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Foreclosure Scams Use Mortgage Fraud

Recent litigation and criminal actions against foreclosure rescue firms

Dec. 15, 2009


In a typical foreclosure rescue scheme, delinquent borrowers are advised to convey title to an investor located by the foreclosure rescue firm. But instead of rescuing the borrowers, the firms line up fake borrowers with fraudulent documentation and extract all available equity -- leaving the borrowers still facing foreclosure. A federal and state initiative has been launched to stop such schemes.

Federal Trade Commission Chairman Jon Leibowitz and U.S. Senate Majority Leader Harry Reid (D-Nev.) joined the U.S. Department of Justice on Nov. 24 in Las Vegas to announce Operation Stolen Hope, a joint initiative between federal and state law enforcement agencies to crack down on mortgage-related scams.

Five defendants -- including Edward G. McCusker, John Alford Bariana, Jacqueline McCusker, Jeffrey A. Bennett and Stephen G. Doherty -- were indicted on 15 counts, a U.S. Department of Justice news release last week said. Through Axxium Mortgage Inc., owned by McCusker and Bariana, delinquent borrowers were promised that their homes would be saved from foreclosure by finding investors. But instead, the defendants allegedly used mortgage fraud and straw borrowers to strip equity from the properties.

In addition to McCusker and Bariana, defendants include Jeffrey A Bennett, Stephen G. Doherty and Jacqueline D. McCusker. In all, the case involved at least 35 fraudulent loans for $14.6 million.

Phillip Seibel was sentenced by a federal judge in Oklahoma City to 30 months in prison and ordered to pay $770,037.31 in restitution, a Federal Bureau of Investigation announcement indicated. Through Homesavers LLC, Seibel, a licensed mortgage broker, promised delinquent borrowers that investors would be found to purchase their properties -- where they could remain while they restored their credit. Rent payments paid by the borrowers during this period were to be applied to mortgage payments.

Investors were promised only a superficial role as home purchasers, while Homesavers promised to collect all rent payments and make timely mortgage payments. However, Homesavers used mortgage fraud to obtain loan approval for the investors.

The FBI claims that Homesavers illegally diverted loan proceeds to itself and never made the mortgage payments as promised. Seibel allegedly used the funds for his personal mortgage payments, car payments and country club memberships.

Jennifer McCall, former chief executive officer of Metropolitan Money Store, was sentenced by a U.S. District Judge Roger W. Titus to 135 months in prison followed by five years of supervised release, the Maryland Department of Labor, Licensing and Regulation announced last week. She also faces $16.9 million in restitution. Co-conspirator Wilbur Ballesteros was sentenced to 63 months in prison, while Ronald Aaron Chapman Jr. was sentenced to seven days. Both previously pled guilty to conspiracy to commit mail and wire fraud.

McCall allegedly conspired to defraud delinquent borrowers by promising to prevent the foreclosures and repair their credit -- though she was not licensed for credit repair services. Borrowers were told that home equity would be extracted from their properties and used to make mortgage payments, pay home expenses and repair their credit.

Metropolitan extracted the maximum equity possible using mortgage fraud, according to the state. But instead of being used as promised, proceeds were used to pay straw buyer fees up to $10,000 and other fees for services that weren't performed. A substantial portion of the funds went towards McCall's personal expenses.

Maryland also suspended the mortgage loan originator license of Nicholas Elko for allegedly engaging in an illegal foreclosure rescue scheme in violation of Maryland's Protection of Homeowners in Foreclosure Act. Elko allegedly promised a borrower that he would convey title back after a period of time. But instead, he repeatedly refinanced the property -- stripping out more equity each time -- then put the property in his mother's name.

Two Maryland loan originators -- James William Fox II and James Hooper Dan -- were indicted over allegations they targeted borrowers who were facing foreclosure in an equity-stripping scheme, the Federal Bureau of Investigation said in a Dec. 10 news release. The indictment followed an investigation by the U.S. Department of Housing and Urban Development - Office of Inspector General, the Federal Bureau of Investigation and the Maryland Department of Labor, Licensing and Regulation - Division of Financial Regulation.

Fox and Dan, who both worked at an Annapolis mortgage brokerage from April 2006 to February 2009, are accused of transferring title on the properties to straw purchasers and taking out new mortgages -- stripping the equity in the process. The new loans were obtained using mortgage fraud.

Lender losses from the scheme were estimated at $1.7 million, while delinquent borrowers lost more than $650,000 in equity. The pair face the forfeiture of the total loss of $2.4 million and up to 40 years in prison.

Sam Garcia worked in mortgage lending for twenty years prior to becoming publisher of in 2000.

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