Mortgage Originator & Modular Home Wholesaler Admit Fraud

admin —  December 28, 2010 — Leave a comment

John Stewart Morrison IV, 55, Columbia, Maryland, pleaded guilty to mail fraud in connection with a mortgage fraud scheme involving a loss of $431,377.

As previously reported on Mortgage Fraud Blog and according to Morrison’s plea agreement, on November 17, 2005 Morrison contracted to buy a lot in Glen Rock Borough, Pennsylvania for $74,900. The property was a steeply graded parcel of land that the developer of the community had used as a “fill” lot to store excess soil. In order for any development to take place, extensive soil and engineering work had to be done. As part of the contract of sale, the developer, which owned the lot, required Morrison to sign a disclosure statement in which Morrison acknowledged having received notice of the serious problems with the land, including two formal engineering studies that detailed these problems.

Instead of closing on the property himself, Morrison eventually recruited another individual to buy the lot. The buyer wished to have a modular home installed on the property and intended to spend his retirement there. Morrison failed to disclose the property’s soil and grading problems to the buyer. When the developer insisted that the buyer sign the same disclosure statement that Morrisonhad signed, in order to ensure that the buyer too, was aware of the lot’s deficiencies, Morrison, in his capacity as the buyer’s broker, submitted to the developer a fraudulent document bearing the buyer’s signature that falsely indicated that the buyer had been made aware of these problems.

As the buyer’s broker, Morrison also took responsibility for arranging the completion of the buyer’s loan application documents and submitting these documents to the lender. Morrison did not, however, correctly represent the buyer’s monthly income. Based in part on this fraudulent information, a mortgage company funded a loan amounting to $431,377 to the buyer to finance the purchase of the lot and construction of the modular home. Similarly, Morrison failed to disclose the problems with the lot to the appraiser he commissioned to appraise the land. As a result, the lending institution relied upon a materially deficient appraisal.

To conceal his involvement in this fraudulent transaction, Morrison requested that the transaction’s settlement statement reflect that any payments made to him were in fact paid to an entity that did not exist, or existed in name only. In this way, Morrison ensured that his name did not appear on the settlement statement. In addition, Morrison falsely made it appear that the seller had made this request. At the closing, the buyer paid an inflated sum of $115,500 for the unsuitable property. The developer received $73,495, on par with what the developer believed the land, factoring in its deficiencies, was worth. Minus fees and other closing costs, the balance of the sales price – $36,800 – went to Morrison under the guise of the shell entity. Morrison used these funds for his personal enjoyment.

In the weeks and months after the settlement, the buyer was unable to make the monthly payments on his loan, in part because the loan was too large for the buyer to afford, and in part because of the additional costs needed to make the property suitable for the delivery and installation of a modular home. Eventually, the buyer defaulted on the loan. He never received the modular home or plot of land upon which he had hoped to spend his retirement days.

Morrison faces a maximum sentence of 20 years in prison and a fine of $250,000 or twice the gross gain or gross loss. U.S. District Judge Richard D. Bennett scheduled sentencing for April 19, 2011, at 3:00 p.m.

The guilty plea was announced by United States Attorney for the District of Maryland Rod J. Rosenstein; Special Agent in Charge Richard A. McFeely of the Federal Bureau of Investigation; and Special Agent in Charge Ken Taylor of the Housing and Urban Development Office of Inspector General – Office of Investigations.

United States Attorney Rod J. Rosenstein commended the FBI and HUD – OIG for their investigative work. Mr. Rosenstein thanked the Maryland Department of Labor, Licensing and Regulation’s Division of Financial Regulation for their assistance in the investigation and commended Assistant U.S. Attorney Sujit Raman, who is prosecuting the case.

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