Closing Attorney Sentenced for Mortgage Fraud Scam

Allison Tussey —  January 26, 2011 — Leave a comment

Troy Smith, an attorney with an office in Waxhaw, North Carolina, was sentenced to 18 months incarceration with 36 months probation.

As previously reported by Mortgage Fraud Blog, Smith pled guilty to a 4-count Information; 2 counts of conspiracy and 2 counts of money laundering.

As per the Information, there were several mortgage fraud cells operating in and around Union and Mecklenburg Counties, North Carolina. The mortgage fraud cells primarily targeted, among others, the neighborhoods of Providence Downs South, Woodhall, Chatelaine, Skyecroft, Firethorne, Piper Glen, and Stratford, North Carolina.

Smith served as a closing attorney for Mortgage Fraud Cell No.1 and Mortgage Fraud Cell No. 2.

The mortgage fraud cells generally operated in the following manner:

a) One Member of the cell would agree with a builder to purchase a property at a set price (the “true price”).

b) The mortgage fraud cell would then arrange for a buyer to purchase the property at an inflated price, which was usually between $200,000 and $500,000 above the true price.

c) The builder would sell the property to the buyer at the inflated price.

d) The lender would make a mortgage loan on the basis of the inflated price.

e) The difference between the inflated price and the true price would be extracted at closing and distributed among members of the cell.

To induce lenders to make mortgage loans, some participants in the mortgage fraud cells caused loan packages to be prepared and submitted to lenders that contained false and fraudulent representations and half-truths, and omitted or concealed material facts. Some of the packages at various times during the scheme failed to disclose the true, agreed-upon price, misrepresented the buyers income or assets, employment, occupancy and/or the true source of the down payment supposedly being provided by the buyer.

The HUD-1 settlement statements associated with such loan packages and real estate closings also contained false and fraudulent representations, half-truths and omitted or concealed material facts.

Smith and other attorneys received into their trust accounts the proceeds of the fraud and distributed such proceeds to members of the mortgage fraud cells, who then typically engaged in further financial transactions with such proceeds to further their schemes.

The sentenced was announced by the IRS-Criminal Investigation Unit.

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Allison Tussey

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