Two Akron businessmen were sentenced in connection with a scheme that used inflated appraisals and phantom mortgages to obtain refinance loans on overvalued flip purchases.
Gregory J. Geig, 34, Wadsworth, Ohio was sentenced to 20 months in federal prison followed by 3 years supervised release.
David M. Watson, 28, Green, Ohio was sentenced to 8 months in federal prison followed by 8 months house arrest and 3 years supervised release.
Geig and Watson were ordered to jointly and severally make restitution of $240,000.
Geig and Watson were originally indicted on February 14, 2005 for conspiracy to defraud the United States and both plead guilty at their arraignments on March 4, 2005. The indictments followed a 2002 undercover operation by the FBI.
Geig owned companies known as Property Enhancements, also known as Global Real Estate Group, and Premier Financial Services. Watson was an office manager and salesman for Global Real Estate Group.
Property Enhancements, Geig and Watson would purchase distressed properties from homeowners or foreclosure properties at Sheriff’s sales for low prices. Investors would be solicited through newspaper advertisements for sales of property with ‘no money down,’ ’100% financing’ and ‘cash back at closing.’ The prospective investor would be shown several properties in various stages of rehabilitation and would be encouraged to purchase multiple properties ‘pre-renovation.’
Once the purchase contract was signed, the property would be quitclaimed to the purchaser with a mortgage from Premier Financial. The mortgage terms would include a balloon payment for the full mortgage amount due within a couple months of the initial mortgage date. Premier Financial never sought or obtained any payment on these mortgages – they were placed in order to make it appear as if the subsequent purchase transaction by the investor was a refinance and to thereby circumvent down payment requirements. Geig referred to this arrangement as ‘creative financing.’
Inflated appraisals were sometimes obtained by contacting appraisers who would agree to value at the requested amount rather than by conducting an objective evaluation of property value. Premier Financial would sometimes act as the mortgage broker and loan packages might misrepresent the length of ownership, collection of rents or include false leases.
During the FBI undercover operation, the agent ‘purchased’ four properties. These properties were actually worth between $9,000 and $29,000. The appraisals valued the properties at between $59,000 and $64,000. Geig told the agent to ‘use your imagination’ with respect to leases, representing that banks did not check to see if leases were false.
There may be over 80 victims and over 200 properties involved in transactions spanning from 1997 through April 2002.
This case has also generated some ancillary litigation. On May 28, 2005, the Akron Beacon Journal filed a lawsuit under the Freedom of Information Act against the Attorney General and U.S. Marshal’s Service alleging that the agencies refused to release mug shots of Geig and Watson – claiming authority by way of the U.S. Supreme Court’s ruling finding that privacy rights under FOIA protected the release of photographs of Vincent Foster’s suicide.