The FBI recently uncovered the largest mortgage fraud case ever prosecuted in the Southern District of California. This elaborate con which ran from 2005 to 2008, defrauded over 70 lenders and involved the sale of 220 homes and mortgages with a total value in excess of $100 million. The Southern California homes targeted were located in Spring Valley, La Mesa and Encanto neighborhood of San Diego.
The ring leader was street gang member Darnell Bell, from the Lincoln Park gang. Previously in jail for cocaine distribution, this may be a sign that gangs are branching into more sophisticated crimes. Over $9 million was deposited into an account controlled by Bell. This complex scheme resulted in charges to 24 co-conspirators for bank and wire fraud, money laundering and corrupt racketeering activity. They had participants from real estate, title insurance, appraisal and notary public.
The field of players and game play worked as follows:
Player 1: Located properties that had been on the market for an extended period of time with reduced asking prices. They negotiated an inflated purchase price and submitted false loan applications to support loans that otherwise would never have been approved. In most cases they were for 100% of the purchase price and did not require any capital investment. They included false letters and documents for income and reference verification.
Players requested extra funds for property improvements to make the homes handicap accessible. Payout of these funds was requested upon closing to Bell Construction, a bogus construction firm.
Player 2: Buyers agreed to provide their names and credit histories to be used in the mortgage applications. Properties were purchased, however, in the name of the racketeering enterprise. Bell used his gang status to intimidate and recruit players for this role.
Player 3: Real estate appraisers who prepared inflated appraisals to give lenders the impression that the loans would be secured by the value of the properties.
Player 4: A licensed real estate broker allowed the enterprise to use his broker's license to initiate the property purchase. In exchange this person received a monthly payment of $10,000 and a percentage of the real estate commission and broker's fees.
Player 5: An escrow officer and notary republic to assist in closing of fraudulent properties.
Player 6: Certified Public Accountant and registered tax preparers.
Once the properties were closed and funds were paid out for repairs, mortgage payments were never made and the homes fell into foreclosure, creating large financial losses for the lenders.
Lenders filed reports of suspicious activity, and upon investigation by the Federal Bureau of Investigation and Internal Revenue Service, it was discovered that none of the properties had any improvements done to them. The maximum penalties faced by those involved include 20 years in jail, a fine of $250,000, and three years of supervised release.
FBI Special Agent Keith Slotter commented,"The individuals charged in this indictment have one thing in common: greed. They represent precisely those who have undermined our country's financial system by perpetuating such egregious schemes. The FBI and our law enforcement partners remain vigilant and will pursue those who engage in this type of criminal activity. The extent to which this group of people went to defraud lenders should also serve as a warning to the public. We urge people to come forward with information of suspicious activities they may encounter when engaged in real estate and mortgage transactions."
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