Husband and Wife Sent to Prison for Mortgage Fraud

Allison Tussey —  December 4, 2014 — 1 Comment

Derrick Phelps, 46, Katy, Texas, and his wife, Cynthia Phelps, 44, who owned two mortgage service businesses in Henderson, Nevada, have been sentenced to prison for their roles in a mortgage fraud scheme that caused over $30 million in losses to federally insured financial institutions.

Derrick Phelps, former owner of Investors Realty and Enterprise Mortgage Services, was sentenced to 70 months in prison, and his wife, Cynthia Phelps, 44, was sentenced to four years in prison.  Both defendants were also ordered to serve five years of supervise release and to pay approximately $31 million in restitution.  They were sentenced by U.S. District Judge James C. Mahan on Tuesday, Dec. 2, 2014, and were permitted to self-report to federal prison by March 6, 2015.  They pleaded guilty in April 2014 to one count of conspiracy to commit bank fraud, mail fraud and wire fraud and seven counts of bank fraud.

According to their plea agreements, from about January 2003 to November 2006, the defendants devised a scheme to defraud federally insured financial institutions through the use of false mortgage applications. The defendants solicited buyers with good credit ratings to purchase homes in the Las Vegas area and made offers to purchase the homes above the sellers’ asking prices. In some instances, the defendants caused buyers to purchase multiple houses at or about the same time, so that the purchases would not show up on their credit report and the lenders would not be aware of the other purchases.

The defendants then caused false information to be placed in the buyer’s mortgage loan applications pertaining to things such as income and intent to occupy the home. Once the loans were approved, the defendants caused the sellers to agree that part of the excess funds be redirected to the buyers under the pretense of making upgrades and repairs to the properties.  The defendants intentionally concealed from the financial institutions that buyers were receiving part of the loan disbursements for their own use and benefit.  The defendants defaulted on the mortgage loans which caused the properties to go into foreclosure.

Using this scheme, the defendants purchased approximately 233 properties and caused losses to the financial institutions greater than $30 million

Three co-defendants charged in the scheme, Linda Mack, Tai Keyster, and Darryl Reese, are scheduled to go to trial on March 15, 2015.

U.S. Attorney Daniel G. Bogden for the District of Nevada announced the sentences.

The case is being investigated by the United States Postal Inspection Service, and is being prosecuted by Assistant U.S. Attorney Sarah E. Griswold.

“Hundreds of mortgage industry employees and business owners have been convicted of fraud and sentenced to prison for defrauding the financial institutions during the housing boom in southern Nevada,” said U.S. Attorney Bogden. “We are continuing to work with our local, state and federal law enforcement partners to pursue all sorts of financial fraud cases that impact the entire community.”

Allison Tussey

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