Wednesday, January 27, 2010

F. Jeffrey Miller Trial - Prosecution Witnesses Continued

According to Anne Mitchell, who is viewing the trial:

January 13, 2010

Witness: Rick Hayes

Rick Hayes testified that on the day that he closed on his Miller Enterprise home, he received a phone call from the Kansas Banking Commission informing him that his loan was fraudulent. After the Hayes responded to a classified ad, they met with John Owens of Maplewood Realty. Mr. Owens told the Hayes to drive through the Pinewood North (Kansas) subdivision and pick out a house. Mr. Hayes testified that for $1000 down, Mr. Owens would even go out and put a sold sign on the house. Although the Hayes had had credit problems, they were assured that there would be no problem financing their purchase.

The Hayes family agreed to purchase a home with a sales price of $225,000. At closing however, the sales price had been changed to $260,000, reflected in the final two documents that they signed. Instead of the $1000 monthly payment, their mortgage payment would be $2200 per month.

Question: Did Brian Rouse or Todd Earnshaw ever tell you that the house would sell for what it was appraised for?

Answer: No

January 21, 2010

Witness: Judy Brumble

Indicted realtor Judy Brumble previously plead guilty to money laundering and bank fraud in this matter. The government reviewed the plea agreement that she had signed. Ms. Brumble testified that most of the Miller homebuyers needed seller carry back loans and assistance with down payments. Brumble would draft contract amendments of increases in the sales prices. The final sales prices would be communicated by either Brian Rouse or Todd Earnshaw. Ms. Brumble was shown the sales contract for the Massey home purchase and she testified that she always signed Miller's name as the seller because he couldn't be bothered.

She further testified that in May 2001, Earnshaw gave Brumble money to get her real estate license and start Classic Realty. She paid rent to Earnshaw and sold 5 to 7 Miller Enterprise homes in a 7 month period. Earnshaw had a desk in the office and was there every day.

The government introduced a cost sheet. Brumble testified that these were routinely written by Todd Earnshaw and reflected the second mortgage amounts.

I don't believe that the lenders were aware of the second mortgages, Brumble testified.

Witness: Victoria ‘Ima' Bennett

Victoria Bennett is in federal custody having pleading guilty to wire fraud and money laundering, in a matter involving Wildor Washington. Appearing in orange prison clothing, Ms. Bennett was shown her plea agreement offered by the government and testified that at one time, she and Washington occupied a home on W. 146th Street, Leawood, Kansas that was valued at $1,000,000. Ms. Bennett testified that she and Washington recruited straw buyer Kara Frank to purchase the Leawood home. The government introduced the loan application that Bennett processed for Kara Frank:

Question: The loan application states that Kara Frank had a monthly income of $14,000. Was that inflated?

Answer: Yes.

Question: Assets of over a million dollars, is that true?

Answer: No.

The government questioned Bennett about a second property purchase by Frank during the same time as the Leawood home. The seller was James Moser and Associates. Bennett was shown a HUD-1 statement indicating that Moser had purchased the home in foreclosure in July, 2003 for $230,000. Five months later, Mr. Moser was selling the home again, this time to Kara Frank for $340,000. Ms. Bennett testified that the proceeds shown on the second HUD-1 statement showed proceeds to James Moser and Associates of over $100,000.

Bennett then was shown HUD statements for loans she processed for homes located at 15404 S. Greenwood and 14254 W. 155th Terrace both located in Olathe, Kansas. The closing documents indicated a line item showing a ‘referral fee' in the amount of $78,993 payable to James Moser, also the Seller of the home on Greenwood. Bennett testified that the home on 155th Terrace was a home sold by Jeff Miller. The HUD statement in that transaction had a line item for $64,000 for ‘Design and Interior Consultation' payable to James Moser and Associates. Ms. Bennett further testified in processing these loans, she would use appraiser Lanny Ross. (Mr. Ross is another defendant in this matter. Mr. Ross has plead guilty to the charges against him.)

The government introduced several loan documents and questioned Bennett about their authenticity. Ms. Bennett testified that she routinely used fictitious and incorrect names as the interviewer for the loan applications. She would make up lease agreements and verifications of rent. In some cases, the lenders would require proof of rental income because borrowers were purchasing several homes at the same time. In one transaction of a home at 78xx W. 155th Place, Overland Park, KS, buyer Emma Holmes was seeking 100% financing. Although the sellers were James and Doris Moser, the Government questioned Bennett about the succession of the deeds for this home.

Question: Were you aware that (Jeff) Miller deeded this house to the Mosers?

Answer: No.

The government introduces exhibits in which one HUD statement shows the seller to be Miller Enterprises and a second HUD for the same transaction, shows Somerset Homes as the Seller.

During cross examination by the attorneys for defendants Brian Rouse and Todd Earnshaw, Ms. Bennett testified that she had no contact and did not know these defendants. During cross examination by Mr. Moser's attorney, Ms. Bennett testified that the title company can fax the final HUD statement to the lender at the last minute.

Witness: Doug Schnebley

A mortgage broker and loan officer, Mr. Schnebley was involved in 3 or 4 loans for homes purchased by Joe and Nancy Frey. (Mr. Frey is a defendant in this matter but is now deceased). Defendant Todd Earnshaw would refer borrowers to Schnebley. He testified that he had an agreement with Earnshaw on splitting their commissions and that there were two types of commissions; those paid by the consumer at closing and those paid by the lender. Mr. Schnebley could not recall what their split agreement was, but the relationship with Earnshaw ended when Earnshaw demanded a bigger portion of the commissions than Schnebley would agree to.

The Government introduced a loan application processed by Schnebley with the Frey's as borrowers. The application indicated that Joe Frey was employed by James Moser & Associates for 16 years. A subsequent loan application indicated that Frey was employed by Moser for 4 months. The applications also indicated that Frey had assets of $1.2 million dollars. Mr. Schnebley is shown a letter that was included in the loan package for the Freys. Allegedly written by James Moser, the letter stated that not only is Joe Frey employed by us, he has also retained our services to manage his investment properties.

The government introduces pay stubs for Joe Frey from employer James Moser & Associates indicating a gross income of $8500 every two weeks. Mr. Schnebley testified that at times, lenders would require a lease agreement be submitted for investment properties to show an offset of the monthly mortgage expense. One lease incorrectly spelled Frey's name as Fry.

Question: Would the lender want to know that a previous purchase was offset with a renter?

Answer: Yes.

January 22, 2010

Witness: Ronald Darden

Loan Broker Ronald Darden initially met Joe Frey at a dinner arranged by Lisa Holmes and James Moser and subsequently brokered several home purchases for Frey. Mr. Darden testified that on the loan applications, Mr. Frey told him that he was the owner of Kansas City Masters and was also employed by Advanced Composite Technology. In response to a lender inquiry regarding Frey's income, the Government introduced an undated letter on letterhead for Advanced Composite Technology. The letter stated that Joe Frey was an employee earning $200,000 per year and had an employment agreement for 5 years with an additional 5 year option. The letter stated that Frey's position was Vice President of Marketing and New Business Development. Darden testified that the loan applications stated that Frey had a monthly income of $17,258.

The sales contract for 78xx W. 155th Place is shown to the witness by the government. The seller is Somerset Homes and Darden testifies that he understands that Steve Middleton is the owner of Somerset Homes. However the sales contract is signed by Jeff Miller as the seller.

Witness: W. Jane May

Ms. May was employed as the Human Resource Director for Advanced Composite Technology (ACT). She testified that Joe Frey was not an employee of ACT. In answer to an inquiry by National City Mortgage, she received copies of 2 checks that Frey indicated were payroll checks. Ms. May testified that she researched the two checks, that the checks were not payroll checks and that the two checks were written to accounts payable vendors and were not for these amounts. Ms. May further testified that Joe Frey was never on our payroll, had no personnel file and wasn't an employee. When asked whether any employee was earning $200,000, Ms. May answered that the company had a total of 8 employees, that the company had cash flow problems and sometimes had difficulty making payroll. This was a substantial amount of money, she said.

Cross examination by Mike Jackson, attorney for James Moser: Mr. Jackson introduces an organizational chart for ACT On it, Mr. Frey's name appears. However, Ms. May further testifies that she questioned President, Charles Baker and was told that Frey was an investor in the company, not an employee.

Witness: Nancy Frey

Nancy Frey, the wife of Joe Frey was introduced to James Moser through their ex-son-in-law. She testified that she was responsible for paying their household expenses, bills and bank accounts and that the company owned by her late husband, Joe Frey, was called Kansas City Masters.

Question: Would you have known if your husband was working for Advanced Composite Technology?

Answer: Yes

Question: Would you have known if your husband was making $200,000 a year?

Answer: Yes.

Question: To your knowledge, did your husband ever work for ACT?

Answer: No

Questions: After his passing, did you discover any hidden bank accounts?

Answer: No

Question: To your knowledge, was your husband working for James Moser & Associates?

Answer: No

Cross examination by Moser attorney, Mike Jackson questioned Ms. Frey about the accuracy and truthfulness of her signing the loan applications. Mr. Jackson introduces cancelled checks payable to Joe Frey. Mrs. Frey reviews the checks and testified that some of the signature endorsements were her husband's signature and others were not.

Question: Does that look like your husband's signature?

Answer: No, this one doesn't look like his at all

Question: I believe you said that Joe Frey received no income from James Moser & Associates, but you'd agree with me that it appears he did.

Answer: Yes

January 22, 2010

New Witness: Lanny Ross

Question: You are a convicted conspirator in this conspiracy case, aren't you?

Answer: Yes, I am.

Lanny Ross is a convicted defendant in this matter. He was an appraiser and currently resides in Leawood, Kansas. The government began their direct examination of this witness by reviewing Mr. Ross's plea agreement in which he pled guilty to Bank Fraud and Money Laundering. Mr Ross testified that he was licensed in the State of Kansas as a ‘temporary preliminary licensed appraiser' and that license required that every appraisal he performed be signed by his supervisory appraiser, David Swinford. The Government introduced his appraisal for 15404 S. Greenwood in the Heritage Estates subdivision. The seller was Somerset Homes and the buyer was Shelly Nelson. Mr. Ross testified that he would receive the house's ‘target price' by James Moser and additionally, Moser would supply the comparables used in his appraisals.

Question: Was this a bona fide appraisal?

Answer: No, I arrived at the value based on comps provided by James Moser.

In other appraisals he did, Mr. Ross testified that he would have to go far outside a subdivision in order to get the price.

Asked why his supervisor, David Swinford, would agree to the inflated property values, Ross testified that he took a picture of David Swinford's signature and pasted it onto the fraudulent appraisals. Mr. Swinford was unaware of this practice. Mr Ross testified that ‘who' his client was, was sometimes ‘up in the air' and not decided until the last minute at which time he would assign the appraisal to the appropriate lender or title company.

The government introduced an appraisal in which the subject house was 2400 square feet and a comparable was 3166 square feet. These were Moser's suggested comparables, Ross testified, and were too big to be accurately included in a bona fide appraisal.

Question: You received no money under the table?

Answer: No, I did not.

Question: If you artificially inflated the price of a house, you'd have lost your license, right?

Answer: Yes.

Question: And you did that for $350 to $450 dollars?

Answer: Yes.

Ross further testified that someone stole the Swinford signature stamp from his briefcase. Afterwords, co-worker named Tucson Red, used both the Ross and Swinford signatures to file electronic appraisals and transmit them to lenders.

Question: All five appraisals bore Mr. Swinford's signature without his knowledge, correct?

Answer: That is true.

mortgage fraud