California Real Estate Fraud Report

United States Attorney Benjamin B. Wagner announced that Eric Ray Hernandez, 37, and his wife Monica Marie Hernandez, 32, have pleaded guilty to conspiracy to commit mail fraud, wire fraud, and bank fraud.

According to court documents, between October 2005 and May 2007, the Bakersfield couple conspired with three other defendants to defraud lenders by submitting false and fraudulent loan applications  to the lenders in order to obtain mortgages, ultimately causing losses of approximately $6,037,541. Eric Hernandez was employed at a mortgage brokerage during the period when the crimes occurred.

Both defendants face length prison terms when they are sentenced this fall - up to 30 years in prison, a $1 million fine, and five years of supervised release.

One of their co-defendants, Patricia King, has already pleaded guilty to three counts of mail fraud and been sentenced to three years and one month in prison. The remaining co-defendants Evelyn Sanchez and Darling Montalvo have pleaded not guilty and are awaiting their trials on August 13, 2013.

Read the original article in KERO-TV 23 and the Central Valley Business Times.

This is one of the most egregious cases of corporate ineptitude and callousness I’ve heard of to date. And after wrongfully costing a man his property, it then may have cost him his life.

Larry Delassus was a disabled retiree, living on $1,600 a month in the Hermosa Beach condo he had owned for 16 years.

One of Delassus’ neighbors neighbors fell behind in his property tax payments. The neighbor, like Delassus, had his mortgage with Wells Fargo. Wells Fargo, in order to preserve its interest in the property, paid the property taxes. But instead of pursuing the neighbor for the shortfall, these idiots went after Delassus because they mistyped the parcel number on documents to show the person in default was Delassus.

Larry Delassus had actually paid his property taxes six months in advance.

In a scenario familiar to thousands of homeowners who have tried to communicate with this lender, Wells Fargo heaped on penalties, interest, fines and attorney fees in its relentless pursuit of Larry Delassus, forcing him into default by doubling his mortgage. He and his attorney tried and tried to call the bank, but got the runaround typical of Wells Fargo and other mega-lenders: put the borrower on hold forever, disconnect the call, transfer the call to the wrong department, transfer the call to employees unauthorized to make decisions, lose paperwork, etc.

According to an article in the LA Weekly, even after it admitted its error, Wells Fargo foreclosed on him anyway.

The next two paragraphs are quoted directly from the LA Weekly:

Robert Baily of Anglin Flewelling Rasmussen Campbell & Trytten LLP admitted the bank’s mistake: “Wells Fargo paid the amount it determined was owed to the County Assessor: approximately $10,500. This was a mistake. The $10,500 was the tax amount owed on a neighboring property, not Plaintiff’s.” (Bailey did not address the discrepancy between $13,361 and $10,500.)

Bailey added: “In September, 2010 Wells Fargo acknowledged its error in paying the taxes on Plaintiff’s neighbor’s property and corrected it.” By then, however, Delassus was so far behind on his mortgage payments wrongly doubled by Wells Fargo that the bank refused to let him resume his $1,237.69 installments, Trujillo says. He faced a sizable “reinstatement” cost — which is often the past due amount plus fees.

Delassus’ neighbor and friend, attorney Anthony Trujillo, sued Wells Fargo on his behalf for negligence and discrimination (based on his disability).

Wells Fargo litigation support manager Michael Dolan, in a videotaped deposition, was asked the following:  ”So Plaintiff was never provided with the reinstatement amount after the bank discovered its error, correct?” Dolan replies, “That is correct.”

Larry Delassus was in Torrance Superior Court last December listening to Trujillo argue his case when he slumped over and died.

Watch this YouTube video that discusses this story further. Read another article in Slate about Larry Delassus versus Wells Fargo.

New York Atorney General Eric Schneiderman has sued HSBC Bank USA and HSBC Mortgage Corp., accusing it of dragging out foreclosure cases in violation of state law in order to make it more difficult for homeowners to avoid foreclosure. 

Banks use stalling tactics as a strategy in order to stack up more penalties, fees and interest against homeowners. That said, Schneiderman is looking at suing other lenders for using the same tactics.

According to Schneiderman, “Companies like HSBC are brazenly ignoring state law, leaving homeowners across New York stuck in a legal limbo where they can’t even get the legally required settlement conference that could help them keep their homes. For homeowners facing foreclosure, time is their greatest enemy. Every day spent waiting for a settlement conference is a day that the lender piles on additional interest, fees and penalties and the homeowner falls further behind.” Read his statement on the New York Attorney General’s website.

Unlike California, which is not a judicial foreclosure state, in New York, the lender is required to file a request for judicial intervention once it files suit against the borrower. That triggers a requirement to hold a settlement conference to explore alternatives to foreclosure, including mortgage modification, within 60 days, which Schneiderman is saying HSBC and other lenders are intentionally avoiding.

An example of this tactic, Schneiderman outlined the case of Rebecca Karm of Erie County. Karm, who suffered both a medical illness and the loss of her job, fell behind on her payments. Although HSBC filed the proof of service on November 12, 2010, it didn’t file the request for the conference until June 8, 2012. According to an affirmation filed by the Western New York Law Center, during those 547 days, Karm’s principal balance ballooned by $23,000 because of fees and penalties HSBC piled on her.

Read the original article in MSN Real Estate.

REO (foreclosure) sales are winding down; investors will tell you the inventory is dwindling. This is due to the banks finally waking up years after Realtors® told them it was better for the bottom-line to allow homeowners to do a short sale.

HUD, FHFA, Fannie Mae and Freddie Mac (the latter two are GSEs) still have sizeable REO inventories across the country. Now the Office of the Inspector General for HUD (HUD-OIG) and the Office of the Inspector General for FHFA (FHFA-OIG) are taking aggressive steps to study how those inventories can best be managed, how to reduce REO fraud and to ultimately reduce inventories with minimal negative impact to neighborhoods.

FHFA-OIG has implemented an evaluation strategy, the objective of which is to learn whether both FHFA and the GSEs are maximizing financial recoveries and minimizing the negative effects of foreclosures on affected communities during their management of REOs. Part of FHFA-OIG’s task will be to audit the effectiveness of these REO management activities and determine if proper risk management controls have been established to avoid fraud and abuse.*

*Note: having sold REOs for banks and seen first-hand how some agents manipulate sales, including property management, for their own benefit (REO fraud), I’d say the FHFA-OIG has a difficult task ahead.

Read the entire well-written article in HousingWire.com.

In California, homeowners who commit short sale fraud are very rarely investigated or prosecuted for the crime. There is not one conviction of which I’m aware, which is why short sale fraud is so rampant. Nor is there any criminal or civil downside to banks that knowingly approve short sales that are not arm’s-length.

In Michigan, the same property owners are convicted of short sale fraud and they go to prison.

In a long-awaited and much-anticipated decision, Judge John Corbett O’Meara sentenced former Michigan Supreme Court Judge Diane Hathaway to one year and one day in prison.

Hathaway, who also held a real estate license, pleaded guilty in January to one count of bank fraud in the short sale of her Grosse Pointe, Michigan home.

During the short sale of the Michigan home, Diane Hathaway concealed ownership of her second home in Florida when she filed her hardship declaration to lender ING by transferring the home via quit claim to her husband’s daughter prior to the short sale. Following the short sale, the home Hathaway and her husband owned free-and-clear in Windermere, Florida, was quit-claimed back to her.

In addition to her sentence, Hathway must pay $90,000 in restitution to ING and be on probation for two years following her sentence.

Hathaway’s attorney, Steven Fishman, failed in his attempt to convince the judge that she did not deserve prison. In a pre-sentencing memorandum to the court, Fishman wrote of Hathaway that ”Her fall from the pinnacle of professional success has been swift, sudden, and tragic.”  He also wrote that he felt that Hathaway, who made a bee-line to Florida after the scandal broke, could volunteer at a women’s shelter by doing interior decorating or a local cancer support organization.

U.S. Attorney Barbara McQuade prosecuted the case and was insistent on prison time. “Homeowners who play by the rules should know that those who don’t will be held accountable, no matter who they are.”

Michigan Attorney General Bill Schuette also supported the sentence and commended the FBI for investigating the case. “Public corruption scandals have damaged the public’s trust in government and tarnished our state’s reputation. No matter who you are or what position you hold, the same rules apply.” 

Robert Foley, Special Agent in Charge of the FBI Detroit office was quoted, “Regardless of a person’s stature or position in life, we must all follow the same set of rules. In this case, an individual in a prominent position of public trust made extremely poor choices that have resulted in criminal activity. The FBI is committed to stopping these illegal acts.”

Read the original articles in USA Today and in AOL Real Estate. There are also previous postings in the California Real Estate Fraud Report on this case which can be found by using the Search form on the left side of this blog.

Safieh Fard, 52, of Escondido, has an upcoming five year engagement in federal prison as a result of being convicted for conspiring with her family to commit bank fraud and tax fraud.

Fard, her sister Sedigheh Bahramian and her sons Mohsen Kikalaye and Ahmad Kikalaye began their elaborate and profitable mortgage fraud scheme starting in 1997, when they were given loans after overstating their income and assets to lenders (loan fraud, mortgage fraud). They leveraged the monies to buy homes in Newport Beach, which they at first sold back-and-forth to each other and then eventually to third-parties, pocketing almost $4 million in profits. They might not have been caught had they not wired money to and from their accounts and if they had reported and paid taxes on their gains.

The U.S. District judge in Los Angeles who sentenced Safieh Fard also ordered her to pay $549,000 to the IRS for unpaid taxes. No word if the California Franchise Tax Board feels it is owed taxes too.

The investigating agencies were the IRS and U.S. Department of Homeland Security. The case was prosecutd by the U.S. Attorney’s Office in Santa Ana.

Read the original article in the San Diego Union Tribune.

You can read an earlier article in the California Real Estate Fraud Report about Safieh Fard, Sedigheh Bahramian, Mohsen Kikalaye and Ahmad Kikalaye by clicking here.

Ricardo Fabian Salinas, 34, a Los Angeles man who was one of nine people named in an indictment in July 2012, has pleaded guilty to bank fraud in relation to a mortgage fraud scheme that was perpetrated in Bakersfield.

Salinas’ co-defendants are Eliseo Jara Jr., Sergio Jara, Antonio Perez Marcial, Lucia Yolanda Chavez, Arlene Jeanette Jara, Candace Shantel Gonzales, Joseph Shawn Chavez Jr. and Melissa Rochelle Jara.

Prosecutors allege that from 2007 to 2010 Salinas and his co-defendants deceived mortage lenders by preparing and submitting fraudulent loan applications and selling properties to hand-picked buyers. They charge that the false statements included inflating the borrowers’ income, employment and financial assets and that the intent of the purchasers was to use the homes as primary residences.

Ricardo Salinas could get up to 30 years in federal prison when he is sentenced by the judge for his crimes.

Read the original article in Bakersfield Now.

A man who was already on home detention for a prior conviction for bank fraud has been sentenced to federal prison for 10 years for mail fraud.

U.S. District Judge Garland Burrell Jr. imposed the sentence on David Romo, 42, now formerly of Folson for operating a real estate investment fraud scheme that cost the victims over $6.9 million.

Romo was prosecuted by the office of U.S. Attorney Benjamin Wagner, who said that David Romo never disclosed to his victims-investors that he had been convicted of bank fraud in 2002 in the U.S. District Court in Sacramento. He solicited investors through his companies Sycamore Ventures LLC, Smarie Investments LLC and Groupo Immobiliare LLC. Wagner stated that Romo did not use the investors’ money for anything other than his personal use and for unrelated business expenses.

In imposing sentence on Friday, U.S. District Judge Garland Burrell Jr. noted that Mr. Romo was on home detention when he committed his current crimes.

In referring to Romo’s gall in committing new federal crimes while on federal supervised release, Judge Burrell said “This is appalling, he does not respect the law, he does not get it. It is evident the public needs protection.”

Read the original article in the Central Valley Business Times.

San Diego Realtor® Kathryn Sylvester has been arrested by the FBI and now faces charges of operating a $5 million mortgage fraud conspiracy.

According to the U.S. Attorney’s Office, Sylvester, 43, was charged with 10 counts of wire fraud, two counts of bank fraud and conspiracy with regard to submitting fraudulent loan applications on behalf of straw buyers whom she allegedly recruited. Twenty-eight of the 80 properties that were purchased went into foreclosure, causing losses to lenders of over $5 million.

Straw buyers are rarely prosecuted and almost never see jail time, but three of them in this case have pleaded guilty and are awaiting their sentences: Claudia Montes, Tad Lent and Roderick Michener.

Read the original article in Courthouse News.

Consulting firm, Rust Consulting Inc.,  which has been overseeing payments to former homeowners and the paying bank, Huntington National Bank, have made corrections in their systems, which resulted in consumers being unable to cash or deposit their checks due to non-sufficient funds (NSF). The payments to the 4.2 million borrowers were a requirement of the agreement between bank regulators and the 13 largest mortgage servicers.

Originally, Rust Consulting indicated that 1.4 million payments had been sent on April 12, some of which were unable to be cashed, but now says that $3.6 billion is available.

However, consumers were unable to cash or deposit their checks due to insufficient funds.

Rust has since corrected the problem and verified that $3.6 billion is available to be cashed or deposited.

In a press release, James Parks, senior vice president of Rust Consulting, said “We apologize to anyone who experienced problems trying to cash their checks. We are working hard and communicating with the banking regulators, the servicers, and other banks to ensure those issues are not repeated. We want to assure the public that checks we have mailed under the Independent Foreclosure Review Payment Agreement process are valid.”

Read the original article in National Mortgage News.