California Real Estate Fraud Report

In the follow-up to its story about Beverly Hills real estate agents conspiring to defraud banks by securing loans on properties whose values they helped inflate, the Los Angeles Times today published “How a Bank Fell Victim to Loan Fraud”.

At the center of the conspiracy is Mark Alan Abrams, 46 , an L.A. area businessman and Charles Elliott Fitzgerald, 47, his developer partner and a bigamist who fled the U.S. but was captured in Samoa and returned to this country to face federal prosecution. They were assisted by Prudential California real estate agent Joseph Babajian, 54, and his partner Kyle Grasso, 36, who helped Abrams and Fitzgerald purchase Westside homes for market value, then, with the aid of appraisers who grossly inflated the properties’ values and re-sold them to “straw buyers”, who had sold the use of their names and credit to round out the scheme.

Also indicted besides the four (4) above, were appraisers Lila Rizk, 40, Trabuco Canyon, and Scott Robinson, 44, Dana Point. Other than Abrams, who has pleaded guilty and is awaiting sentencing, the rest have pleaded not guilty.

All of the above were charged with conspiracy, bank fraud, and loan fraud (and a few other crimes). Babajian and Grasso were also charged with money laundering.

The following co-conspirators pleaded guilty to conspiracy and wire fraud and are also awaiting sentencing: Nicole LaViolette, 37, a loan processor from Palm Springs; Jamieson Matykowski, 33, a real estate worker (what’s that?) from Laguna Niguel; and Timothy Holland, 35, an escrow officer from Santa Ana. Richard Maize, 54, a mortgage banker, has also pleaded guilty to conspiracy, bank fraud, and making a false statement on a tax return.

Needless to say, Lehman Brothers Bank, which was defrauded out of up to $142 million, has sued all the parties for civil damages in U.S. District Court in Los Angeles. That trial is on hold pending the outcome of the criminal trials of those who have pleaded not guilty.

As of today, neither Joseph Babajian nor Kyle Grasso show disciplinary action taken against them by the California Department of Real Estate.

Abrams is one of L.A.’s most stellar (sic) citizens: the developer filed bankruptcy in Los Angeles in 1989, facing $30 million in claims from his creditors. One of those creditors received a $2 million judgment, which he has been unable to collect to date. In 2005, he paid $270,000 in fines for violating campaign finance laws while fundraising for Mayor James Hahn’s 2001 campaign.

The charges in the indictment are part of an ongoing investigation being conducted by the Federal Bureau of Investigation and IRS-Criminal Investigation Division.

The original story was published in the Los Angeles Times and the Mortgage Fraud Blog in August 2007.

An indictment contains allegations that a defendant has committed a crime. Every defendant is presumed innocent until and unless proven guilty.

Real estate broker Leesa Ward was once considered one of the most successful real estate agents in Tracy, California. But in August 2005, she and her business partner and sister Athena Handleson began a new venture of selling shares to local investors – to the tune of $1 million in shares – for the purposes of purchasing foreclosures and “fixer-uppers”.

According to the state Department of Corporations’ Desist and Refrain Order that was issued November 28, Ward said she would renovate and resell the homes at a profit, then return the surplus to investors. At minimum, they would receive a 12% return. In reality, it is alleged by the State that Ward and Handleson misled investors about how their money would be used, converting much of it to personal use instead of purchasing foreclosed properties. Apparently many investors lost all, or most, of their money.

The Department of Corporatations order also barred Ward and Handleson from selling any more stock in California, which they did not have a legal license to do in the first place.

Meanwhile, Ward is facing civil lawsuits from several of the investors, a sexual harassment suit, and lawsuits from home buyers who claimed that Ward’s agents lied about the value of their homes.

Read the Full Article in the Tracy Press.

My check of Ward’s real estate license with the State currently shows “no disciplinary action”. Hmmm.

An employee of a Washington Mutual subprime lending subsidiary has pleaded guilty to lying under oath regarding testimony he gave before a federal Grand Jury investigating fraudulent mortgage loans issued by that subsidary.

John Ngo, 27, Dublin, California, will be sentenced by US District Court Judge William B. Shubb in April 2008 after admitting his false testimony and agreeing to cooperate with the ongoing investigation.

Ngo worked as a senior loan coordinator at Long Beach Mortgage from September 2001 through May 2006, according to Assistant United States Attorneys Benjamin B. Wagner and Courtney J. Linn, who prosecuted the case. Ngo’s job duties included verifying loan application information submitted by prospective borrowers.

At the Grand Jury hearing in September 2007, Ngo falsely testified under oath that he had not received money from William Bridges, a mortgage broker, when in fact, he had accepted more than $100,000 from Bridges. The monies received were “payment” for Ngo altering loan documentation submitted by borrowers in order to ensure that the borrowers were granted loans. In addition, Ngo took money from Long Beach Mortgage sales representatives to fund loans that he and other employees altered in order to secure the funding.

This posting was abstracted from the Mortgage Fraud Blog.

Three foreclosure firms, one based in California, have been sued by Illinois Attorney General Lisa Madigan for violating the Illinois Mortgage Rescue Fraud Act and the Consumer Fraud and Deceptive Business Practices Act. Since they were implemented, Madigan has sued eleven such businesses for prohibited practices, such as charging upfront fees and failing to fully disclose exactly what the homeowner was receiving for said fees. Says Madigan:

“The last thing desperate homeowners on the verge of losing their homes need is a so-called ‘mortgage rescue firm’ that does little more than separate homeowners from their money,” Madigan said. “A home is a consumer’s most valuable asset. In the current tumultuous mortgage climate, these firms must realize that they cannot further victimize Illinois homeowners with these catch-all universal mortgage ‘rescue’ packages.”

According to the California Secretary of State’s business portal, Upland-based Lender’s Foreclosure Relief, Inc. was opened in Febuary 2007; its agent of service is Jon Thomas. It has no public website and no online references other than two articles relating to AG Madigan’s lawsuit. Without straining too hard, I would venture that this firm was opened following Mr. Thomas enrolling in one of the myriad of foreclosure bootcamps being offered in Southern California. In less than a year, Lender’s Foreclosure Relief is facing a cease-and-desist order regarding its deceptive business practices, an order to pay restitution to the homeowners Madigan says it defrauded, and civil fines of $50,000 plus $50,000 for each act of fraud. Ouuuch!

To date, Madigan has collected $900 million dollars from lenders engaged in fraudulent activites in Illinois and has subpoenaed Calabasas-based CountryWide Home Lending regarding its lending practices. I have no doubt that if California’s AG Jerry Brown is as aggressive as Lisa Madigan in my home state, he will make a large dent in the State deficit.

Read the Full Article.

The subprime meltdown could result in new business for white-collar defense attorneys according to Dan Levine’s article in Law.com, a legal news service.

New Century Financial Corporation, with its aggressive (to say the least) lending practices, led the die-off by announcing in Febuary 2007 that it would restate earnings. By not indicating how much it intended to restate, it drew the attention of the Securities and Exchange Commission, as well as a subpoena from the grand jury of the Central District of California. At latest, New Century, now in bankruptcy, has retained top-dollar defense attorneys from Latham & Watkins; Munger, Tolles & Olson; Skadden, Arps, Slate, Meagher & Flom; and Proskauer Rose, not to mention O’Melveny & Myers.

Levine notes that New Century is located in Orange County, which is home to five of the top 10 subprime lenders. Good news for criminal and civil defense attorneys based in Orange County and Los Angeles. Bad news for Wall Street investors if they are unable to prove that subprime lenders falsified loans, knew they were doing so, and failed to disclose their fraudulent practices to the investors.

The feds seem to be taking their time assessing what, if anything, they should be doing about the subprime debacle. State attorneys general, such as New York AG Cuomo, have taken the lead by suing, in Cuomo’s case, First American Corporation, for puffing home appraisals at the behest of its biggest customer WaMu (see article below).

Washington Mutual, aka WaMu, is being investigated by the Securities and Exchange Commission, as well as the Office of Thrift Supervision, for deliberately inflating of home appraisals via its partnership with First American Title. First American has a subsidiary called eAppraiseIT, which purportedly under pressure from WaMu, conspired to provide the inflated property values in order to boost fees for its own services, as well as loan fees WaMu received.

WaMu not only (obviously) failed to disclose to purchasers of its mortgage-backed securities that it was pumping up home values, but also how its financial results were obtained to shareholders of its stock. Read the Full Article here.

In a statement published by Reuters, WaMu spokeswoman Elizabeth Borelli stated

“We are voluntarily and fully cooperating with the SEC’s inquiry as well as the (Office of Thrift Supervision), and look forward to bringing the facts to both the regulators and public.”

After spending a month and a half investigating these allegations, we can say with confidence that there has been no systematic effort by WaMu to inflate home appraisals. We take these allegations very seriously.”

WaMu’s greed and alleged illegal activities may come back to haunt it in terms of how it is going to handle disposing of the properties it over-funded that face foreclosure. According to the Los Angeles County Recorder, WaMu owned properties accounted for 3% of the foreclosure (NOD) filings for the week of December 3, 2007. It was beat out by its competitor, CountryWide, which won the most-bad-loans-made contest with 16% of NODs filed.

The last 10 years or so there has been an unfortunate trend of confirmed crooks (convicted criminals) leaving their jobs making license plates in prison and taking up the seminar circuit as their latest profession. Barry Minkow of ZZZ-Best fame was one of the early ones. Many, including Barry, magically became born-again, whereas those of us who were born right the first time have had to bear the cross of living life on the straight-and-narrow.

This latest post has to do with an article I came across about a crook named Chuck Gallagher of Southland Texas, who, admitting to serving time in federal prison for “unethical behavior” (hmmm, must’ve been bad since he didn’t say what he really did), has now put on a suit and tie and has reinvented himself as a “business ethics speaker” and “motivational speaker” a la Minkow. Isn’t it kind of fun imagining all these former felons, now celebrity felon speakers, getting together for dinner and drinks after a conference and wondering what they talk about? Maybe bragging to see who stole the most? Or bragging about crimes for which they were never prosecuted or that weren’t even detected?

Anyway, Chuck Gallagher, who doesn’t say exactly what kind of felonious behavior he committed, is now drumming up business by apparently reprinting articles on fraudulent activities, much of it by extracting from Rachel Dollars’ Mortgage Fraud Blog.

If you have the stomach for this kind of rise-from-the-ashes ethics, read the Full Article.

The National Ethics Bureau, based in San Diego, California, announced that effective December 18, it will begin accepting applications from real estate agents, brokers and mortgage brokers into the NEB. For the annual fee of $235, plus an “initiation” fee of $95, said professionals will have the right to use the NEB’s branding in their marketing materials, sort of a “Good Housekeeping” stamp of approval.

This purportedly will give consumers more confidence by providing them with what is essentially a lack of negative information report by the NEB. According to the NEB’s Chairman Steven R. McCarty:

“The real estate industry is under stress due to the market downturn, credit crunch, and sub-prime crisis. Unfortunately, this has increased unethical sales practices and outright fraud, especially in sub-prime mortgage applications. As a result, consumers today have less faith in the integrity of the real estate industry. By qualifying for NEB membership, real estate professionals can take a bold step to restore public confidence and lay the groundwork for future growth.”

The F Word opines that fraudulent practices didn’t suddenly appear during the current downturn but were part-and-parcel of the problem that in fact led to said downturn: banks and non-institutional lenders radically loosening qualifying criteria, literally inventing the “liar’s loan” in order to write loans to anybody with a pulse, and possessed of the same mindless notion as home buyers, namely that prices would rise indefinitely and that equity increases would offset their risk.

The National Ethics Bureau is a reinvention of the Better Business Bureau: charge businesses – more like a ransom or pay-to-play – for the privilege of being listed with the aforementioned as not having any marks against them. In the case of real estate professionals, that would be criminal prosecutions, civil litigation or ethics complaints with their respective licensing boards. The F Word believes that lack of a negative event is neither proof nor comfort to the consumer that the professional in question is not currently committing fraud or other tortious acts that have yet-to-be detected.

Read Full Article