Seven people have been charged with crimes related to nearly $20 million in fraudulent mortgage loans in the U.S. District Court of Indianapolis. The charges, announced April 30 by Timothy M. Morrison, U.S. Attorney for the Southern District of Indiana, include wire fraud and money laundering as well as fraud and conspiracy.
According to the charges a total of 149 fraudulent loans amounting to $19.7 million were obtained by the defendants from three different lenders between November 2003 and August 2005. Each of the defendants are responsible for some, but not all, of the loans and multiple defendants are charged in many of the loan transactions. The lenders include People’s Choice Mortgage/Countrywide Home Loans (86 loans), Argent Mortgage Company (60 loans) and The Money Station (3 loans). The total estimated loss exceeds $8 million.
“Mortgage fraud adds to the underground economy that erodes the integrity of our tax system and it threatens the financial health of our communities,” said Al Patton, Special Agent-in-Charge of the IRS-CI Field Office in Chicago. “IRS – Criminal Investigation has an ongoing commitment to jointly working with other federal and state law enforcement agencies to pursue those individuals who manipulate the mortgage loan process for their own financial gain.”
The charges are the result of an ongoing investigation by Special Agents of the Internal Revenue Service – Criminal Investigation Division (IRS-CI) and the U.S. Attorney’s Office, with assistance from the Federal Bureau of Investigation (FBI). All the mortgage fraud schemes charged were accomplished in the same general fashion. Participants in the scheme located properties and arranged to purchase them at a fair market value, generally by means of option agreements or unrecorded land contracts. Investors, most of whom were unwitting participants although the majority were friends or relatives of those charged, were located who were willing to invest their good credit, but no money, to be the purchasers of these properties at a much higher price than that negotiated with the seller.
The majority of the investors were located in Virginia and generally never saw the properties they were purchasing. They were told they were joining an investment club, that they would not have to make any payments on the properties and that the properties would be managed for them by various participants. The investors received money, generally $4,000 per property in their name, for participating in the investment club. Mortgage brokers participating in the scheme allegedly prepared fraudulent loan applications, containing false statements, including: that the investors owned bank accounts, stock and other assets which they did not own; that the investors had income which they did not actually have; and that the investors were making the down payments on the properties from their own funds. In reality, other participants in the schemes provided the down payments for the properties, and were paid a fee of between $1,000 and $3,000 for doing so. Appraisers, employed by the participants, prepared appraisals vastly overstating the value of the properties in order to support the sales prices indicated on the closing documents. The false documents were then submitted to lenders and the lenders, relying on the fraudulent documents, issued the loans. The loans were funded via wire transfers of money from the lenders to a title company, which the scheme participants used to assist them in preparing false closing documents and issuing title company checks. When the loans closed, the properties sold for the fraudulently inflated sales prices, the sellers were paid the amount they had negotiated to receive and the proceeds from the loan were shared by the participants in the scheme.
Participants in the scheme were paid varying amounts depending upon their role. Those who located properties generally received $1,000 per property. Loan processors were generally paid $500 for their assistance in obtaining the loan. The participant funding the down payment was paid from $1,000 to $3,000 or each down payment they loaned. The investor recruiter who also assisted them in signing the loan papers was paid per loan. The remaining amounts were split between the scheme participants as well as being used to pay existing mortgages on properties purchased earlier in order to prevent lenders from discovering the scheme.
All of the loans involved in the schemes went into default. The lenders wither foreclosed on the properties or took other action.