California Real Estate Fraud Report

A 3-year old fee imposed on real estate transactions in Kern County has resulted in a jail sentence to 37 year-old Primo Feliciano Jacquez, who pleaded no contest to one count of grand theft by pretense.

Here’s the kicker: two articles below in this blog, Kyle Grasso, convicted of helping to defraud Lehman Brothers Bank and others of $13 million, was sentenced to one year and a day in prison. Jacquez, who was accused of scamming seven investors out of $385,000 in 2007, will be sentenced next month to two years and four months in prison in addition to having to pay restitution.

Read the full article in the Bakersfield Californian.

The Orange County District Attorney’s Office reports that real estate losses reported to its special real estate fraud unit amount to $100 million, with over 1,000 victims. The unit, formed only last year, has had 346 referrals to it for mortgage fraud (and presumably, loan modification scams) and real estate fraud both from victims and real estate professionals.

The numbers so far:

Referrals to the DA of suspected real estate fraud: 346 +

Referrals from county Clerk-Recorder: 16

Investigations received from law enforcement agencies: 17

Filed criminal cases: 29

Cases rejected for filing: 30

Cases referred to other state or federal agencies: 12

Convictions: 14

Real estate crimes by white-collar criminals show no sign of abating. Please get multiple, independent references before giving your money to someone you do not know.

Read the full article in the Orange County Register, aka OC Register.

Mario Raul Guevara, 30, is a  real estate agent who has been charged with four counts of grand theft of personal property and two counts of forgery and failure to file tax returns. For his alleged crimes, Guevara has been jailed on a $2 million bail.

Guevara is accused of forging a client’s signature and sold a North Hollywood property to his alleged accomplices Marcelino Hernandez, 47, and Hernandez’s wife, Maria Guadalupe Banales, 38. According to the L.A. County District Attorney’s Office, Guevara and Hernandez defrauded a financial institution of $1.1 million. Guevara is additionally accused of fleecing investors for his real estate firm.

Read the Full Article in the Los Angeles Daily News. *

* For the record, Guevara is not a licensed real estate broker. He did hold a salesperson’s license, which is expired. There are no complaints showing on the California Department of Real Estate’s web site regarding Guevara’s license. There is also no information on the DRE’s web site indicating the existence of Guevara’s real estate firm (per the Daily News) called Nationwide Capital Investments.

In yet another civil lawsuit, builder Fred Machado and hard money lender Don Vaughn have been accused of conspiring to commit fraud with malice.

San Miguel resident Lorraine Cagliero’s lawsuit accuses Vaughn, a president of Country Financial, of soliciting a $375,000 high-interest loan from her in 2005, which was to be used to construct a home on a property in Paso Robles. Cagliero contends that Vaughn failed to disclose that he was the owner of the property, which he then sold to Machado, who had spent the loan of Cagliero’s money given him by Vaughn.

Many hard money lenders in the North County region have been ensnared in lawsuits involving various forms of fraud. Amonth are Hurst Financial (use the Search feature to find articles in the California Real Estate Fraud Report), Estate Financial, 21st Century and Real Property Lenders. They and Country Financial made money by writing high-risk, high-interest loans, servicing loans and also selling securities that were fractional shares in promissory notes that were collateralized by real property deeds of trusts. On a small investor level, this is equivalent to the bundling, reselling and monetizing of mortgages in the hundreds or thousands by mega-lenders such as Countrywide, Washington Mutual, aka WaMu, Bank of America, Deutsche Bank, etc., many of which are now “toxic assets” that the taxpayers will be paying off for the next several generations.

Read the Full Article in the San Luis Obispo Tribune by Melanie Cleveland.

A civil lawsuit filed in wealthy Marin County alleges that the principals of a real estate investment firm defrauded over 100 victims-plaintiffs of at least $27 million of investment monies in a Ponzi scheme that has attracted the attention of the California Department of Justice.

Investment adviser Gary Armitage, his firm AGA Financial, business associates James Koenig of Asset Real Estate Investment Co. and Jeffrey Guidi are the defendants in the lawsuit. Armitage has filed bankruptcy, claiming assets of between $1 million and $10 million while owing his creditors $50 million to $100 million.

Walnut Creek attorney Richard Miller is representing the 122 plaintiffs and is attempting to have the lawsuits against the defendants - filed in Marin, Sonoma, Alameda an Shasta counties - consolidated and tried before one judge in Marin County.

Read more in the San Jose Mercury News

Appraisal fraud is just not given the attention it is due. In fact, without an appraiser willing to violate the code of ethics to which licensed appraisers must adhere, a large percentage of real estate fraud crimes would not have been possible.

Three examples of large-scale appraisal fraud cases come immediately to mind. The first is the notorious mortgage fraud perpetrated against Lehman Brothers by accused former Prudential California brokers Joseph Babajian and Kyle Grasso. The two allegedly purchased properties in Beverly Hills and other expensive neighborhoods in West Los Angeles at market value, then hired appraisers Scott Robinson and Lila Rizk to inflate the properties’ values to justify the prices in the phony purchase contracts Babajian and Grasso wrote when re-selling the properties to straw/dummy buyers.

Case number two: in November 2007, New York Attorney General Andrew Cuomo sued eAppraiseIT, a subsidiary of First American Corp., for caving in to pressure from its top customer Washington Mutual, aka WaMu, to use appraisers handpicked by WaMu. eAppraiseIT earned more than $50 million in revenue from WaMu from April 2006 until the time of the lawsuit. WaMu’s alleged motive was quite simple: the higher the appraised value of the properties, the higher the fees it earned from writing loans. Appraisers who refused to participate were generally blacklisted.

Case number three is currently in the news: commercial real estate giant Marcus & Millichap, a number of its agents, Marcus & Millichap subsidiaries, Paul A. Morabito, Jack Waelti and their “alter-ego” shell companies are accused in a lawsuit of defrauding investors in a complicated scheme that required the active participation of an appraisal firm to provide artificially inflated values to properties which the Marcus & Millichap and other defendants owned and sought to sell to investors.

At the core of the alleged Marcus & Millichap real estate fraud is PGP Valuation, Inc. Marcus & Millichap agents are accused of targeting and purchasing Jiffy Lube and Church’s Chicken franchises, including the land on which they were located, then creating phony inflated lease-back agreements with their co-defendants Morabito and Waelti. PGP Valuation would essentially reverse-engineer the leases to derive property values based upon “the as-is market value of the leased fee interest . . .”. PGP further provided comps on other properties submitted by and controlled by the agents that it had also artificially inflated. The investors were never informed of the relationships between the various defendants and they were certainly unaware that the appraisals were inaccurate.

In all three cases, without a licensed appraiser to put his or her stamp of approval on an inflated property valuation, there would have been no means to commit the real estate fraud or mortgage fraud. In the big picture of its economic impact, appraisal fraud is responsible for losses in the billions in the U.S. housing market.

This article was also posted in Examiner.com

According to a civil lawsuit filed on February 9, commercial titan Marcus & Millichap, its own agents, two of their associates and several subsidiaries of Marcus & Millichap and the associates perpetrated a massive real estate fraud scam against more than a dozen victims beginning in 2004 and continuing until 2008, when the scheme collapsed. Collectively, they are accused of causing losses that exceed $50 million involving 22 properties.

The Marcus & Millichap defendants are the Marcus & Millichap Company; Marcus & Millichap Real Estate Investment Services, Inc.; Marcus & Millichap Real Estate Investment Brokerage Company; Sovereign Investment Company; Sovereign Scranton, LLC; Sovereign CC, LLC; and Sovereign JF, LLC. Their defendant agents are Glen Kunofksy, Marcus Muirhead, Alexander Mickle, Sean Perkin, Donald Emas, Andrew Lesher, Stewart Weston, Brice Head, Daizy Gomez and Bret King.

The associate-defendants are Paul A. Morabito and Jack Waelti. Their “alter ego” shell companies are too numerous to list, but include Eureka Petroleum Inc.; Tibarom LLC; Tibarom NY LLC; Tibarom PA LLC (Morbito’s firms) and QSR Group LLC; QSR Group One LLC; and QSR Group II LLC, aka QSR Group Two LLC.

In a nutshell, attorneys for the victims-plaintiffs claim that the various defendants set up a sophisticated “real estate scam” that began with contacting the owners of Jiffy Lube and Church’s Chicken franchises around the country and offering to purchase both the franchises and the properties. The sold properties were put in the name of shell companies controlled by Morabito or Waelti, which were then “flipped” into Marcus & Millichap subsidiaries such as Sovereign Scranton. Dummy sale/leaseback agreements were then written that inflated both the value of the properties at sale, as well as the leasebacks.

The properties were then listed by Marcus & Millichap agents and marketed to 1031 investors (note: in a 1031 exchange, previously called a Starker exchange, investors may defer capital gains taxes by purchasing new investment property within 180 days of selling the previous property). Critical to the lawsuit was that the complex and ongoing relationships between the various defendants was not disclosed to the victims; in fact, the victims were repeatedly told by their own Marcus & Millichap agents that the corresponding Marcus & Millichap agents were experts in the lease agreements and that the investments were safe.

Attorneys for the plaintiffs are accusing the defendants of violating the Racketeer Influenced and Corrupt Organizations Act (“RICO”), negligent misrepresentation, fraudulent concealment, unjust enrichment and imposition of a constructive trust, money had and received, and violation of two sections of California’s Business and Professions Code.

PGP Valuation, Inc., a nationwide appraisal firm specializing in commercial and industrial properties, was also named in the lawsuit. In a future article, readers will learn the critical role appraisals play in real estate fraud.

Note: this article is also published on Examiner.com

An Altadena woman charged by federal authorities with operating an $18 million real estate investment fraud scam that focused on African Americans received a sentence in federal court of 12 1/2 years in prison

Jeanetta M. Standefor, 40, operator of Accelerated Funding Group (AFG) in Pasadena, was also ordered by U.S. District Judge Percy Anderson to pay over $8.6 million in restitution to her victims as a result of her investment fraud.

Standefor promoted a “foreclosure reinstatement” program that attracted more than 600 investors and purported to use the funds to cure defaults on distressed properties, according to federal prosecutors. Although she promised returns of up to 50% in just a few months (Investors: that should have been a hint!), Standefor was in fact just operating a Ponzi scheme.

Read the Full Article in the Pasadena Star News.