Federal authorities have charged two men in connection with an alleged $60-million fraud scheme against the U.S. Department of Housing and Urban Development, believed to be the largest in the agency’s history.
The two men allegedly bought inexpensive apartment houses all over Los Angeles County, worked with appraisers to inflate their value and then recruited low-income people to apply for HUD loans to supposedly buy the properties.
But it was the defendants who obtained the loans and pocketed the difference between the properties’ actual value and inflated market value, federal authorities allege.
Indicted were Victor Jesus Noval, 35, of Los Angeles and James Weatherley, 45, of Hidden Hills. Both have been charged with 10 counts of mail fraud, and Noval with an additional five counts of filing false statements with HUD.
Noval, arrested Oct. 3, is being held in a federal detention facility without bail because he is deemed a flight risk. Weatherley remains at large.
Federal prosecutors say Noval and Weatherley set up straw companies to buy apartment buildings, typically worth $100,000 to $180,000, and hired corrupt appraisers to inflate the value of the buildings. The pair then recruited low-income people to apply for government-insured, Federal Housing Administration mortgages for as much as $150,000 over the actual property value. Prosecutors say they forged tax forms to make sure they qualified for the loans.
Then the bogus mortgage applications were submitted to the Allstate Mortgage Co., which approved the loans, according to the indictment. (The mortgage company has no connection to the Allstate Insurance Corp., a spokeswoman said.)
“We became suspicious of how the same straw companies always appeared to be buying FHA properties for $150,000 and turning them around within days,” said Assistant U.S. Atty. Jonathan S. Shapiro. “The straw companies appeared to be more than just lucky.”
According to the indictment, the corporations that purchased and resold the properties included United Car Wash Corp., Southwestern Associates, South Central Investments and NOVCO Financial. State records indicate the businesses are all owned by Noval.
After skimming thousands of dollars of equity from the loans, Noval and Weatherley rented the small apartment buildings, authorities said. Shapiro said the pair managed to remain current on their mortgage payments by taking out more loans in other people’s names.
“This is a classic Ponzi scheme with a real estate gloss,” Shapiro said. “The more loans they got, the more fraudulent loans they needed to stay current.”
In court transcripts of Noval’s arraignment earlier this month, prosecutors said Noval told friends he would flee the country if his scheme was uncovered. They also produced evidence that Noval had allegedly transferred millions of dollars to Mexico and Switzerland.