California Real Estate Fraud Report

Homeowners who are behind in their payments should be on the alert for scams. You may be contacted by companies or individuals offering to help you work out a loan modification with your lender(s) or to provide other services to prevent a foreclosure on your home. If a Notice of Default (NOD) has been recorded against your property, DO NOT PAY anyone an advance fee to assist you. California Civil Code Section 2945 forbids a real estate licensee or anyone falling under the definition of a “foreclosure consultant” from collecting advance fees under these circumstances.

One version of a violation of CCC 2945 has been that some real estate agents are charging upfront fees - almost always demanded in cash - from homeowners with an NOD before listing their property as a “short sale”. If you are presented with such a situation, find yourself a different agent.

The second area of potential violation comes from attorneys, real estate agents or “foreclosure consultants” who are offering loan modification counseling, loan negotiation or similar services. Again, if an NOD has been recorded against your property, advance fees are prohibited by CCC 2945.

On the other hand, if you are behind in your mortgage payments but an NOD has not yet been recorded, you may definitely ask a real estate agent or broker to help negotiate a loan modification or other resolution to your property. In this case, that professional must have you first sign an agreement that outlines what services are going to be performed, when they will be performed and what the fees are. Before the agent has you sign the agreement, it must have been submitted to the California Department of Real Estate for review; if approved, the broker may then use the agreement to collect an advance fee. Make sure you ask them!

For non-profit free housing counseling, contact the Federal Housing Administration or the Hope Alliance at http://www.995hope.org/.

See also my article on Examiner.com

An FBI agent investigating a suspected $100 million real estate Ponzi scheme said the man at the center of their investigation admitted deceiving his investors.

During his interview with the FBI, Lawrence Leland “Lee” Loomis, 52, acknowledged that the accounting statements presented to investors from his NARAS fund were bogus. The literature provided to prospective investors promised a 12% annual return.

Read how Loomis scammed his investors in Examiner.com.

Already in prison serving a 16 month sentence for passing almost $7,000 in bad checks, a former mortgage lender near Sacramento is now facing new charges of altering appraisals of residential properties in order to defraud the lenders.

The federal criminal complaint against Joshua Alan Gervolstad, 30, claims that legitimate appraisals Gervolstad ordered on five properties totaling $2.4 million were altered by him to $3.4 million, netting his firm TPG Investments $925,000.

Read the Full Article in the Redding Record Searchlight.

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

Carlos Serrano is lucky he is 64 years old: apparently due to his age and “character” - or lack thereof, U.S. District Court Judge Christina Snyder sentenced him to serve 18 months in a community correctional facility after he was convicted in a scheme that defrauded two financial institutions of $1.3 million. A community correctional facility is similar to a halfway house.

For his role in the fraud, for which eight other people were convicted, Serrano must pay more more than $940,000 in restitution. He was convicted in September 2008 of bank fraud and conspiracy to commit bank fraud after lying to the First International Bank of Connecticut in order to receive monies for goods he claimed to have purchased and then shipped to the Philippines, but did not.

Note: this article is also published on Examiner.com.

Christopher J. Warren, 27, a fugitive who fled the country after confessing to close to $1 billion worth of mortgage fraud on his website, was caught February 11 at the Candian border with $70,000 stuff inside his cowboy boots. He was also carrying $1 million in Swiss bank certificates and four ounces of platinum worth more than $1,000 per ounce.

Warren was arrested early Wednesday while entering the United States at Buffalo, N.Y., according to acting U.S. Attorney Lawrence Brown. Brown indicated that Warren carried two fake passports, which he had used to fly first to Ireland on a privately-chartered jet, then to Lebanon and Canada before trying to enter the United States from Toronto by taxi.

Before disappearing on February 3, Warren confessed on the website of Triduanum, a company he is said to have controlled, to a career built on committing massive mortgage fraud, starting with his first job at Ameriquest. The charges against him for which the arrest warrant was issued include mail fraud, bank fraud and operating a continuing financial crimes enterprise with respect to his employment at Loomis Wealth Solutions in Roseville, California. The confession posted on the Triduanum website stated that the activities at Loomis were nothing more than a Ponzi scheme.

A second suspect in the case, Garret Griffith Gililland III, 27, of Chico, was apprehended in Spain in October and is fighting extradition to the U.S.

Authorities say they are still looking for Scott Cavell, 25, of Sacramento, who appeared to have fled the U.S. a day after Warren left.

Note: this article is also posted on Examiner.com.

Encino-based Marcus & Millichap, a prominent commercial real estate brokerage, has been accused along with a former Long Beach businessman and a Florida businessman of conspiring to defraud investors out of millions of dollars by purchasing and reselling small commercial properties at inflated values.

The lawsuit, filed as a class action in federal court in San Jose, alleges that brokers at Marcus & Millichap, Paul A. Morbito and Jack Waelti devised a scheme “with nearly mathematical precision” that began with the purchase of Jiffy Lube and Church’s Chicken franchises and the real estate on which they were located. The properties were first sold to a subsidiary of Marcus & Millichap, which leased them at inflated rates, then used those established above-market rates to sell the properties to the unsuspecting investors.

The lawsuit is seeking up to $70 million in compensatory damages and up to $200 million altogether with punitive damages and treble damages under the Racketeer Influenced and Corrupt Organizations law (RICO).

Read the Full Article in the Los Angeles Times.

Christopher Warren, 27, the mortgage broker who replaced his company Web site with a seven-page essay describing his long career perpetrating mortgage fraud, has apparently fled the U.S. on a private jet.

Christopher Warren (News10)

Warren’s flight is most likely in response to a complaint sworn out by an IRS agent describing what may amount to a $100 million scam by Warren through his association with Loomis Wealth Solutions. The IRS charges Warren with operating a financial crimes enterprise, mail fraud and bank fraud.

Read the Full Article on News10 ABC.

A former Ramona-based financial planner who is thought to have defrauded his investors out of $20 million has been delayed to May 4 in U.S. District Court in San Diego.

Rollo Richard Norton II, 53, pleaded guilty to mail fraud in August 2007, but his sentencing has been repeatedly delayed in a joint motion by both U.S. attorneys and his defense counsel who cite “an ongoing investigation.”

Norton’s businesses were called Safe Harbor Financial Investments and Norton Financial Limited and sought investors for a condominium project in Pacific Beach, California. Norton not only applied for loans in his investors’ names without their knowledge or consent, he also signed their people’s names on grand deeds and other escrow documents.

Read the Full Article in the Ramona Sentinel.