Short-sale fraud scheme nets indictments in CO

A group of nine individuals were indicted yesterday by the Colorado Attorney General for allegedly targeting distressed homeowners as part of a fraudulent short-sale scheme that allowed the defendants to ultimately defraud the banks and lenders who held the mortgages for the distressed homeowners, the state AG's office said in a statement.

Eight of the nine named defendants are being charged under the Colorado Organized Crime Control Act (COCCA) for a pattern of manipulating homeowners who were facing foreclosure, creating and processing forged and fraudulent documents relating to the properties, and ultimately using these forged documents and other actions to defraud the lenders and subsequent buyers.

“It is unconscionable that this group would target financially distressed and vulnerable homeowners by fraudulently taking control of and selling their properties, with the ultimate goal of defrauding the homeowners’ financial institutions and the subsequent homeowners.” said CO AG John Suthers. “This group took advantage of multiple homeowners, using deception and forged documents, to create illegal profits on the sale of various properties.”

The basic premise of the scheme, according to the AG's office, focused on identifying distressed homeowners who were in pre-foreclosure status. Once a property was zeroed in on by members of this scheme, the goal was to obtain control and ownership over the property through a series of deceptive tactics. These tactics included manipulating the homeowners to sign over ownership and control of the property to the enterprise. At the same time, the enterprise would file forged paperwork with the lenders misrepresenting that the original homeowners still owned the house. Another tactic used in support of the scheme was the enterprise’s “flopping”of the pre-foreclosed properties.

“HUD-OIG, in partnership with other agencies, is committed to conducting mortgage fraud investigations to hold those accountable for allegedly committing fraud against FHA and the families FHA serves,” said Inspector General David Montoya.

The last key tactic was the use of family members or business associates to serve as “straw buyers” who were fraudulently represented to the banks as being arms length purchasers who also had the financial resources to legitimately purchase real estate. At the same time, a member of the enterprise would list the property in order to sell it to an innocent third party buyer, usually for a significantly higher price than the bank had agreed to. The enterprise then relied on the complicit actions of a closing agent at a title company to synchronize two closings to occur on a set schedule, so that the innocent parties in these transactions would remain unaware of the fraudulent activity surrounding the short sale.

 The group’s fraud-for-profit scheme allowed enterprise members to be unjustly enriched by acquiring extra fees and commissions that resulted from the execution of the illicit scheme, the AG's office said. This model was used repeatedly for the short sale of at least eight different properties, including some of the group’s own homes, throughout the Denver metro area from at least 2008 to the present day.

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