Below are brief summaries of some of the significant mortgage fraud cases in California brought since June 18, 2010:
United States v. David Crisp, et al. The indictment alleges that, from approximately January 2004 to September 2007, the defendants operated real estate businesses in Kern County through which they submitted fraudulent loan applications with misrepresentations concerning the borrower’s income, assets, employment status, and intended use. They allegedly perpetrated the scheme in part by selling single homes on multiple occasions, through a series of fraudulent transactions to co-defendants, straw buyers, and others in order to artificially inflate the prices of the residences. The scheme involved more than $20 million in losses to lenders. (FBI and HUD-OIG)
United States v. James Lankford and Jon McDade, Alleged $10 million equity-skimming mortgage fraud scheme in the Modesto, California area, in which Lankford and McDade targeted elderly property owners who wanted to sell their property with no listing agent. They allegedly induced the elderly property owners to sell their homes to the defendants using a contract for the seller to take a note for a portion of the purchase price involving interest-only payments to the seller for five to 10 years, then obtained conventional financing to purchase the same properties in the form of a mortgage from a lending institution, using false information in the mortgage applications. The defendants allegedly did not disclose to the lending institutions the seller-backed financing, diverted the proceeds of the mortgage loans to themselves, and lulled the elderly property owners by mailing them monthly interest-only payments. Many of the properties were later allowed to go into foreclosure, or were sold in short sales through Lankford‘s real estate business. The conduct caused losses to the victim elderly property owners, lending institutions, and banks of at least $10 million. (FBI and Stanislaus County District Attorney’s Office)
United States v. Richard Northcutt; United States v. Theodore Hutz; United States v. Yama Marifat; United States v. Gregory Jackson, Prosecutions of participants in bid-rigging scheme involving auctions for foreclosed properties in San Joaquin County public auctions. (FBI and San Joaquin County District Attorney’s Office)
United States v. Vera Kuzmenko, et al. The indictment charges eight Sacramento-area defendants with perpetrating a scheme in which they originated more than $16.3 million in residential mortgage loans on 14 homes purchased through straw buyers, and extracted loan proceeds at closing through bogus liens. All of the homes went into foreclosure, causing losses of approximately $9.6 million. (FBI and IRS-CI)
Since the end of Operation Stolen Dreams on June 18, 2010, 13 of the 46 defendants charged in that operation have pleaded guilty to federal offenses, and five have been sentenced to prison terms. Prison sentences imposed so far on Operation Stolen Dreams defendants have been as high as 82 months in prison. In two cases involving three defendants, restitution or forfeiture orders totaling more than $1.9 million were imposed.
In addition, since the end of Operation Stolen Dreams one year ago, prosecutors in this office have filed 17 new indictments or informations charging 47 new defendants with mortgage fraud offenses. Cases charged in the last 12 months involve many tens of millions of dollars of alleged losses. The prosecutions involve a variety of alleged fraudulent schemes, ranging from a 10-defendant case involving a property-flipping scheme in Kern County, to an eight-defendant Sacramento area cash-back scheme using fraudulent liens, to a series of cases relating to bid rigging at foreclosed property auctions in San Joaquin County, to cases in which residences were acquired with false purchaser information for use as indoor marijuana grow houses.
In addition to all of those cases, the office continues to litigate a very large number of mortgage fraud cases initiated prior to Operation Stolen Dreams. During the last 12 months, prosecutors in this office have obtained guilty pleas or convictions of another 27 defendants and prison sentences of another 10 defendants in 25 other federal criminal mortgage fraud cases. For those 10 defendants, sentences have ranged up to 37 months in prison, and total restitution orders have exceeded $2.25 million.
U.S. Attorney Wagner said: “Mortgage fraud continues to be a major problem in this region, which has cost banks, borrowers, and homeowners tens of millions of dollars. Prosecuting mortgage fraud continues to be a major focus of this office. While last year’s Operation Stolen Dreams was a success, it did not mark the end of our focus on mortgage fraud. As the results announced today illustrate, we are continuing to relentlessly pursue fraudsters in the real estate and mortgage industries. In addition to the results announced today covering the last 12 months, we have additional cases under investigation, and expect to bring more indictments in the near future.”
Herb Brown, Special Agent in Charge of the Sacramento FBI, said “These cases provide a glimpse of just how pervasive Mortgage Fraud is in the Eastern District of California. This growing crime problem is a very real threat to the American dream of home ownership for many of our citizens. We must and will continue to pursue those industry insiders who abuse and exploit the mortgage and real estate process for their own personal gain.”
“Victims of mortgage fraud may include the banks that loan the money, but also include all homeowners and would-be homeowners who end up paying for this type of fraud,” said Scott O’Briant, Special Agent in Charge, IRS-Criminal Investigation. “IRS-CI is committed to pursuing those who line their pockets with profits from these schemes.”
“Mortgage fraud has burdened neighborhoods with abandoned and deteriorating properties as well as caused an urgent reliance on the government, and ultimately the taxpayer, to bolster devastated communities,” said Wayne North, Special Agent in Charge of HUD’s Office of Inspector General. “HUD OIG is deeply committed to working with our law enforcement partners in the continuing efforts to bring to justice those that seek to enrich themselves at the expense of our communities.”
“Mortgage fraud is a priority for the Postal Inspection Service,” said U.S. Postal Inspector in Charge Adam Behnen. “We will continue working with our partners in law enforcement a will present cases to the U.S. Attorney’s Office as they arise.”
Mortgage fraud is a priority area for the President’s Financial Fraud Enforcement Task Force. The task force includes representatives from a broad range of federal agencies, regulatory authorities, inspectors general, and state and local law enforcement who, working together, bring to bear a powerful array of criminal and civil enforcement resources. The task force is working to improve efforts across the federal executive branch, and with state and local partners, to investigate and prosecute significant financial crimes, ensure just and effective punishment for those who perpetrate financial crimes, combat discrimination in the lending and financial markets, and recover proceeds for victims of financial crimes. For more information on the task force, visit StopFraud.gov.
In the Eastern District of California, the work of the Financial Fraud Enforcement Task Force is being carried out by two task forces, consisting of federal, state, and local investigators and prosecutors. The Sacramento Division task force includes the FBI, IRS-Criminal Investigation, the HUD Office of Inspector General, U.S. Secret Service, U.S. Postal Inspection Service, the Veterans Administration Office of Inspector General, the FDIC Office of Inspector General, the U.S. Department of Labor Office of Inspector General, the California Department of Real Estate, the California Department of Corporations, the California Department of Financial Institutions, the California Office of Real Estate Appraisers, and the District Attorneys’ Offices for Butte, El Dorado, Nevada, Placer, Sacramento, San Joaquin, Solano, and Yolo Counties. The Fresno Division task force includes the FBI, IRS-Criminal Investigation, the HUD Office of Inspector General, U.S. Secret Service, Social Security Office of Inspector General, USDA Office of Inspector General, the U.S. Trustee’s Office, the California Attorney General’s Office, the California Department of Real Estate, and the District Attorneys’ Offices for Fresno, Kings, Merced, San Joaquin, Stanislaus, and Tulare Counties.
The descriptions of these various schemes are derived from the factual allegations contained in publicly filed indictments. Some of these cases have not yet been resolved and those defendants are presumed innocent unless and until proven guilty beyond a reasonable doubt.