Fraud in the news. Our US Attorneys Office has been busy lately getting some miscreants off the streets. They appear to be stepping up efforts and between their office and Attorney General Jerry Brown, they have been putting a lot of these people behind bars. That’s good – that’s real good. This is a big state and these cases are just a drop in the bucket but it is really gratifying to see people who have given our industry a real black eye being held accountable.
The only thing better than cracking them now would have been to bust them back in 200 or 2003 when they were actively wreaking havoc on the market. It’s like our local Stonewood case, if they’d have been stopped in 2005 or 2006 the damages would only have been $40 or $50 million and a few dozen people would have been victimized. Since they weren’t stopped until late 2007 and into 2008, they racked up hundreds of victims, $140 million in fraud and tore a big hole in our market.
Case #1 is an extension of the classic Stonewood scenario for big kids. Stonewood would add anywhere from $50,000 to $150,000 to the price of a home and pocket the difference. These people were blatantly bringing in appraisals at 3X the homes value in some very pricey areas like Beverly Hills, Pebble Beach & Malibu. Hey – if you’re going to commit fraud, no use wasting your efforts down the trailer park, ya know?
REAL ESTATE APPRAISER SENTENCED TO 3 YEARS IN PRISON IN MORTGAGE FRAUD SCHEME THAT LED TO $46 MILLION IN LOSSES
LOS ANGELES – A former state-licensed real estate appraiser was sentenced today to three years in federal prison and ordered to pay more than $46 million in restitution for her role in a massive mortgage fraud scheme that caused tens of millions of dollars in losses to federally insured banks.
Lila Rizk, 43, of Rancho Santa Margarita, received the three-year prison term after her conviction last summer on conspiracy, bank fraud and numerous loan fraud charges.
Rizk was sentenced by United States District Judge Dean D. Pregerson, who warned that other professional real estate appraisers should know that if they inflate appraisals and lie about the value of homes, “there is an overwhelming likelihood that they will be caught and go to prison.”
The evidence presented at Rizk’s trial last summer showed that she was part of a wide-ranging and sophisticated scheme that obtained inflated mortgage loans on homes in some of California’s most expensive neighborhoods, including Beverly Hills, Bel Air, Holmby Hills, Malibu, Carmel, Mill Valley, Pebble Beach and La Jolla. Members of the conspiracy sent false documentation, including bogus purchase contracts and appraisals, to the victim banks to deceive them into unwittingly funding mortgage loans that were hundreds of thousands of dollars more than the homes actually cost. Lehman Brothers Bank alone was deceived into funding more than 80 such inflated loans from 2000 into 2003, resulting in tens of millions of dollars in losses.
The evidence presented at trial showed that Rizk profited by collecting hundreds of thousands of dollars in fees for providing inflated appraisals in the scheme. Her appraisals typically valued the homes three times higher than what the homes really cost. In order to supposedly justify these inflated values, Rizk used “comps,” or comparable homes, that were far bigger, more luxurious, and in better neighborhoods than the homes she appraised. Once she had inflated a few dozen homes, she then used those homes as “comps” to supposedly justify inflated prices for homes later in the scheme.
Ten other real estate professionals have been convicted of federal charges related to the scheme.
Case #2 also involved fraud primarily perpetrated against lenders, in this case HUD. This crew not only defrauded the Federal Government but then he ran around buying a Vette, an RV, jewelry, etc. with the money. You’d think if you were smart enough to put together a scheme like this you’d have learned from watching TV that you don’t run around spending money like a drunken sailor or a liberal Senator. HUD doesn’t so much mind getting taken but dammit you’d better pay your taxes on it.
FORMER PRESIDENT OF INLAND EMPIRE MORTGAGE COMPANY SENTENCED TO 13 YEARS IN FEDERAL PRISON IN FRAUD SCHEME THAT LED TO NEARLY $30 MILLION IN LOSSES AT H.U.D.
RIVERSIDE, California – The former president of Mortgage One Corporation in Hesperia was sentenced this afternoon to 13 years in federal prison for defrauding the United States Department of Housing and Urban Development and private lenders by fraudulently obtaining hundreds of federally insured loans and selling those mortgages to private lenders in a scheme that caused tens of millions of dollars in losses to the federal housing agency.
John Richard Varner, 56, of Hesperia, was sentenced to 156 months in prison by United States District Judge Virginia A. Phillips. In addition to the prison sentence, Judge Phillips ordered Varner to pay $29,749,239 in restitution.
Last April, following a nearly four-week trial, a federal jury convicted Varner of one count of conspiracy to defraud HUD, one count of bank fraud and two counts of subscribing to false income tax returns. Varner was the fifteenth defendant convicted in relation to the scheme. Varner and co-defendant Richard Elroy Giddens, 69, of Riverside, were at the center of the fraud that was run out of Mortgage One Corporation, which was based in Hesperia, and M-1 Capital Corporation, which was based in Riverside and Rancho Cucamonga. Giddens, the former CEO of Mortgage One, pleaded guilty to the same charges Varner was convicted of at trial and in September 2009 was sentenced to 78 months in federal prison.
Varner and his co-defendants defrauded HUD by submitting fraudulent loan application documents in order to qualify the loans for FHA insurance. The loans went to borrowers who either did not meet the FHA requirements to qualify for the mortgages or were only “straw buyers.” Mortgage One and M-1 Capital sold the funded loans to banks, such as the FDIC-insured Firstar Bank, N.A. and Chase Manhattan Mortgage Corporation, using the same fraudulent documents.
As a result of the scheme, HUD lost $23,628,857 on 905 fraudulent loans, and a total of $29,638,011 when interest paid by HUD during the foreclosure and resale process is included.
Varner was found guilty of filing false tax returns for the years 1999 and 2000 when he failed to report income that he used for personal expenses such as a Corvette, a $153,000 RV, jewelry and more than $150,000 deposited into a personal investment account.