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Underwriters Fired for Fraud

5th 3rd Bank files mortgage fraud lawsuit

December 5, 2006

By LISA D. BURDEN
WASHINGTON correspondent for MortgageDaily.com


An Ohio bank has reportedly fired a handful of underwriting employees and filed a lawsuit against dozens of people for more than $10 million it claims was lost in a mortgage fraud scheme.

Fifth Third Bank is seeking $10.8 million in damages from an additional 44 people it says were involved in defrauding the Cincinnati, Oh.-based financial institution

And one of the defendants has promised that there is more to come.

"I expect to bring in 40 more parties," said attorney Paul Nicoletti, the owner of Continental Title Services, one of the defendants in the lawsuit. He said several of the people he wants to bring into the lawsuit used to work for the bank. Nicoletti has promised a vigorous defense of the charges against him.

Nicoletti and many of the other defendants have denied wrongdoing in court documents.

Bank spokeswoman Sherry Miles declined to comment.

In a telephone interview with MortgageDaily.com, Nicoletti said the Cincinnati-based bank recently fired its underwriting department -- a move he said that makes the lawsuit unlike any other alleged mortgage fraud case.

Nicoletti also claims that many of the bank's employees refused to sign off on the portfolio loans, while one employee is alleged to have told attorneys he did not notice that the payment for the borrower's proposed housing expense was to be 2300 percent higher than the borrower's present housing expense.

"There is no lender in the country that would consistently make more than seven loans over a five month time period, where each loan consistently allowed the borrowers to increase their present housing expense by 798.96 to 2,299.25 percent," Nicoletti wrote in court documents.

Nicoletti also said he's pulling an unorthodox maneuver of his own. He has asked the court for permission to depose the bank's compliance committee.

"The present parties are nothing close to what it's going to be after I get done," he declared.

In documents filed in state court in Michigan, Fifth Third said it discovered that it was the victim of an "extensive fraudulent mortgage loan scheme." The bank said those involved in the scheme got loans for as much as $1 million higher than the value of the properties. The bank alleged that bank employees, appraisers, title companies and others participated in the scheme that centered upon an affluent Michigan suburb.

Fifth Third claims the individuals and companies named in the suit engaged in a conspiracy to commit fraud, breach of contract and conversion. The lawsuit was amended in May to include dozens more defendants. And amended again in August to include at least 40 more.

Fifth Third alleges that Continental Title was involved in closing six of the seven allegedly fraudulent transactions described in the lawsuit. Reportedly, at least six other defendants in the lawsuit list Nicoletti's office as their business address or had their corporate legal documents filed by Nicoletti's firm or both.

In response, Nicoletti has said in interviews and court documents, his company's only involvement in the alleged fraud was to prepare and close loans that the bank had already approved.

The bank says all of the fraudulently obtained loans have defaulted, costing it more than $10 million.

Fifth Third claims the participants shared in the proceeds. Nicoletti, however, has pointed the finger at the bank, claiming in court documents that it actually profited from a "fraudulent scheme that was masterminded by its own high-ranking officers and employees."

The alleged fraud reportedly came to light when one of the straw buyers was unable to cash a check for $50,000 for her participation in the scheme. Apparently angered, she went to the Bloomfield Hills police department and reported the "bounced check." Police then contacted the bank.

The investigation led to Robert M. Hance, a loan officer formerly employed with the bank. Hance was reportedly fired by the bank in November 2005 after having worked there for a little more than a year. In court papers, he said he will exercise his Fifth Amendment right not to incriminate himself. His attorney, Douglas Schroeder, of Troy, Michigan, did not return calls for comment.

Fifth Third alleges Hance led a conspiracy of fraud in which homes were grossly overvalued. One house was allegedly valued by two appraisers at $5.2 million and a loan of $1.6 million on the home was obtained. Later the home was found to be worth only $900,000.

The company has also asked for a criminal investigation of the matter.

The Ohio-based lender this summer settled charges with the Department of Housing and Urban Development that it denied mortgage financing to an African-American woman because of her race. The woman claimed the bank denied her a $70,000 loan on a house valued at $130,000 in Newport, Ky. The bank denied the allegations. It agreed to pay $125,000 to settle the allegations and to increase its qualified community development lending and donate REO properties and cash to local housing agencies.


Lisa D. Burden is a legal analyst for MortgageDaily.com and holds a law degree from the University of Maryland. She is currently a freelance journalist who previously wrote for Institutional Investor publications and the Baltimore Daily Record.

e-mail Lisa at: [email protected]


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