|A national mortgage lender has filed a lawsuit against six businesses and 28 individuals -- including several mortgage brokers and originators -- alleging that it has been the victim of a complex sting operation, causing the company to approve 19 loans that have all defaulted.
In an 82-page civil lawsuit in federal court in Kansas City, First Magnus Financial Corp. claimed the defendants used inflated appraisals, false borrower information, identity theft and phony appraiser names in a multimillion dollar mortgage fraud scheme.
Several mortgage broker principals, loan officers and appraisers conspired to "over appraise" and inflate the value of residential properties in Kansas and Missouri, according to the complaint.
But appraisal fraud wasn't limited to the numbers.
The individual names and corporate names of legitimate appraisers and appraisal companies were used by unscrupulous appraisals to hide their real identities and involvement in the alleged mortgage fraud operation, First Magnus alleged. In addition, the brokers and loan officers, misrepresented borrower information in the mortgage loan applications including the borrowers' monthly income and assets.
First Magnus allegedly relied upon the phony information in lending more than $2.5 million on homes that were actually worth much less.
Several mortgage brokers -- including Star Equity Funding LLC, Reis Enterprises Inc., and Olympic Mortgage -- were involved in the scheme, the complaint said. And, for reasons not clear from the court documents, several of the named mortgage brokers stopped operating but, as could be gleaned from telephone recordings directing the public to other companies, the successive broker companies, although operating under a different name, had the same phone number, address and employees as the predecessor broker.
First Magnus has claimed a number of causes of action including breach of contract, breach of the implied covenant of good faith and fair dealing, breach of fiduciary duty, fraudulent misrepresentation, fraudulent omission, negligent misrepresentation, professional negligence, negligent supervision, civil conspiracy and unjust enrichment.
One of the defendants, Gary Shartzer, when reached at home, declined to comment.
According to the suit, Shartzer, a principal at Star Equity and employed by Reis Enterprises, directed his loan officers to obtain appraisals at predetermined values. Twelve of the nineteen loans that are the subject of the lawsuit complaint were originated by Star Equity and its loan officers. Shartzer, the suit says, then moved the scheme to Reis Enterprises, using some of the same loan officers, the same location and the same phone number.
Shartzer has been disciplined in the past.
In 2005, the Kansas State Banking Commission investigated Reis Enterprises, including Shartzer and Joe Savaglia, for the submission of at least 19 fraudulent or altered appraisals to lenders in violation of Kansas law.
Reis Enterprises' license was suspended for 20 years by state banking officials in Kansas, according to a consent and settlement agreement. Shartzer was fined $35,000 and Joe Savaglia was banned for two years from receiving a loan originator license in Kansas.
Saviglia also agreed to testify as to the inner workings of Reis Enterprises, according to the agreement. Savaglia and Brian Eaton were the loan officers on five of the loans described in the lawsuit.
But First Magnus may not be the only victim.
According to the lawsuit, an appraiser named Jane Sanson, ostensibly employed by JS Appraisals, performed many of the appraisals. Sanson completed the appraisal on nine of the loans.
But, Janet Tasker, who said she has owned JS Appraisals for almost 20 years, told MortgageDaily.com in a telephone interview that Sanson has never worked for her company. Tasker, who said she has met Sanson, said Sanson lost her license in both Kansas and Missouri.
Published reports back up Tasker's assertion that Sanson is not licensed in either state.
The Missouri Real Estate Appraisers Commission brought a complaint in 2005 against Jane Sanson for submitting six fraudulent or altered appraisals to lenders in 2000 and 2001. Sanson waived her right to a hearing before the Administrative Hearing Commission and the appraisers commission and admitted and stipulated to the allegations against her, including that her conduct in preparing the appraisals demonstrated "fraud and misrepresentation in the performance of the functions and duties of a certified real estate appraiser." She was denied a license in Missouri for five years.
Tasker said she is aware of the lawsuit but that she has not retained an attorney. Tasker said the lawyers involved in the case have told her they cannot dismiss her company from the lawsuit because of the use of the corporate name in the alleged fraudulent activities.
However, having sought advice on how to handle the situation, she said she may have to change her company's name, a move she is reluctant to undertake. But, Tasker said Fannie Mae told her a few days ago that her company's name had not yet shown up on the "Do Not Use" list but that, because of the litigation, it could; a move that would put her out of business. "And all for something I had nothing to do with," she said.
Tasker said she has no plans to attempt to contact Sanson even though she believes Sanson is still in the area.
Several of the other defendants named in the lawsuit are also reportedly facing regulatory scrutiny. According to the complaint, Term Investment Group also performed several appraisals on the loans involved in the litigation and its principals, Terrell Ford and Maurice Ragland -- all named defendants -- are the subjects of an ongoing federal criminal investigation.
First Magnus' attorney declined to offer any further comment on the litigation.