Federal prosecutors have indicted two San Diego men featured in an ABC News investigation for their role in allegedly defrauding desperate homeowners trying to modify their mortgages.
Glenn Rosofsky and Michael Trap, who ran a business called Nations Housing Modification Center, are charged with duping homeowners who were falling behind on their mortgages into paying $2,500 to $3,000 for loan modification services. The men were charged in separate indictments Tuesday, and Trap pleaded guilty to conspiracy and money laundering on Wednesday.
The defendants allegedly tried to create the false impression that they were operating from an address near the White House, and sent letters marked with the seal of the U.S. Capitol to prospective customers. They also allegedly told customers that they had forensic accountants and lawyers on staff to provide assistance. The firm actually operated out of Southern California and had no accountants or lawyers on staff, according to Rosofsky's indictment.
"The letters were mailed throughout the country to individuals behind on their mortgage payments," said a statement from Karen Hewitt, the U.S. Attorney in San Diego, "and encouraged them to call a toll-free number to purchase loan modification services." Prosecutors allege that the telemarketers read from a script drafted by Rosofsky, and that Rosofsky and Trap used $900,000 in customer funds to pay themselves and to run the business.
As detailed in earlier reports by ABC News, Nations Housing Modification Center boasted a prestigious Capitol Hill address, right on 611 Pennsylvania Avenue in Washington, D.C. According to NHMC's mail solicitation, the company's staff of "attorneys, forensic accountants and lender specific negotiators" could help homeowners lower the principal on their loans and reduce their mortgage rates "as low as 2%."
However, ABC News found that the firm's Washington address was really a mailbox at a UPS Store. NHMC was actually located in a nondescript office building in San Marcos, Calif., where, as part of a "boiler room" operation, telemarketers read from a script tailored for anxious homeowners, according to a former Nations employee-turned-whistleblower.
"They're convincing people to give them money in advance, promising to do something that they're not doing, that they don't even have the resources, capabilities, knowledge or manpower to do," former NHMC employee Tom Fatica told ABC News. Fatica said he was fired after he began to question the absence of the lawyers and accountants who were supposedly hired to help the homeowners. "How can you modify 500 loans with two clerical people that probably never talked to the bank before?"
"I thought I was helping people save their houses and then it turned into a nightmare where I was helping those guys steal money from people that barely could afford to give it to them," said Fatica.
Trap, Rosofsky and a third man running NHMC were well known to law enforcement authorities for their previous activities. Rosofsky and Bryan Rosenberg were convicted by federal prosecutors in 2003 of charges connected to a mortgage fraud scheme in Baltimore. Both men received jail sentences for their role in the fraud.
"They pled guilty to a scheme that caused losses of between one-and-a-half and two-and-a-half million dollars at the time," said Dale Kelberman, a former Assistant U.S. Attorney who prosecuted the case. "They have demonstrated in the past that they are not reliable, that they have deceived others in the past, involving real estate transactions, and so I would not give them a lot of credibility," said Kelberman, now an attorney with the Baltimore firm Miles & Stockbridge.
Michael Trap also has a criminal past. In 2003, Trap pleaded guilty to lying to a federal grand jury in connection with the PinnFund scandal, the largest Ponzi scheme in San Diego history.
When confronted by San Diego affiliate 10News in July, Trapp refused to answer questions and ordered the cameras out of the building.
As growing numbers of homeowners face imminent foreclosure, federal authorities say fraudulent loan modification companies have become a huge nationwide problem.
"There are just a lot of malefactors out there that are using this time of economic distress to go after consumers," said Jon Leibowitz, chairman of the Federal Trade Commission. "They promise them a lifeline, but they give them only an anchor instead."
The charges against Trap and Rosofsky are the result of an investigation by the IRS and the Special Inspector General of the Troubled Asset Relief Program. The U.S. Attorney's Office for the Southern District of California, which is prosecuting Rosofsky, would offer no further comment. Attorneys for Trap and Rosofsky could not be reached for comment.