Case Studies. COURSE X: MASTERING THE LOAN APPLICATION II Lesson 1: Mortgage Fraud. Case Study 1

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1 Case Studies Case Study 1 TWO MORE CHARGED IN MASSIVE MORTGAGE FRAUD March 22, 2002 CONSPIRACY Susan W. Brooks, United States Attorney for the Southern District of Indiana, announced that RANDALL J. BOOKNIS, age 35, of Indianapolis, Indiana and GIL SMITH, age 35, of Tomkinsville, Kentucky, were charged today with conspiracy to commit mail fraud, following an investigation by the Federal Bureau of Investigation and the Internal Revenue Service. The information alleges that BOOKNIS and SMITH, along with Timothy Fagan, Michelle Akers, and Trena Mitchell, who have been charged and sentenced previously (Fagan was sentenced to 50 months imprisonment, Akers was sentenced to 5 months imprisonment and Mitchell was sentenced to 6 months home detention, all in January 2002), were involved in a scheme to defraud various mortgage lenders in connection with the purchase of real property in Indianapolis, Indiana between April 1999 to May The scheme involves more than 180 separate mortgage loans valued at a total of more than 10 million dollars on residential properties located in Indianapolis. Almost all of the loans are in default and foreclosure actions have been initiated on most of the properties. The scheme involved more than 20 participants including several licensed real estate appraisers, several closing agents working for various title insurance companies in Indianapolis, and a mortgage broker. The estimated total loss to the mortgage lenders is more than 2.5 million dollars. The investigation is continuing. The information alleges that Fagan and others used BOOKNIS, as an appraiser for the property, and SMITH, as a closing agent for the loans, to fraudulently obtain mortgages on properties. The loans were in excess of the true value of the property and the loans have gone into

2 foreclosure. According to the information, BOOKNIS appraised properties at a value well in excess of the fair market value for Fagan and others. The loan applications submitted in support of the mortgages included false and inflated appraisals prepared by BOOKNIS and others on the real property. Based on the false information in the loan application files and the false and inflated appraisals, mortgages were obtained on the property in excess of the true value of the property. The excess monies obtained at the time of closing was shared among the conspirators. The information also alleges that SMITH prepared or caused to be prepared closing documents including settlement statements, check disbursement ledgers, and disbursement checks for Fagan and others in connection to the transactions. SMITH prepared two sets of settlement statements, one that reflected the true price of the property and amount paid to the seller, and the second, false set reflected the inflated price for the property. The first (true) settlement statement was provided to the seller. The second (false) settlement statement was sent to the lender to conceal the fraudulent scheme from the mortgage company. According to Assistant United States Attorney Donna R. Eide, who is prosecuting the case for the government, both defendants face a maximum possible prison sentence of five years and a maximum possible fine of $250,000 on the mail fraud charge. An initial hearing will be scheduled before a U.S. Magistrate Judge in Indianapolis. The information is an allegation only, and the defendant is presumed innocent unless and until proven guilty at trial or by guilty plea. SOURCE: Indianapolis Division of the Federal Bureau of Investigation

3 Case Study 2 ARIZONA MORTGAGE FRAUD SCHEME UNCOVERED, SUSPECTS INDICTED June 1, 2007 MORTGAGE FRAUD Twelve people, suspected of being part of a sophisticated white-collar crime ring led by an exconvict, have been indicted involving a home mortgage scam stretching from Arizona to Nevada to California. The defendants, including a real estate agent, college students and family members living in the three states are accused of defrauding lenders out of $8 million. Group members led the high life by using phony incomes, Social Security numbers, bank accounts and assets to get loans for upscale homes and luxury cars, according to the 38-count indictment handed up by a federal grand jury in the Phoenix housing market. The group is charged with conspiracy, money laundering and fraud. The U.S. Attorney s Office says Lutrell Maurice Sharpe created Tempe-based Arizona Urban Enterprise and a network of other businesses that provided fake incomes for members of the group to use in obtaining home mortgages and car loans. Ring members also used the false information to refinance houses and to make straw-buyer transactions for profit, officials say. This was a brazen scheme. To shut it down, a top-notch team was assembled, U.S. Attorney Daniel Knauss said. The result is a significant indictment that should put criminals and wouldbe fraudsters on notice that the investigation and prosecution of loan fraud is a top priority. Regulators and prosecutors are cracking down on a wave of mortgage fraud that has hit metropolitan Phoenix in recent years. Arizona joined the top 10 states for mortgage fraud for the first time last year, according to the Mortgage Asset Research Institute.

4 The indictment says defendants fraudulently financed 16 properties, including homes in Goodyear and Buckeye, as well as 11 luxury cars mostly purchased at Arizona dealerships. Federal records portray Sharpe as the ringleader. In 1997, while using the alias Maurice Anthony Steward, Sharpe was among more than a dozen people indicted by a federal grand jury in Arizona involving narcotics trafficking and money laundering. Sharpe pleaded guilty to drug conspiracy and money laundering and was sentenced to 70 months in prison in A judge also ordered the forfeiture of property in Somerton, Ariz., as well as several guns, a Rolex watch and a Jaguar XJE. Sharpe was released on probation in An arrest warrant was issued in April for probation violations related to the Arizona mortgage fraud case. The indictment contains three criminal counts against Sharpe for making false statements to his probation officer about his financial dealings. The grand jury identified numerous Nevada businesses affiliated with the fraud ring, including Presidential Entertainment, Raven Capital, Transtar Realty, Sellers Investments and Tristate Development. Ken Huffer, assistant special agent in charge for the Secret Service in Arizona, said the case began about 18 months ago with a tip about people borrowing huge amounts of money for homes and cars even though they had no jobs. Huffer said the Secret Service, which investigates identity fraud related to those crimes, joined forces with investigators from the Internal Revenue Service and Social Security Administration. Huffer said the scam lasted several years because properties were acquired at a time when Arizona real estate values were skyrocketing, so those who fraudulently borrowed money were able to avoid foreclosures.

5 The government has moved to seize homes and the other assets named in the indictment. A conviction for home purchase loan, mail or wire fraud comes with a maximum penalty of 30 years in jail and a fine of $1 million. Mortgage fraud is clearly rampant in Arizona and elsewhere, said Andrea Whelan, special agent in charge of the IRS criminal investigations unit in Phoenix. SOURCE: The Arizona Republic