Wednesday, May 14, 2003

Flemington Man Indicted for Real Estate Fraud

A Flemington man was indicted for allegedly soliciting investments in real estate, using investors’ names and credit histories to acquire properties, and then taking the rents but failing to make mortgage payments, U.S. Attorney Christopher J. Christie announced.

Michael Salerno, 34, was charged in an Indictment with 10 counts of wire fraud, according to Assistant U.S. Attorney Alain Leibman.

The Indictment alleges that Salerno, now of Flemington, New Jersey and formerly of Edison, New Jersey, did business through various entities which he controlled, including Dominion Enterprises, Inc., Dominion Properties, Inc., Saljam Investment Co., W.J. Grier, Inc., Haley Rose Holdings, Inc., and Cambridge Asset Management. Through those entities, he allegedly engaged in the purchase of residential properties and the management of those properties, including the collection of rents from tenants occupying the properties.

Beginning in about August 1998, the Indictment alleges, Salerno placed advertisements in various New Jersey media soliciting persons interested in investing in real estate without using their own funds. Persons, including those without substantial funds available to them, responded to those advertisements by calling the supplied telephone numbers. The persons who responded to the advertisements generally received from Salerno, either by mail or in person, a package of materials setting forth the terms of the real estate investment offered by him through Dominion Enterprises or one of his other companies.

Salerno allegedly made a number of representations about the real estate investments, including the following:

� that he would locate distressed properties suitable for purchase by the “investor,” which property would be repaired after its purchase;

� that persons could become “investors” in real estate without using any of their funds as long as they had a good credit history and a bank account which could be represented as the source of a down payment;

� that he and his company would provide all of the funds necessary to acquire a property in the name of the “investor”;

� that the “investor” would be paid a fee measured as a percentage of the amount of the mortgage loan taken out in the name of the “investor,” usually 3.25 percent of the loan amount. A large portion of the fee was to be paid at the time title to the property was acquired in the name of the “investor” and the remainder was to be paid after a second property was acquired in the name of that “investor”;

� that the “investor” would, after title to a property was acquired in his or her name, enter into an agreement which would allow the particular Salerno company to manage the property by paying all mortgage payments, taxes, utility bills, insurance premiums, and maintenance expenses, and collecting all rents;

� that twelve months after the property was acquired in the name of the “investor,” Salerno‘s company would sell the now-repaired property and share with the “investor” any profits from the sale;

� that each “investor” could acquire one or two properties each month; and

� that it was necessary for the “investor” to use an attorney supplied by Salerno because an attorney selected by the “investor” might not be familiar with the unusual structure of these transactions.

The Indictment alleges that Salerno intended to, and did, locate for purchase in the names of one or more of his companies distressed single-family and multi-family residential properties in various locations in New Jersey.

The Indictment alleges that Salerno used a loan broker called Mortgage Money Mart, of Edison, New Jersey, to obtain mortgage loans from Indy Mac Bank in the names of the “investors” to allow the properties to be purchased in their names from Dominion Enterprises or another of his companies. Salerno provided Mortgage Money Mart with pertinent borrower-related documents, including copies of checks which purported to reflect a down payment by the borrower. In fact, the Indictment alleges, Salerno fabricated the down payment checks, and the “investors” put none of their funds into the purchases.

Salerno failed to disclose to Mortgage Money Mart or to Indy Mac that he was using persons as “investors” to acquire title to properties which he would in fact control. Instead, he falsely made it appear in each instance as though his company was acting as seller and an “investor” as buyer in an arms-length real estate transaction.

The Indictment alleges that in many instances, neither Salerno nor any of his companies actually held title to a property prior to its being sold to an “investor.” Rather, the proceeds of an Indy Mac loan obtained in the name of the “investor” were used by Salerno to simultaneously acquire the property from its original seller at a much lower price, while selling it to an “investor” at an inflated price.

The Indictment alleges that numerous of the representations made to “investors” by Salerno, both verbally and in the written materials, were false and fraudulent, including the following:

� he falsely represented that he and his company would provide all funds necessary for the “investor” to acquire the property, when in fact he used a falsified loan application to secure an Indy Mac mortgage loan for that purpose;

� in many cases, the “investors” were not paid their fees completely or at all, or were not paid in a timely fashion; and

� he resold none of the properties he promised were to be resold within 12 months.

In order to qualify an “investor” for a mortgage loan brokered by Mortgage Money Mart and funded by Indy Mac, Salerno took various steps to falsify the appearance of a down payment by the “investor,” including the following:

� he obtained from the “investor” and supplied through Mortgage Money Mart to Indy Mac a bank statement or similar document showing that the “investor” had sufficient funds available to fund a down payment, when none of those funds were used in the transaction; and

� he created fictitious checks purporting to show down payments made by “investors,” which he provided to Mortgage Money Mart and Indy Mac as proof of the down payments.

The Indictment alleges that Salerno also caused other false entries on documents relating to the purchases by the “investors,” including the following:

� he falsified the signatures of “investors” on the contracts of sale for their properties;

� he created and caused to be created false documents purporting to verify positions of employment to support the income data appearing on “investor” loan applications; and

� he caused to be created at closing settlement statements, also called HUD-1 forms, which falsely claimed that “investors” contributed their own funds to the transactions as down payments.

The Indictment alleges that based on the fraudulent information and documents provided by Salerno, Indy Mac made mortgage loans in the names of “investors,” funding the transactions by causing wire transfers of the loan proceeds to be made into the bank accounts of New Jersey attorneys representing the “investors.” As a result of those transactions, titles to properties were acquired in the names of the “investors,” and Salerno was able to collect the rent payments made by the tenants in those properties.

The Indictment alleges that beginning in or around November 2000, Salerno stopped making the mortgage payments to Indy Mac on the various “investor” properties. Because those properties had not been resold, the “investors” remained liable for the mortgage loans, which went into default when he ceased making payments. As a result, Indy Mac suffered substantial losses.

In addition, Salerno is charged with committing fraud on his own loan application, for a property in Flemington, New Jersey.

If convicted Salerno faces a maximum of five years’ imprisonment on each of the counts in which he is charged, and a fine of up to $250,000 on each count..

Despite Indictment, every defendant is presumed innocent, unless and until found guilty beyond a reasonable doubt following a trial at which the defendant has all of the trial rights guaranteed by the U.S. Constitution and federal law.

mortgage fraud