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Appraisals Enabled Fraud

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An Atlanta area homebuilder fooled two mortgage lenders into funding a string of mortgages on incomplete or nonexistent new homes by using fake appraisals and occupancy certificates.

Builder Jeffery Alan Teague sold the homes “falsely representing that the homes were completed to code and ready for occupancy at the time each loan closed,” according to the government’s criminal complaint against him. “The original and secondary lenders relied upon the Certificate of Occupancy and appraisal reports as proof of the state of completion of their security.”

The fact that “unqualified borrowers” purchased what actually were partially built and non-existent homes “highlights the problems created by mortgage fraud where the builder is involved in the fraud,” charged U.S. Attorney David E. Nahmias as he accepted a guilty plea of two counts of wired fraud in U.S. District Court in Atlanta on Nov. 28.

Forsyth County, where all the home sites are located, had never issued Certificates of Occupancy, and without them the homes could not legally be sold, the complaint noted.

New Century Mortgage, identified as “the original victim for all 16 loans” in the complaint, has retained counsel and intends to pursue litigation, pending an ongoing investigation, spokesperson Laura Oberhelnan told MortgageDaily.com. She would not comment further on what she termed “pending litigation,” except to admit that New Century could be forced to buy back the loans that had been sold into the secondary market.

JP Morgan Chase Bank, which was identified in the indictment as one of the purchasers, would not comment.

And Genisys Financial Corp., which originated and brokered the loans to New Century, did not return phone calls.

One target of any litigation by New Century could be the appraiser, Darryl Cooper, who did the appraisals for all 16 properties.

The government’s complaint, citing “discrepancies in a number of the appraisals,” noted that all of the appraisals were for completed homes. Yet 11 of the properties were under county stop-work orders due to soil sediment erosion problems and each had an outstanding $5,000 fine. The discrepancies included photos taken by the FBI which did not match the appraiser’s photos of the same properties and identical interior photos submitted by the appraiser for more than one property.

One appraisal, the complaint noted, “appears to have been signed on March 25, 2005 and e-mailed on April 3, 2006 from Cooper” to Genisys and to Teague’s The Pacific Group in Atlanta. Cooper, after registering with the state Appraisers Board on August 7, 2003, did not receive his license until Jan. 14, 2006, according to a board official.

Hugh Bass Sr., owner of Bass & Associates, an appraisal company in Carrollton, Ga., and president of the Atlanta area chapter of the Appraisal Institute, said there was no action the AI chapter could take against Cooper because he is not a member of AI.

“All we can do is forward a complaint to the Appraisal Board,” he said, indicating that he or someone else with AI may forward to them a copy of the government’s criminal complaint against Teague for its references to the appraiser and the appraisals.

Cooper told MortgageDaily.com he hadn’t seen the appraisals that were “actually” submitted to lenders by Teague. “I am under the impression that appraisals can be doctored, obviously,” he said. “I know he [Teague] did some fraudulent things. I don’t know what he did to my appraisals. But, as far as I’m concerned, I haven’t done anything wrong.”

The outcome of legal action in another fraud scheme engineered by Teague, one in which the same appraiser did all the appraisals, demonstrates the difficulty in taking action against fraudsters and the appraisers involved in their frauds.

When Teague is sentenced next February 9, the government, according to its plea agreement with Teague, will cite this fraud scheme that Teague engaged in from 1999 to 2001. In that earlier scheme, Teague, as Jeffrey Allen Bryant, defrauded mortgage lenders by obtaining over $10 million in loans for the purchase of non-existent and incomplete homes. Two of those lenders filed suit against him and/or his then company, Quantum Builders Co. and against appraiser Wayne A. Herteg, who did all the appraisals.

A civil action filed in October 2000 by IndyMac Bank dragged on for 31 months when, in May 2003, IndyMac was awarded a default judgment of more than $2.2 million plus interest to be paid by Bryant/Teague, Quantum Builders and an employee at a financial institution who verified false account information regarding mortgage borrowers. There are no court records indicating whether any amount was ever paid and IndyMac would not comment.

Another civil suit was filed in September 2001 by First National Bank of Arizona. After dragging on for 19 months the case was dismissed without prejudice by First National in April 2003.

Herget fought his inclusion in both suits and eventually had his name removed as a defendant and had all references to him struck. He also survived a third suit that named him as a defendant, this brought by the now defunct Greater Atlantic Mortgage Corp., which dragged on in U.S. District court for more than four years until Greater Atlantic’s existence came to an end early this year. The Georgia Real Estate Appraisers Board never took any action against Herget and today he still is licensed as a certified residential appraiser, according to a board spokesperson.

However, in the first 11 months of this year, the board has suspended or revoked the licenses of 64 appraisers, 13 more than the 51 in all of 2005 and 19 more than the 45 in 2004.

A First National Bank of Arizona spokesperson, speaking on its suit against Herget and Bryant/Teague’s Quantum Builders Co., admitted that it has had a “difficult time” trying to take action against appraisers. “It’s hard to prove intent,” she commented.

All 16 of the properties in Teague’s latest scheme were sold last February through May for prices that were from $13,000 to $55,500 above the list prices, or an average of $35,750 above list prices per home, according to an attachment to the government’s original complaint. The sales prices totaled $5,610,000.

“That’s what fraudsters are looking to do,” commented New Century spokesperson Oberhelnan. “The sale price is higher than the list price.”

All 16 purchasers/borrowers lived outside Georgia, including in California, Florida and New York, with most making their purchases as “investors.” HUD-1 settlement statements were included in closing documents.

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