Tuesday, July 05, 2005

ABN AMRO Files Civil Suit in Kansas City

Three Defendants Previously Plead Guilty in Flipping Scheme

ABN AMRO Mortgage Group, Inc. filed a civil lawsuit in Kansas City, Missouri federal court against:

Pearl Mortgage Group Inc., Kansas City, Missouri;
Midtown Real Estate Holdings LLC, Kansas City, Missouri;
Jonathan Jennings Realty LLC, Kansas City, Missouri;
Jonathan Jennings, Lee’s Summit, Missouri;
Brighter Homes East Inc., Kansas City, Missouri;
Nathan Brinkle, Blue Springs, Missouri;
Adam Kerr, Lee’s Summit, Missouri;
Lee Ullman, Leawood, Missouri;
Equitable Title LLC, Overland Park, Missouri;
Platinum Mortgage Group II Inc., Kansas City, Missouri;
David L. Peterson, Overland Park, Missouri;
Daniel R. Peterson, Leawood, Missouri;
Peterson Appraisal, Leawood, Missouri;
Mary Jennings, Kingman, Arizona;
DDL Investment LLC, Overland Park, Missouri;
Phillip Thomas, Lee’s Summit, Missouri;
Thomas Appraisal Services Inc., Kansas City, Missouri.

The lawsuit alleges that the defendants engaged in a flipping scheme in the greater Kansas City area, Missouri.  ABN AMRO purchased 943 loans from Pearl Mortgage and Platinum Mortgage between 2000 and 2002 and that at least 156 were fraudulent.

The complaint identifies several categories of participants as follows:

a. Property Speculators: These actors masqueraded as legitimate property owners. The Speculators acquired distressed real estate then resold the properties to buyers at inflated prices, often based upon pledged improvements to the property that were never made. They promised buyers profitable investment properties with no money down. Brinkle, Jennings, Brighter Homes and Jonathon Jennings Realty played this role;
b. Front Men: These actors conspired with Property Speculators and advanced money to prospective buyers to be applied as down payments so that buyers could acquire distressed properties, primarily through foreclosure sales. These bad actors also devised schemes to assist uncreditworthy buyers to make a down payment on the subject property. From June 2000 until mid-December 2001, the Front Men made unreported cash payments on subject properties, enabling otherwise unqualified buyers to make a down payment and obtain a mortgage. From mid-December 2001 until October 2002—fearing the cash down payment scheme risked exposing their malfeasance—the Front Men began using so-called “contract-for-deed” transactions in lieu of cash down payments. In contract-for-deed transactions, the Front Men would issue a warranty deed to a prospective buyer in exchange for a promissory note guaranteeing repayment within a specified term, often the very day the note was executed. Immediately thereafter, the buyer would obtain a “refinance loan” (a misnomer because no “original” mortgage was ever recorded) then use the proceeds to extinguish the promissory note. Both schemes—cash front payments and contracts-for-deeds—allowed otherwise unqualified buyers to obtain mortgage financing through ABN. Upon information and belief derived from interviews with former associates of the Flipping Enterprise, Ullman and DDL Investments played this role in most transactions; Kerr, Brinkle and Jennings played it in others;
c. Mortgage Hustlers: Pretending to be legitimate mortgage brokers, the Mortgage Hustlers assisted the buyer to find a mortgage lender to finance the sale of subject properties at inflated prices. Adam Kerr, Platinum II, and Pearl Mortgage played this role;
d. Appraisal Inflators: These persons inflated the appraisal value of subject properties to substantiate inflated and prearranged purchase prices in closing documents. Peterson Appraisal, Dan Peterson, David Peterson, Phillip Thomas and Thomas Appraisal played this role; and
e. Enabling Title Companies: With impressive corporate names, these actors provided a legitimate veneer to this scheme. The Enabling Title Companies prepared documents for closing (often with false, incomplete, and inaccurate information) and disbursed checks to RICO participants (often certifying the disbursement of checks despite knowing that the closing documents contained false information). Equitable Title Company played this role.

According to the lawsuit, each fraudulent transaction began with the acquisition of a property, usually through a foreclosure sale - often another party fronted a down payment.  Defendants would make cosmetic repairs and quickly resell the property to an unwitting buyer for a much higher price. Defendants sometimes misrepresented that the properties as sound investments capable of paying for themselves through rental income. To support the claim, Defendants submitted fraudulent income and expense statements, which forecasted rent proceeds by using “comparable” properties that were larger, in appreciably better condition, and in more desirable locations. The Property Speculators then steered unwitting buyers to affiliated mortgage companies. The Mortgage Hustlers completed relevant paper work and arranged financing on the properties. Many buyers were not creditworthy and buyer financial information was misrepresented. Many buyers also lacked capital to make a down payment on the property and defendants fronted down payments. Beginning December 2001, according to the lawsuit, the defendants also arranged unreported contract-for-deed transactions, which also allowed otherwise unqualified buyers to acquire subject properties without making a down payment. The Appraiser Inflators appraised the properties at prearranged, highly inflated prices and manipulated comps and chose comps that were incomparable. 

Click here to view a copy of the Civil Complaint.

Kerr, Brinkle and Jennings each plead guilty to federal criminal charges earlier this year in connection with a flipping scheme. Click here to read the Mortgage Fraud Blog story on the guilty pleas.

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