U.S. Attorney Announces Results of Distressed Homeowner Initiative in the Southern District of California
Law Enforcement Effort Focused on Crimes Against Struggling Homeowners
|U.S. Attorney’s Office October 09, 2012|
SAN DIEGO, CA—A yearlong nationwide crackdown on swindlers who prey on recession-weary homeowners has resulted in charges against 15 defendants in San Diego, U.S. Attorney Laura Duffy announced today. The San Diego defendants were accused of collectively swindling thousands of homeowners out of more than $12.5 million.
Nationwide results of the first-ever Distressed Homeowner Initiative were announced earlier today by Attorney General Eric Holder and other federal officials at a press conference in Washington, D.C.
The initiative, organized by the Financial Fraud Enforcement Task Force’s Mortgage Fraud Working Group, resulted in 530 criminal defendants charged in 285 federal cases filed in U.S. District Courts across the country. These cases involved more than 73,000 homeowner victims and total losses by those victims are estimated by law enforcement at more than $1 billion.
In addition to the 15 who were charged during the past 12 months in the Southern District of California, federal convictions were also secured against a total of 16 defendants—some of whom had been charged before October 1, 2011.
From October 1, 2011 to September 30, 2012, the Distressed Homeowner Initiative focused on fraud targeting homeowners, such as foreclosure rescue schemes that take advantage of homeowners who have fallen behind on their mortgage payments. Typically, the con artist in such a scheme promises the homeowner that he can prevent foreclosure for a substantial fee by, for example, having so-called investors purchase the mortgage or transferring title in the home to persons in league with the con artist. In the end, the homeowner can lose everything. Other targets of the Distressed Homeowner Initiative include perpetrators of loan modification schemes who obtained advance fees from homeowners after falsely promising that they would negotiate more favorable mortgage terms on behalf of the homeowners.
U.S. Attorney Duffy said, “Although I am gratified to see these defendants brought to justice, the real tragedy of these cases is that there are so many criminals who try to profit from the suffering of others. In difficult economic times, they exploited a particularly vulnerable segment of our population—homeowners who were desperately trying to make ends meet and stay in their homes.”
Leslie P. DeMarco, Special Agent in Charge of IRS Criminal Investigation (CI) Los Angeles Field Office commented, “Perpetrators of mortgage and loan modification scams prey on struggling and vulnerable homeowners desperate to save their home. Typically, these unscrupulous individuals make false promises that they can stop foreclosure, when, in reality, these individuals simply profit from their victims while causing further harm to our communities. IRS-Criminal Investigation will continue to lend our financial and money laundering expertise, in partnership with all law enforcement agencies, to pursue individuals who commit mortgage and loan related crimes.”
“Our objective is to ensure that the public is not taken advantage of when they have fallen on hard financial times. These individuals, and the companies they operated, fraudulently used HUD’s name to take advantage of distressed homeowners. This type of fraud not only affects the individual families, it also affects the housing market,” said HUD-OIG Special Agent in Charge James Todak. “Participation in joint law enforcement operations like this helps us achieve our goal of preventing and stopping fraud, waste, and abuse in HUD programs.”
In announcing the national initiative, Attorney General Holder said, “These comprehensive efforts represent a historic, government-wide commitment to eradicating mortgage fraud and related offenses. The success of the Distressed Homeowner Initiative and the developments we announce today underscore our determination to pursue these and other financial fraud criminals around the country.”
Among the cases prosecuted in the Southern District of California during that past fiscal year were the following:
U.S. v. Hidalgo, U.S. v. Ruiz, U.S. v. Velasquez
These defendants sent misleading solicitation letters to distressed homeowners and used false claims about their ability to obtain loan modifications. Among other things, the solicitation letters falsely indicated that the defendants were affiliated with the United States Department of Housing and Urban Development (HUD) and other governmental agencies. The defendants falsely represented to victims that they would negotiate a mortgage loan modification on the victim’s behalf for little or no money, then directed the victim homeowners to send their monthly mortgage payments to business entities controlled by the defendants, rather than to their mortgage lenders. Defendants promised to secure the mortgage payments in a “reserve” or “escrow” account on behalf of homeowners. The victims’ funds were not secured in this manner but were actually used to pay the defendants’ personal expenses, provide commissions to the defendants’ employees, and purchase items for the defendants’ personal use, including vehicles and jewelry. As a result, many of the victims’ mortgages went into default. These three cases involved over 400 victims and $1.5 million in victim losses between 2009 and 2011. All three defendants have been convicted and are awaiting sentencing. (More information about the case can be found at http://www.justice.gov/usao/cas/press/2012/cas12-0430-RuizHidalgo.pdf.)
U.S. v. Bobel, et al.
Defendants and their co-conspirators at an Oceanside company called 1st American Law Center used high-pressure sales tactics and outright lies to induce struggling homeowners to purchase loan modification services for payments from $1,995 to $4,495. 1st American Law Center’s telemarketers were encouraged to say anything it took to close the deal, including that the employee’s grandmother got a loan modification with the company, that the company had a special relationship with a particular client’s bank, or that the company had helped thousands of happy homeowners stay in their homes. They promised that a team of attorneys pre-screened the applications and negotiated directly with banks and claimed a 98 percent success rate in obtaining loan modifications. Some employees pretended to be lawyers to draw customers in. The telemarketers even persuaded homeowners to pay the company’s fees instead of using their limited funds to stay current on their mortgage payments. Through the use of their false representations and promises, 1st American Law Center fraudulently obtained over $11 million in client payments between 2008 and 2010, from more than 4,000 desperate homeowners across the country. A total of 13 defendants have been charged as a result of this investigation; nine of those defendants have pled guilty, while four are awaiting trial. (More information about the case can be found at http://www.justice.gov/usao/cas/press/2012/cas12-1002-FirstAmericanChandlerPR.pdf.)
U.S. v. Saffar, et al.
These defendants induced customers to purchase an “audit” of their home mortgage loans, supposedly to identify “violations” in the loan documents that could then be used to force banks to renegotiate their loans. The audit fees ranged from $995 to $3,500. Among the misrepresentations made to customers were claims that defendants’ businesses were affiliated with HUD, that they were participating in a federal program called “Hope for Homeowners,” that the audit fees were tax deductible, that the defendants’ companies had an “attorney” on staff who could finalize negotiations with banks on behalf of homeowners, that banks required “good faith” payments to reduce their loan balance and interest rate, and that the defendants’ companies would keep those payments in an “escrow account” for homeowners. Defendants solicited at least $300,000 in funds from approximately 50 victims. All three defendants have pled guilty and been sentenced, with lead defendant Ziad Nabil Mohammed Al Saffar receiving a 21-month custodial sentence. (More information about the case can be found at http://www.stopfraud.gov/iso/opa/stopfraud/CAS-120214.html)
U.S. v. Castro and Chrysler
A jury convicted Chrysler and Castro in April 2012 of falsifying borrowers’ loan applications in order to obtain over $300,000 in mortgage loan fees and real estate commissions. Evidence at trial showed that the defendants targeted Spanish-speaking borrowers as clients and concealed from them the fraudulent information that the defendants inserted into their loan documents. Several borrowers testified that the defendants told them to simply sign the loan documents and did not translate these documents into Spanish. As the borrowers were not financially qualified to obtain these loans, many of the mortgages went into default and the borrowers lost their homes. (More information about this case is available at http://www.justice.gov/usao/cas/press/2012/cas12-0418-Castro%20-%20Chrysler.pdf)
In federal civil actions involving distressed homeowner victims nationwide, the Justice Department’s U.S. Trustee Program, the Federal Trade Commission, and the Consumer Financial Protection Bureau (CFPB), protectors of the nation’s bankruptcy laws and federal consumer laws, filed 110 cases against 153 defendants in federal cases across the country, with more than 15,000 victims identified and losses estimated at more than $37 million. False or abusive filings in U.S. Bankruptcy Court are commonly used to execute foreclosure rescue scams. State Attorneys General also filed criminal cases against 58 defendants, with losses at more than $3 million, and also filed at least 104 civil enforcement actions against 125 defendants with losses to homeowners at approximately $5 million. Last, the Treasury Department’s Office of Financial Stability’s Antifraud Unit and the Office of the Special Inspector General for the Troubled Asset Relief Program (SIGTARP), in order to protect homeowners from fraudulent or confusing websites that misuse the U.S. Treasury seal and key TARP housing program names, such as the Home Affordable Modification Program, shut down or forced into compliance more than 900 mortgage rescue websites or web advertisers.
In order to protect struggling homeowners and increase the number of criminal enforcement actions made as part of this initiative, the members of the Mortgage Fraud Working Group were proactive and fully operational. The FBI generated new investigations by gathering victim complaint data from FTC databases and other sources, analyzed the data, and distributed information of lead value to field offices from coast to coast. The FBI, together with HUD-OIG, also utilized sophisticated undercover operations to facilitate the development of federal distressed homeowner criminal cases. Further, the FBI led a surge consisting of several law enforcement agencies in the Central District of California, where many foreclosure rescue scam operators are located, to develop investigations that could be prosecuted in various federal districts. Many of the investigations initiated as part of the Distressed Homeowner Initiative are ongoing and will result in additional enforcement actions in the near future, including in the Southern District of California.
The Distressed Homeowners Initiative was organized by the Mortgage Fraud Working Group of President Obama’s interagency Financial Fraud Enforcement Task Force. The task force was established to lead an aggressive, coordinated, and proactive effort to investigate and prosecute financial crimes. Chaired by Attorney General Eric Holder, the 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 about the Financial Fraud Enforcement Task Force and to learn more about scams targeting homeowners, how protect yourself from scams, or how to report fraud if you believe you have been a victim, please visit: www.stopfraud.gov.