Man Pleads Guilty to Mortgage Fraud

HOUSTON—Melvin Lendall Brown, a Houston area resident, has pleaded guilty to one count of wire fraud, United States Attorney José Angel Moreno announced today. Brown, 47, appeared for a re-arraignment hearing this afternoon before United States District Judge David Hittner, at which time he admitted to engaging in a scheme to induce lenders to fund residential mortgage loans under false and fraudulent pretenses.

To carry out the scheme, Brown used an unincorporated business he formed under the assumed name of Brownstone Construction, which was supposedly in the business of home improvement. People he associated with located residential real estate properties in the Houston area. Brown and others recruited and solicited individuals with good credit to act as borrowers in applications for residential mortgage loans to purchase one or more of those properties, even though the borrowers had no intention of making payments on the mortgage loans. Brown, aided and abetted by at least one other person, made representations to each borrower, including that he would buy the home in the borrower’s name, make any monthly mortgage payments, find others to live in the home and pay monthly rent, take the home out of the borrower’s name after a period of time as well as compensate the borrower. 

Brown and others caused Uniform Residential Loan Applications to be made in the names of the borrowers that overstated their employment income and other assets, understated or omitted their debts and other liabilities, falsely represented that the borrowers leased the homes in which they resided and received income from the rent, and falsely claimed that the borrowers intended to occupy the newly purchased homes. Because of the fraudulent information, the lenders made decisions to approve the applications and fund the loans. In support of those fraudulent loan applications, false and fraudulent documents were submitted, including sham lease agreements and bogus employment information. Brown also  provided funds to the borrowers to use for deposits toward the purchases of those homes and for closing fees, and he often appeared with the borrowers at the closings. 

At or near the closings, Brown caused title companies to disburse the fraudulently induced loan proceeds to various individuals and entities, including  Brownstone Construction. He represented to the title companies that Brownstone Construction had been hired for projects to improve those properties, when in fact he did not perform or arrange for others to complete the projects. Brown received, often via interstate wire transfer, more than $500,000 of approximately $5 million in fraudulently-induced loan proceeds, sent via interstate wire from lenders to title companies. Brown used the funds he received for expenditures unrelated to the properties that were purchased.

Brown faces a maximum penalty of 20 years in prison and a fine up to $250,000. Brown has been out on bond since his September 2009 arrest and will continue as such until his sentencing, which is scheduled for July 15, 2010. 

Special agents from the Houston Field Office of the FBI and the Department of Housing and Urban Development - Office of Inspector General conducted the investigation leading to the charges. Assistant United States Attorney Stephen L. Corso is prosecuting the case.