House of Cards

A classic flipping scheme in New Jersey utilizing inflated appraisals and straw buyers has more than a dozen defendants facing prison time.

Beginning around 1996, the government said the primary conspirator, Gary Grieser, 46, began purchasing properties in the names of straw buyers, keeping the rents himself but leaving the buyers responsible for the mortgage payments. The properties were multifamily, often distressed, dilapidated or damaged. Shortly after contracting to purchase these properties through one of his companies, Grieser would resell the properties at fraudulently inflated prices, the government said.

Grieser’s bad credit history, which included judgments and bankruptcy filings, along with limitations by lenders for the number of loans to one individual, forced him to use the straw buyers for mortgage approval, an indictment against him said. In addition to inflated appraisals, fake income documents were also used to support the desired loan amount.

Many of the straw buyers who let their names be used in return for up to $4,000 said they had been promised by Grieser and others that they would not be responsible for the mortgages, the government said. Lenders later sued the straw buyers.

Grieser allegedly used the name and social security number of his infant son to obtain mortgages on 13 multifamily rental properties.

All straw buyers were generally induced to execute a joint venture agreement which effectively conveyed 60% interest in the property to Capital Assets — which Grieser was an officer of and in control of, according to the indictment.

Some people paid a participation fee up to $1,000 and provided personal information on the basis that they would receive thousands of dollars for participating in the ventures, the government said. While most received some money, they were not informed that the properties were being purchased in their names using forged signatures.

The loans were generally originated through National Home Funding and Selective Finance, according to the indictment. Using a warehouse line-of-credit from Greenwich Capital, loans were funded then sold to Walsh Securities. In all, more than 200 of the fraudulent transactions occurred.

The government said Grieser used hundreds of thousands of ill-gotten dollars for his personal benefit, including opening a tanning salon. He attempted to keep up some of the mortgage payments until 1997.

A federal investigation was prompted in 1997 by a series of articles in the Asbury Park Press entitled “House of Cards” reporting that run-down houses were bought and quickly resold for as much as five times the original purchase price.

In its case against Grieser, the government claims many of the mortgages generated by him went into default, and many face foreclosure — causing millions of dollars in losses.

More than a dozen people thus far in the scandal — including a lawyer, a loan processor, and real estate appraisers — have plead guilty, according to a government announcement. The processor, Kellie O’Neill, worked for Walsh Securities and plead guilty in 1999. The appraisers included Thomas Brodo, James Brown, Richard Calanni, Richard DiBenedetto, and Roland Pierson.

Seth Hyman, 41, and Anthony Vispisiano, 38, who were president and vice president (respectively) of Target Mortgage Inc., a mortgage banking company, plead guilty in 2000 to conspiracy to commit wire fraud.

Grieser — who faces up to 10 years in prison — is currently awaiting trial. Grieser has already served 13 months of a 57-month federal prison term for 13 illegal real estate deals.

Sam Garcia has been in mortgage lending since 1980, and is publisher of MortgageDaily.com. He also owns and operates CloseNow.com, a real estate portal site.

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• Pamela D. Sanford was ordered by a judge to take a loan against her own home to make restitution to her mortgage fraud victims.
• Underwriters Robert Jordan & Peter Tortorelli were sentenced for helping a developer obtain approval on fraudulent FHA loans.
• John M. Beaird, who lost the Republican nomination for a Texas House District seat in 2000, and Rudy Rudolph, entered into separate plea agreements in a case that involved more than $11 million in loans.
• Option One took $2.3 million loss on fraud loans.
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• Builder A. William Erpenbeck, Jr. directed his employees to deposit checks made out to construction lenders to the company’s own bank account.
• Angel L. Serrano Jr. accused of duping mortgage lenders in a Massachusetts flip scheme.
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• The Provident Bank has reportedly filed a civil lawsuit against Community Home Mortgage Corp., accusing the company of fraud.
• Todd H. Charske and Gregory B. Romer of Kemper Financial Inc. are accused by the FBI of operating a flipping scheme and defrauding Meritage Mortgage Corporation
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• Two Virginia men are accused of using a Virginia title insurance agency to illegally divert loan proceeds for their own benefit.
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