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Californians Busted for HUD Fraud

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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.
  • Former PinnFund CFO admitted to being a coconspirator in the $300+ million Ponzi scheme
  • Three Peoria, Illinois women were sentenced for their involvement in a mortgage loan scam where they defrauded a bank of $1.7 million in a classic flip transaction scheme
  • Shirley Harwood and her employee pled guilty to defrauding two lenders out of more than $6 million
  • Loan originator Brian J. Wilkozek and two loan processors are among fifteen people indicted in a south side Chicago “flipping” scheme
  • Edward Rostami was sentenced to a year in prison for using a fraudulently obtained property title to obtain a $1 million loan
  • Rene Abreu was among 11 people indicted in a case involving The Mortgage Pros, Inc. in Guttenberg, New Jersey
  • David Allan Van Velzer, Jr., was sentenced to more than 8 years in prison for wire fraud and money laundering
  • Kenneth Bradford and Jo Ellen Bryant received 10+ year sentences in a Georgia flipping case
  • Seven indicted in AppOnline.com mortgage fraud scheme
  • Indian authorities apprehended Rajiv C. Shah, one of two brothers that allegedly sold loans with fraudulent documentation to 3 U.S. lenders
  • Loans originated by originated by Chapel Creek Mortgage Banker, Inc. could cost Chase Manhattan Mortgage Corp. between $10 and $20 million
  • Kent E. Baklor was sentenced for defrauding two lenders of over $8.5 million
  • Tamira Smyth was sentenced in a Chicago ‘flipping’ scam involving twenty defendants
  • Former Las Vegas mortgage broker David Ferradino was sentenced to five years’ probation and ordered to pay $4.2 million in restitution to 90 investors
  • Michael Graham received a sentence of more than 12 years in prison and was ordered to pay $515 million in restitution for his role in the failure of The First National Bank of Keystone.
  • Yehuda Shiv was charged by the SEC with overstating the value of his clients’ assets by more than $139 million
  • Cheryl A. Swain pleaded guilty to a charge of mail fraud in connection with her conduct as the VP for Marketing Syndication of MCA
  • Robert B. Herbert, Jr. of Raleigh allegedly “embezzled and misappropriated moneys from Stewart Title.
  • Donald Lukens allegedly defrauded more than 100 investors — including popular sports figures — of at least $12.5 million in a number of schemes, including one involving mortgage backed securities
  • Steven D. Mueffelman and John S. Lombardi charged in a 15-count indictment with mail and wire fraud
  • Raymond T. Jackman, JR. was sentenced to two years’ probation
  • GreatStone Mortgage in Florida is accused of fraud, sexual harassment.
  • The government is pursuing mortgage fraud cases in Charlotte and Cleveland.
  • Miami family allegedly ran a mortgage fraud ring that swindled lenders out of $3.8 million.
  • Maryland is the state with the most instances of possible fraud, according to Affinity Corporation’s ‘Suspected Fraud Activity Index’ for the months of June, July and August.
  • Thomas Eck and Zahra Gilak made as much as $15 million, and defrauded investors of $100 million in sham that included online mortgage brokerage
  • Richard Wood, a Las Vegas mortgage broker accused of bilking millions of dollars from dozens of investors in a nationwide Ponzi scheme, was gunned down outside his home.
  • FBI Investigating Massive Mortgage Fraud Case In Spokane
  • Richard Michael McDowell, who through southern California-based Active Home Loans and M&M Loan Service admittedly swindled an estimated $7 million from about two dozen investors, was sentenced to 27 months in federal prison.

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