Behind the Scenes as FBI Busts Mortgage Fraud Suspects
Suspected Scammers Allegedly Conspired With Appraisers, Brokers and Buyers for Millions
By JIM AVILA, ELIZABETH TRIBOLET and LAUREN SHER
April 8, 2009—
The Federal Bureau of Investigation swooped in and arrested 23 members of a suspected mortgage scam in San Diego today as part of a nationwide crackdown on real estate fraud.
ABC News was given exclusive access as FBI agents carried out sweeping arrests in the largest raid of its kind. Starting at 6 a.m. this morning, agents led alleged scammers of a diversity of races, ages and both genders into FBI headquarters in handcuffs. Some of them were still in their pajamas.
Federal agents believe that the arrests will stop a scam that has allegedly involved loans on more than 200 houses, costing banks millions and causing neighborhood property values to plummet in San Diego County.
"Agents reviewed many, many hundreds of suspicious activity reports and began to see patterns, trends, repeat occurrences," said Keith Slotter, the FBI's special agent in charge of the San Diego office.
U.S. attorney Karen Hewitt named Darnell Bell, a former gang member from the San Diego area, as the leader of the alleged mortgage fraud enterprise who the office says oversaw the purchase of property, among other tasks. Bell, who authorities say turned to mortgage fraud after a career of selling drugs, has been in jail on cocaine charges since April 2008.
FBI officials say that suspected fraudsters recruited or became loan brokers, contractors, appraisers and straw buyers, building a highly sophisticated scam and network of conspirators.
Authorities say ring leaders would find a property, such as a house listed for $499,000 that had often sat on the market for some time. A real estate appraiser, also involved in the alleged scam, would prepare an inflated appraisal for the house at $600,000. The appraisers promised to make improvements to the property, such as giving the homes access for people with disabilities, but never made them.
The "straw buyer," also in on the alleged conspiracy, would then apply for a 100 percent loan based on the inflated appraisal. The excess money, supposedly needed to rehab the house, was instead split among the scammers.
The buyer simply walked away from the house without making any payments. As a result of the alleged scam, the properties were foreclosed on.
Mortgage Fraud Cripples Neighborhoods
In a news conference in San Diego Tuesday, both the U.S. attorney's office and the FBI underlined the significance of charging this case under the Racketeer Influenced and Corrupt Organizations Act, or RICO. The statute, originally designed to target the mafia, provides for criminals to be penalized for acts that constitute a pattern of illegal activity. Groups such as Hells Angels have been charged under RICO, but officials believe it's the first time the law has been used to prosecute mortgage fraud.
Authorities say this is one version of the kind of mortgage fraud going on across the country that is dealing a crippling blow to one neighborhood after another.
"Home properties having declined over the years, [makes] mortgage fraud not only a terrible crime but that much more deplorable," Slotter said.
Scams, like the one alleged in this case, have led to rampant loss of home values for innocent people who made their payments and watched with dread as their neighbors' bad fortune or dishonesty cost everyone around them.
"So, on average, every time a house is foreclosed on, that scammer reached into the neighbors' pocket and took $8,600 out of their pockets," said Eric Halperin, director of the Washington office of the Center for Responsible Lending.
"That means there are going to be less property taxes paid, that's less money for schools, less money for fire departments, less money for police departments, and all of those costs are then going to affect the community at large."
The FBI now says mortgage scams are the crime of the moment -- ranking just below terrorism on the federal priority list. On Monday government officials vowed to crack down on real estate fraud.
"Scammers are taking advantage of people in a difficult situation -- people who are trying to modify their home mortgages or those who are trying to avoid foreclosure. We're enforcing the law against these scam artists," Federal Trade Commission Chairman Jon Leibowitz said in a statement Monday. "We're putting others on notice that unless they change their ways, they're next."