U.S. Attorney’s Office Targeting Scammers Who Prey on Distressed Homeowners

PLEASE NOTE: The press release below inadvertently reported inaccurate figures. An extensive review of the reported cases concluded that, contrary to the figures contained in the initial announcement, the initiative resulted in 107 criminal defendants charged in U.S. District Courts across the country. These cases involved more than 17,185 homeowner victims and total losses by those victims estimated by law enforcement at more than $95 million. In federal civil actions involving distressed homeowner victims, 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 cases against 128 defendants in federal cases across the country, with at least 19,198 victims identified and losses estimated at more than $54 million.

The discrepancy occurred due to the fact that the original figures included in the Distressed Homeowner Initiative materials included not only criminal defendants who had been charged in fiscal year 2012, but also a number of defendants who were the subject of other prosecutive actions—such as a conviction or sentencing—in fiscal year 2012. In addition, the announcement included a number of defendants who were charged in mortgage fraud cases in which the victim(s) did not fit the narrow definition of “distressed homeowner” that the initiative targeted.

NEWARK—U.S. Attorney Paul J. Fishman today announced that, as part of the national Distressed Homeowner Initiative described by Attorney General Eric Holder and other federal officials earlier today at a press conference in Washington, D.C., the District of New Jersey has brought a number of significant criminal cases involving felony offenses during the fiscal year, which closed September 30, 2012. These cases involved numerous homeowner victims and losses estimated by law enforcement in the millions of dollars.

“The victims of these crimes include homeowners who find themselves struggling to hold on to their biggest financial asset—their homes,” U.S. Attorney Fishman said. “Unscrupulous criminals take advantage of that desperation and cause even more misery with the false promise of help. They also cheat banks out of millions of dollars in mortgages that will never be repaid.”

From October 1, 2011 to September 30, 2012 (fiscal year 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 having so-called investors purchase the mortgage or transferring title in the home to persons in league with the scammer. 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.

“These comprehensive efforts represent a historic, government-wide commitment to eradicating mortgage fraud and related offenses,” Attorney General Holder said. “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.”

In federal civil actions involving distressed homeowner victims, 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 51 defendants, with losses at more than $2 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 southern 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.

Cases filed in the District of New Jersey as part of the Distressed Homeowner Initiative since October 1, 2011, include the following:

U.S. v. Daniel Verdia, Jaye Miller, and Crystal Paling

In this mortgage fraud case, some of the fraudulent loans handled by members of the conspiracy were “foreclosure rescue” loans offered to individuals facing foreclosure and eviction. Co-conspirators arranged for straw buyers to purchase properties at inflated prices in exchange for cash payments. Co-conspirators told property owners that they would be able to remain in their homes and repurchase them once their credit was rebuilt; straw buyers were told that mortgages would be paid from escrow and that buyers would have no liability. Virtually all of the loan proceeds that remained after existing mortgages were paid off were divided among co-conspirators, and only a few mortgage payments were made. The properties again entered foreclosure, leaving the sellers without their homes and the buyers with ruined credit and judgments against them. Verdia and Miller pleaded guilty on February 17, 2012, to conspiracy to commit wire fraud. Crystal Paling was convicted of conspiracy to commit wire fraud and money laundering on March 16, 2012, following a two-week trial. Miller was sentenced to six months in prison and Verdia was sentenced to 30 months in prison; both were ordered to pay $533,000 in restitution. Paling’s sentencing hearing is scheduled for October 18, 2012.

U.S. v. Phil Simon and Garth Celestine

Simon and Celestine operated Home Savers Consulting Corp. a foreclosure rescue company that advertised that it could help homeowners avoid foreclosure by signing contracts of sale and transferring title to their homes to “investors.” Simon and Celestine promised that Home Savers would help homeowners improve their credit ratings, help them obtain more favorable mortgages for their homes, and that the “investors” or “straw buyers” would be directed to transfer ownership back to the homeowners within six months to a year. They also told the homeowners that the equity withdrawn from their property would be kept in a separate account and used to pay mortgages and expenses on their home. Home Savers did not pay the mortgages, causing losses to the bank and ruining the credit of the straw buyers. Instead, the defendants deposited the loan proceeds into the bank accounts of Home Savers and to another company owned and controlled by them.

On February 15, 2012, Simon was sentenced to 66 months in prison and Celestine to 36 months in prison. Restitution will be determined at a future date.

U.S. v. Ronald Harris, Jr. et al.

Ronald Harris, Sterling Bruce, Sabir Muhammad, and Pia Perkinson found homeowners who were going into foreclosure and advised them that Harris Capital could help them improve their credit and stay in their homes. The homeowners were told that they could pay rent for six months to one year, after which time they would be able to get title back to their homes from “investors” or “straw buyers” who would purchase their property. Fraudulent loan applications were submitted to lenders to make the straw buyers appear qualified. The straw buyers were told that the rental income from the residents of the property would cover all mortgage payments and other costs of ownership. Prior to closing, the defendants would file liens on the properties that would be transferred from the distressed homeowners to the straw buyers. These liens were typically for tens of thousands of dollars and would be in the names of shell companies belonging to either Harris or Bruce. These liens, which were paid off at closing, were filed in order that the proceeds of the loans could be used to enrich Harris, Bruce, and others. In almost all instances, mortgage payments were not made to the lenders, and the loans went into default.

On May 16, 2011, Harris pleaded guilty to an information charging him with conspiracy to commit wire fraud and conspiracy to engage in monetary transactions in criminally derived property. On July 31, 2012, Harris was sentenced to 46 months in prison and ordered to pay restitution of $1.8 million. On May 17, 2011, Sterling pleaded guilty to an information charging him with conspiracy to commit wire fraud. On July 31, 2012, he was sentenced to 18 months’ imprisonment, three year’s supervised release, and restitution in the amount of $1.3 million. On May 15, 2012, Muhammad pleaded guilty to an information charging him with wire fraud affecting a financial institution. His sentencing hearing is scheduled for November 19, 2012. On April 26, 2010, Perkinson pleaded guilty to an information charging her with wire fraud. On September 4 2012, Perkinson was sentenced to one day in prison and three years of supervised release and ordered to pay restitution of $1 million.

U.S. v. Jorge Abbud

Abbud targeted homeowners in New Jersey who had equity in their homes but were facing foreclosure. He promised to help the homeowners avoid foreclosure, keep their homes, and repair their damaged credit. Abbud convinced the homeowners to allow the titles to their homes to be placed in the names of “straw buyers” for one to three years, during which time he would improve their credit scores, obtain more favorable mortgages, and return the title to their homes. Abbud recruited straw buyers to act as buyers of the properties, convincing them that they were helping the homeowners keep their homes, and that the straw buyers would make money when the homes were sold back to the homeowners. Abbud caused false documents to be submitted to financial institutions to secure the loans needed to purchase the properties. Abbud caused funds distributed by the lenders to be disbursed to individuals and entities not entitled to the funds.

On January 18, 2012, Abbud pleaded guilty to an information charging him with wire fraud. He was sentenced on April 24, 2012, to 21 months in prison and ordered to pay restitution in the amount of $138,402.

The initiative included federal criminal prosecutions brought by various U.S. Attorneys’ Offices and the Department of Justice’s Criminal and Civil Divisions; civil enforcement cases filed by the Department of Justice’s U.S. Trustee Program, FTC, and CFPB; and criminal and civil cases brought by Attorneys General in over 11 states. Participating federal agencies included the FBI, the Office of Inspector General of the Department of Housing and Urban Development (HUD-OIG), the Federal Housing Finance Agency’s Office of Inspector General (FHFA-OIG), SIGTARP, Internal Revenue Service-Criminal Investigation, U.S. Postal Inspection Service, and the U.S. Secret Service. In addition, the Financial Crimes Enforcement Network, a task force partner, announced today that during the Distressed Homeowner Initiative it collected 4,395 foreclosure rescue Suspicious Activity Reports, a critical tool for law enforcement agencies when conducting investigations. For more information on this announcement, please visit: www.fincen.gov.

To learn more about scams targeting homeowners, how to protect yourself from scams, or how to report fraud if you believe you have been a victim, please visit: www.stopfraud.gov.

For information about the Distressed Homeowner Initiative, including stories about common scams, fraudsters’ sample marketing materials, plus radio and television public service announcements, please visit: www.stopfraud.gov.

The Mortgage Fraud Working Group of President Obama’s interagency Financial Fraud Enforcement Task Force was established to lead an aggressive, coordinated, and proactive effort to investigate and prosecute financial crimes. The task force, chaired by Attorney General Eric Holder, 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, please visit: www.stopfraud.gov.