Californians Busted for HUD Fraud

Several southern California individuals have been charged for defrauding lenders and the U.S. Department of Housing and Urban Development (HUD) of millions.

The U.S. Attorney’s office in Los Angeles announced earlier this month that 11 defendants have been charged for their roles in various schemes designed to defraud HUD. The defendants are allegedly responsible for millions of dollars in losses that HUD suffered primarily when the properties securing the fraudulent loans went into foreclosure.

“The cases at issue have become an all too prevalent story, not only in Southern California – but elsewhere around the country,” said Arthur Prieston, a mortgage fraud attorney and chairman of the Mortgage Banking Group at the law firm of Lanahan & Reilley. “They are classic in that all the material financial information required to approve the borrowers was falsified – from employment and income to the down payment and funds to close.”

Four defendants charged in September, Fernando Garcia, 43, of Rowland Heights; Reynalda Gonzalez, 44, of Mira Loma; Matthew Dunne, 33, of Alhambra; and John Campos, 47, of Walnut; have agreed to plead guilty, according to the announcement.

Garcia and Gonzalez are accused of using false employment, income and credit information to secure FHA loan approvals from lenders including, First National Funding Group and Elite Lending Group, Inc., according to a copy of the Criminal Information provided by the Department of Justice.

Gonzalez, working as a loan processor independently and at California Quality Mortgage, First Capital Mortgage and Millennium Mortgage, allegedly caused at least $1.7 million in fraudulent FHA loans to be submitted to various commercial lending institutions in the names of non-qualifying and straw buyers — resulting in nearly $1 million in losses, according to case documents provided by the U.S. Attorney.

Gonzalez’ plea agreement utilized an English-to-Spainish interpreter.

Garcia allegedly obtained approval on $797,552 in fraudulent loans, leading to $172,028 in losses, case documents showed.

Garcia and Gonzalez each face a maximum possible penalty of 10 years in federal prison, the U.S. Attorney said.

Dunne, who the government said worked as a mortgage broker at Citimortgage, is charged with submitting loan applications that included fake W-2’s and certifications — resulting in losses of approximately $1.7 million, case documents show. He faces up to six years in prison.

Campos admitted that he acted as a notary and provided fraudulent notarizations on multiple deeds of trusts for FHA loans, according to case documents. Campos faces up to 40 years of imprisonment in his case, which involves more than $500,000 in losses.

Jesse Olivas, 40, of Commerce, was indicted in September on charges of wire fraud for allegedly causing HUD to suffer more than $300,000 in losses, the announcement said. If convicted, he faces a maximum punishment of 15 years in prison.

Sergio V. Fernandez, a 43-year-old Maywood police officer, allegedly participated in a scheme in which false employment, income, down payment and gift information was submitted in support of FHA loan applications, leading to approximately $3.5 million in losses. Fernandez, who had a superseding indictment filed against him in September, faces a maximum punishment of 15 years in prison if convicted.

Joe Zamorano, 70, of Rowland Heights; his son, Mario Zamorano, 38, of Rowland Heights; and Patricia A. Lopez, 55, of La Habra each allegedly purchased HUD properties for resale to “straw” buyers, the announcement said. The maximum sentence for each of the Zamoranos is 165 years, while Lopez could be sentenced to as much as 95 years. Each is currently scheduled to go to trial on November 12.

Ali Ghomizadeh, 36, of Laguna Niguel; Massoud Ghomizadeh, 41, of Laguna Niguel; and Behrooz Katirai, 61, of Laguna Hills, were charged on September 11 with making false statements, the announcement said. They allegedly were partners in a venture to purchase, renovate and manage HUD properties.

According to the announcement, the three purchased 46 HUD properties through a former HUD employee who was previously sentenced to two years in prison for accepting bribes, and as a result of the false statements, they received approximately $50,000 in broker’s commissions. In plea agreements, the government has agreed to recommend sentences of two years probation for each, while the defendants have agreed to execute consent decrees allowing for the forfeiture of more than $3 million to the United States.

“These defendants have not only defrauded (HUD), they have defrauded every family that is trying to obtain affordable housing,” said Barry McLaughlin, Acting Special Agent in Charge of the HUD’s Office of Inspector General for Investigations.

Prieston, the mortgage fraud attorney, noted that lenders can take steps to protect themselves from this kind of abuse including, “performing a verbal verification of employment prior to closing, pulling their own credit reports on broker originations, and having experienced staff in the position of reviewing documents such as paystubs and W-2’s for ‘red flags’ that might indicate possible fraud.

“Equally as important as all that, however, is ensuring that Closing Protection Letters are obtained for all loan closings and that lenders’ Closing Instructions contain language that could stop the fraud, or at least set up a path of recovery against the closing agent or title company,” Prieston, continued. “To help combat the issue of funds to close not coming from the borrower, for instance, lenders should make sure that their Closing Instructions explicitly instruct the closing agent to only accept closing funds from the borrower drawn on one of the borrower’s depository institutions that was verified during underwriting.”

Articles about mortgage fraud cases include:

• 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
• According to the Suspected Fraud Activity Index for August of this year, the state showing the most deterioration in the Fraud Index combined with the higher activity levels is Texas.
• Two Virginia men are accused of using a Virginia title insurance agency to illegally divert loan proceeds for their own benefit.
• 83 individuals have been indicted by a Cleveland grand jury for participating in mortgage fraud schemes.