California Real Estate Fraud Report

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.

Accountant Maynard Weldon Moreland of Livermore has been accused of stealing more than $3 million from investors, many of them seniors. He has been charged with more than 30 felonies, including financial elder abuse and grand theft.

Read the full article on the Silcon Valley Mercury News.

In a press release, California Attorney General Edmund G. Brown sent out an alert to distressed homeowners: do not be duped into paying for a forensic loan audits.

According to AG Brown, forensic loan audits are the latest ploy by foreclosure consultants, mortgage relief firms, foreclosure assistance firms, loan modification firms and the like to extract upfront fees from their victims without providing any actual foreclosure relief. These firms are forbidden by law from charging advance fees, must register with Brown’s office and post a $100,000 bond. In the past year the AG’s office has shut down at least 30 of these parasitic companies and has prosecuted numerous licensed (and unlicensed) real estate professionals and attorneys who have violated the law. And the Department of Real Estate (DRE) is actively carrying out investigations and issuing cease-and-desist orders to companies and individuals who cross the line, according to Real Estate Commissioner Jeff Davi.

Read the press release on the California Attorney General’s website.

OneWest Bank FSB is once again going to profit from its friends at the FDIC, who yesterday shut down all ten branches of La Jolla Bank FSB.

La Jolla Bank began in 1985 and grew its business by investing heavily in land and development deals and apartment construction, precisely the hardest-hit sectors once the real estate boom tanked.

Although it was reported that OneWest will “manage the loans and share the losses”, readers can be relieved to know that they are the gift that keeps on giving, as the FDIC has generously showered taxpayers’ dollars on billionaire OneWest owners George Soros, Steven Mnuchin (of Dune Capital), Michael Dell (of Dell computers), J. Christopher Flowers and John Paulson.

The Los Angeles Times reported today that OneWest, which rose from the ashes of IndyMac, has managed to turn a profit of $1.6 billion, which was more than they invested a year ago. Amazing what hand-outs can do to the bottom line.

Read the full article in San Diego’s North County Times. To learn how IndyMac, oops, OneWest, became a powerhouse by absorbing toxic loans, read this article and the video link on the California Real Estate Fraud Report.

In an entrepreneurial twist, a mortgage broker and five other Fresno and San Francisco Bay area residents have been indicted for financing their residential marijuana farming operation by committing mortgage fraud.

Mortgage broker Monique Le Nguyen of Milpitas is the mortgage broker. She was ordered by U.S. Magistrate Judge Sandra Snyder in Fresno to remain in jail pending trial after the judge described the case as “extremely serious”.

Also charged are Andy Lieng and Jenny Chi-Ha for being involved in a marijuana conspiracy and cultivating the crop, which they did at two homes in Fresno and Tony Lieng, Lynn Truong and Shirley Wong.

The scheme was only discovered after firefighters responded to a blaze they determined was caused by a diversion of electricity to one of the homes. Once on the scene, they discovered the house had close to 900 plants growing. The second house had even more plants being cultivated; together, the crop value was worth than $2 million on the streets.

Read the full article in the Central Valley Business Times.

Jon James pleaded guilty to federal wire fraud in a Ponzi scheme that prosecutors say defrauded over 50 people to the tune of $11 million.

James’ El Segundo business ran from 2003 to 2006 and consisted of James making presentations at local restaurants, where he lobbied his victims to invest their life savings and retirement funds in real estate transactions that mostly did not exist. Instead, James used the funds from the latest group of investors to pay back earlier ones, a classic Ponzi scheme, as well as helping himself to the money to pay for his wedding and buy a recording studio.

When he is sentenced, Jon James could face more than 20 years in federal prison. But given that the same U.S. Attorney’s Office is requesting only three 3 years for Kyle Grasso (see previous article on the Beverly Hills mortgage fraud gang), James is likely to spend very little time behind bars.

The original article appeared in the Silcon Valley Mercury News.

Sentencing is scheduled next week for former real estate agent Kyle Grasso, who was convicted for his role in a massive multi-million dollar fraud, much of which has been documented in earlier postings on the California Real Estate Fraud Report.

Grasso was convicted of criminal conspiracy, bank fraud, multiple counts of loan fraud and money laundering. Inexplicable, the U.S. District Attorney’s Office in Los Angeles is only recommending three years in prison, according, to its spokesman Thom Mrozek.

One of Lyle Grasso’s partners in crime was former appraiser Lila Rizk, who recently received a 3 year sentence.

Read the full article in the Beverly Hills Courier.

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.

Agoura Hills-based Interthinx® has just published its 4th quarter 2009 report on the risk of mortgage fraud. For those who live in California, the bad news is that the Golden State has been rated as the highest state for the risk of mortgage fraud, followed by Nevada (a previous 5 quarter winner, just nosed-out by California in the latest survey), Arizona, Florida and Colorado. All are at the top of the list for defaults and foreclosures.

Risk of mortgage fraud consists of several metrics. As reported in CNNMoney, the occupancy risk index rose 16 percent since the 3rd quarter measurement. Occupancy fraud is the term for when a borrower states on his or her loan application that s/he will be occupying the home. Owner-occupied homes are known by lenders to be less likely to go into default and therefore receive more favorable interest rate quotations. Non-cash buyers who “flip” properties often commit loan fraud / mortgage fraud on their loan applications in order to receive the lower interest rates. But – and here’s the catch – many lenders are now performing random drive-bys of properties for which the applicant owns more than one home in order to determine whether the applicant lied, in which case the legal and financial repercussions for defrauding the lender could be severe.

Another risk factor that is up sharply is property valuation fraud. Although appraisers are now bound by the Home Valuation Code of Conduct, aka HVCC, Interthinx® found evidence of schemes with both short sale and REO properties in which the the property valuation has been compromised.

Interthinx®, a subsidiary of Verisk Analytics, provides risk mitigation (risk reduction) and regulatory compliance tools for the financial services industries.

Read the full article on CNNMoney. The Interthinx® report can be found at The Mortgage Fraud Risk Report.