California Real Estate Fraud Report

A San Diego woman who brazenly brokered loans without possessing the necessary license has pleaded guilty to operating a a loan origination fraud scheme that included kickbacks.

According to the U.S. Attorney’s Office, Mary Armstrong, 51, wrote over $100 million in fraudulent loans (mortgage fraud, loan fraud) and skimmed $14.5 million from it (equity skimming). Armstrong confessed to selling $100 million of real estate around the country at puffed-up prices (appraisal fraud) and took the overpayments for herself. Her admitted crimes included fabricating loan applications for her straw buyers and  getting supporting fraudulent documents from her co-conspirators.

Prior to Armstrong’s guilty pleas, the following co-conspirators also pled guilty:

- Teresa Rose, a Ramona real estate agent

- Audrey Yeboah, Mary Armstrong’s accountant

- Seattle businessman Justin Mensen

Still awaiting their turn to face the scales of justice are John Allen, 44, of Laguna Hills, and William Fountain, 57, of Los Angeles.

Prosecutors said that the straw buyers were recruited in Southern California and other states by the defendants advertising on the Internet and placing ads in the Los Angeles Times seeking “investors.” The straw buyers were paid $10,000 for each property they “purchased.” Taking advantage of greed by institutional lenders to capture more loan business, the straw buyers were able to obtain 100% financing, relieving them of the risk to make down-payments, as occurred back in the good old days of prudent underwriting. When the straw buyers defaulted, the originators and their secondary market victims, e.g., Fannie Mae and Freddie Mac, lost upwards of $20 million.

My pet peeve with prosecutors is their consistent lack of interest in prosecuting the straw buyers in mortgage fraud cases. Let’s see if this case is any different.

Read the original article in Courthouse News. You can also read earlier postings about these defendants by using the Search tool on the left side of the California Real Estate Fraud Report.

Hendrix Montecastro, 40, of Maryland, was convicted on March 25 of 304 counts in a complex real estate fraud case that prosecutors say cost the victims $142 million in total. According to Riverside County Chief Deputy District Attorney Vicki Hightower, the jury convicted Montecastro on charges that included grand theft, destruction of evidence and felony fraud against 26 of 27 named victims — with asset losses totaling $3.6 millions.

He faces a prison sentence of more than 100 years.

Helen Pedrino, 61, of Murrieta – the mother of Hendrix Montecastro, was found guilty of 54 felonies based on her recruitment of five victim investors. When she is sentenced, she could spend up to 30 years in prison.

James Benjamin Duncan, who orchestrated the fraud, testified against Montecastro and Pedrino after making a deal with prosecutors. He is going to be sentenced for his crimes this month, along with Maurice McLeod, who also played a prominent role. A third man, Christopher Oetting, hanged himself on February 16, 2010 in his home, after admitting he to charges of conspiracy, money laundering and multiple counts of filing fraudulent tax returns.

The remaining defendants: Charlie Choi, Cindy Kelly and Thuan Nhan Du pleaded guilty to selling securities without a license and received probation.

As with all Ponzi schemes, this one worked well because friends and relatives convinced each other that the defendants’ “real estate investment” program was profitable. Good judgment was suspended and people refinanced their homes to draw out equity, cashed in their retirement plants and charged up their credit cards. Almost all of the victims were completely ruined as no monies have been recovered.

In a nutshell, the real estate investment fraud worked by the use of two companies set up by the defendants: Jovane Investments and Stonewood Consulting. The investors placed their money into Jovane, a shell company. The investors paid the seller the asking price or close to it and Jovane Investments funded the loans, but at 20-25% more than the appraised value.

The investors were unaware that Stonewood would locate the properties, also arrange financing and do so also at inflated values.

To understand the depth of this real estate fraud, refer to the article published in the Press Enterprise.

Part of Hendrix Montecastro’s defense was that he was a victim of James Benjamin Duncan too, but Prosecutor Hightower showed that Montecastro was anything but poor, spending $500,000 just before the Ponzi scheme collapsed on a non-profit called the Biocybernaut Institute.

Reginald Dodson Sr., 42, of Tracy, California, pleaded guily on Mar 18  to mail fraud charges for his role in a mortgage fraud conspiracy.

Dodson was a loan office for W.B. Financial and assisted the real estate agents in getting financing for three properties, for which kickbacks were received without the knowledge of the lending institutions.

According to prosecutors, Sacramento real estate agent Buena Marshall allegedly used Temika Reed, 32 of Bay Point, to act as a straw buyer to purchase seven properties. Another woman, Suisun City real estate agent Deborah Loudermilk, 55, was an agent on two of the real estate sales.

The scheme involved inflating the sale prices of the properties (appraisal fraud), using 100% percent financing (never a bright idea for lenders), with the extra money being allocated supposedly as cash back to the buyer (Reed).

Read the original article in the Stockton Record.

The following is a full reprint of the press release from the U.S. Attorney’s Office in New Jersey, continuing the aggressive actions taken by U.S. Attorneys in Eastern states to prosecute short sale fraud (compared to zip action out here in California by either the feds or the California Department of Justice).

Nine people involved in a long-running, large-scale mortgage fraud scheme that caused losses of approximately $10 million were charged in two Complaints with conspiracy to commit bank fraud, U.S. Attorney Paul J. Fishman announced.

Jose Luis Salguero Bedoya, also known as Jose Salguero, 36, of Elizabeth and Verona, N.J.; Paul Chemidlin, Jr., 41, of Morganville, N.J.; Delio Coutinho, 50, of Colonia, N.J.; Joseph DiValli, 44, of Jackson, N.J.; Christopher Ju, 26, of East Brunswick, N.J.; Carmine Fusco, 44, of East Hanover, N.J.; Jose Martins, 31, of Newark, N.J.; Yazmin Soto-Cruz, also known as Yazmin Soto, 32, of Elizabeth, N.J.; and Kenneth Sweetman, 32, of Lyndhurst and Nutley, N.J., were arrested this morning by FBI special agents.

Salguero, Chemidlin, Coutinho, DiValli, Ju, Fusco, Martins, Soto, and Sweetman, are scheduled for initial appearances and bail hearings this afternoon before U.S. Magistrate Judge Joseph A. Dickson in Newark.

According to the Complaints:

From March 2008 to July 2012, the defendants engaged in multiple mortgage fraud conspiracies targeting at least 15 properties in and around Newark and Elizabeth, N.J. The defendants mortgage frauds took several forms, including obtaining control of properties through fraudulent “short sale”  transactions, short sale flips, and identity theft. They submitted materially false mortgage loan documents to lenders in order to obtain loan proceeds, which the defendants then used for their own financial gain. The defendants also obtained money through various sales to straw buyers.

From March 2008 to June 2010, Salguero, Coutinho, Ju, and Soto conspired with each other and others to release liens on encumbered properties via fraudulently arranged short sale transactions. This allowed the defendants to profit from new fraudulent mortgage loans obtained on the properties from other mortgage lenders. To complete the short sale transactions, the defendants submitted materially false closing and other documents to mortgage lenders. They submitted materially false mortgage loan applications to mortgage lenders to obtain new mortgage loans on properties in and around Elizabeth, New Jersey, including a property on Fulton Street.

From March 2011 to July 2012, Salguero, Chemidlin, DiValli, Fusco, Martins, and Sweetman submitted false mortgage loan applications to mortgage lenders for a property on Smith Street, Elizabeth. The defendants submitted gift letters to mortgage lenders that falsely stated that the borrower was obtaining the funds necessary to close the real estate transaction from a relative or friend in the form of a gift, when the funds used as the borrowers’ down payments were actually provided by Salguero. The defendants also submitted false appraisal reports in order to support inflated property values and therefore obtain mortgage loans in larger amounts. The defendants formed limited liability companies (“LLCs”) in the names of companies similar to those of licensed title companies in order to open bank accounts in the LLC names to conceal the defendants’ identities and to control the receipt and distribution of fraudulently obtained mortgage loan proceeds. They submitted fraudulent documents that misrepresented Salguero’s ownership in various properties and the disposition of mortgage loan proceeds related to various transactions. The defendants then distributed fraudulently obtained mortgage loan proceeds to themselves and others and concealed those distributions by failing to include them on the HUD-1 Settlement Statements.

As a result of the mortgage fraud schemes described in the two Complaints, which involved at least 15 properties, the defendants and others defrauded financial institutions out of approximately $10 million.

The defendants played different roles in the schemes. Salguero was a real estate investor who, along with his girlfriend, Soto, provided much of the funds used by the defendants to perpetuate their fraudulent schemes. Coutinho was a loan officer at a Northern New Jersey mortgage brokerage company; he submitted false documents in support of the schemes. Chemidlin provided fraudulent real estate appraisals for the defendants although he was not a licensed real estate appraiser. DiValli was a loan officer at a Northern New Jersey mortgage brokerage company who also submitted false documents in support of the schemes. Ju negotiated the fraudulent short sale real estate transactions. Fusco and Sweetman conducted fraudulent real estate closings for the defendants although they were not licensed attorneys or title agents. Martins was a bank employee who facilitated certain financial transactions for the defendants.

The criminal Complaints charge each of the defendants with one count of conspiracy to commit bank fraud, which is punishable by a maximum potential penalty of 30 years in prison and a fine of $1,000,000.

U.S. Attorney Fishman credited law enforcement agents of the FBI Newark Mortgage Fraud Task Force for the investigation leading to today’s charges. Specifically, U.S. Attorney Fishman thanked special agents of the FBI, under the direction of Acting Special Agent in Charge David Velazquez, postal inspectors of the U.S. Postal Inspection Service, under the direction of Acting Inspector in Charge Maria Kelokates, special agents of the U.S. Housing and Urban Development, Office of Inspector General (HUD-OIG), Northeast Region of Investigations, under the direction of Special Agent in Charge Cary Rubenstein, special agents of the Federal Housing Finance Agency, Office of Inspector General (FHA-OIG), under the direction of Inspector General Steve Linick, special agents of the Office of the Special Inspector General for the Troubled Asset Relief Program (SIGTARP), under the direction of Special Inspector General Christy Romero, and special agents of IRS–Criminal Investigation, under the direction of Acting Special Agent in Charge Shantelle P. Kitchen, and the Hudson County Prosecutor’s Office, under the direction of Acting Prosecutor Gaetano Gregory.

The government is represented by Assistant U.S. Attorneys Lakshmi Srinivasan Herman, Aaron Mendelsohn, and Charlton Rugg of the U.S. Attorney’s Office Economic Crimes Unit in Newark.

This case was brought in coordination with President Barack Obama’s Financial Fraud Enforcement Task Force. President Obama established the interagency Financial Fraud Enforcement Task Force to wage an aggressive, coordinated, and proactive effort to investigate and prosecute financial crimes. The task force includes representatives from a broad range of federal agencies, regulatory authorities, inspectors general, and state and local law enforcement who, working together, bring to bear a powerful array of criminal and civil enforcement resources. The task force is working to improve efforts across the federal executive branch, and with state and local partners, to investigate and prosecute significant financial crimes, ensure just and effective punishment for those who perpetrate financial crimes, combat discrimination in the lending and financial markets, and recover proceeds for victims of financial crimes.

The charges and allegations contained in the Complaints against each defendant are merely accusations, and the defendants are considered innocent unless and until proven guilty.

Hoda Samuel, a (still) licensed real estate broker and the owner of Liberty Real Estate & Investment Co., has been found of a conspiracy to commit mortgage fraud, as well as 30 counts of mail fraud.

Prosecutors apparently proved to the jury that Samuel, 60,  acted as the broker on 30 transactions between April 2006 and February 2007, which defrauded lending institutions due to the file of false information on the loan applications (loan fraud, mortgage fraud). Samuel kept tight control of the transactions by representing both the seller and buyer (dual agency) in about have the sales and obtaining funding in all but one. Unfortunately for the lenders, 28 of the 30 properties went into foreclosure, causing losses to the lending institutions of over $5.5 million. The straw buyers were the employees of her brokerage and other persons.

In a decidedly unique angle, Samuel overstated the values of the homes from $15,000 to $40,000 (appraisal fraud) in order to pay for “repairs” to the homes that included making homes wheelchair accessible for (non-existent) family members of the buyers.

When she is sentenced on April 30, Hoda Samuel could get up to 20 years in prison.

The case was prosecuted by Assistant U.S. Attorneys Philip Ferrari and Todd Pickles out of the Eastern District of California and by the Federal Bureau of Investigation and the IRS-Criminal Investigation Unit.

Read the original articles in News10 ABC and the Sacramento Business Journal.

Assessing property taxes accurately is essential to local municipalities being able to plan their budgets into the future.

Short sale fraud is one means by which government is robbed of revenues to which it is entitled.

Now, public employees whose salaries and generous pensions are paid for by taxpayers have invented another way to steal from taxpayers: appraisal fraud.

Scott Schenter, a property appraiser for the Los Angeles County Appraiser’s Office,  was the lowest man on the totem pole arrested in a large-scale public corruption scandal in that office. He has pleaded not guilty to the 60 felony counts with which he has been charged and is probably hoping for the best by squealing to the L.A. District Attorney’s Office against his former boss County Assessor John Noguez, Deputy Assessor Mark McNeil and private tax consultant Ramin Salari. The three men have all been arrested and charged in the case and all have pleaded not guilty.

The L.A. County D.A.’s Office has charged all four with allegedly shaving hundreds of millions of dollars from high-priced properties owned by clients of Ramin Salari. Court records indicate that Scott Schenter, who performed many of the property appraisals, received at minimum $275,000 for his “work.”

According to an interview with Schenter (assuming it was with the L.A. Times) in 2012 this year, Schenter responded to John Noguez’ request to “look into” expensive Westside properties after the latter had campaign debt to pay off in 2010 after being elected for L.A. County Assessor. Schenter then reduced the values of the homes by a whopping $172 million.

The scheme fell apart when Schenter’s supervisor in the Culver City office of the County Assessor discovered the lowered appraisal values.

The Los Angeles Times reported that its review of Schenter’s County emails from 2004 to 2011 following a public records request, showed that most of those emails were not related to his work for the County. As a taxpayer, I think an audit of how Schenter and possibly other County Assessor employees were spending significant amounts of their time on private business that “somehow” escaped the attention of their supervisors, is in order.

The LA Weekly has followed this story closely and published a number of articles.

Prosecutors in the $142 million Ponzi scheme trial of Hendrix Montecastro and his mother, Helen Pedrino examined their first witness, James B. Duncan.

Duncan, the apparent ringleader of the mortgage fraud and securities fraud scheme that was operated in Riverside County, explained how the co-conspirators met each other and devised ways to profit out of the hot real estate market of the early- to mid-2000s. Wearing an orange, prison-issued jumpsuit, Duncan testified that he was introduced to Hendrix Montecastro by Anthony Contreras and that the three decided to form a three-way partnership to buy and profit from real estate.

According to Duncan, at first Montecastro, his former wife, Duncan and his wife and Contreras bought properties. They realized that with property prices skyrocketing during the early 2000s that they could easily refinance the homes after one year and use the excess to purchase more properties.

Once the market downturn began, they then made purchases by getting properties over-appraised (appraisal fraud) with the cooperation of the sellers and keeping the excess. They also brought in Helen Pedrino, said Duncan, to bring in investors in order to fund their Ponzi scheme because she had a wide circle of trusted friends.

Hendrix Montecastro and Helen Pedrino are facing 317 charges and prosecutors claim they defrauded 28 persons or couples out of almost $30 million.

The case is being heard in front of Riverside County Superior Judge Jeffrey Prevost and is being prosecuted by San Bernardino County Chief Deputy Prosecutor Vicki Hightower.

Read the original article in the Press Enterprise.

Interthinx, a provider of risk-management data for the mortgage industry, has released it Mortgage Fraud Risk Report for data collected during the 3rd quarter of 2012.

Of note is that Florida has now surpassed Nevada as the riskiest state in the country in which to sell mortgages.

California is ranked #5; however, it represents “six of 10 riskiest MSAs” (Metropolitan Statistical Areas, a U.S. Census Bureau designation). Noteworthy to lending institutions, California has five of the 10 riskiest MSAs for Property Valuation Fraud Risk (appraisal fraud), and eight of the 10 riskiest MSAs for Employment/Income Fraud Risk (loan fraud). This, of course, is not good news for honest property owners in the neighborhoods in which these frauds are occurring.

The report also sites Merced, in central California, as “the riskiest metro in the nation.”

Brandon Hanly, 32, of Redding, who was indicted as part of a conspiracy to defraud banks (mortgage fraud, loan fraud) in order to skim equity using inflated appraisals (appraisal fraud) has been found guilty by a federal jury. The jury convicted Hanly, a formerly licensed real estate broker and principal of Paramount Group, of wire fraud, mail fraud and money laundering.

According to the US Attorney’s Office, which prosecuted the case, Hanly conspired with Douglas Heald, 32, and Jerald Maggi, during a 7-month period in 2005-2006 to defraud lending institutions. The indictment against the three accused them of altering appraisals and title documents so that they could receive $5 million in mortgage loans and an additional $1.5 million in cash out.

Douglas Heald and Jerald Maggi pleaded guilty before going to trial but Brandon Hanly took his chances and offered a defense of being a victim. Prosecutors proved to the jury that, however, that Hanly received $300,000 in proceeds, not much money if he receives the maximum sentence of 30 years in federal prison and $500,000 in penalties when he is sentenced in 2013.

The fourth participant was a Redding-based mortgage broker named Joshua Gervolstad, who in 2010 was sentenced to three years in prison and order to provide restitution of $1.4 million for controlling a shell company called TPG Investments Inc., which he used to distribute the ill-gotten proceeds.

Read the original article in the Redding publication Record Searchlight.