California Real Estate Fraud Report

U.S. District Judge George H. King sentenced five people convicted in a foreclosure fraud scheme that victimized homeowners in foreclosure who were seeking assistance.

Judge King meted out the harshest sentence and criticism to Edward Seung Ok, who received 15 years in prison for his crimes. According to the judge, Ok fell “far short in the full acceptance of responsibility”. Among other things, Ok used the $4.6 million he stole to buy drugs and alcohol and a Lamborghini Gallardo. He violated his plea agreement by trying to hide from investigators the $1.6 million he transferred to the Bank of Nevis on the Caribbean island of St. Kitts.

Ringleader Martha Rodriguez was sentenced to 10 years and agreed to forfeit $900,000 in cash seized by the feds (see, crime does pay), interest in five homes and a truck. She spearheaded the scheme for which she was convicted while being free on bond after being charged with other real estate crimes.

Ok, Rodriguez and fellow convicted defendants Maria G. Juarez, Vladimir Stefanovic and Cynthia Valenzuela (she worked on the escrow fraud side) preyed upon homeowners in default and promised they could help save their homes by selling their homes to buyers provided by the defendants. In realty, the buyers were “straw buyers” who had no intention of purchasing the distressed properties.

Read the full article on Southern California Public Radio. More recent articles appeared in the Orange County Register and the National Mortgage Professional.

Bad news for those who commit real estate fraud and mortgage fraud in Ventura County: the Ventura County District Attorney’s Office has just received almost $1.7 million in federal stimulus money to fight real estate crimes.

As a result of this good use of taxpayers’ dollars, the D.A.’s office will add one prosecutor, two investigators and an assistant to its team assigned to fighting real estate fraud according to Ventura County District Attorney Greg Totten.

If you live in Ventura County and believe you are the victim of a real estate fraud, click here for the Ventura County District Attorney’s Office to find complaint forms.

Read the Full Article in the Ventura County Star. This article is also reprinted in Examiner.com by the L.A. Fraud Examiner.

According to the Contra Costa Times “Mortgage fraud has increased so dramatically in the San Joaquin Valley that a task force of federal, state and local agencies has been formed to fight back”.

My question - and probably yours too - is where has mortgage fraud NOT increased?

In unprecedented cooperation between federal and local agencies, the FBI, IRS, Secret Service, Department of Housing and D.A.s in Fresno, Tulare have formed a task force to investigate mortgage fraud and other foreclosure scams in the central region of California. The FBI has already set up 65 similar task forces around the country.

Here’s some unsurprising statistics: in 2008,  the FBI received 28,873 reports of suspected mortgage fraud in the U.S. and had more than 2,000 cases under investigation. But they only opened 734 cases, about 2.5% of the total reported. Not good news for victims . . .

Read the Full Article in the Contra Costa Times.

Homeowners in default with their risky low-interest loans have something new to worry about: so-called loan modification “experts”, “consultants”, or “counselors”, as they variously call themselves.

California Civil Code generally forbids such businesses from collecting an upfront fee for their services from already strapped consumers once the Notice of Default (NOD) has been recorded. An upfront fee may only be legally demanded if the homeowner is not yet in default and there is a reviewed advance fee agreement on file and approved by the California Department of Real Estate.

Consumers should especially avoid any loan modification service that advises the homeowner to stop making mortgage payments, refuse calls from their lender (note: lenders actually calling the homeowners?) and to let the loan modification company speak with the lender. This has SCAM written all over it.

Speaking personally, I have never encountered a person who claims to do loan modifications who actually did so successfully. All promise to send me references, none ever have. The ones with a business number are hard to reach and return phone calls less frequently than the average loan officer or real estate agent.

Read the Full Article in the Redding Record Searchlight.

The Los Angeles County Board of Supervisors is creating a new Real Estate Fraud/Predatory Lending Task Force to help homeowners who may have been victimized by predatory lending practices. Newly-elected Supervisor Mark Ridley-Thomas believes such as task force is necessary in Los Angeles County, where foreclosures have increased elevenfold in the last three years.

From 2006 to 2008, the number of home foreclosures in the L.A. County increased from 3,151 to 35,811.

The new task force may grow to include state and federal agencies

Complaints are already coming in from people victimized by the deceptive practices of home loan modification facilitators and foreclosure consultants, who often demand upfront money (ILLEGAL in the state of California) and promise the homeowner they will get them a loan modification.

Read this excellent consumer Article from the Inland Valley Daily Bulletin.

A Turlock real estate broker has pled not guilty to stealing more than a million dollars from his family, friends and classmates.

Bounthavy Tyler Manivong, 31, of Livingston is accused of stealing from his uncle as well as classmates at California State University Stanislaus as part of a real estate fraud scheme.

Read the Full Article in the Turlock Journal.

The San Mateo County Investment Pool has filed a civil lawsuit against executives for Lehman Brothers Holdings Inc., accusing them of concealing information from investors about the firm’s losses in the real estate market while taking home lucrative bonuses.

The investment pool, which represents public agencies that invested in Lehman, lost more than $150 million when Lehman Brothers went bankrupt. They are suing the executives and the firm’s auditor, Ernst & Young, alleging fraud, negligent misrepresentation and violations of California law and the federal Securities Act.

According to Supervisor Mark Church:

“The theory here is the top management fraudulently represented that the company was financially strong at a time when they were about to declare bankruptcy. What makes this case so outrageous is all the while, they were siphoning off millions of dollars for their personal benefit, leaving good-faith investors holding the bag. It hurts our schoolchildren, our transit projects, and other essential services that we provide.”

Lehman Brothers was also in the news as the source of tens of millions of dollars lent to the Beverly Hills real estate fraud, appraisal fraud and mortgage fraud ring, whose accused members include Mark Alan Abrams, Charles Elliott Fitzgerald, Joseph Babajian and Kyle Grasso. Read earlier articles in the California Real Estate Fraud Report and another in Mortgage Law Central.

Read the Full Article in the San Jose Mercury News.

The troubles that resulted in WaMu being acquired for $1.9 billion by JPMorgan Chase seem to be 100% of its own making. They are being investigated by Andrew Cuomo, Attorney General for the State of New York, for pressuring appraisers at e-AppraiseIT to increase the value of properties so that their profits on subprime loans could be higher. Other attorneys general are investigating WaMu in their respective states.

WaMu and some of its executive officers are also the subject of civil lawsuits, one of which was filled by Chad Johnson, a partner at Bernstein, Litowitz Berger & Grossmann, on behalf of the Ontario Teachers’ Pension Plan board, a large shareholder. Says Johnson: “(CEO) Kerry Killinger pocketed tens of millions of dollars from WaMu, while investors were left with worthless stock.” With WaMu gone, he added, “it is all the more important that Killinger and his co-defendants are held accountable.”

Keysha Cooper, one of WaMu’s senior mortgage underwriters, describes a work environment in which approving loans, no matter how risky or dubious, was her job. To paraphrase the old Chiller films of the 1950s: “Volume was the order of the day”. This included strong-arming underwriters to “re-structure” loan applications until the numbers worked. Loan officers with high sales volume were rewarded with Hawaiian vacations, whereas those that balked, such as Ms. Cooper, found themselves being written-up and, in her case, being put on probation before ultimately being fired. One of the loans she ad objected to defaulted immediately; the borrower never made a single payment.

Read the Full Article in the New York Times.

Although many jilted investors have cheered at the recent arrests of the mother-and-son leaders of the bankrupt Paso Robles-based Estate Financial, they are only one group of a growing number of investors in the Central Coast who have had troubles with mortgage and lending firms.

Besides Estate Financial, other hard money lenders who are biting the dust are:

- Atascadero-based Hurst Financial, which had at least $86 million in investments last year, has had its license revoked by the California Department of Corporations and has been accused of fraud in September in filings by the Department of Real Estate. Hurst Financial has been the subject of several posts in the California Real Estate Fraud Report.

- Real Property Lenders of Paso Robles had its license revoked by the Department of Corporations in May. It had about $55 million in loans as of 2007,

- 21st Century Mortgage, also of Paso Robles, closed down abruptly about a year ago with no notice to its investors. Other firms eventually bought most of the loans.

Estate Financial is still the king of fraud allegations at the time of this writing. Their $170-million in loans were frozen and put under court control after the state revoked its license to sell real estate investments. On October 16, Estate Financial’s President, Karen Guth, and her son Joshua Yaguda were arrested at their Paso Robles ranch by investigators from the SLO County District Attorney’s Office.

Read the Full Article in the San Luis Obispo New Times.

The Federal Bureau of Investigation (FBI) has published its latest statistics on mortgage fraud across the country.

Quick snapshots: California ranks 4th in the country (behind Florida, Nevada and Michigan) in “significant” reports of mortgage fraud in 2008; total estimated losses to mortgage fraud in 2008 - $4 - $5 billion; and in 2008: 523 indictments, 282 convictions.

Click here to read the full compilation of FBI statistics on mortgage fraud.