Archives For FHA Mortgage Fraud

Victor Cuevas, 52, Bristol, Connecticut, was sentenced by U.S. District Judge Jeffrey A. Meyer in New Haven to one year of probation and a $1,000 fine for conspiring with others to commit bank fraud in connection with his home mortgage loan applications.

According to court documents and statements made in court, in the summer of 2013, Cuevas, a City of Waterbury employee and, at that time, the state representative for the 75th District, wanted to purchase a residence in Bristol with a Federal Housing Administration (“FHA”) loan.

The U.S. Department of Housing and Urban Development provides mortgage insurance on loans made through its FHA program and mortgages offered through the program are subject to certain restrictions, including restrictions on the funds that may be used to purchase properties.

Cuevas, with the assistance of others, represented to the mortgage bank that he was using gifted funds to purchase the property when, in fact, the money was not gifted but was instead loaned to Cuevas for the purpose of purchasing the property.

Specifically, Cuevas first represented to the mortgage bank that an individual who he identified as his nephew but, in fact, was a subordinate employee from the City of Waterbury, was providing him with cash to purchase the property as a gift.  When the mortgage lender asked for the “nephew’s” bank account statements to prove that he had the money to gift to Cuevas, Cuevas withdrew the mortgage application.  A few weeks later, Cuevas had a different Waterbury employee, who Cuevas identified as his “cousin,” “gift” him the $7,000.  Both individuals signed a HUD statement under oath that the funds were, indeed, a “gift” and that no repayment of the monies was expected.  However, as soon as the mortgage closed, Cuevas re-paid the employee the $7,000.

On June 20, 2016, Cuevas pleaded guilty to one count of conspiracy to commit bank fraud.

Cuevas resigned from the Connecticut General Assembly in March 2016.

The sentence was announced by Deirdre M. Daly, United States Attorney for the District of Connecticut.  The matter was investigated by the Connecticut Public Corruption Task Force, notably the U.S. Department of Housing and Urban Development – Office of Inspector General, and the Federal Bureau of Investigation.  The Task Force also includes members from the U.S. Department of Health and Human Services – Office of Inspector General, U.S. Postal Inspection Service and Internal Revenue Service – Criminal Investigation Division.  The case was prosecuted by Assistant U.S. Attorney Sarah Karwan.

 

The U.S. Attorney’s Office has reached a $1,025,000 civil settlement with First American Mortgage Trust, d/b/a NXTLoan.com, a small mortgage lender based in Brighton, Massachusetts, and its founder and CEO, Barry S. Polack, in connection with allegations that they submitted false insurance claims on mortgages insured by the Department of Housing and Urban Development’s (HUD) Federal Housing Administration (FHA).

The settlement resolves allegations that NXTLoan.com, at Polack’s direction, ignored FHA’s due diligence requirements and falsely certified that NXTLoan.com loans qualified for FHA insurance when they did not.  The settlement also resolves allegations that Polack falsely certified to FHA that NXTLoan.com complied with quality control requirements and failed to report known loan defects.

“This settlement is another example of the government’s efforts to hold mortgage lenders and individuals accountable for fraudulent underwriting of government-insured mortgages,” said United States Attorney Carmen M. Ortiz.  “In order to obtain HUD insurance, NXTLoan.com certified that its loans complied with HUD’s quality standards while ignoring defects that made the loans ineligible for FHA insurance.”

“This settlement agreement resolves allegations that First American Mortgage Trust, entrusted by American taxpayers to comply with FHA regulations, failed to conform with certain FHA requirements in connection with submission of insurance claims insured by FHA,” said Inspector General David A. Montoya for HUD.  “This settlement demonstrates a continued commitment to address business practices that potentially harm the FHA program and its participants.”

“We will not tolerate the reckless disregard for FHA’s underwriting standards,” said Tonya Robinson, Acting General Counsel for the U.S. Department of Housing and Urban Development.  “FHA’s insurance fund, and the millions of families who rely upon it, depend on the good faith and integrity of the mortgage lenders with whom we do business.  We will continue to work aggressively to weed out participants in the FHA program who purposefully fail to meet our most basic requirements.”

“This settlement is the latest example of our continued work of holding FHA Direct Endorsement Lenders accountable for adhering to strict underwriting standards,” said Christina Scaringi, Special Agent in Charge of the U.S. Department of Housing and Urban Development Office of Inspector General, Northeast Regional Office.  “I am thankful for the cooperation between my office and the Department of Justice and am especially appreciative of the U.S. Attorney’s Office’s perseverance in bringing this matter to a fair and just resolution.”

NXTLoan.com and Polack participated as a direct endorsement lender (DEL) in the FHA insurance program.  A DEL has the authority to originate, underwrite and approve mortgage loans for FHA insurance.  If a DEL approves a mortgage loan for FHA insurance and the loan later defaults, the holder of the loan may submit an insurance claim to HUD, FHA’s parent agency, for the losses resulting from the defaulted loan.  DELs are therefore required to follow program rules designed to ensure that they are properly underwriting and certifying mortgages for FHA insurance; to maintain a quality control program that can prevent and correct deficiencies in their underwriting practices; and to self-report any deficient loans identified by their quality control program.

As part of the settlement, NXTLoan.com and Polack admitted that on certain occasions between 2005 and 2011, NXTLoan.com did not conduct the due diligence required by FHA, and as a result, some NXTLoan.com loans did not meet FHA’s quality standards and were ineligible for FHA insurance.  Nevertheless, NXTLoan.com underwriters, supervised by Polack, certified those loans for FHA insurance.  When those loans defaulted, FHA paid insurance claims on loans that never should have been FHA insured.  In addition, NXTLoan.com, at times, did not conduct post-closing loan audits, even though Polack certified annually to FHA that NXTLoan.com had complied with FHA underwriting requirements.  When NXTLoan.com began conducting audits on closed loans, NXTLoan.com and Polack did not report to FHA any serious issues identified by the audits.

The settlement took into consideration NXTLoan.com’s and Polack’s financial circumstances and recent improvements to NXTLoan.com’s business practices.

This matter was investigated by the U.S. Department of Housing and Urban Development’s Office of the Inspector General and Office of General Counsel.  It was handled by Assistant U.S. Attorney Brian LaMacchia of Ortiz’s Civil Division.

Franchesco Franco, 34, a former mortgage loan originator, Providence, Rhode Island, pleaded guilty in federal court to conspiracy to commit bank fraud for his participation with a local real estate attorney and others in a scheme to defraud Flagstar Bank, by filing a fraudulent mortgage loan application and supporting documentation in the name of a person known to him who had recently died, in order to secure a loan in the amount of $157,102 for the purchase of a residence at 63 Wendell Street, Providence, Rhode Island.

According to court documents, after the mortgage was issued, Franco filed fraudulent documents in the deceased person’s name in order to have his own name added to the deed for the property. Loan payments were never made to Flagstar Bank, an FHA-insured lender, by Franco or anyone else. As a result, the U.S. Department of Housing and Urban Development (HUD) paid an insurance claim to Flagstar Bank for the unpaid balance of the loan in the amount of $165,062. According to court documents, a corporation formed by the real estate attorney, an alleged co-conspirator in this matter, later purchased the note for $35,000. Continue Reading…

Hector Hernandez, 57, Miami, Florida, the owner and operator of Great Country Mortgage Bankers (Great Country), a mortgage lender in Miami, Florida, was sentenced to serve 135 months in prison  for conspiracy to commit wire fraud affecting a financial institution for orchestrating a $64 million mortgage fraud scheme.  He was also ordered to pay $64,508,141 in restitution and to forfeit $8,000,000 in illicit profits.

In the same case, a real estate developer for Great Country, Aleida Fontao, 62, Miami, Florida, was sentenced to serve 41 months in prison, and ordered to pay $7,131,952 in restitution and $400,000 in forfeiture.  An underwriter for Great Country, Olga Hernandez, 59, Lake Mary, Florida, was sentenced to serve 51 months in prison and ordered to pay $24,512,755 in restitution.  Hector and Olga Hernandez both pleaded guilty on July 13, 2015, while Fontao pleaded guilty on July 7, 2015.  Hector Hernandez was the last defendant to be sentenced in the case.  All 24 defendants charged in this case, which included loan officers, loan processors and underwriters, were convicted of participating in the scheme. Continue Reading…

Hector Hernandez, real estate developer and owner of a mortgage company, 57, Miami, Florida; Aleida Fontao, co-owner of a mortgage company, 62, Miami, Florida; and Olga Hernandez, senior mortgage underwriter, 58, Lake Mary, Florida, each pleaded guilty to conspiracy to commit wire fraud affecting a financial institution in connection with an FHA mortgage fraud scheme involving federally insured mortgages that caused losses of $64 million to the Federal Housing Administration (FHA).  Including these defendants, 25 individuals have pleaded guilty to offenses related to this scheme to date..  Hector and Olga Hernandez both pleaded guilty on July 13, 2015, while Fontao pleaded guilty on July 7, 2015.  As part of his plea, Hector Hernandez also agreed to forfeit $8 million, which amounts to his profits from the scheme.

Hector Hernandez’s mortgage company, Great Country Mortgage Bankers, specialized in mortgage loans that were insured by the FHA. Continue Reading…