Federal prosecutors Monday charged 19 individuals, mainly from Southern California, with defrauding homeowners in trouble partly by using “foreclosure rescue pitches” and an equity-draining technique called equity stripping.
Two indictments made public Monday accused Charles Head, 33, of La Habra; his brother, Jeremy Michael Head, 30, of Huntington Beach; and others of taking part in a nationwide mortgage scam that stole $12.6 million and fraudulently obtained the titles to more than 100 homes.
Prosecutors said they found victims of the mortgage scam in California, Oregon, Washington state, Nevada and at least 14 other states.
Consumer advocates, who have been trying to help people with high-interest sub-prime mortgages stay in their homes, said they hoped the federal criminal indictments would scare would-be con artists out of the troubled market.
People who try to victimize strapped homeowners “are the worst of the worst, the ultimate vultures, looking to mop up whatever is left from people who have already been victimized,” said Kevin Stein of the California Reinvestment Coalition in San Francisco. “The more people are in despair, the more vulnerable they are to the person who says, ‘I’m here to help.’ ”
The defendants have been charged with fraud and conspiracy. They could face fines and sentences of as much as 20 years in prison, prosecutors said.
Charles Head was being held without bond as a flight risk in Santa Ana, where he appeared in federal court Friday, prosecutors said. His attorney did not return a call seeking comment.
Jeremy Michael Head’s court-appointed attorney, Christopher Haydn-Myer, declined to discuss the case but described his client as making a modest living at an auto maintenance shop. He said Head rides to work by bicycle because “he doesn’t even own a car.”
John Balazs, an attorney for defendant Joshua Coffman, 29, of North Hollywood, said his client would plead not guilty to any role in the alleged conspiracy.
“This case is not anywhere near as clear-cut as the government makes it sound in their papers,” Balazs said. “Some of these people in fact did manage to keep their homes.”
Additional charges are expected to be filed in a widening probe, said Assistant U.S. Atty. Ellen Endrizzi.
Focus on ‘insiders’
The investigation, dubbed Operation Homewrecker, involved the FBI and the Internal Revenue Service and focused on real-estate-related financial crimes, which have become a top priority, said McGregor W. Scott, the U.S. attorney for the Eastern District of California in Sacramento.
Drew Parenti, FBI special agent in charge, said his agency was “focusing on the industry professionals, the ‘insiders’ who have manipulated the mortgage loan process for their own financial gain.”
Reports of mortgage fraud, including foreclosure-avoidance fraud, have surged as the end of rising home prices has exposed widespread corruption that accompanied the housing boom.
Financial institutions are on pace to file 60,000 suspicious-activity reports involving mortgage fraud this year, up from 28,000 in 2005, said FBI spokesman Stephen Kodak in Washington.
The bureau investigated 721 mortgage fraud cases in 205 and has 1,253 such cases open at present.
Prosecutors in Sacramento said they originally learned about the alleged fraud after receiving a complaint from a homeowner. They said a complex investigation revealed that between Jan. 1, 2004, and March 14, 2006, Head and his associates contacted desperate homeowners, offering to assist them in avoiding foreclosure and to cash out equity in their homes to pay bills.
One variation of the alleged fraud, they said, involved adding a so-called investor or “straw buyer” title to a property and requiring homeowners to pay “rent” that was lower than their original monthly mortgage payment. Prosecutors said Charles Head and his associates would sell the home after extracting all available equity.
Homeowners, in the process, lost their property.
Prosecutors didn’t release the names of any victims Monday, but a civil case provides a window on the disputes involving Charles Head and his alleged associates.
In a fraud lawsuit filed in August 2005 in Los Angeles County Superior Court, Pamela Graham accused the Head brothers and other defendants of deceiving her into selling her Los Angeles home, which she thought she was refinancing.
Graham responded to a mailer touting Head Financial Services’ ability to “find solutions” for homes in foreclosure. Jeremy Michael Head visited her at home, Graham said, and promised her she would get cash back and lower her mortgage payments if she refinanced the home with him.
Graham said she later discovered that despite repeated assurances to the contrary, ownership of the home had been transferred to another woman who had been described to her as an investor in the deal.
Graham’s signature was forged on the deed of trust transferring ownership, the suit alleged.
According to filings in the case, the defendants settled by agreeing to transfer the property back to Graham.