Broker Gets 3 Years for Equity Stripping Scheme

Allison Tussey —  May 8, 2012 — Leave a comment

Mary Anne Dean, 60, Severna Park, Maryland, was sentenced by U.S. District Judge William D. Quarles, Jr. to 37 months in prison, followed by three years of supervised release, for conspiracy to commit wire fraud in connection with a mortgage fraud scheme which resulted in over $4.7 million in fraudulent mortgage loans, of which the lenders ultimately lost at least $944,223.91, and which caused the homeowners to lose over $1.2 million in equity in their homes.  Judge Quarles also ordered Dean to pay restitution, with the exact amount to be decided at a later date.

According to her plea agreement, Dean was a loan originator and operated Sunset Mortgage Company, a Maryland-licensed mortgage brokerage franchise, from her home. Co-defendant Charles Donaldson, 58, Bowie, Maryland, who was also a loan originator during part of the conspiracy, steered clients to Dean‘s brokerage franchise and facilitated the communication between Dean and the buyers and sellers that he had recruited.

Beginning in 2005, Donaldson identified homeowners who were in financial distress because they were unable to make the mortgage loan payments on their homes and enticed the homeowners to participate in a foreclosure “rescue” plan. Donaldson told the homeowners that he would locate “investors” to purchase the homeowners’ properties; that the homeowners would rent their properties after selling them to the “investors,” who would receive a small percentage of the homeowners’ equity; that the remainder of the homeowners’ equity would be transferred to Donaldson, who would hold it in escrow; and that the homeowners would buy back their properties after 12 to 18 months, during which they could rehabilitate their finances and “repair” their credit while they continued to live in their homes.

Donaldson recruited family members and associates as “investors” to purchase the properties and paid them a small percentage of the seller’s equity at the time of settlement. As part of the scheme, the homeowners were expected to pay monthly rent to the “investor” to remain in their home and the “investor” was to make the mortgage payments. Prior to the sales of the properties, Donaldson created and recorded Second Deeds of Trust or promissory notes that purported to show debts owed by the homeowners to Donaldson, and which were secured by the existing equity in their home.

At the closing of the sale of the property to the “investors,” the title companies disbursed funds to Donaldson‘s bank account in order to payoff the liens he had established. Donaldson assured the homeowners and “investors” that he would assist them, if need be, with their rent and mortgage payments respectively, using that equity, which he claimed he was holding in his “escrow account.”

In fact, Dean and Donaldson knew that Donaldson was simply putting these funds into his personal checking account, and using them for personal and business purposes, including the purchase of a personal residence with a cashiers check in the amount of $169,132.60.

Dean and Donaldson obtained the new mortgage loans on the properties in the names of the “investors” with higher monthly mortgage payments, and, most times, higher interest rates, than that which the homeowners were currently paying. To obtain the new loans, Dean made false representations in the loan applications, including, that the “investors” intended to live in the properties as primary residents and inflating the incomes of the “investors.”

Donaldson also assisted Dean by procuring false verification of employment letters. Dean, who acted as the mortgage broker, submitted the false loan applications to lenders to obtain financing for the purchases of the properties in the names of the “investors.” In some instances, Dean submitted fraudulent loan applications for the same “investor” to purchase multiple properties as their ‘primary residence’ in a short period of time.

Based on the materially false loan applications, lenders funded loans at high interest rates for the “investors,” yielding large transactional fees and premiums for Dean. Donaldson and Dean, as the licensed loan originator and mortgage broker respectively, knew that as a result of these sales, the seller who sold his or her home to the “investor” had lost control of their home; could not afford the new mortgage loan with higher payments and interest than they were originally paying; and could not qualify for a refinance.

Faced with the higher mortgage interest rates and payments, the “investors” and homeowners were forced to use their personal savings and credit card accounts to make mortgage and rent payments, respectively, until they were no longer able to do so. Despite his previous assurances, Donaldson only used a small amount of the equity from the sale of the homes to assist with the payments and the loans went into default. Thirteen of the homes have been foreclosed upon and foreclosure proceedings against three other homes are ongoing.

As a result of the scheme, lenders made over $4.7 million in mortgage loans based on the fraudulent loan applications, and have so far lost at least $944,223.91. Dean and Donaldson‘s scheme also caused the homeowners to lose between $1.2 million and $1.4 million. More than 20 victims were defrauded by Donaldson and Dean.

Donaldson pleaded guilty to his participation in the scheme and was sentenced to 41 months in prison on March 8, 2012.

The sentence was announced by United States Attorney for the District of Maryland Rod J. Rosenstein; Special Agent in Charge Richard A. McFeely of the Federal Bureau of Investigation; and Inspector General Jon T. Rymer of the Federal Deposit Insurance Corporation.

Inspector General Jon T. Rymer of the Federal Deposit Insurance Corporation (FDIC) said, “I am once again pleased to join our law enforcement colleagues in defending the integrity of the financial services industry by combating mortgage fraud. We are particularly concerned in cases like this one where professionals have misused their positions of trust and whose fraudulent activities in committing mortgage fraud have harmed numerous innocent homeowners. We are committed to continuing our investigations of such criminal misconduct to help maintain the safety and soundness of the nation’s financial and lending markets.”

The Maryland Mortgage Fraud Task Force was established to unify the agencies that regulate and investigate mortgage fraud and promote the early detection, identification, prevention, and prosecution of mortgage fraud schemes. This case, as well as other cases brought by members of the task force, demonstrates the commitment of law enforcement agencies to protect consumers from fraud and promote the integrity of the credit markets. Information about mortgage fraud prosecutions is available

This law enforcement action is part of President Barack Obama’s Financial Fraud Enforcement Task Force. President Obama established the interagency Financial Fraud Enforcement Task Force to wage an aggressive, coordinated, and proactive effort to investigate and prosecute financial crimes. 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.

United States Attorney Rod J. Rosenstein praised the FBI and FDIC Office of Inspector General for their work in this investigation and thanked Assistant U.S. Attorneys Mark W. Crooks and Jefferson M. Gray, who are prosecuting the case.

Allison Tussey

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