Irving Cohen, 74, Van Nuys, California, was charged in United States District Court with two counts of bankruptcy fraud. With the new criminal case being filed against Cohen, federal authorities have now charged three defendants for their roles in a foreclosure rescue scam that promised the owners of hundreds of distressed properties that they could indefinitely postpone foreclosure sales.
In a plea agreement, Cohen admitted his role in the scheme that filed fraudulent bankruptcies to delay foreclosures on more than 1,400 properties that had outstanding loans totaling nearly three-quarters of a billion dollars. As a result of the scheme, which continued through July 2010, numerous lenders lost interest payments on the mortgages for up to three years, and Cohen and his associates collected nearly $550,000 in fees from homeowners.
A second defendant in this case, Robin Phillips, 53, Claremont, California, pled guilty on Monday to one count of bankruptcy fraud. Phillips admitted to filing bankruptcies that delayed foreclosure on nearly 500 properties and affected more than $200 million of delinquent mortgages.
A third person allegedly involved in the scheme, Darwin Bowman, 74, Van Nuys, California, was indicted in September 2010, by a federal grand jury on two counts of bankruptcy fraud. Bowman is currently scheduled to go on trial on February 8, 2010.
According to court documents filed in relation to all three cases, Cohen, Phillips, and Bowman were involved in a scheme that recruited homeowners whose properties were in danger of imminent foreclosure and promised to delay the foreclosures for as long as the homeowners could pay.
Once a homeowner paid a fee, typically $1,500 per month, Bowman and Cohen, either directly or through salespersons, had the homeowner sign a deed granting a one-eighth interest in the house to a fictitious person, according to court documents. Without the knowledge of the homeowner, Phillips and others filed a bankruptcy petition in the name of the fictitious person. Armed with the fraudulent bankruptcy petition and the deed in the name of the fictitious person, Cohen and Bowman contacted the mortgage lender to stop foreclosure proceedings. Because the filing of a bankruptcy gives rise to an “automatic stay” that protects a debtor’s property, the filings of the fictitious bankruptcy petitions forced lenders to cancel foreclosure sales and wait for the bankruptcy petitions to be dismissed. The lenders-small businesses, as well as large banks-had to pay lawyers to file motions to dismiss the bankruptcies in order to move forward to collect money that was owed to them.
Cohen started the scheme in late 2006. In 2007, Cohen recruited Bowman to join the scheme, which Bowman allegedly ran for a period in 2008 while Cohen was serving a jail sentence for a fraud conviction in state court. Phillips became involved in the scheme in 2008 after paying for foreclosure-avoidance services from Cohen and offering assistance in exchange for Cohen waiving his monthly fee. The scheme was shut down on July 28, 2010, when special agents with the Federal Bureau of Investigation executed a series of search warrants.
“In the wake of the housing crisis, foreclosure-rescue schemes have exploded in popularity, particularly in Southern California, where both homeowners and lenders have been victims of various frauds,” said United States Attorney André Birotte Jr. “Homeowners facing foreclosure need to exercise extreme caution when seeking assistance with their financial problems.”
Steven Martinez, Assistant Director in Charge of the FBI in Los Angeles, commented: “The defendants in this case exploited bankruptcy rules as they methodically victimized lenders in their scheme and targeted vulnerable homeowners while enriching themselves. The FBI will continue to pursue the various forms of fraud plaguing the housing market and urges homeowners to be skeptical when approached by individuals who offer to save their home for a fee.”
Peter Anderson, United States Trustee for the Central District of California (Region 16), stated: “Criminal bankruptcy fraud and, in particular, foreclosure rescue fraud schemes threaten the integrity of the bankruptcy system, as well as public confidence in that system. We deeply appreciate the strong commitment of U.S. Attorney André Birotte Jr. and the Federal Bureau of Investigation to combating bankruptcy fraud and abuse, as demonstrated by this case.”
Cohen will make his initial appearance in United States District Court on December 20, 2010.
Phillips is scheduled to be sentenced by United States District Judge John F. Walter on April 4, 2011.
The crime of bankruptcy fraud carries a statutory maximum sentence of five years in federal prison.
As for Bowman, it should be noted that an indictment contains allegations that a defendant has committed a crime. Every defendant is presumed to be innocent until proven guilty in court.
The cases against Cohen, Phillips, and Bowman are the result of an investigation by the Federal Bureau of Investigation, which received substantial assistant from the United States Trustee’s Office.