National Mortgage Fraud Sweep Takes in Two Birmingham Fraud Rings
|U.S. Attorney’s Office June 17, 2010|
The U.S. Attorney’s Office for the Northern District of Alabama is currently prosecuting two mortgage fraud rings that have affected 125 properties in the Birmingham Metro Area and caused nearly $4 million in losses to banks and lending institutions, U.S. Attorney Joyce White Vance announced.
Working as part of "Operation Stolen Dreams," the national mortgage fraud crackdown announced today by Attorney General Eric Holder, Vance said 16 defendants in the two Jefferson County mortgage fraud rings have been charged, sentenced, or pleaded guilty since March 1 when the national sweep began.
Operation Stolen Dreams was organized by 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. Nationwide, since the sweep began it has involved 1,215 criminal defendants, including 485 arrests, who are allegedly responsible for more than $2.3 billion in losses. Additionally, the operation has, to date, resulted in 191 civil enforcement actions which have resulted in the recovery of more than $147 million.
“Mortgage fraud not only damages our banks and credit unions, this crime can affect the very core of our neighborhoods and communities,” Vance said. “We have seen first-hand that as a property goes into foreclosure, surrounding homes are harmed by lowered property values. Many times the foreclosed properties become abandoned, and these vacant houses then become the source of new criminal offenses such as vandalism, or drug-related activities. We are determined to aggressively seek out these frauds and prosecute their perpetrators,” she said.
The mortgage fraud rings currently being prosecuted in Birmingham involve various schemes of deception. Some schemes involve false statements of income and assets on loan applications. In other schemes, the seller makes an up-front payment to the buyer of rental property and promises to supply tenants eligible for government rent subsidies. Then, when the properties can’t be rented, buyers are stuck with depressed properties they can’t afford.
Of the 16 defendants involved in the two rings, 11 face pending charges, three have been convicted and sentenced, and two have pleaded guilty and are awaiting sentencing.
The FBI, the Department of Housing and Urban Development’s Office of Inspector General and the Social Security Administration’s Office of Inspector General investigated these mortgage fraud rings and worked with Assistant U.S. Attorney Patrick Carney to bring them to prosecution, Vance said.
“Those who perpetrate mortgage fraud not only damage lending institutions, real estate professionals and the financial health of our communities—they also victimize a significant number of homeowners in the U.S. every year,” said FBI Special Agent in Charge Patrick J. Maley. “As these cases highlight, the FBI, along with our local, state and federal partners, are addressing this crime on a local level to protect the financial health of our country as well as individual citizens,” Maley said.
“The last number of years have seen enormous and damaging developments in the mortgage and housing markets, with an urgent reliance on the government to bolster unstable marketplaces and devastated communities,” said Kenneth M. Donohue, inspector general of the Department of Housing and Urban Development. “The HUD OIG, in partnership with other federal agencies, is deeply committed to ensuring that scarce resources are not diverted to those who seek to enrich themselves at the expense of those who so desperately need assistance today.”
The local mortgage fraud ring led by TIMOTHY JOHNSON hit lenders the hardest, causing $2.5 million in failed mortgages on about 45 properties in Fairfield, East Lake, inner-city Birmingham and Bessemer. Loans have been foreclosed on about 75 percent of those homes. Johnson and nine other individuals have been charged in connection with this mortgage fraud ring.
Johnson, 45, of Bessemer, is charged with two counts of making false statements on a loan application, two counts of mail fraud against a financial institution and one count of false statements to federal agents. The nine other defendants connected to the case all face charges that they supplied false information or documents, including letters claiming Social Security disability payments, in their mortgage loan applications.
Johnson, as the center of the fraud, would approach people attempting to sell their homes and discover what price they wanted. He would do minimal work on the homes, have them appraised and then attach a “mechanics lien” against the property for the difference between the appraised value and what the owner wanted for the house. Johnson would then proceed to find buyers, spreading the word that he could help individuals improve their credit or get approved for a mortgage loan.
His means of helping people secure loans often involved the creation of fraudulent letters purporting to show that the loan applicant received monthly disability payments from the Social Security Administration. Once loans were issued, based on the false claims of disability income or false credit claims, Johnson would realize his profit from the scheme. He would be paid the amount of the liens he placed on the properties.
Among the nine other defendants charged in connection to Johnson’s fraud scheme was a Social Security Administration employee, Pamela Terrell. Terrell was charged with aiding and abetting the fraud. She provided Johnson with several disability award letters that fraudulently purported to be from the Social Security Administration, and which were used to obtain loans for otherwise ineligible loan applicants.
A second ring being prosecuted in this office was led by AL CARSON ROCKETT, 33, of Birmingham, who pleaded guilty in February to mail fraud. Those charges were connected to a mortgage fraud scheme that involved about 80 properties and totaled $1,090,046. Rockett was sentenced June 3 to 15 months in prison.
Rockett's frauds took various forms as he adapted to changing banking and funding rules associated with mortgage loans. His initial scheme involved altering documents to make it appear that the home buyer already owned the home and was seeking to refinance the mortgage. He was assisted in this scheme by JERRY EUGENE PARKER, who owned Central Alabama Title Company. Parker, 59, of Hoover, was charged in April with two counts of aiding and abetting mail fraud.
Rockett resold houses he bought at foreclosure auctions. He made minimal improvements on the houses, then obtained artificially high appraisals. He recruited buyers with assurances that the houses could be investments, promising to find tenants through the government’s subsidized rent program and claiming the rent would cover the mortgage and provide some profit. Tenants rarely were found.
Once Rockett had buyers, Parker would change the title of the property into the buyer’s name before the sale was made. This allowed the new buyer to appear as the current owner of the property seeking a refinance, rather than a new mortgage loan. The loan requested would be 20 percent less than the appraised value, giving the appearance that the owner had at least 20 percent equity in the home, and making the loan more likely to be approved.
Rockett made his illicit profit in the difference between the inflated loan amount and his original purchase price. This refinance scheme also allowed him to avoid down-payment or other costs associated with an original mortgage loan.
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.