FBI deluged by fraud cases from real estate bubble

The criminal cases against Brian W. King and Ronnie E. Brodie are typical of what the FBI is seeing as a result of the rise and fall of the real estate market.


King, 42, of Virginia Beach, pleaded guilty this month to falsifying mortgage applications, obtaining more than $700,000 in loans he never should have qualified for by inflating his income.


Brodie, in an unrelated case, will be arraigned Wednesday on similar charges of lying on her mortgage papers. Like King, the 36-year-old from Virginia Beach is accused of inflating her income.


Cases such as King’s and Brodie’s have become commonplace in U.S. District Court in Norfolk, as the FBI and other federal agencies begin seeing the fruits of mortgage fraud investigations that started three years ago just as the real estate market began deteriorating.


“We have more active mortgage fraud investigations going on than any other white collar crime,” said Supervisory Special Agent Catherine Rafferty, who is in charge of the Norfolk FBI office white collar unit.


The agency earlier this year created a mortgage fraud working group to better coordinate investigations among local, state and federal agencies, one of 71 such panels the Justice Department has formed around the country.


The U.S. Attorney’s Office filed three mortgage fraud-related cases here this fall and gained a significant victory this month in the Troy A. Titus real estate scam. Titus was convicted of 33 felony counts of mail and wire fraud, money laundering and conspiracy in what prosecutors said was a $7 million Ponzi scheme.


On the Peninsula, a federal jury convicted mortgage broker Richard N. Garries in a $900,000 home “flipping” scheme that he started in 2005 but saw come crashing down along with the real estate market. Garries, a convicted felon, was sentenced this fall to 20 years in prison.


These cases represent fewer than 1,000 mortgage fraud prosecutions conducted in 2009, yet the FBI says it has around 3,000 pending investigations. In 2004, there were fewer than 150 such cases nationwide.


Mortgage fraud is believed to be causing $4 billion to $6 billion in annual losses, according to industry analysts.


Colin Woods emerged from the FBI Academy in 2006 and in three years has become an expert in financial frauds, particularly mortgage fraud. His most recent success involved Wayne Marlon Benedic Lezama, a 44-year-old Virginia Beach real estate agent who pleaded guilty last month to one federal count of wire fraud in a scheme to obtain more than $3 million in mortgage loans.


Like the Brian King case, Lezama inflated his net worth to obtain loans. He also utilized straw buyers, another trick in which someone “lends” his credit and name to a loan.


In 2005, at the height of the real estate boom, Lezama had no problem getting mortgages. At the time, some lenders did little background checking. That August, he obtained $790,000 in financing for the entire purchase price of a swanky Lago Mar home with a pond and a pool.


That house sold in foreclosure this April for $491,000.


In a two-year span, Lezama purchased 10 more homes, some worth a half-million dollars, using straw buyers and/or phony income and asset reports. While financial institutions lost around $3 million, it’s unclear how much cash Lezama actually made through the scheme.


Lezama is scheduled to be sentenced Feb. 23.


Cases such as this take a long time to reach the arrest stage, but Woods, other agents and prosecutors say more cases will be made public in the coming months.


And now, about half of the FBI’s mortgage fraud cases involve foreclosure rescue scams. That happens when unscrupulous brokers negotiate refinancing on behalf of homeowners facing foreclosure.


“They think they’re refinancing their house. They think their credit will be repaired and they’ll have no payments for a year,” Woods said. “What happens is they are really selling their house to a straw buyer.”


All the equity is sucked from the house and the proceeds split among the broker and accomplices.


“These are often the most heart-wrenching cases – the elderly, the less fortunate,” he said. “Rarely is there restitution available.”


The Federal Trade Commission, the U.S. Department of Housing and Urban Development Inspector General’s Office and the Treasury Department are among other federal agencies battling mortgage fraud on different fronts.


Treasury runs the Financial Crimes Enforcement Network, or FinCEN, which studies financial frauds and assists law enforcement. This year, Virginia for the first time entered the top 10 in states reporting the highest rates of mortgage fraud, FinCEN reported recently.


From January through June, Hampton Roads reported 183 suspicious mortgage fraud cases, ranking it 44th highest among metropolitan areas in the country, FinCEN reported.


Tim McGlone, (757) 446-2343, tim.mcglone@pilotonline.com


Published on 10/01/2010 10:29:38