The following is an op-ed article written by Patrick L. Meehan, U.S. Attorney, Eastern District of Pennsylvania entitled "The True Cost of Mortgage Fraud' following the sentencing of Philip Garland.
Garland, real estate developer, Lancaster, Pennsylvania, was sentenced to 18 months in prison and ordered to pay $1,150,000 in restitution to HUD after pleading guilty in connection with a mortgage fraud scheme. Mr. Garland was originally named in an indictment in March 2004, alleging conspiracy, mail fraud, and government fraud in connection with government insured loans. Mr. Garland pled guilty to one count of the Indictment. Three other defendants -- Richard Myford, James Ballantyne, and David Herb -- also pled guilty, and a fourth -- Judy Gemmill -- was convicted at trial.
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THE TRUE COST OF MORTGAGE FRAUD
Self-made millionaire and developer Philip Garland of Lancaster is preparing for prison. He was sentenced on July 21st and the jail term did not come as a surprise. Under a guilty plea deal with the U.S. Attorney’s Office, Garland will serve one and a half years in prison and will pay more than $1 million for his role in a mortgage fraud scheme.
Garland has admitted responsibility for one fraudulent deal; others who worked for and with him pled guilty to or were convicted after trial of dozens more deals. Garland’s sentence reflects the seriousness of his crime and the extent of the government’s losses as a result of the many illegal deals.
In all these transactions, Garland, or those who sold his homes, committed fraud so that buyers would receive FHA-insured mortgages. Garland and the others did not commit their crimes alone. The scheme only worked if a salesperson convinced buyers – some desperate to own a home – that it was all right to lie. It’s not.
If you are in the business – a developer, a broker, an appraiser, a title agent – be forewarned. The penalties for mortgage fraud are real, substantial, and commensurate with its costs. For those who are unscrupulous and think that they can turn a blind eye to fraud, Philip Garland and others have learned of the consequences.
We also urge all would-be homebuyers to take heed and remember that if a deal sounds too good to be true, it probably is. The first time homebuyers who bought from Garland and his companies did not go into the housing market intending to lie. They hoped that low interest rates and a flexible mortgage market would get them the so-called American dream: their own home. But for some, the goal of home ownership remains out of reach.
Too many professionals – like Garland and those working with him – target people stretching to do a little better for themselves and their families. They convince a family in Reading, York, or Philadelphia that they can help. They set the family up with a loan. But it is an expensive loan, one that the family cannot really afford. To get that family qualified, the criminally minded real estate professional falsifies loan documents, misrepresenting the true price of the home, or that a loan is a gift. That is no help to a struggling homebuyer. The broker has done nothing but set the family up to fail. That family will fight every day to afford their house and it is a fight many families lose. And it is a devastating loss. They realized the American dream – a nice house in a safe neighborhood – but only for a moment. The dream turned ugly and eventually ended in bankruptcy, foreclosure, and eviction.
My office has devoted significant resources to try and stop this type of mortgage fraud and hold lenders accountable. The successful prosecution of Philip Garland and his associates is just one example. Our investigative and prosecutorial focus has been on neighborhoods most affected by this form of predatory lending, neighborhoods filled with people reaching for that dream. These are neighborhoods of primarily first-time homeowners who struggle to build their communities, keep them safe, and make them stable. Will they succeed? Only if they stay. If they do not, these neighborhoods will crack and crumble. And, when a neighborhood fails, everyone suffers. The foundation for the whole community weakens. Bordering neighborhoods – those that are more established, perhaps more affluent – also feel the effects.
Predatory lending is everyone’s problem. Law enforcement, mortgage brokers, and homebuyers need to work together to prevent fraud so that families are able to hold on to the dream they have worked so hard to make a reality. Otherwise, our neighborhoods and our prisons will reflect the consequences.
- Patrick L. Meehan, U.S. Attorney, Eastern District of Pennsylvania
Rachel Dollar, the editor of Mortgage Fraud Blog is an attorney and Certified Mortgage Banker who handles litigation for lending institutions and secondary market investors.