Examples of Mortgage and Real Estate Fraud Investigations - Fiscal Year 2014
The following examples of mortgage and real estate fraud investigations are written from public record documents on file in the courts within the judicial district where the cases were prosecuted.
Colorado Man Sentenced in Mortgage Fraud Scheme
On Feb. 11, 2013 in Denver, Colo., Roger Keith Howard was sentenced to 108 months in prison and three years of supervised release. Howard pleaded guilty in June 2013 to three counts of wire fraud and one count of money laundering. According to court documents, in 2006 and 2007, Howard devised and participated in three similar but separate mortgage fraud schemes. Howard operated under the business names of Spring Creek Mortgage Real Estate Services and Open Range Development LLC. Howard’s co-defendant Oai Quang Luong worked for a company that processed mortgage loan applications on behalf of potential home buyers. In August 2006, Howard asked Luong to obtain the $250,000, and Luong did so, using funds loaned by another individual. Howard persuaded seventeen individuals, his so-called investors, to purchase the town homes at a development known as Oliveglen Villas in Aurora, Colo. Howard arranged for the individuals to obtain the mortgage loans by causing the applications to include false or misleading information or omit material information. As part of the mortgage application process, a borrower obtained from his or her bank a form known as a Request for Verification of Deposit (VOD), which verified the balance of an account. In this case, VODs were misleading because Howard and others working at his direction arranged for bank account balances to be inflated temporarily by depositing money into the accounts and, after the balances were verified and the VODs were completed, the money was withdrawn. All of the town-home sales prices were supported by appraisals, most of which were done by an associate of Howard’s which he told the appraiser the amount he wanted. For each closing, the closing agent prepared a settlement statement, reflecting that the disbursements of loan proceeds included a payment “from Seller’s Funds at Settlement” to Open Range Development. These payments were the “service fees” mentioned in the contract with the developer; they ranged from $85,700 to $117,204. After the closings, Howard used some of that money to make payments to all but one of the buyers, but those payments were not disclosed to the lenders or their underwriters. Howard for a time wrote checks payable to the borrowers to cover the differences between rental incomes and mortgage payments, but he stopped doing so on April 19, 2007. A few borrowers thereafter used their own money to make mortgage payments, but eventually all of the mortgages went into default and the lenders foreclosed. At that point, there were about twelve different lenders holding the mortgages on the town homes, and they lost approximately $7,609,729. Luong was sentenced in August 2013 to 18 months in prison.
Attorney Sentenced for Mortgage Fraud Scheme
On Feb. 6, 2014, in Pittsburgh, Pa., Lisa Gerideau-Williams, of New Kensington, Pa., was sentenced to 135 months in prison, three years of supervised release and ordered to pay $934,910 in restitution. In January 2013, Gerideau-Williams pleaded guilty to 13 counts of wire fraud, one count of filing a false tax return and two counts of failing to file a tax return. According to court documents, Gerideau-Williams was an attorney who operated a mortgage broker business and two companies specializing in closing real estate transactions. Gerideau-Williams operated a complex and multi-faceted fraud scheme through these companies. One aspect of the scheme involved the submission of loan applications to lenders, submitting fake documents and forging signatures. In the operation of her business related to closing real estate transactions, Gerideau-Williams fraudulently used trust account money from lenders to support her lavish lifestyle. She defrauded borrowers by collecting fees without performing services. She victimized title insurance companies by issuing title insurance without the authority of the title insurance companies. Finally, for the 2004 tax year, Gerideau-Williams, who took taxation classes toward an advanced degree in tax law, filed tax returns that drastically understated her income because she failed to include the more than millions dollars earned in the course of her fraud schemes. For the 2005 and 2006 tax years, she did not file her income tax returns.
New York Couple Sentenced for Involvement in Mortgage Fraud Scheme
On January 28, 2014, in Hartford, Conn., Winston Shillingford, of Nesconset, N.Y., was sentenced to 48 months in prison and three years of supervised release. His wife, Marleen Shillingford, also of Nesconset, was sentenced to 36 months in prison and three years of supervised release. In October 2011, Winston and Marleen Shillingford each pleaded guilty to one count of conspiracy to commit wire fraud and one count of conspiracy to commit money laundering. According to court documents, the Shillingfords were involved in the operation of Waikele Properties Corp., a real estate company with offices in Connecticut and New York. From approximately 2001 to August 2011, the Shillingfords and others conspired to obtain fraudulent mortgages for the purchase of more than 40 multi-family properties. As part of the scheme, the Shillingfords and their co-conspirators purchased existing multi-family houses, and vacant parcels of land and erected new houses on them to sell. The co-conspirators recruited individuals to purchase the properties, acted as the buyers’ real estate agent and assisted the buyers in applying for residential mortgage loans to purchase the houses. They then prepared loan applications for the buyers that included fraudulent information concerning, among other things, the buyers’ employment, income, assets and liabilities, previous property ownership and intention to make the properties their primary residences. They also provided fraudulent supporting documentation with the loan applications, including false letters from fictitious employers, false earnings statements and fraudulent bank records. After the loans were approved, the illicit proceeds of the scheme were wired into the Waikele Properties bank account and then transferred to members of the conspiracy. Some of the proceeds also were used to continue the mortgage fraud scheme. The parties have agreed that victim financial institutions suffered losses of between $2.5 million and $7 million as a result of this scheme.
Woman Sentenced in Connection with Mortgage Fraud Investigation
On January 27, 2014, in Raleigh, N.C., Liliana Delia Deiac, of Jamaica, N.Y., was sentenced to 18 months in prison, three years of supervised release and ordered to pay $674,856 in restitution to a bank. Deiac pleaded guilty on August 6, 2013 to making material false statements. According to court documents, on May 18, 2010, Deiac was questioned by special agents with the IRS and the FBI investigating a fraudulent property flipping scheme. Deiac was questioned because evidence showed that she was involved in the purchase of a $2 million property in Raleigh using her husband’s name and credit, and without the husband’s knowledge or consent. Participants in the scheme failed to make mortgage payments on the property, resulting in foreclosure and losses to a bank. When questioned, Deiac lied about the circumstances of her involvement in the transaction. The investigation established that Deiac participated in the transaction based upon promises of cash kickbacks from others who orchestrated the deal.
Developer Sentenced for Role in Mortgage Fraud Scheme
On January 14, 2014, in Raleigh, N.C., David Lewis Johnson, Jr., of Cary, N.C., was sentenced to a 96 months in prison, five years of supervised release and ordered to pay $2,413,605 to 11 banks and lenders who were victims of the fraud. Johnson was sentenced on conspiracy to commit mail, wire, and bank fraud. According to court records, Johnson, operating through E-Z N Homes, engaged in a real estate “flipping” scheme. Johnson and others utilized various schemes to fraudulently obtain more than 100 properties with total mortgage loans in excess of $20,000,000. The defendant used straw buyers to purchase properties in exchange for a kickback from the loan proceeds. Johnson also fabricated investment statements to make it appear that straw buyers had, in some instances, one million dollars in assets. In fact, the straw buyers recruited by Johnson did not possess the income or assets to support the loans obtained in their names. As a result of the scheme and Johnson’s conduct, banks and lenders issued loans to the conspirators in the amount of approximately $9.1 million, which resulted in $3.4 million in actual losses to the banks and lenders.
Developer Sentenced for Orchestrating Massive Mortgage Fraud Scheme
On December 19, 2013, in Boston, Mass., Sirewl R. Cox was sentenced to 150 months in prison and three years of supervised release. On November 15, 2013, Cox was convicted of wire fraud, bank fraud and conducting an unlawful monetary transaction. According to court documents, in 2006 and 2007, Cox identified multiple-family buildings for sale and recruited straw buyers to purchase the buildings. Cox and others then recruited straw buyers to purchase individual units in buildings that Cox controlled. The straw buyers’ financing for the purchases was obtained by submitting mortgage loan applications and other documents that falsely represented key information. Deals were closed with HUD-1 settlement statements that falsely represented that straw buyers had made down payments and paid other funds in connection with the property transactions, and falsely represented how the proceeds of the mortgage loans were disbursed.
Leader of Mortgage Company Sentenced for Role in Fraud Scheme
On December 16, 2013, in San Diego, Calif., Brian Nels Peterson, the head of a mortgage company called Terra Finance, was sentenced to 41 months in prison and ordered to pay $542,075 in restitution. According to court documents, Peterson obtained mortgage funds through deceptive means, including falsifying income on applications to qualify borrowers for loans. Peterson, who held a broker’s license with the California Department of Real Estate, personally signed most of the fraudulent loan applications containing false income, employment, asset, and liability information submitted under his license number. Peterson orchestrated the fraudulent conduct of employees, borrowers, and industry professionals as the head of Terra Finance. He recruited a cadre of loan officers, loan processors, office staff, real estate “investors” and other industry professionals to participate in his scheme, including appraisers, tax preparers, and lender representatives. These knowing participants included people who made up job titles and income figures so borrowers would appear to qualify for a loan, added borrowers to another person’s bank account and then had the borrowers falsely claim the funds in the account as assets, fabricated false “verifications” of phony information in the loan applications, and prepared appraisals “to order” based on the property value Peterson sought. Borrowers used a succession of fake loan applications to purchase multiple properties that they could not afford. Peterson earned over $1 million from his fraudulent loan business through broker’s fees, kickbacks from cash-out refinances, and other sources in 2006 alone. He failed to report his over $1 million income in 2006 and he evaded paying taxes by arranging to be paid in cash, and other means.
Former Real Estate Investor Sentenced for Bank Fraud and Money Laundering
On December 9, 2013, in Orlando, Fla., James Olivos, of Lake Mary, Fla., was sentenced to 60 months in prison and ordered to pay a $2,866,121 money judgment. Olivos pleaded guilty on September 18, 2013 to bank fraud and money laundering. According to court documents, between March 2003 and November 2007, Olivos engaged in a scheme wherein he recruited "straw purchasers" to purchase expensive homes, which they could not afford. Olivos prepared loan applications for these straw purchasers, which grossly overstated their incomes and gave false employment histories. Additionally, these applications stated that these homes would be used as primary residences, but Olivos had actually told these buyers that the homes would be investments and that he would find renters to cover the mortgage payments. Further, in order to increase his profits, Olivos convinced the sellers of the homes to inflate the sales prices by stating additional money would be necessary for home improvement. Olivos would then split the proceeds of the sales with the sellers. As a result of this fraud, Olivos caused a total loss to the lenders of approximately $3.2 million dollars.
Two California Men Sentenced for Mortgage Fraud
On December 4, 2013, in Sacramento, Calif., Vadim Vilchitsa was sentenced to 15 months in prison and Yevgeniy Y. Zazhitskiy, of North Highlands, was sentenced to 20 months in prison. Restitution will be determined at a later date. According to court documents, in and before 2007, Vilchitsa and a business partner solicited funds from investors to buy residential properties, renovate them, and flip them. They operated successfully prior to the financial crisis, but when real estate values plummeted, the business was unable to sell its inventory of homes. Vilchitsa and his business partner convinced their investors to purchase the inventory of properties at inflated prices, and used the excess funds as working capital to continue their business. They coordinated the purchases of 24 of their or their company’s residential properties, although they knew the purchasing investors did not have the income or assets to support the loans for the properties. Loans were obtained for the investors through Zazhitskiy, a licensed real estate agent and broker, who worked as a loan officer. Although he knew he had not interviewed the loan applicants, and he knew the loan applicants’ income and assets were faked for purposes of the loan applications, he nonetheless obtained the loans for 23 properties.
Connecticut Man Sentenced for Mortgage Fraud
On November 18, 2013, in Hartford, Conn., Juan Velez, of Waterford, was sentenced to 12 months and one day in prison, five years of supervised release and ordered to pay $908,695 in restitution to four victim financial institutions. Velez was also ordered to spend the first six months of his supervised release in home confinement. On June 20, 2013, Velez pleaded guilty to one count of bank fraud for his role in a mortgage fraud scheme. According to court documents, in 2006 and 2007, Velez and others engaged in a mortgage fraud scheme involving multiple properties in New London, Conn. As part of the scheme, Velez acquired properties from a co-defendant and other individuals and then sold the properties to another co-defendant at inflated prices using fraudulently obtained mortgage loans. When Velez sold the property to his co-defendant, the loan paperwork contained multiple false statements, including information related to income, intention to occupy the property as a primary residence, and the amount of money provided to purchase the property. Based on these false statements, a co-defendant obtained a mortgage loan in the amount of $492,699 from the bank. Velez and others shared the profits of this and other fraudulently obtained residential mortgage loans, which totaled more than $1.2 million.
Mortgage Loan Officer Sentenced for Role in $1.8 Million Fraud Scheme
On November 8, 2013, in Dallas, Texas, David Joe Cano, of Arlington, Texas, was sentenced to 87 months in prison and ordered to pay $1,795,125 in restitution. Cano pleaded guilty in November 2012 to one count of conspiracy to engage in monetary transactions in property derived from specified unlawful activity. According to court documents, Cano was a mortgage loan officer at an investment company located in Richardson, Texas. From January 2006 to November 2007, Cano, along with other co-conspirators, operated a scheme to obtain fraudulent loans from several banks and mortgage lenders. Cano and others selected newly constructed or distressed properties whose value could be inflated without raising lenders’ suspicions. They recruited individuals with good credit scores to act as loan applicants for the purchase of the properties and paid them to apply for loans using applications that falsely inflated the applicant’s income and assets. The applicants were deceitfully promised that the properties would be leased until they were sold at a profit and that the applicants would receive regular payments from the rental income that would be sufficient to repay their loans until the properties sold. In reality, the applicants were left with unpaid loans that ruined their credit scores. Cano and his conspirators laundered the money from those loans back to themselves using shell corporations.
Ohio Couple Sentenced for Mortgage Fraud Schemes
On November 6, 2013, in Columbus, Ohio, Deborah L. Kistner was sentenced to 66 months in prison, five years of supervised release and ordered to pay $9,644,601 to victims. Her husband, Mark A. Kistner, was sentenced to five years of probation, ordered to forfeit his retirement account worth about $300,000 and to pay $381,764 in restitution. Deborah Kistner pleaded guilty to three counts of conspiracy to commit bank fraud, three counts of conspiracy to commit money laundering and one count of bank fraud. Mark Kistner pleaded guilty to one count of conspiracy to commit money laundering. According to court documents, Deborah Kistner operated Premiere Title Company in Hilliard, Ohio. She deceived lenders while securing fraudulent real estate loans between July 2006 and July 2010. She conspired with others to secure inflated loans for real estate and kept the excess proceeds or used them to pay others involved in the conspiracy. Deborah Kistner intentionally failed to provide lenders with critical purchase contract language and accurate settlement statements. Deborah and Mark Kistner also schemed to defraud lenders and launder the money they received through simultaneous “short sale” closings where the lenders would agree to absorb losses on existing mortgage loans while Deborah Kistner actually sold those properties on the same day for a profit and laundered the profits through bank accounts controlled by Mark Kistner.
Man Sentenced in Mortgage Fraud Scheme
On October 23, 2013, in Los Angeles, Calif., Lemuel David Thornton, of Las Vegas, was sentenced to 24 months in prison and ordered to pay $232,000 in restitution to a victim bank. Thornton pleaded guilty in June 2012 to one count of conspiracy to commit wire fraud and one count of money laundering. According to his plea agreement, Thornton engaged in an illegal scheme to defraud lenders who made residential mortgage loans. In early 2006, Thornton and his co-conspirators obtained financing to purchase residential properties by preparing Uniform Residential Loan applications for lenders which contained false and misleading statements about income and employment. Thornton and his co-conspirator submitted to the escrow companies fraudulent demand letters from sham companies, directing that specified funds be disbursed to the sham companies to be used for upgrades, construction, repairs, and landscaping for the property to be purchased. Thornton and his co-conspirator would cause the money paid to the sham third-party company at the close of escrow to be wired from the escrow company into an account over which Thornton or his co-conspirator had control. The money would then be used for a purpose other than the improvements specified in the demand letters and the term of the loan.