile, acting through defendant Hernández-Chávez, pled guilty to 483 other charges. The Puerto Rico Government then requested the dismissal, with prejudice, of all the charges filed against defendant Noemí Pérez-Hernández.

Defendant Noemí Pérez-Hernández was the Executive Vice President, Director of Production and Treasurer of NYMB. Pérez-Hernández worked for NYMB from at least 2005 through approximately April 2007. Payroll records indicate that defendant Pérez-Hernández continued to receive payments from NYMB for several months thereafter. From at least 2005 through April 2007, however, Pérez Hernández supervised the day-to-day operations of the bank.

The third defendant, Manuel “Manolo” Vargas-Colón, held various positions within NYMB, including Manager for the Río Piedras Branch, Business Planner, and Vice President of Production Operations. Vargas-Colón had the authority, among other things, to make check requests for payment by NYMB and actively decided which of the underlying loans were going to be paid-off and which were not.

The fourth defendant, Iris Yadith Ortíz-Rodríguez, held various positions within NYMB, including Human Resources Consultant and Consultant in Operational Matters. Ortíz-Rodríguez worked at NYMB from approximately June 2006 through December 2008, and after April 2007, assumed many of the responsibilities previously handled by defendant Pérez-Hernández, including the supervision of the accounting department. Though just a consultant to NYMB, Ortíz-Rodríguez assumed an important managerial role enabling and facilitating the fraudulent scheme.

The fifth defendant, Eric Samuel Pastrana-Miray, was the Manager of the shipping department of NYMB. The shipping department was responsible for packaging and selling the loans closed by NYMB to investors in the secondary market. As the Manager of the shipping department, he was also responsible for: (a) negotiating with the investors a reasonable price for the purchase of a valid first mortgage over the respective property being sold; and (b) providing the investors with truthful and complete information demonstrating that NYMB had, in fact, satisfied the underlying debt on the property and that NYMB was selling a valid and enforceable first mortgage over the properties.

The sixth defendant, Luis Fernando Capó-Ramos, was a Certified Public Accountant (CPA) who provided services to NYMB as an external auditor from at least 2006 through May 2007. From May 2007 and continuing through approximately December 2007, he worked as comptroller for NYMB. Defendant Capo played an integral part in lulling NYMB clients into thinking that their underlying loans would be cancelled quickly, when, in reality, many of those same loans remain uncancelled.

In the face of a collapsing real estate market, these defendants continued to live large at the expense of innocent Puerto Rico homeowners. In each and every case, these innocent homeowners placed their most important asset, their home, in the hands of people who saw them as nothing more than a quick source of money,” said U.S. Attorney Rosa Emilia Rodríguez Vélez. “Mortgage fraud is a serious issue that affects not just financial institutions, but ordinary citizens. I want to assure the public that we will not rest until the tide of this criminal activity is turned.”

Internal Revenue Service (IRS) Special Agent in Charge Daniel W. Auer stated, “IRS-CI will continue to utilize its financial expertise to aggressively investigate criminal activities that adversely affect our financial system. This indictment demonstrates that mortgage fraud can and will be uncovered and aggressively prosecuted.”

U.S. Attorney for the District of Puerto Rico Rosa Emilia Rodríguez Vélez made the announcement.

If convicted, the defendants face a maximum term of up to 30 years in prison, fines of up to $250,000, or both.

The investigation was conducted by agents of the IRS, the FBI, the U.S. Postal Service, and the Puerto Rico Office of the Commissioner of Financial Institutions (OCIF). The case is being prosecuted by Assistant U.S. Attorney Marshal D. Morgan and Special Assistant U.S. Attorney Lourdes Acevedo.

Criminal indictments are only charges and not evidence of guilt. A defendant is presumed to be innocent until and unless proven guilty.

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One response to Loan Kiting Scheme Gets Group Indicted on Fraud Charges

  1. This method of operation has been done many times. Part of the problem is there should be a receipt of funds required on the payoff prior to disbursement of funds to the “new” parties.

    Everyone is so eager to get their money, title/escrow/attorneys should be required to show a payoff receipt prior to transfering funds, or title.

    It could be wired in the am, and a receipt received by the title/escrow and disbursement after receipt of the funds. OR, they can get smarter and have the current lender payoff the existing lender directly.

    As long as there are lapse ethics on the “third” parties, this will continue to happen.

    I remember a pretty major one in Norther California in 1989, involving “Crystal Mortgage”. This happened because they allowed Crystal to be an “escrow” entity.

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