United States Attorney and Law Enforcement Officials Announce Results of Mortgage Fraud Prosecutions in the Last 12 Months

United States Attorney Barbara L. McQuade was joined today by Special Agent in Charge Andrew G. Arena, Federal Bureau of Investigation; Special Agent in Charge Erick Martinez, Internal Revenue Service, Criminal Investigation; Special Agent in Charge Jeffrey Frost, United States Secret Service; Breck Nowlin, Special Agent in Charge, Housing and Urban Development, Office of Inspector General; and Paul Walton, Assistant Oakland County Prosecutor to highlight the district’s work in combating mortgage fraud.

Today’s announcement comes a year after the conclusion of a nationwide sweep, “Operation Stolen Dreams,” that targeted mortgage fraudsters throughout the country and was the largest collective enforcement effort ever brought to bear in confronting mortgage fraud throughout the country. The operation was organized by the Mortgage Fraud Working Group of President Obama’s interagency Financial Fraud Enforcement Task Force, which was established to lead an aggressive, coordinated and proactive effort to investigate and prosecute financial crimes. Between March 1, 2010 and June 18, 2010, Operation Stolen Dreams involved 1,517 criminal defendants nationwide, including 525 arrests, representing an estimated loss of more than $3 billion. The operation also resulted in 191 civil enforcement actions and the recovery of more than $196 million.

U.S. Attorney Barbara L. McQuade stated, “The social and financial consequences of real-estate fraud cannot be overstated. Innocent homeowners, our neighborhoods, and government at all levels are victimized by this crime. We are committed to using all of the tools at our disposal to combat these schemes.”

Special Agent in Charge Andrew G. Arena stated, “Mortgage fraud has had a devastating impact on communities across the United States. In southeast Michigan, families have been directly affected by decreasing values of homes, deteriorating neighborhoods, negative impacts on the stock market, and the increasing costs of borrowing. Together with our partners, the FBI is committed to bring the perpetrators to justice and establish a deterrent against mortgage fraud activity in the future.”

HUD-OIG Special Agent in Charge Breck Nowlin stated, “Mortgage fraud has cost the FHA program, borrowers, the American taxpayers and Michigan homeowners millions of dollars. The successes of Operation Stolen Dreams and our continued pursuit of financial fraudsters highlights the tireless efforts of law enforcement to bring to justice those who seek to defraud desperate homeowners.”

“Mortgage fraud, like all financial crimes, threatens the financial health of our communities, victimizing everyone from low-income families to lenders and investors,” said Special Agent in Charge Erick Martinez. “IRS Criminal Investigation will follow the money and work with our law enforcement partners to collect the evidence needed to prove tax and money laundering violations, bring to justice those who create this havoc.”

The office has continued to litigate a large number of mortgage fraud cases initiated both prior to Operation Stolen Dreams and after. Since the end of Operation Stolen Dreams on June 18, 2010, 30 individuals have either pleaded guilty or were found guilty of federal offenses and 27 have been sentenced to prison terms. Prison sentences imposed so far on defendants have been as high as 108 months in prison. Civil forfeitures totaling more than $1.5 million were imposed. In addition, 22 new indictments or informations charging 22 new defendants with mortgage fraud offenses have been filed. Cases charged in the last 12 months involve many millions of dollars of alleged loss.

In addition to stepping up criminal prosecutions, the United States Attorney’s Office has increased its civil division resources directed at mortgage fraud in order to bring civil suits under the Financial Institutions Reform, Recovery and Enforcement Act of 1989 (FIRREA), a powerful civil enforcement tool that can be used to impose significant civil money penalties on wrongdoers. The U.S. Attorney’s Office in the Eastern District of Michigan is one of the first offices in the country to use FIRREA to pursue mortgage fraud and other financial crimes in a civil context. This law is designed to restore to the Treasury funds stolen through illicit mortgage schemes. Currently, the Detroit office has two civil FIRREA cases that are near resolution and several other investigations that are underway. Not only is the Detroit office making effective use of FIRREA in this District, it is also are sharing the expertise that with other U.S. Attorney’s Offices around the country.

The Office’s Affirmative Civil Enforcement team also is using the statute to pursue those who are defrauding some of the most vulnerable among us—senior citizens—by stealing the equity from their homes thorugh fraudulent Home Equity Conversion Mortgages (HECMs), which are FHA-insured reverse mortgages.

The most effective way to address this crisis is through a coordinated effort of federal, state, and local law enforcement agencies working with regulators, real estate professionals, victim rights organizations and lenders. To that end, this district’s Financial Fraud Enforcement working group meets regularly to encourage a multi-agency, multi-disciplinary approach to enforcement. In addition to supporting member initiatives the working group is focusing on identifying emerging fraud trends and considering proactive ways to avoid another crisis in the real estate market.

Below are brief summaries of some of the significant mortgage fraud cases brought since June 18, 2010:

United States v. Douglas Brandewie 11-20367

On June 9, 2011, an Information was filed charging Douglas E. Brandewie with making False Statement to the FDIC. While Brandewie was the president of mortgage banking at Citizens First Savings Bank (Citizens), he ordered unfavorable real estate appraisals to be purged from Citizen’s mortgage loan files. The appraisals were purged from files flagged by the FDIC for review during a routine audit of Citizens. As Brandewie well knew, the affect of this misrepresentation was to hide an estimated $10,000,000 in potential loan losses and impairments from FDIC auditors, thereby impairing their ability to appropriately determine Citizens’s financial stability.

United States v. Robert Hance 11-20236

Robert Hance, a loan officer with Fifth Third Bank, was indicted April 19, 2011, on charges that he conspired with others to defraud Fifth Third Bank and obtain money through false pretenses. Specifically, straw buyers, who were paid a fee, were allegedly recruited to serve as mortgage loan applicants for the purchase of real property which the conspirators wanted to purchase and develop. Mortgage loan applications containing false information pertaining to the income and assets of the straw buyers were submitted to Fifth Third, by Hance, for approval. The total amount of fraud attributable to Hance is estimated at over $8 million.

United States v. Matthew Flynn 11-20157

Matthew Flynn was charged in an Information on March 22, 2011, alleging that he and other co-conspirators recruited people with good credit histories and high credit scores to act as straw buyers of properties for the purpose of securing mortgage loans but never intending to be the true owners of the properties. Flynn and others would submit false mortgage loan applications to Flagstar Bank grossly inflating the income and net worth of the straw buyers. The total amount of loss to Flagstar Bank as a result of Flynn’s actions is estimated to be $4.75 million.

United States v. Keith McCloud 10-20734

Keith McCloud, an officer in the Detroit Police Department, was charged with conspiracy to commit wire fraud and bank fraud in connection with his participation in a mortgage fraud scheme. The indictment charges that from March 2005 through April 2006, McCloud and other individuals knowingly participated in a scheme to defraud mortgage lenders. McCloud submitted multiple loan applications containing materially false and fraudulent information, including false information overstating the amount of rental income McCloud earned and the amount of funds in McCloud’s bank account. McCloud also submitted fraudulent invoices and rental agreements to substantiate the misrepresentations made on his loan applications.

United States v. Thomas Keller 10-20574

Thomas Keller was charged and pleaded guilty to defrauding Bank of America of approximately $2 million dollars. Keller operated Michigan Land Development, LLC (MLD) and used it to facilitate the purchase and sale of properties with fraudulently inflated appraised value and false buyer asset and income information. Bank of America relied on the material and false appraisal and asset and income information in approving and disbursing loans. Keller is scheduled to be sentenced in July and faces up to 41 months in prison.

The President’s Financial Fraud Enforcement Task Force includes representatives from a broad range of federal agencies, regulatory authorities, inspectors general, and state and local law enforcement who, working together, bring to bear a powerful array of criminal and civil enforcement resources. The task force is working to improve efforts across the federal executive branch, and with state and local partners, to investigate and prosecute significant financial crimes, ensure just and effective punishment for those who perpetrate financial crimes, combat discrimination in the lending and financial markets, and recover proceeds for victims of financial crimes. For more information on the task force, visit StopFraud.gov