Clarence Harris was charged by information and agreed to plead guilty to Conspiracy to Commit Bank Fraud, Wire Fraud and Mail Fraud and Filing a False Income Tax Return in connection with his role in a Cincinnati, Ohio flipping scheme that has thus far resulted in over two dozen guilty pleas. According to court documents, as a result of his fraud, engaged in between June 1, 2002 and January 19, 2006, Harris caused actual and/or intended losses to financial and lending institutions of $872,910. The conspiracy charge carries a maximum penalty of 30 years in prison and a $1,000,000 fine while the tax related charged carries a maximum penalty of three years in prison and a $100,000 fine.
According to the plea agreement, the scheme operated as follows:
• A person would purchase a piece of real estate at a low value, e.g., $20,000
• A buyer would be recruited – usually someone that could not otherwise afford to purchase real estate or an individual interested in properties as an investor
• After finding the buyer, one of the co-conspirators would create false documents, including pay stubs, W-2 forms, bank statements and employment verifications.
• The co-conspirators would obtain a falsely inflated appraisal for the property
• The co-conspirators would submit the false loan package to the lender in order to obtain a highly inflated loan (e.g. $85,000 for the property that was originally purchased months before for $20,000).
Harris acted as a loan originator and a recruiter for many of the flipped properties. He recruited buyers to purchase properties from others at artificially inflated values and was aware that one of his co-conspirators, rather than the buyer, brought the down payment to the closing. He was also aware that buyers often received undisclosed kickbacks outside of the closing. As owner of Check First Mortgage, Harris prepared loan applications that he knew were false, overstating borrower’s income and assets, and which were supported by inflated appraisals.
The plea agreement details two transactions, one a June 19, 2003 transaction whereby Eddie Cooper purchased property at 316 Mohawk Place, Cincinnati, Ohio for $58,000 and the other wherein Rhonda Ballew purchased property at 5211 Lillian Drive, Cincinnati, Ohio for $118,000. The loan documents in both cases falsely reflected that the borrowers contributed the down payments when it was, in fact, they were made by Harris. Both loans were supported by inflated appraisals. Harris received payoffs from fraudulent loan proceeds payable to his mortgage company, Check First Mortgage, and to his shell company, Inman Realty, and failed to report substantial income.
A hearing on the plea agreement is scheduled for February 28, 2006.
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.