Two Illinois mortgage brokers stand accused of fraudulently operating a supposedly independent appraisal management company and using that AMC to create fraudulent property appraisals that were used to defraud financial institutions.
Steven Garcia and his brother, Michael Garcia, are each charged with one count of mail fraud and one count of wire fraud.
According to the U.S. Attorney’s Office for the Northern District of Illinois, the Garcia brothers operated American Financial Mortgage Services, a licensed mortgage brokerage in Schaumburg, Illinois.
Court documents allege that the Garcia brothers fraudulently caused unnamed lenders to fund mortgages brokered by American Financial by falsely representing that independent appraisers performed the supporting property appraisals.
The Garcias allegedly accomplished this by selecting the appraisers, managing the appraisal process, influencing property valuation, and paying the appraisers directly.
Federal Housing Administration regulations prohibit mortgage brokers from “having substantive communications with appraisers relating to valuation of properties, including ordering or managing an appraisal assignment, and from paying appraisers.”
The court documents allege that the Garcias circumvented FHA regulations by controlling an AMC that they falsely represented to be independent.
The Garcias allegedly used the company, Residential Appraisal Management Company, to steer appraisals to particular appraisers, including one of their relatives, who would then provide an appraised value that would support a proposed loan, while falsely representing to lenders that the AMC picked the appraisers based on experience and skill.
The court documents also allege that the Garcias caused lenders to fund mortgages to finance fraudulent real estate transactions where the Garcias and their associates purchased and resold properties at inflated prices to unqualified nominees who then defaulted on the loans.
The Garcias allegedly provided the lenders with false employment and income information in support of the nominees’ loan applications, then provided the nominees with the money to make the purchases.
All told, the Garcias fraudulently obtained approximately $1.9 million, which was disbursed at the closings of the fraudulent real estate transactions, and another $274,000 in commissions from those deals, the court documents allege.
The Garcias faces a sentence of up to 30 years in prison for each count.