Archives For occupancy fraud

Jamie Hollingsworth and Chris Young were indicted in the United States District Court for the District of South Carolina and charged with conspiracy to make false statements on loan applications. The indictment also seeks forfeiture.

According to the indictment:

Hollingsworth, a real estate agent, decided to purchase three separate residential properties on the Isle of Palms, South Carolina.  Young, a mortgage broker and originator, agreed to obtain financing for the purchases.

Hollingsworth falsely stated on the loan application for one of the properties that he intended to use it as his primary residence.  Young falsely stated on the other two applications that Hollingsworth intended to use those properties as his primary residence. They knew these statements were false.

Hollingsworth obtained a first and second mortgage for each of the properties, which Young originated.  Despite the fact that the properties were purchased all at once, Hollingsworth and Young failed to disclosed to each of the financials institutions that Hollingsworth was purchasing two other residential properties at the same time. By failing to disclose the other purchases, they concealed Hollingsworth’s financial liabilities for the other concurrently closing loans.

Hollingsworth arranged for all three of the transactions to close simultaneously on the same day so the financial institutions would not be aware of the concurrent borrowing.  The loans were closed at different law firms.

Soon after closing, Hollingsworth was unable to sell the properties and defaulted on the loans, causing substantial losses to the financial institutions.

Alla Samchuk, 45, Roseville, California, was found guilty in a mortgage fraud scheme involving three properties after a four day jury trial in Sacramento, California.  Samchuk was convicted of six counts of bank fraud, six counts of making a false statement to a financial institution, one count of money laundering, and one count of aggravated identity theft. After the verdict, U.S. District Court Judge Garland E. Burrell Jr. ordered Samchuk taken into custody.

According to court documents, from 2006 through 2008, Samchuk, a licensed real estate salesperson, orchestrated a mortgage fraud scheme involving three properties in the Sacramento area using straw buyers. Two of the houses were purchased so that Samchuk herself could occupy them. She lacked the ability to qualify for a loan, so she instead recruited straw buyers to apply for the loans in their names. Samchuk caused the submission of loan applications containing false representations of income, employment, assets, and a false indication that the straw buyers would occupy the homes as their primary residence.

A second objective of the scheme was to obtain HELOC (home equity line of credit) funds. According to evidence at trial, on two of the properties, Samchuk diverted or attempted to divert HELOC funds to her own benefit. Samchuk caused the HELOC loans to fund by submitting false statements and documents to the lender regarding the qualifications of the straw buyers.

The scheme involved two properties in Roseville, California and one in El Dorado Hills, California. In 2007, Samchuk filed an application for a HELOC on one of the properties without the straw buyer’s knowledge or consent. To obtain the HELOC, she forged the signature of the straw buyer on a short form deed of trust that she caused to be notarized and recorded. The stated purpose of the HELOC was home improvement, but once the line of credit was funded, Samchuk quickly diverted all of the funds to her own use, spending the proceeds on a Lexus and the repayment of a substantial personal debt.

Sentencing is set for October 21, 2016. Samchuk faces a maximum of 30 years in prison for each count of bank fraud and false statements to a financial institution, 10 years in prison for money laundering, and two years in prison for aggravated identity theft.

The verdict was announced by Acting U.S. Attorney Phillip A. Talbert. This case is the product of an investigation by the Federal Bureau of Investigation and the Internal Revenue Service-Criminal Investigation. Assistant U.S. Attorneys Audrey B. Hemesath and Andre M. Espinosa are prosecuting the case.

I often see press releases that define straw buyers as individuals who did not intend to reside in property that they purchased.  I also receive many emails about these types of situations that conflate straw buyer fraud and occupancy fraud.

Straw buyer fraud is not differentiated by the intent to occupy.  I think that the confusion arises from the fact that straw buyer fraud almost always involves occupancy fraud.  But occupancy fraud is, by itself, mortgage fraud.  Straw buyer fraud has additional elements and is something else entirely.

In general, a straw buyer/borrower is a person who acts as the buyer in a real estate transaction but has no intention of  being financially responsible for the property. The most obvious example is where a person is paid to lend their identity and credit to a transaction.   So, for instance, let’s say that I cannot qualify to buy the $500,000 house I want because I have horrible credit and, while I technically make more money each month than the payment amount, I don’t make enough that my front-end and back-end ratios will allow me to qualify for a mortgage.  So, I agree to pay you $5,000 and you agree to act as the buyer of my dream home.  We apply for the mortgage in your name and use your social security and credit.  The application has all of your financial information on it and we don’t even bother to mention me to the lender at all.  At closing, you sign the promissory note and deed of trust or mortgage and other loan documents.  But, as soon as we walk out of the closing, you hand me the keys, we shake hands, and we go our own separate ways.  I move into the house and place my beautiful new blue sofa in front of the fireplace.  I make the payments every month.  I fix the roof when it needs repair.  I put a swing set in the backyard for my children.  Even though you have title to the house, I was always intended to be the real owner.

There are many variations on this scenario.  For instance, straw buyers are often used in real estate investment schemes.  There are underwriting limits on the number of residential mortgage a single person can have at one time – and there is also generally a point where the carrying costs on properties will cause an individual to lose their ability to qualify for additional mortgages.  If the scheme principals have maxed out their lending ability, they often use straw buyers so that they can extend that ability and purchase more homes.  Sometimes the straw purchasers are relatives or employees – but I have seen ads on Craig’s List looking for ‘investors’ who are paid up front, lend their credit and then allegedly have no further responsibility for the property – and, of course, no right to share in any profits when the property is sold.

Other times, straw buyers are parents that act as credit partners for their children – buying the house in their own names because their offspring cannot qualify – but with no intention of having the ultimate financial responsibility for the property.

There are as many colors of sofas are there are variations on the schemes.

And, unless the intended tenant of the property is the straw buyer (which I have personally never seen), straw buyer schemes always involve occupancy fraud.

Occupancy fraud is purchasing a property and representing to the lender that you will live in the property when you have no intention of living in the property.   You can lie about your intent to live in an investment property in order to get a better interest rate while still intending to own and be financially responsible for the property – you have committed occupancy fraud but not straw buyer fraud.  The majority of occupancy frauds do not involve straw buyers at all.  And, occupancy fraud is mortgage fraud all by itself, regardless of whether there is a straw buyer involved.


Felicia Muhammad, 45, Lakewood, California was found guilty of five felony charges for lying to banks that funded mortgages for three properties that later went into default, causing about $660,000 in losses to the lenders.  Muhammad was a licensed real estate broker living in Long Beach, California at the time of the conduct.  She was convicted of five counts of making false statements to federally-insured financial institutions, specifically U.S. Bank, Countrywide Bank, and First Horizon Home Loans (a subsidiary of First Tennessee Bank).

According to the evidence at trial, in the summer of 2008, Muhammad applied for three loans so she could purchase condominium units in North Hollywood, California, and Canoga Park, California. The total value of the loans was more than $1.1 million. Continue Reading…

Jeffrey T. Crothers, 50, Stockton, California, pleaded guilty to conspiracy to commit bank fraud.

According to court documents, Crothers, while working for National City Mortgage in Stockton, conspired with at least one other person to defraud National City Bank, which funded the mortgages. In 2006, Crothers submitted a loan application that falsely represented that the loan applicant was the actual borrower, that the loan applicant’s monthly income was higher than it actually was, and that the property being purchased was to be the loan applicant’s primary residence when it was not. The loan applicant was selected because of his good credit, but was unable to make the monthly payments for the loan.

Crothers also submitted a letter that contained a false explanation as to why the loan applicant was purchasing the property. The false letter was used to satisfy a condition for the issuance of the loan. National City Bank sustained a loss of approximately $87,000.

This case is the product of an investigation by the Federal Bureau of Investigation. Assistant United States Attorneys John K. Vincent and Christiaan H. Highsmith are prosecuting the case.  The plea was announced by United States Attorney Benjamin B. Wagner.

Crothers is scheduled to be sentenced by U.S. District Judge Garland E. Burrell Jr. on May 20, 2016. Crothers faces a maximum statutory penalty of five years in prison and a $250,000 fine.

Vera Kuzmenko, 45, Loomis, California and Rachel Siders, 40, Roseville, California, were found guilty by a federal jury after a 16 day trial of multiple counts of mail and wire fraud associated with their involvement in a mortgage fraud scheme that cost financial institutions over $16 million.

Vera Kuzmenko was also found guilty of witness tampering and money laundering associated with the scheme.

According to evidence presented at trial, from late 2006 through early 2008, the defendants engaged in a mortgage fraud scheme involving over 30 properties in the Sacramento, California, area. The defendants were responsible for securing more than $30 million in residential mortgage loans on more than 30 homes purchased through straw buyers. Records introduced at trial showed Vera Kuzmenko received millions of dollars and Rachel Siders received hundreds of thousands of dollars. Continue Reading…

Edward Khalfin, 58, San Mateo, California was found guilty by a federal jury of 12 counts of mail fraud and 11 counts of making false statements on loan applications. Robin Dimiceli, 53, Brentwood, California was found guilty by a federal jury of six counts of mail fraud and six counts of making false statements on loan applications.  The convictions arise out of a builder bailout scheme that provided financial incentives to straw buyers to get them to purchase homes that developers were having difficulty selling

According to court documents, from August 2006 through May 2008, two brothers, Volodymyr Dubinsky, 56, formerly of Folsom, California, and Leonid Doubinski, 50, formerly of Copperopolis, California, built, developed, and sold real estate in Carmichael, California, Sacramento, California, and Copperopolis, California. As the real estate market declined, the brothers recruited family members, employees, and associates with good credit to act as straw buyers for residential properties. The Dubinsky brothers have not been apprehended and are fugitives thought to be residing in Ukraine. Continue Reading…

Michael David Scott, real estate developer, 51, Mansfield, Massachusetts, was sentenced to 135 months in prison, five years of supervised release, and ordered to pay restitution of over $11,374,201and to forfeit $7,413,712.  In June 2015, Scott pleaded guilty to counts of 32 counts of wire fraud, 14 counts of bank fraud, and 22 counts of money laundering. Continue Reading…

Valeri Kalyuzhnyy, 44, Citrus Heights, California, was sentenced to 2 years in prison.

On June 25, 2015, Kalyuzhnyy pleaded guilty to making a false statement on a loan application. According to court documents, Kalyuzhnyy, while working as a mortgage broker, bought two homes using the credit information of a straw buyer. The loan applications that were used to secure the properties contained numerous false statements regarding the buyer’s intent to occupy the property, employer, occupation, and monthly income. In order to support the inflated monthly income listed on the loan application, fraudulent tax returns were submitted. On July 17, 2007, Kalyuzhnyy gave the straw buyer a check for $29,000.

United States District Judge Morrison C. England Jr. sentenced Kalyuzhnyy. The case was the product of an investigation by the Federal Bureau of Investigation and the Internal Revenue Service-Criminal Investigation. Assistant United States Attorney Jared C. Dolan prosecuted the case.

Eliseo Jara Jr., 36, Bakersfield, California, was sentenced to six and a half years in prison for conspiracy to commit bank fraud, mail fraud, and wire fraud, and was ordered to pay $4.3 million in restitution. Sergio Jara, 34, Bakersfield, California, was sentenced to six and a half years in prison for conspiracy to commit bank fraud, mail fraud, and wire fraud, and was ordered to pay $3,249,624 in restitution. Melissa Rochelle Jara, 34, Bakersfield, California, was sentenced to time served and five years on supervised release for wire fraud, and was ordered to pay $271,171 in restitution. The Jaras were also ordered to forfeit their interests in six properties in Bakersfield, a 2007 Lexus, and approximately $110,419 seized from a bank account, and to pay personal forfeiture money judgments of $5,664,250 as to Eliseo Jara, $4,743,500 as to Sergio Jara, and $534,750 as to Melissa Jara. Prior to sentencing, Sergio and Melissa Jara also deposited approximately $148,000 with the Court toward their restitution obligations. Continue Reading…