Oregon Mortgage Fraud and State RICO

Helping Protect the American Dream

Today’s Goal: Provide A Brief Overview Of

Mortgage Fraud and How to Fight

�What is Mortgage Fraud

�Types of Schemes

�Where the Lies are

�Why We care

�How to Fight –

� prosecution

What is Mortgage Fraud

Mortgage Fraud is any material

misstatement, misrepresentation

or omission relied upon by an

underwriter or lender to fund,

purchase or insure a loan.

What is Mortgage Fraud Cont . . .

�What does that mean?

�Sounds a lot like Justice Stewart's definition of pornography: “I know it when I see it.” Jacobellis v. Ohio, 378 U.S. 184, 197 (1964) (concurring).

What is Mortgage Fraud Cont . . .

Simply Put:

Mortgage fraud is lying to get money from a bank

Two Categories of Mortgage Fraud

�Fraud for Property: minor

misrepresentations by the applicant solely for the purpose of purchasing a property for a primary residence. Usually a single loan.

�Fraud for Profit: gross misrepresentations

concerning appraisals and loan documents and participants are frequently paid for their participation. Usually involves several loans.




�Types of Schemes


�Why We care

�How to Fight –

� prosecution

Real estate

Investment 7%

Real estate

Investment 7%

BankruptcyFraud - 1%

BankruptcyFraud - 1%

Builder Bailout – 2%

Builder Bailout – 2% Equity

Skimming – 2%

Equity Skimming – 2%

Settlement related

Schemes (kickbacks)

14%

Settlement related

Schemes (kickbacks)

14%

Advance Fee -2%

Advance Fee -2%

Commercial Real EstateFraud – 4%

Commercial Real EstateFraud – 4%

Foreclosure Rescue – 2%

Foreclosure Rescue – 2%

Short Sale 4%

Short Sale 4%

Loan Origination(property flipping)

62%

Loan Origination(property flipping)

62%

SchemesSchemes

Loan Origination: Flipping

�False statement can include:

�False appraisal

�False straw buyer financial qualifications

�False transaction documents based on phony price

Most Common Fraud –

Flipping/Equity Stripping

Flipping Scheme:

Flipped Home

Builder-Bailout


�False appraisal lender relies on for loan approval


�Fictitious down payment

Builder-Bailout Example

Builder/Developer can’t sell his/her inventory

Builder/Developer gets inflated appraisalFor $500,000 for a

$400,000 home

Loan Documents falsely state $500,000

Transaction price

Lender funds a mortgage loan of $400,000 believing

that $100,000 was paid to the builder, creating home equity

Step 4

Step 3Step 2

Step 1

Step 5

Based on phony down payment. Lender funds 100% of

homes value. Builder/ Developer keeps his profit

Reverse Mortgage

Equity Skimming: Reverse Mortgage

�Home Equity Conversion Mortgage (“HECM”) Scheme:

� Perpetrators purchase properties using straw buyers

� Deed then transferred to senior

� After 60 days, with inflated appraisal, perpetrator helps senior obtain HECM, usually in lump sum

� Perpetrator absconds with all the money

Foreclosure Rescue Scam


�Failure to disclose homeowner’s interest in property in subsequent financing transactions

�Subsequent lender is misled if title transfer/deed is manipulated or forged

Foreclosure Rescue Scam

Perpetrator convinces homeowner they can save their home from foreclosure through deed transfers and up-front fees

Step 1

Step 2

Step 3

Step 4

The Perpetrator may sell the victim’s home without

the homeowner’s knowledge

The Perpetrator may secure a second loan without the homeowner’s knowledge

Deed Transfer. The deed is manipulated

and forged by the Perpetrator

Homeowner signs deed over to Perpetrator

Up-front fees

Victim’s House

Homeowner

Short Sale Scheme


�False appraisal lender relies on for loan approval


�Perpetrators secret control of transaction and fact that straw buyer does not intend to be responsible for payments on loan

Short Sale Schemes:

Perpetrator identifies a home in the process of foreclosure.

Bank is owed $500,000.

Perpetrator finds a buyer to purchase the property for $400,000

Perpetrator makes an offer to the bank to purchase the property in a “short sale” for

$300,000. Bank agrees believing that a buyer willing to pay $300,000.

Lender agrees to the short sale not knowing that the buyer has agreed to purchase the

property for $400,000.

Perpetrator sells the property at actual value for a profit, or has the property artificially

inflated to conduct an illegal property flip




�Types of Schemes


�Why We care

�How to Fight –

� prosecution

Motivational Quote

“Like music, lying requires exquisite timing, a consistent beat and a melodic quality designed to sooth the most cynical beast.”

Robert F. Miller, real estate con-artist, Statement to the United States District Court, District of Columbia, 1:05CR00143

Form 1003

Is it claimed as a primary residence

Is the employment history true

Motivational Quote 2

“ Like painting, lying requires varying shades of color, depending on the visual or intellectual effect desired.”Robert F. Miller, real estate con-artist, Statement to the United States

District Court, District of Columbia, 1:05CR00143

Tax Returns

&

W-2s

Gift Letter

Motivational Quote 3

“ Like poetry, lying has to be precise, measured, lyrical and appealing.”Robert F. Miller, real estate con-artist, Statement to the United States

District Court, District of Columbia, 1:05CR00143

VOD

Seasoning Accounts

Appraisal

HUD-1

Cash at closing from Borrower

Final Motivational Quote

“ Are you kidding? I couldn’t make this much money selling crack in Detroit. Besides, this way no one shoots me and I get to wear a suit.”A. S., Straw Buyer, Proffer Session, EDKY

Real Estate Investment Schemes

� Louis J. Borstelmann:

� $18.9 Million Real Estate Ponzi Scheme

� Over 100 Victims in Several States, including Oregon, California, Hawaii, Montana, and Texas

� 108 Months’ Incarceration and $18.9 Million in Restitution




�Types of Schemes


�Why We care

�How to Fight –

� prosecution

Why We Care

� Mortgage fraud has the single biggest impact on quality of life in an area� In Central Oregon

and Coastal cities prices have dropped more than 10 percent

State 12 Month Housing Price Index % Change

California -4.73% Nevada -6.56% Arizona -13.38% Florida -5.79% Oregon -10.02%

ForeclosuresIn 2008, Oregon’s foreclosure rate jumped 121 percent

In 2009, Oregon foreclosures 12th

highest in nation

In 2010, Oregon’s foreclosure rate increases 20 percent to 3rd highest in nation

Losses




�Types of Schemes


�Why We care

�How to Fight –

� prosecution

Possible Federal Charges

� Bank Fraud

� Wire Fraud

� Mail Fraud

� Loan Application Fraud/False Statement to Banks

� Conspiracy

� Money Laundering

� Bankruptcy Fraud

Possible Oregon Charges� Aggravated Theft – by deception

� Forgery (and related offenses)

� Income Tax Fraud/Evasion

� Mortgage Broker Fraud (see list in ORS 86 et seq)

� Aggravated Identity Theft

� Money Laundering

� Racketeering--includes the above charges, and

� Federal Charges listed in Federal RICO such as:

� Bank Fraud, Wire Fraud, Mail Fraud, Money Laundering

Why Oregon Racketeering (“RICO”)?

� Can bring federal charges such as bank and/or wire fraud and state charges.

� Uniquely suited to target organized mortgage fraud.

� If real property – enterprise not required.

� Required pattern evidence – advantage.

� Class A felony.

What do you need for RICO?

A Pattern of Racketeering Activity (“PRA”)

At least two or more incidents with same/similar:� Intents, results, accomplices, victims, OR

� Methods of commission, OR,

� Otherwise are interrelated by distinguishing, including a nexus to the same enterprise (and not isolated)

� PRA –or “predicates” can include:� Aggravated Theft (Oregon),

� Bank Fraud (Federal), Wire Fraud (Federal)…

2 underused RICO weapons

RICOORS 166.720

(3) Enterprise (only)

(1) PROCEEDS &

REAL PROPERTY(or enterprise)

(2) INTEREST..

in REAL PROP.(or enterprise)

(4) Conspire/

Endeavor

Why underused??? Because lawyers are like this guy…

Unlawful Proceeds

and Mortgage FraudORS 166.720(1)

� IF proceeds from PRA and

� Proceeds used to finance enterprise, OR

� In the acquisition of any title to, or any right, interest or equity in, real property

� Injury from proceeds itself. � Kotera v. DAIOH International, 179 Or.App. 253, 277 (2002)

� THEN CHARGE RICO

RICO example #1

Unlawful proceeds in Mortgage Fraud

Suspect’s unlawful proceeds used toobtain real property

Suspect generates unlawful proceeds through 2x mortgage fraud

Suspect uses unlawful proceedsas down payment

$$$$$

RICO example #2

Unlawful proceeds in Mortgage Fraud

Suspect’s unlawful proceeds used toobtain real property

Suspect generates unlawful proceeds through 2x drug sales

Suspect uses unlawful proceedsas down payment

$$$$$

Interest or Control

and Mortgage FraudORS 166.720(2)

� IF from a PRA, a person

� Acquires, maintains, direct or indirect, interest or control

� Of any enterprise,

OR

� ANY REAL PROPERTY

� Injury from acquisition, etc., itself.

� Kotera v. DAIOH Int’l, 179 Or.App. 253, 277 (2002)

� THEN CHARGE RICO

RICO example #3

Interest or Control in Mortgage Fraud

Suspect falselyRepresents toTo Bank #1 that HELOC is for home improvement. In reliance, Bank #1 Issues HELOC #1 for house #1

Suspect then Obtains HELOC #2 from Bank #2 for House #2 by using money from HELOC #1 and by concealingOrigin of money.

Money from HELOC #2 is used to acquire House #3 by concealing the origin of the money.

Some Oregon Charges available?

�Racketeering (1x) with predicates:

�Aggravated Theft (3x)

�Bank Fraud (3x)

�Wire Fraud (3x)---if electronic….

�Aggravated Theft (3x)

�….More…….

So why not charge RICO?

� RICO is a class A felony.

� Maximum penalty:

� 20 years

� $375,000 fine

� Actual penalties can include sentencing based on the highest level predicate.

� Sentencing may be consecutive to underlying predicates. State v. Blossom,88 Or.App. 75, 78-79 (1987).

Sample Proceeds (subsec.1)

Indictment Language� “The Defendant, between [begin date here] through [end

date here], in [county here], did unlawfully and knowingly receive the direct or indirect proceeds of a pattern of racketeering activity, used or invested,directly or indirectly, any part of such proceeds, derived from the use thereof, in the acquisition of title, rights, interests, or equity in real property, to-wit; [identifying real property information/location here]

� The pattern of racketeering activity consisted of incidents that were not isolated but that had the same or similar intents, results, accomplices, victims, or methods of commission, or were otherwise interrelated by distinguishing characteristics is more particularly described as follows:

� [allege predicates individually here]”

Sample Interest/Control (subsec.2)

Indictment Language

� “The Defendant, between [begin date here] through [end date here], in [county here], through a pattern of racketeering activity, did unlawfully and knowingly acquire, maintain, directly or indirectly, an interest or control in real property, to-wit;

� [identifying real property information/location here]� The pattern of racketeering activity consisted of incidents

that were not isolated but that had the same or similar intents, results, accomplices, victims, or methods of commission, or were otherwise interrelated by distinguishing characteristics is more particularly described as follows:

� [allege predicates individually here]”

RICO Remedies� Injunctions and orders

� Divestitures of --interests in enterprise OR real property;

� Restricting future activities, investments, enterprise; � Dissolution or reorganization of any enterprise.� Suspensions or revocations of licenses, permits, etc. � Forfeiture/revocation of authority to conduct business.

� Forfeiture of personal or real property, and proceeds� Seizure without court process -- incident to arrest,

administrative inspection warrant, prior RICO judgment.� Award of costs of investigation and litigation - for

agencies working case. Includes attorney fees.� The AG, any DA, and state agency with jurisdiction over

predicates may institute civil forfeiture proceedings.

Civil RICO Complaint� Any DA, state agency, investigative agency, or the AGO –

may file civil RICO.� Any aggrieved person – may file civil RICO, with limit:

� It must follow a RICO criminal conviction with appeal rights expired OR Civil RICO Complaint limited to selected list of predicates from ORS 166.715(6)(a) – most not mortgage fraud.

� May seek forfeited property or proceeds superior to the state, attorney’s fees, three-fold the actual damages sustained and, when appropriate, punitive damages. Damage awards are supplemental and not mutually exclusive of other damages.

� Collateral Estoppel: If criminal RICO conviction, then estoppel in subsequent civil actions or proceedings.

RICO

� Use Oregon RICO to fight mortgage fraud –

� When there is a predicate involving a pattern of mortgage fraud.� Two or more is sufficient for a pattern

� Use to bring federal and state charges.

Questions?

AUSA Scott Bradford

AAG Jonathan Groux

�541-465-6771

�[email protected]

�503-934-4400

�[email protected]

Oregon Mortgage Fraud and State RICO

Economy & Finance

Transcript of Oregon Mortgage Fraud and State RICO