Press Release
MORTGAGE FRAUD PROSECUTIONS CONTINUE TO RISE IN SOUTH FLORIDA
September 30, 2008
FOR IMMEDIATE RELEASE
R. Alexander Acosta, United States Attorney for the Southern District of Florida, Jonathan I. Solomon, Special Agent in Charge, Federal Bureau of Investigation (FBI), Miami Field Office, Michael Fithen, Special Agent in Charge, U.S. Secret Service (USSS), Jon Rymer, Inspector General, Federal Deposit Insurance Corporation - Office of Inspector General (FDIC-OIG), Kenneth M. Donohue, Inspector General, U.S. Department of Housing and Urban Development - Office of Inspector General (HUD-OIG), Henry Gutierrez, Inspector in Charge, U.S. Postal Inspection Service, Michael E. Yasofsky, Special Agent in Charge, Internal Revenue Service, Anthony V. Mangione, Special Agent in Charge, U.S. Customs and Immigration Enforcement, Office of Investigations, Don B. Saxon, Commissioner, Florida Department of Financial Regulation, and Robert Parker, Director, Miami-Dade Police Department, gathered today to mark the end of year one of the Federal-State Mortgage Fraud Initiative, first announced in September 2007.
On September 27, 2007, U.S. Attorney Acosta announced a joint Federal-State Mortgage Fraud Initiative, designed to combat the growing mortgage fraud epidemic in South Florida. The Federal-State Mortgage Fraud Initiative brought together federal and state law enforcement to investigate and prosecute federally mortgage fraud offenders. In June 2008, the U.S. Attorney announced the formation of a Mortgage Fraud Strike Force within the United States Attorney’s Office (USAO) and the dedication of full-time attorneys and agents to the investigation and prosecution of mortgage fraud matters.
Together, the Federal-State Mortgage Fraud Initiative and the USAO Mortgage Fraud Strike Force have yielded substantial results. To date, 112 individuals have been prosecuted since Sept. 2007 for their involvement in mortgage fraud schemes that have resulted or were intended to result in the approval and issuance of more than $176,000,000 in mortgage loans.
U.S. Attorney Alex Acosta stated, “We have learned the hard way that mortgage fraud affects each and every one of us. Mortgage fraud undermines the soundness of our financial markets and shakes public confidence in our banking system. Although increased prosecutions alone will not solve the mortgage crisis, we hope that these prosecutions will help deter future fraud.”
FBI Special Agent in Charge Jonathan I. Solomon said, “Mortgage fraud is a significant problem that affects our community and the nation. We are working with task forces and have designated additional resources to combat mortgage fraud, making it a top priority for the FBI.”
“In today's uncertainty in the housing market and concurrent efforts to try to help homeowners in distress, it is all the more important that we remain dedicated to investigating and prosecuting those that would defraud the Federal Housing Administration,” said Kenneth M. Donohue, Inspector General of the Department of Housing and Urban Development. “The HUD Office of Inspector General remains committed to law enforcement efforts to bring those that would seek to profit while the American taxpayer is defrauded of critical programs in a time of extreme need.”
U.S. Secret Service Special Agent in Charge Michael K. Fithen said, “The Secret Service Miami Field Office embraces this new initiative to address the full scope of mortgage fraud schemes that continue to emerge and victimize south Florida. We will bring to bear our expertise and that of law enforcement partners from our Electronic Crimes Task Force and Financial Crimes Task Force to assist in these significant investigations.”
Henry Gutierrez, Inspector in Charge of the Miami Division of the U.S. Postal Inspection Service, added, “These investigations and prosecutions illustrate the South Florida law enforcement community’s commitment to root out those who perpetrate fraud. Mortgage fraud fuels our nation mortgage crisis, and fraudsters will be prosecuted.”
IRS Acting Special Agent in Charge Betty Stewart added, “Mortgage fraud is detrimental to our economy and erodes the integrity of our tax system. IRS-CI will continue to work with our law enforcement partners to aggressively uncover and investigate these types of fraud.”
“We at ICE are pleased to have been able to assist in today’s arrest of Sergej Tews and in investigating and combatting mortgage fraud here in South Florida,” said Anthony Mangione, Special Agent in Charge of the ICE Office of Investigations in Miami. “Mortgage fraud costs lenders and purchasers millions of dollars and undermines the credibility of the real estate industry. The Miami ICE Office of Investigations will continue to work to uncover illicit transactions in the mortgage industry and together with the law enforcement community is united in our resolve to disrupt criminal organizations and individuals that commit crimes against our society and the economy.”
Director Robert Parker, Miami-Dade Police Department, noted, “Approximately one year ago, the Miami-Dade Police Department joined Miami-Dade County Mayor Carlos Alvarez, as he established a county-wide Mortgage Fraud Task Force, and with the U.S. Attorney’s Office Federal- State Mortgage Fraud Initiative, to help combat real estate and mortgage fraud in our community. Today, our commitment continues. Since then, many investigators and resources have been dedicated to these types of crimes, and results have been promising. We will continue to do the work needed to re-establish confidence in the integrity of real estate transactions in our county. ”
Today, U.S. Attorney Acosta, joined by members of the Federal-State Mortgage Fraud Initiative, announced a string of recent mortgage fraud prosecutions, including:
1. United States v. Alberto Hernandez and John Fraga, Case No. 08-20805-CR-Moreno. On September 8, 2008, two defendants were charged in a 21-count Indictment for their participation in a mortgage fraud scheme that resulted in the approval and disbursement of six mortgage loans, totaling approximately $980,000. According to the Indictment, from August 2003 to April 2004, defendant Alberto Hernandez, through his company, Ash Homes, sold six properties in Miami-Dade County to unqualified buyers. The purchases were all financed through Federal Housing Authority (FHA) loans, which are meant to provide low and middle income purchasers with an opportunity to purchase homes at better rates than would otherwise be available. These buyers are able to obtain better rates because FHA agrees to guarantee repayment of the loans.
In all six residential property sales, Hernandez, through straw donors, fraudulently financed the down payments and closing costs of the buyers. Defendant John Fraga was one of the false donors, as well as a silent investor with defendant Hernandez. Both defendants received sizable payments once the properties were sold to the unqualified buyers. In each of the six residential property sales, defendant Hernandez signed an Addendum to the HUD-1 settlement statement falsely certifying that he, as seller, was not financing the buyer’s closing contributions. Once the loans were closed, four of the six properties went into foreclosure. As the guarantor of the loans, HUD was required to take title to the property and reimburse the banks for their losses. The approximate aggregate losses to HUD related to these properties is in excess of $550,000.
If convicted, the defendants face 20 years’ imprisonment on the wire and mail fraud charges, 5 years’ imprisonment on the false statement charges, and 2 years’ imprisonment for making false statements to HUD. (AUSA Peter A. Forand)
2. United States v. Sergej Tews, Case No. 08-20883-Cr-King. On September 25, 2008, a federal grand jury returned a 22-count Indictment charging Sergej Tews in a complex fraud scheme involving the abuse of the State of Florida’s foreclosure process. Through this fraudulent scheme, Tews defrauded third-party purchasers seeking to buy allegedly foreclosed properties of approximately $615,900.
From March 2007 through August 2008, defendant Sergej Tews identified at least eight homeowners interested in relinquishing their mortgages and induced them to transfer their properties to him based on a promise that he would assume the payments on their outstanding mortgage loans. With respect to each property, the property owner executed a warranty deed, prepared by Tews, which gave the false appearance that the property was being sold, not just transferred, to a third party. These third parties were relatives of Tews. In no instance did Tews’ relatives provide any money to the seller, make any payment on any outstanding mortgages, or even meet the seller.
Upon filing the false warranty deeds at the Miami-Dade County Recorder's Office, Tews a) fabricated the amount paid for each property; b) hid the fact of the original homeowner’s outstanding mortgages; and c) paid the filing taxes based on the fabricated purchase price, making it appear as though the property had been purchased for the fraudulent amount.
At the same time that Tews filed the warranty deeds, he filed false mortgages with the Miami-Dade County Recorder’s Office, which were dated the same date as the warranty deeds. The mortgages made it appear as if each of the Tews’s relatives had borrowed money from a supposed lending company to finance the alleged purchase of the property. In each case, the supposed lending company was a company that Tews incorporated (in some instances, after the date of the alleged loan) and for which Tews was the owner, officer and general partner.
None of Tews’s supposed lending companies were registered to do business in Florida nor were licensed to operate as a mortgage lender. Additionally, Tews’s supposed lending companies each had a name notably similar to the name of an already existing mortgage lender registered to do business in Florida. For example, he created a supposed lending company called Argent Mortgages, LLC, closely named after the established lender Argent Mortgage Company, LLC. As another example, Tews created Fremont Lending, LLC, a bogus lending company named after the established Freemont Investment & Loan Company. In no instance did any of Tews’s supposed lenders loan any money in connection with the false and fraudulent loans. Regardless, Tews initiated foreclosure actions with respect to each property.
Tews executed and filed with Miami-Dade County courts a sworn affidavit of indebtedness claiming that the purported borrower, his relative, was in default of the fraudulent loan. In each case, the alleged defaulting borrower never responded to the action, and the court issued a Final Judgment of Foreclosure in favor of the supposed foreclosing lender and scheduled a foreclosure sale where the properties were auctioned to the highest bidder.
At the foreclosure sales, third-party purchasers, deceived by Tews’s fraudulent warranty deeds and mortgages into believing that there were no pre-existing mortgages, bid on, and sometimes purchased, the properties. As a result of his scheme, Tews received approximately $615,900 into his bank accounts. The actual, outstanding lenders have since foreclosed on the properties. (AUSA Joseph B. Shumofsky)
3. United States v. Vaughn Addison, Case No. 08-20912-Cr-Lenard. On September 30, 2008, a federal grand jury returned a 4-count Indictment charging the defendant in a mortgage fraud scheme that resulted in the approval and disbursement of three mortgage loans, totaling $2,400,000. Defendant Vaughn Addison used his position as an employee of two separate lenders to facilitate the approval of fraudulent mortgage loans on the sale of three residential properties in Marco Island, Florida (“the Marco Island properties”).
To execute the scheme, the mortgage broker in the transactions identified the Marco Island properties as residential properties that could be used to defraud lenders. False mortgage loan applications and other related documents were prepared by and on behalf of the straw buyers ostensibly recruited to purchase the properties, and these documents were submitted to the lenders to induce the lenders to fund mortgage loans on each of the Marco Island properties. These mortgage loan applications contained false information regarding the straw buyers’ employment, income, and their intent to live in the residential property as their primary residence. Each of the straw buyers signed the false mortgage loan applications.
Vaughn Addison worked at WMC Mortgage as a business development associate at the time of the submission of the loan applications for the first two properties involved in the scheme, and as an area sales manager at Countrywide Home Loans at the time of the submission of the loan application for the third property. In each case, Addison reviewed the loan application packages submitted by the mortgage broker, and counseled the mortgage broker as to how to structure the fraudulent loan packages to satisfy the lender underwriters examining the respective loan applications for the Marco Island properties.
After each of the closings for the Marco Island properties, the mortgage broker paid Addison $5,000.00, $10,000.00 and $3,000.00, respectively, for his assistance as a lender insider in obtaining approval for the three fraudulent loans. In each case, the straw buyers failed to make payments on the loans obtained as part of the scheme, causing each of the Marco Island properties to go into foreclosure and causing the lending institutions to suffer probable losses in excess of $900,000.
If convicted of the charges conspiracy to commit wire fraud and substantive wire fraud, the defendant faces a statutory maximum sentence of 20 years’ imprisonment. (AUSA Peter A. Forand)
4. United States v. Magile Cruz, Case No. 08-20770-Cr-King. On August 28, 2008, Magile Cruz, a/k/a Maggie Cruz, a/k/a Magile Cruz-Rodriguez, a/k/a Magile Araujo, a/k/a Ros Rodriguez, was charged for her participation in a multi-million fraud scheme that resulted in more than $24,000,000 in fraudulent mortgage loans, and losses of more than $5,000,000 to lenders. Cruz was charged with conspiracy to commit mail fraud and wire fraud, and with substantive counts of mail and wire fraud. If convicted, she faces a maximum sentence of 20 years on the conspiracy charge and on each substantive charge of mail and wire fraud.
According to the Indictment, Cruz was the de facto owner of Star Lending Mortgage, State Mortgage Lending, Sherley Title Services, Doral Title Services, and Professional Title Express. Star Lending Mortgage was a mortgage brokerage company; State Mortgage Lending was a mortgage lending business. Both were licensed to do business in the State of Florida. Sherley Title Services, Doral Title Services, and Professional Title Express were title agencies and were not licensed by the State of Florida. Cruz is alleged to have used employees and friends as the nominee owners for all five companies, and personally managed the businesses, including all the financial affairs of the companies.
Between 2005 through 2007, Cruz was engaged in a scheme to obtain fraudulent mortgage loans for the purchase of 79 properties in Miami-Dade and Broward Counties. To execute the scheme, Cruz would identify residential properties for sale through Star Lending Mortgage and State Mortgage. Cruz and other co-conspirators would recruit and pay straw buyers for the selected properties. Cruz and her co-conspirators would then prepare and cause to be prepared fraudulent mortgage loan applications on behalf of the straw buyers. The applications included false employment verifications, pay stubs, verification of income and funds on deposit, and IRS Forms W-2.
Thereafter, Cruz and her co-conspirators, including the straw buyers, would create and submit to the banks and lending institutions false HUD-Settlement Statement Forms, also known as HUD-1s, which concealed from the lending institutions, among other things, the existence of a second HUD-1 prepared for the same transaction with a lower sales price for the property. In other instances, Cruz would fraudulently obtain multiple loans from various lenders for the same parcel of property, all unbeknownst to the lenders involved. Finally, Cruz would similarly seek and obtain fraudulent loans on properties for which there was no true sale by stealing the identity of the seller and fabricating a transaction with a straw buyer.
According to the charges, the straw buyers would allow their identities and credit information to be used in the mortgage loan applications, falsely representing themselves to be the true buyers of the properties and the individuals responsible for the loan. Cruz and her co-conspirators would create and submit to banks and lending institutions fraudulent title documentation, including false closing protection letters, falsely representing that Sherley Title Services, Doral Title Services and Professional Title Express were agents for Fidelity National Title and/or Old Republic. In fact, however, these companies were not authorized by Fidelity National Title and/or Old Republic to act as their agents and to issue such documentation.
Once the mortgage applications were approved, the lenders would wire the loan proceeds to Sherley Title Services, Doral Title Services, and Professional Title Express for closing. At closing, Cruz and her co-conspirators would receive a credit for the difference between the inflated price and the actual selling price of the property. Cruz and her co-conspirators would then execute and file Change of Address forms with the United States Postal Service on behalf of the straw buyers, thus concealing from the individual actually living at the address that the subject property had been fraudulently sold.
Cruz would make the payments on the mortgage loans to maintain the loans afloat until the properties could be resold again, often to another straw buyer. When she failed to make payments on the loans, some properties went into foreclosure, resulting in substantial losses to the lending institutions. (AUSA Lois Foster Steers)
Mr. Acosta commended the investigative efforts of the U.S. Department of Health and Human Services, Office of Inspector General, the Federal Bureau of Investigation, Miami Field Office, U.S. Secret Service, Federal Deposit Insurance Corporation - Office of Inspector General, U.S. Department of Housing and Urban Development - Office of Inspector General, U.S. Postal Inspection Service, Internal Revenue Service, U.S. Customs and Immigration Enforcement, Office of Investigations, Florida Department of Financial Regulation, and Miami-Dade Police Department.
Attachments:
Mortagage Fraud Initiative (PDF)
A copy of this press release may be found on the website of the United States Attorney's Office for the Southern District of Florida at http://www.usdoj.gov/usao/fls. Related court documents and information may be found on the website of the District Court for the Southern District of Florida at http://www.flsd.uscourts.gov or on http://pacer.flsd.uscourts.gov.
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