Timothy M. Morrison, U.S. attorney for the Southern District of Indiana, announced late last month that seven Indiana residents have been charged with multiple crimes - including conspiracy, wire fraud, and money laundering - related to an alleged $20 million mortgage fraud scheme.
The charges follow an investigation by special agents of the Internal Revenue Service - Criminal Investigation Division (IRS-CI) and the U.S. Attorney's Office, with assistance from the Federal Bureau of Investigations. According to the ""Department of Justice"":http://www.usdoj.gov , the investigation is still ongoing.
The charges allege that between November 2003 and August 2005, a total of 149 fraudulent home loans amounting to $19.7 million dollars were obtained by the defendants from three different lenders, including 60 loans from the Argent Mortgage Company, 86 loans from People's Choice Mortgage/Countrywide Home Loans, and three loans from The Money Station. The total estimated loss is $8,055,243.
The Justice Department explained that the mortgage fraud schemes were all accomplished in the same general fashion. Participants in the schemes located properties and arranged to purchase them at a fair market value generally by means of an option agreement or unrecorded land contract. Investors were located who were willing to invest their good credit, but no money, to be the purchasers of these properties at a much higher price than what was negotiated with the seller. Most of these investors were unwitting participants in the scheme, the Department said. The majority were located in Virginia and were friends and relatives of one of the participants in the scheme.
The investors generally never saw the properties they were purchasing. They were told that they were joining an investment club, that they would not have to make any payments on the properties, and that the properties would be managed for them by various participants (including renting the properties and paying all bills). These investors received money for participating in the investment club, generally $4,000 for each property purchased in their name.
Mortgage brokers participating in the schemes allegedly prepared fraudulent loan applications, containing false statements, including: that the investors owned bank accounts, stock and other assets which they did not own; that the investors had income which they did not actually have; and that the investors were making the down payments on the properties from their own funds.
In reality, other participants in the schemes actually provided the down payments for the properties, and were paid a fee of $1,000 - $3,000 for doing so. Appraisers were employed by scheme participants to prepare appraisals which vastly overstated the values of the properties, in order to support the sales price which was ultimately shown on the closing documents.
The false loan applications, appraisals, and other fraudulent documents were then submitted to the lenders. The lenders, relying upon the false statements in the loan packages, issued the loans. The loans were funded via wire transfers of money from the lenders to a title company, which the scheme participants used to assist them in preparing false closing documents and issuing title company checks. At the time the loans closed, the properties sold for the fraudulently inflated sales price, and the fraudulently obtained loan proceeds were shared by scheme participants.
The sellers were paid the amount they had negotiated to receive, and the scheme participants shared the excess proceeds.
Of the fraudulent loans, 52 related to the purchase of properties from individual sellers, generally individuals who either did not have their homes listed to sell, or had them listed as ""for sale by owner."" These loans totaled $10,452,750 and were all issued by Argent Mortgage Company. The remaining 97 fraudulent loan transactions were all located on the east side of Indianapolis and all owned by one person, through various land trusts. The majority of these 97 loans were funded by People's Choice Mortgage and purchased by Countrywide Home Loans shortly after, with a few secured through Argent Mortgage Company and The MoneyStation.
All of the loans involved in the schemes went into early payment default, and the lenders either foreclosed on the homes or took other action, including granting deeds in lieu of foreclosure or allowing short sales of the properties.
Many of the homes were actually valued at 60,000, fraudulently appraised by the defendants for $120,000 in the loan process, and later re-sold in 2007 and 2008 for amounts between $3,500 and $15,000.
In addition to the fraud or conspiracy charges, each defendant is charged with money laundering for allegedly conducting financial transactions in excess of $10,000 with the proceeds of the illegally obtained loans.
Al Patton, special agent in-charge of the IRS-CI Chicago Field Office said, ""Mortgage fraud adds to the underground economy that erodes the integrity of our tax system and it threatens the financial health of our communities. IRS-Criminal Investigation has an ongoing commitment to jointly working with other federal and state law enforcement agencies to pursue those individuals who manipulate the mortgage loan process for their own financial gain.""