In a press release Connecticut Attorney General Richard Blumenthal announced a lawsuit against several defendants alleging an extensive statewide predatory lending scheme that devastated dozens of consumers.

The defendants are Royal Financial Services, LLC, of Trumbull; First Source Mortgage Solutions, Inc. of Branford; Elizabeth Athan Real Estate, LLC, of Shelton; J.G. Property Management & Investment, LLC, of New London; Brian Guimond, d/b/a Cutting Edge Contracting of Norwich; and Jose Guzman and Mauricio Lancia for allegedly managing the schemes on behalf of the defendant companies.

Blumenthal sued on behalf of Department of Banking Commissioner Howard F. Pitkin and the state in coordination with Department of Consumer Protection Commissioner Jerry Farrell, Jr.

Blumenthal alleges that through a multi-layered scheme, the defendants mislead consumers and mortgage lenders into property purchases that financially destroyed dozens of homebuyers, while benefiting only the defendants, their associates and family members.

“This pervasive predatory lending scheme left a trail of shattered lives and lies – false promises to first-time homebuyers about property values, loan terms, and income levels,” Blumenthal said. “Our investigation has uncovered consumers who sought the American Dream – but bought a financial nightmare. Our lawsuit charges that homebuyers were victimized by a vast scheme with multiple layers of lies and co-conspirators. We allege that this predatory lending scheme enticed consumers with false promises of profits from investment rental properties and nonexistent management services for tax and mortgage payments and other expenses. Homebuyers were purposefully lured to buy properties whose values were inflated, using mortgages with concealed costs that they could never realistically afford, because their incomes and assets were falsified with bogus bank and employer records. They were discouraged from seeking outside assistance from outside home inspectors and lawyers. These practices preyed on the most vulnerable citizens – many of them first-time unsophisticated low-income homebuyers who spoke little or no English. The conspirators were illegally enriched by profits from inflated prices for properties, and fees and commissions.

“Financially battered and blindsided, some consumers face foreclosure and years of damaging credit ratings. They deserve relief immediately.

“Our legal action seeks money back to consumers and severe penalties for practices that undermine an entire industry, endangering not only consumers directly involved, but the economic welfare of the region. This case is only the beginning of a challenging time in the real estate and lending industry. This turmoil and calamity, only one in numerous emerging cases, has revealed the worst of the lending industry.”

Blumenthal’s lawsuit seeks restitution for every consumer harmed; an order preventing further violations; and civil penalties to the state.

“These defendants were conducting illegal business in this state and they misled Connecticut consumers by implementing a predatory lending scheme,” Commissioner Pitkin said. “Through our joint effort with the attorney general and the commissioner of consumer protection, we can ensure that Connecticut consumers are safe once and for all from the illegal conduct of these individuals.”

Commissioner Farrell said, “This lawsuit will serve as a message to the real estate and financial communities that the State of Connecticut considers real estate fraud and predatory lending egregious acts that will not be tolerated. State and federal agencies, working together, are directing their efforts to limit the losses that consumers suffer.”

Blumenthal described how the alleged scheme worked:

· J.G. Management and Guzman, who were not licensed by the state to engage in real estate transactions, and Elizabeth Athan Real Estate, solicited low-income consumers, including renters receiving federal housing assistance, to buy through them multiple or multi-unit residential properties. They promised consumers, among other things, favorable mortgage terms, cash back at closing, and diminished monthly housing expenses.

· J. G. Management and/or Guzman also pledged to provide property management services for rental properties that the consumers purchased through them – services including maintenance, finding renters, collecting rent and making mortgage and tax payments.

· Once a consumer agreed to work with the defendants to purchase properties, the defendants referred consumers to Royal Financial or First Source to act as the mortgage broker.

· J.G. Management, Guzman and the Elizabeth Athan agency would then select the property or properties for purchase from a stock of properties owned by the defendants, their family members or associates. The properties were sold to consumers at inflated prices – often tens of thousands of dollars more than what they were purchased for months earlier. The defendants substantiated the inflated prices to consumers and lenders through bogus and artificially inflated appraisals.

· When consumers inquired about hiring a home inspector, the defendants often convinced them it was unnecessary or potentially adverse to the consumer.

· In order to qualify consumers for mortgages, Royal Financial and First Source falsified information on consumers’ mortgage loan applications, including details about their income and assets. Cutting Edge or another home improvement company involved in the scheme would falsify consumer employment and wage records, indicating the consumers earned money from Cutting Edge and others as employees.

· Royal Financial and First Source also submitted bogus forms to lenders “verifying” bank account balances and rental income to artificially inflate consumer income and assets.

· Once consumers were approved for mortgages, the defendants arranged closings presided over by attorneys who the defendants knew would not alert consumers or lenders to the significance or irregularities of the transactions.

· Many consumers were non-English speaking and first-time buyers so Guzman “translated” and “guided” them through closings. In reality, he misled consumers about the details and nature of the documents that they signed. Royal Financial and First Source blindsided consumers on closing day with previously undisclosed closing costs.

· Because of these practices, consumers misunderstood their financing terms and, in some cases, did not even realize they had purchased more than one property until after the closings.

Resources:
Law Suit
Press Release

Monterey County District Attorney Dean Flippo  announced today that his Consumer Protection Unit has obtained a civil judgment in a real estate fraud investigation involving local business owner Robert Janssen and his company Abbey Management, Inc. The judgment concludes the District Attorney’s investigation of the defendants’ role in advertising, marketing and providing services in selling real estate without California licensure. While defendants did not admit liability in agreeing to the judgment, they will pay $100,000 in penalties and victim restitution for their role in the sale of a single Salinas home last August 2006.

According to the District Attorney’s civil complaint, the defendants engaged in false advertising and fraudulent business practices in the provision of real estate services and auction sales. On and after October 1, 2005, defendants Robert Janssen and Abbey Management, Inc. (d.b.a. Abbey Properties) represented themselves to be real estate professionals and claimed that they did not need California licensure in order to solicit, promote and/or sell properties. Additionally, the defendants falsely claimed ownership interests in those properties they marketed for sale and used false pretexts to approach and solicit clients whose homes they could try to sell to the public.

As to defendants’ unlawful business practices, the defendants allegedly acted as real estate sales agents in the marketing of homes, the solicitation of home buyers and the negotiation of sales price, all in violation of the
requirement that such one be licensed to provide such services pursuant to Business & Professions Code section 10130.

Under the judgment, Robert Janssen and Abbey Properties will pay $47,588.00 in civil penalties and refund $52,412 to a former client. In addition, the judgment contains a permanent injunction ordering the defendants to abide by California laws and also imposes monitoring terms which will enable the District Attorney to verify defendants’ compliance with the judgment over the next three (3) years.

The District Attorney asks that anyone having information as to the business activities or advertising of Robert Janssen, Abbey Management, Inc. or Abbey Properties contact its Consumer Protection Unit.

Resources:
District Attorney’s press releaase

On June 11, 2007 Fieldstone Mortgage Company filed a civil complaint in the Middle District of Floirda which, in part, alleges fraud against a number of entities in the Jacksonville area of Florida. The case involves 29 properties (see attached schedule) in Jacksonville and St. Augustine, FL.

Those accused of fraud are:
Clarion Mortgage Capital, Inc - Mortgage brokers
Country Home Mortgage dba Amstar Mortgage Corp. - Mortgage brokers
Secured Financial Services - Mortgage broker
Nations Title Agency of Floirda - Closing Agent
The Law Office of Koko Head

All are accused of making false statements of fact and failing to disclose material facts in relation to the transactions in the above attached schedule. The allegations include the inflation of sales prices and mortgage applications that stated that properties were to be owner occupied when in fact they were being bought for rental or investment purposes. Please click here to read the full Complaint.

The complaint was filed for Fieldstone by the American Mortgage Law Group (AMLG) who specialise in Mortgage Fraud cases. The attorneys handling the case for AMLG are Ryan Thomas and James Brody. For more information about AMLG email info@americanmlg.com or call on (415) 878-0030.

Federal Court records show that on February 2, 2007 First Magnus Financial Corporation filed a civil complaint in the Nevada District Court against a number of defendants, the key ones have been named below.

Tyson Rondeau a former loan officer with First Magnus
Paul Hill Sr. and Paul Hill II and Accurate Accounting and Innovative Tax Service, 28235 Southfield Road, Lathrup Village, Michigan 48076
Brian Haneline who owned ACE APPRAISALS CORPORATION, 1450 W. Horizon Ridge Parkway, Suite B-304, Henderson, Nevada 89012
Cordebella Los Gatos Trust
Rafik, Inc
Cara Maria Gudelis owner of Options Are Us.
7540 Key Royale Trust
Michael Mullins
Panther Investments
Dwayne R. Smith
Rudolph Straat
Emmett Garfield Traylor
Lawyers Title of Nevada, Inc (accused of negligence in the closing of one property)

In the complaint FMFC alleges that defendants conducted a massive scheme of fraudulent real estate transactions involving residential properties located in Las Vegas, Nevada and Greater Metropolitan Phoenix, Arizona. The fraudulent investment scheme used straw buyers to purchase residential property in Nevada and Arizona, often from other members of the fraudulent investment scheme, with the intent to lease the properties for a period of time before selling the properties and splitting the profits among the members of the fraudulent investment scheme.

The members of the fraudulent investment scheme not only set up the residential mortgage transactions but assisted the straw buyer in submitting the necessary paperwork and information, often fraudulent, to convince FMFC to loan the straw buyer money to purchase the property. One straw buyer would often purchase multiple properties.

After the straw buyer signed the loan agreement and deed of trust necessary to complete the residential mortgage transaction, the property would be transferred, without notifying FMFC, to a trust whose Trustee was involved in the fraudulent investment scheme.

The fraudulent investment scheme then called for the Trustee to lease the properties to tenants who were given an option to buy the property. To entice the tenants, or even the buyers, the members of the fraudulent investment scheme promised them money and even cars. Pursuant to the fraudulent investment scheme, the Trustee was to sell the property, often to another straw buyer/member of the fraudulent investment scheme, and split the profits with other members of the fraudulent investment scheme.

The members of the fraudulent investment scheme, however, could not always deliver tenants or purchasers and several of the straw buyers were stuck with properties for which they could not pay the loan obligations.

As a result, several of the straw buyers defaulted on their loan obligations, forcing FMFC to foreclose on the property in an attempt to mitigate its losses through the foreclosure sale. Because the loans were issued fraudulently, and at times at inflated purchase prices, FMFC incurred significant losses due to the costs of remedying the fraud. FMFC has been damaged in an amount in excess of $925,000

Fraudulent information included fraudulent verifications of deposit, fraudulent letters concerning the source of the straw buyer’s income, fraudulent verifications of employment and fraudulent applications, which included the straw buyer’s intent to occupy the residence, the straw buyer’s current residence and the straw buyer’s liabilities.

Properties mentioned in the indictment are:

7540 Key Royale Court, Las Vegas, NV
5720 Mount Athos, North Las Vegas, NV
22226 Los Gatos, Sun City West, AZ

No date for trial has yet been set. Please click here to read the Civil Complaint.

On May 4, 2006 Southstar Funding filed a civil law suit against Premier Mortgage Funding, a large net branch brokerage with approximately 500 branches headquartered in Clearwater, FL.

The lawsuit alleges fraud in a number of loans that were brokered by Premier. In particular is lists 6 loans made on the following Detroit, MI properties:
9382 Cascade Street
2000 Webb Street
18245 Prairie Street
1486 Edison Street
17135 Santa Barbara
14891 Grandville Avenue

It is alleged that these loans contained misrepresented occupancy, inflated appraisals, misrepresented income, misrepresented assets and false title documents. These loans are alleged to have caused losses of at least $374,633.96

In another allegation Premier is said to have brokered a loan for the purchase of the property at 2287 Schoedinger Avenue, Cincinnati, OH. The loan application is alleged to contain “untrue and/or falsified and/or incomplete and/or omitted information and documentation concerning, without limitation, the borrower’s additional real estate obligations. This application is said to have caused losses of at least $30,000.

Click here to read the Civil Complaint.

The matter is due for a Jury Trial on October 9, 2007

On February 9, 2007 a federal civil jury has returned a $1.15 million verdict against a Charlotte lawyer on allegations of fraud and racketeering in loan closings for homes sold in Salisbury, NC.

Residential lender SouthStar Funding of Atlanta accused Victoria Sprouse of scheming to set up sales of residential investment properties without any down payments. SouthStar says it would not have made the loans if it had known the buyer made no down payments.

The complaint lists 4 properties which Sprouse closed:
104 Grant Street, Salisbury
402 East Horah Street , Salisbury
800 Railroad Street , Salisbury
1205-1207 Railroad Street , Salisbury

As part of the scheme Sprouse issued checks to the sellers which were larger than the amounts stated on the HUD-1’s. Specifically, on 104 Grant Street, the seller actually received $11,121.72, which is $1,288.09 more than was shown on the HUD-1. On 402 East Horah Street, the seller received $11,471.71, which is $270.71 more than was shown on that HUD-1.

The case was brought because Sprouse had failed to follow the Closing Instructions supplied to her by SouthStar. In addition the HUD-1 carries the following declaration:
”TO THE BEST OF MY KNOWLEDGE, THE HUD-1 SETTLEMENT STATEMENT WHICH I HAVE PREPARED IS A TRUE AND ACCURATE ACCOUNT OF THE FUNDS WHICH WERE RECEIVED AND HAVE BEEN OR WILL BE DISBURSED BY THE UNDERSIGNED AS PART OF THE SETTLEMENT OF THIS TRANSACTION”

Please click here to read the Civil Complaint which has copies of the HUD-1’s attached to it.

Please click here to read the Jury Verdict