Tuesday, July 05, 2005

“Double Closings” Underlie Indictment of Three in North Carolina

Mortgage Fraud Scheme Utilized Straw Buyers

A federal grand jury indicted Charles Richardson Jr., High Point, North Carolina, Phillip Wayne Middlebrooks, High Point, North Carolina and Rick Franklin Shumate, lawyer, Greensboro, North Carolina on charges of bank fraud, wire fraud and mail fraud in connection with allegations that they engaged in a flipping scheme in the Greensboro and Winston-Salem areas.  Richardson and Middlebrooks operated various entities including C. Richardson and Associates.

According to the indictment, the scheme operated between January 1999 and August 2001.  Richardson and Middlebrooks would recruit straw buyers and who were paid between $1,000 and $5,000 per property.  Straw buyers were told that they would not be responsible for the mortgages and the properties would be transferred out of their names.  Straw buyers were led to believe that their credit would actually be improved by engaging in the scheme as the timely monthly mortgage payments would be reflected on their credit reports.

Loans were obtained for the straw buyers based on misrepresentations as to identity of the actual purchasers, intent to occupy, assets, deposits, down-payments, employment, income, liabilities and residence history.

Shumate acted as closing attorney and assisted in structuring ‘double closings’ whereby (1) a mortgage loan for an amount higher than the actual sales price of the property would be secured in the name of the straw buyer, (2) Richardson, Middlebrooks or an entity they controlled would purchase the property without committing or utilizing any funds and (2) Richardson, Middlebrooks or the purchasing entity would immediately sell the property at the higher price to the straw buyer. According to the indictment, Shumate falsified documents to make it appear as if Richardson, Middlebrooks or the purchasing entity had actually owned the properties prior to the double closings. The HUD-1’s did concealed the true nature of the transactions.

Richardson and Middelbrooks failed to make the monthly mortgage payments or transfer the property out of the names of the straw buyers and the properties went into foreclosure.

The indictment provides details on transactions involving the following properties:

116 Laura Avenue, Winston-Salem, North Carolina

4002 Jessup Grove Court, Greensboro, North Carolina

3906 Southeast School Road, Greensboro, North Carolina

3220 Cross Tree Way, Winston-Salem, North Carolina

128 Laura Avenue, Winston-Salem, North Carolina

3400 Sandon Place, Winston-Salem, North Carolina

Richardson was also charged with an investment scheme which he operated through Macrich Capital. According to the indictment, he recruited people to invest thousands of dollars, promising large returns over a short time. Instead of investing the money, Richardson used it for his own benefit or to pay expenses for other businesses he operated.

Both Richardson and Shumate face additional charges of lying to FBI agents.  The indictment states that Shumate told FBI investigators that, in connection with real estate closings he conducted involving Richardson and Middlebrooks, he did not realize that individuals purchased multiple properties as primary residences when, in fact, he did know. 

mortgage fraud