Feds Allege Real Estate Fraud Ring
The U.S. attorney’s office on Wednesday charged 30 real estate agents, mortgage brokers and others in an elaborate scheme involving more than $10 million in government home loans for low-income residents.
The indictments are part of an FBI crackdown on mortgage fraud involving government loans. The loans have a significantly higher default rate in the Los Angeles area than in other parts of the country--50% higher two years ago. This prompted officials to question whether fraud is occurring.
Prosecutors allege that the defendants bought about 50 homes and then sold them to low-income residents at inflated prices. Many of the residents didn’t earn enough to qualify for Federal Housing Administration loans, so the defendants allegedly forged pay stubs, tax forms and bank statements to make it appear they could afford their mortgages.
Eventually, many of the homeowners in Los Angeles, Orange, Riverside and San Bernardino counties defaulted on the mortgages and lost their homes.
The federal government was left with houses that were worth far less than the amount paid.
“This is a veritable cottage industry of fraud,” said John Hueston, the U.S. attorney for Orange County. “The FHA loans are a lifeline to the poor. These people abused it.”
The defendants will enter pleas in Santa Ana federal court. Several defendants named in indictments Wednesday said they were unaware of the charges.
“I have no idea what you’re talking about,” said Valencia Bray, a Rialto real estate agent named in the indictment.
Hueston and others said that low-income loans have became a target for fraud because the FHA offers a ready supply of money. The FBI, IRS and U.S. attorney have been working across Southern California to examine questionable real estate deals and uncover scams. Two smaller rings were broken within the last year, resulting in 20 indictments.
The FHA has also been trying to improve regulations and oversight of loans after studies showed certain parts of Southern California have much higher default rates than the region and nation.
“This problem is a lot more widespread than it should be, and people should take note that we’re watching them,” said Assistant U.S. Atty. Greg Staples.
The indictments handed down Wednesday focused on homes in Anaheim, Compton, Corona, Los Angeles, Norwalk, San Bernardino, Santa Ana and about a dozen other cities. Prosecutors said that not only were federal and private lenders victimized, but also those who tried to buy the homes at inflated values and later defaulted.
“It certainly doesn’t make their lives any better by defaulting and ruining their credit,” said Staples, who declined to release the victims’ names.
The 30 defendants have been charged with wire fraud. Two face additional charges of bank fraud.
The maximum penalty for wire fraud is five years’ imprisonment and a $250,000 fine; the maximum penalty for bank fraud is 30 years’ imprisonment and a $1-million fine.
Prosecutors said the defendants committed the fraudulent activities for at least three years. They avoided detection in part because the alleged conspiracy involved professionals at all ends of the mortgage process, from real estate agents to mortgage and loan brokers.
Prosecutors contend this provided effective cover because no one questioned whether properties’ values were inflated or whether the buyers were creditworthy.
To make the home buyers seem wealthier than they were, the defendants allegedly wrote fake gift letters purported to be from family members.
They also forged cashier’s checks to make it look as if the home buyers were putting more money down than they were, according to the court filing.
Authorities began to scrutinize the operation last year after the FBI received a tip.
