On March 20, 2009, Howard Gaines was sentenced after a jury trial by U.S. District Judge William Dimitrouleas in the Southern District of Florida for his role in a complex mortgage fraud case. Gaines was sentenced to 8 years in prison, to be followed by 3 years of supervised release.
In addition, Gaines was ordered to pay restitution in the amount of $422,465 to three lenders. A jury convicted Gaines in December 2008 on one count of conspiracy to commit mail and wire fraud and two counts of mail fraud.
Gaines, an attorney and a licensed title agent allegedly ran a company known as Your Title Choice, Inc., in Deerfield Beach, Florida. This is the sixth conviction in this case, following five earlier guilty pleas by other conspirators. It appears that the others cooperated and testified against Gaines at trial.
According to the evidence presented at trial, Gaines, as a title agent, aided co-conspirator Anthony Dehaney and others to close on fraudulent loans. Among the fraudulent documents presented at closings were HUD 1 Settlement Forms, which falsely represented that buyers were using their own money to close on the purchases. The evidence showed that Gaines helped Dehaney close more than $10,000,000 in loans during 2004, 2005, and 2006, including $5,000,000 in fraudulent mortgages. Related court documents and information may be found on the website of the District Court for the Southern District of Florida at www.flsd.uscourts.gov or on http://pacer.flsd.uscourts.gov/.
Attorney Commentary: For those convicted of mail fraud or wire fraud related to mortgages, the sentences will likely be long. You will note that there was no count of "mortgage fraud" in this case.
What is mortgage fraud? There is no specific statute that defines mortgage fraud. A mortgage fraud case usually has charges of mail or wire fraud combined with some type of material misstatement, misrepresentation or omission relied upon by an underwriter or lender to fund, purchase or insure a loan.
Mortgage fraud can be broken down in two distinct areas: 1) Fraud for Profit; and 2) Fraud for Housing.
Fraud for Profit uses a scheme to remove equity, falsely inflate the value of the property or issue loans relating to fictitious property(ies). Many of the Fraud for Profit schemes rely on “industry insiders”, who override lender controls. Industry insiders are appraisers, accountants, attorneys, real estate brokers, mortgage underwriters and processors, settlement/title company employees, mortgage brokers, loan originators, and other mortgage professionals engaged in the mortgage industry.
Fraud for Housing represents illegal actions perpetrated by a borrower, typically with the assistance of real estate professionals. The simple motive behind this fraud is to acquire and maintain ownership of a house under false pretenses. This type of fraud is typified by a borrower who makes misrepresentations regarding the borrower’s income or employment history to qualify for a loan.
There is an exponential rise in mortgage fraud investigations. The number of open FBI mortgage fraud investigations has risen from 881 in FY 2006 to more than 2,000 in 2009. Mortgage fraud is a priority for prosecution since the mortgage backed securities and related financial industry corporate fraud have shaken the world’s confidence in the U.S. financial system.
The current mortgage fraud trends that are being investigated include: equity skimming, property flipping, mortgage identity related theft, and foreclosure rescue scams.
Equity skimming schemes involve the use of corporate shell companies, corporate identity theft and the use or threat of bankruptcy/foreclosure to dupe homeowners and investors.
Property flipping is nothing new; however, law enforcement is focusing on those that use identity theft, straw borrowers and shell companies, along with industry insiders to conceal their methods and override lender controls.
Identity theft in its many forms is a growing problem and is manifested in many ways, including mortgage documents. The mortgage industry has indicated that personal, corporate, and professional identity theft in the mortgage industry is on the rise. Computer technology advances and the use of online sources have also been used to commit identity theft in committing outright mortgage fraud.
Foreclosure rescue companies will be investigated aggressively since the government wants to ensure that no one is taking advantage and illegally profiting from other individuals’ misfortunes. As foreclosures continue to rise across the country, so too have the number of foreclosure rescue companies. Where these customers lose their home while paying thousands of dollars in fees for little or no services – there will be scrutiny.
Any individual or company being investigated for these type of allegations need to be aggressive in their defense at the beginning when grand jury subpoenas, search warrants or interviews are conducted. We can see the likelihood of many common business practices being characterized as "fraud" where money is lost or properties are foreclosed.
Any questions or comments should be directed to: tgreen@greenassoc.com. Tracy Green is a principal at Green and Associates in Los Angeles, California. They focus their practice on the representation of licensed professionals, individuals and businesses in civil, business, administrative and criminal proceedings.
