17 defendants were charged in six criminal cases with felony offenses in the Eastern District of California during the fiscal year that closed September 30, 2012. These cases involved thousands of homeowner victims, and losses estimated by law enforcement to exceed $9 million.
The Distressed Homeowner Initiative is the first-ever nationwide effort to target scam artists that prey upon suffering homeowners. The yearlong initiative, organized by the Financial Fraud Enforcement Task Force’s Mortgage Fraud Working Group, resulted in 530 criminal defendants charged in 285 federal cases filed in U.S. District Courts across the country. These cases involved more than 73,000 homeowner victims and total losses by those victims are estimated by law enforcement at more than $1 billion.
From October 1, 2011 to September 30, 2012, the Distressed Homeowner Initiative focused on fraud targeting homeowners, such as foreclosure rescue schemes that take advantage of homeowners who have fallen behind on their mortgage payments. Typically, the con artist in such a scheme promises the homeowner that he can prevent foreclosure for a substantial fee by, for example, having so-called investors purchase the mortgage, or transferring title in the home to persons in league with the con artist. In the end, the homeowner can lose everything. Other targets of the Distressed Homeowner Initiative include perpetrators of loan modification schemes who obtained advance fees from homeowners after falsely promising that they would negotiate more favorable mortgage terms on behalf of the homeowners.
U.S. v. Tikal. One foreclosure rescue scam in the Eastern District of California victimized more than 1,000 homeowners, who paid out in excess of $3.1 million dollars. Claiming to reduce the outstanding principal on their home loans by 75 percent, the defendant advised homeowners to ignore the demands for payment by the original lenders. Victims made payments to him instead of to the financial institutions which held the deeds to their homes. Tikal filed with the bankruptcy court to forestall foreclosures and encourage continuing client payments.
U.S. v. Hinkles et al. From 2008 through 2010, Hinkles and her “affiliates” promised to rescue financially distressed homeowners from foreclosure and reduce the principal on homeowners’ mortgages. They allegedly told homeowners that for a substantial up-front payment and a monthly fee they would find investors to purchase their mortgage or would negotiate a mortgage reduction with the lender. In fact, they failed to do either. To delay foreclosure proceedings and to continue collecting the monthly fees, the defendants filed petitions in bankruptcy court that would invoke the automatic provisions of federal bankruptcy law that bring to an immediate halt any foreclosure actions. Over a thousand clients suffered losses estimated at over $5 million.
U.S. v. Flanders et al. Flanders and Sandoval‘s alleged fraud scheme targeted economically distressed homeowners with particular emphasis on those who were Spanish-speakers. The defendants charged clients advance fees in exchange for a number of financial services, including loan modifications, debt relief, and a program to sell homes to “investors” with a rent-to-own option. The investigation to date has identified 25 to 30 individuals who paid for services and did not receive them for a total loss of approximately $120,000. Some homeowners who were not able to obtain relief were foreclosed upon by their lenders.
In federal civil actions involving distressed homeowner victims nationwide, the Justice Department’s U.S. Trustee Program, the Federal Trade Commission and the Consumer Financial Protection Bureau (CFPB), protectors of the nation’s bankruptcy laws and federal consumer laws, filed 110 cases against 153 defendants in federal cases across the country, with more than 15,000 victims identified and losses estimated at more than $37 million. False or abusive filings in U.S. Bankruptcy Court are commonly used to execute foreclosure rescue scams. State Attorneys General also filed criminal cases against 58 defendants, with losses at more than $3 million, and also filed at least 104 civil enforcement actions against 125 defendants with losses to homeowners at approximately $5 million. Last, the Treasury Department’s Office of Financial Stability’s Antifraud Unit and the Office of the Special Inspector General for the Troubled Asset Relief Program (SIGTARP), in order to protect homeowners from fraudulent or confusing websites that misuse the Treasury seal and key TARP housing program names, such as the Home Affordable Modification Program, shut down or forced into compliance more than 900 mortgage rescue websites or web advertisers.
In order to protect struggling homeowners and increase the number of criminal enforcement actions made as part of this initiative, the members of the Mortgage Fraud Working Group were proactive and fully operational. The FBI generated new investigations by gathering victim complaint data from FTC databases and other sources, analyzed the data and distributed information of lead value to field offices from coast-to-coast. The FBI, together with HUD-OIG, also utilized sophisticated undercover operations to facilitate the development of federal distressed homeowner criminal cases. Further, the FBI led a surge consisting of several law enforcement agencies in southern California, where many foreclosure rescue scam operators are located, to develop investigations that could be prosecuted in various federal districts. Many of the investigations initiated as part of the Distressed Homeowner Initiative are ongoing and will result in additional enforcement actions in the near future, including in the Eastern District of California.
U.S. Attorney Benjamin B. Wagner announced the 17 cases as part of the national Distressed Homeowner Initiative described by Attorney General Eric Holder and other federal officials at a press conference in Washington, D.C.
The Distressed Homeowners Initiative was organized by the Mortgage Fraud Working Group of President Obama’s interagency Financial Fraud Enforcement Task Force. The task force was established to lead an aggressive, coordinated and proactive effort to investigate and prosecute financial crimes. Chaired by Attorney General Eric Holder, the task force includes representatives from a broad range of federal agencies, regulatory authorities, inspectors general and state and local law enforcement who, working together, bring to bear a powerful array of criminal and civil enforcement resources. The task force is working to improve efforts across the federal executive branch, and with state and local partners, to investigate and prosecute significant financial crimes, ensure just and effective punishment for those who perpetrate financial crimes, combat discrimination in the lending and financial markets, and recover proceeds for victims of financial crimes. U.S. Attorney Wagner is a co-chair of the Mortgage Fraud Working Group.
U.S. Attorney Wagner said: “As the housing market shifted from bubble to bust after 2008, the nature of mortgage fraud schemes also shifted, targeting homeowners rather than banks and mortgage companies. Our enforcement strategy has also shifted, and we will relentlessly pursue scammers who victimize homeowners when they are the most vulnerable “” when they are in fear of losing their homes.”
“Mortgage fraud continues to be a priority for the FBI and we will continue to aggressively pursue perpetrators of this type of fraud,” said Herb Brown, Special Agent in Charge of the Sacramento Division of the FBI. “Our goal is to identify and target the most egregious offenders who prey upon our area’s most vulnerable homeowners, use the most sophisticated techniques available to investigate the crimes, shut the fraudulent businesses down and bring those responsible to justice.”
“These comprehensive efforts represent an historic, government-wide commitment to eradicating mortgage fraud and related offenses,” said Attorney General Holder. “The success of the Distressed Homeowner Initiative, and the developments we announce today, underscore our determination to pursue these and other financial fraud criminals around the country.”