FBI Probing Phony Bank Draft Scheme to Pay Loans
Federal authorities are investigating schemes in California and four other states involving the sale of worthless certified drafts to customers who use them to try to pay off bank loans.
The drafts, which are drawn on non-existent Mexican institutions and look similar to money orders, have been submitted by borrowers to pay off home mortgages, auto loans and other debts. But when U.S. banks try to collect on them at the Mexican institution named on the draft, there is either no record of the institution or they receive another certificate drawn on another non-existent institution.
Robert Siller, an FBI agent who has investigated several incidents in Ohio, said the practice appears to have spread to other states, including California, Arizona and Washington. Cases have also been found in Oregon, according to the Federal Home Loan Bank, which regulates savings and loan firms.
A spokesman for the FBI in Los Angeles said similar incidents are under investigation here, but he declined to say whether any of them involved draft certificates issued by non-existent Mexican institutions.
A Riverside savings and loan is embroiled in a lawsuit with a customer who tried to pay off a $43,000 home mortgage with a draft certificate drawn on a Mexican bank that the thrift said does not exist. There is no indication of wrongdoing by the customer, and the lawsuit is one of several pending in Southern California.
Siller said the draft certificates are being purchased at a discount by consumers from salesmen who sometimes make their pitch at “debtor parties” in hotels. Sometimes the pitch includes attacks on the constitutionality of the U.S. banking system, he said.
The scheme can work this way: A consumer with a $100,000 home mortgage will pay the salesman 15%, or $15,000, for a draft certificate supposedly worth $100,000. The consumer then tries to pay off the debt by submitting the certificate to the bank holding the mortgage via certified mail.
Along with the certificate, the consumers apparently receive instructions on how to submit the certificates and form letters for use if the bank refuses to honor the certificate.
“They are clearly following a form letter,” said Larry D. Case, an attorney at Huntington National Bank in Columbus, Ohio, which has taken legal action in response to attempts by borrowers to pay off 10 loans, ranging from a few thousand dollars to about $100,000. “Some of the language is somewhat peculiar and appears repeatedly from different borrowers.”
Case said the borrowers have refused to explain how they got the certificates and other material. But Case and others said the salesmen appear to be loosely connected.
The salesmen also provide what federal authorities say is a flawed legal explanation for the validity of the certificates. Because the certificates are sent by certified mail, the theory goes, once the bank accepts the letter it is effectively accepting the payment. Even if the bank later refuses the draft, the customer can consider the loan paid, according to the theory.
James R. Faulstich, supervisor of the Federal Home Loan Bank in Seattle, issued a bulletin last fall to savings and loans warning that drafts of “questionable value” were being issued to pay off mortgages and to buy real estate. The bulletin said enforcement authorities had uncovered certificates across the country issued by International Credit Exchange in Acapulco, Mexico.
Consumer Filed Suit
Faulstich cautioned the thrifts against releasing any collateral or transferring ownership on the basis of the questionable certificates.
In the Riverside case, Helen Rae Williams used a certificate issued by International Credit Exchange to try to pay off a $43,000 mortgage on her Riverside home at Pacific First Federal Saving Bank’s mortgage company in Walnut Creek, Calif.
When the company refused to accept the payment, Williams filed a lawsuit in Superior Court in Riverside seeking cancellation of her mortgage debt, a method used by other borrowers.
Williams’ attorney, Leo Youngblood of Inglewood, said in a telephone interview that the draft certificate is valid and that the law requires Pacific First to accept it and issue a clear title to Williams. He said he did not know how much Williams paid for the certificate, which he said she got through some sort of “program” she was involved in.
Michael T. McCall, an attorney in Orange who represents Pacific First, said the thrift plans to foreclose on the Williams’ property. He said Williams was relying on a misinterpretation of the law in trying to pay off her mortgage with a certificate from a non-existent institution.
McCall said some banks or thrifts may confront legal difficulties if they provide a customer with a loan release before discovering that a certificate is bogus.
