Judge Sentences Woman for Orchestrating Sophisticated Straw Buyer Scam

Kathryn Sylvester, San Diego, California, was sentenced to 41 months in custody for operating a large-scale mortgage fraud scheme that caused over $6 million in losses on various properties in San Diego and Orange Counties, California. Sylvester promised straw buyers that she would flip a number of the properties for a quick profit. Instead, she systematically drained equity from the properties for her own benefit.

A restitution order is pending. The government has asked the court to order Sylvester to pay $6.6 million to several financial institutions and individuals who were victimized by her scheme.

During the sentencing hearing, U.S. District Court Judge Cathy Ann Bencivengo said Sylvester orchestrated a “sophisticated operation” involving “repeated acts of criminal behavior.” Judge Bencivengo acknowledged Sylvester’s managerial role in the conspiracy and noted that she must be held responsible for the “serious offense.”

According to court records and Sylvester’s admissions, between June 2005 and May 2008, Sylvester recruited “straw buyers” to submit falsified mortgage loan applications in order to buy properties and obtain home equity loans. Sylvester also provided false documents to support the straw buyers’ misrepresentations regarding their income and employment, and added straw buyers to unrelated bank accounts so they could inflate the value of their assets on loan applications. Sylvester also helped convince lenders to fund loans for which Sylvester and the straw buyers would not otherwise qualify.

Although Sylvester promised some straw buyers that she would flip a number of the properties for a quick profit, she systematically drained equity from the properties for her own benefit. As a result of Sylvester’s criminal acts, the conspirators were able to fraudulently obtain over 80 loans resulting in over $24 million in funded loans — loans that eventually went into default and resulted in the foreclosure of approximately 28 properties.

The straw buyers involved in Sylvester’s conspiracy included Claudia Montes, Tad Lent, Timothy Shannahan, and Roderick Michener. Montes, a former notary public, notarized the signatures of other straw buyers on the false loan applications. On April 12, 2013, Montes pleaded guilty and admitted that she conspired with Sylvester to submit false loan applications to lenders. Montes was sentenced to 20 months in custody by U.S. District Judge Janis L. Sammartino on February 14, 2014 (13CR1313-JLS).

Lent pleaded guilty to conspiring with Sylvester to submit falsified loan applications to mortgage lenders by misrepresenting the amount of his assets (12CR3744-L). U.S. District Judge M. James Lorenz sentenced Lent to one year of custody on March 3, 2014.

On April 14, 2014, Judge Lorenz also sentenced Shannahan to one year in custody for his role as one of Sylvester’s straw buyers (13CR1650-L). Michener pleaded guilty to conspiring with Sylvester to commit bank fraud (13CR1130-CAB). Michener admitted that he permitted co-conspirators to claim an ownership interest in his bank account in order to include the account as an asset on their respective mortgage loan applications. He also admitted transferring fraud proceeds to Sylvester. On March 14, 2014, Judge Bencivengo sentenced Michener to time-served and ordered him to repay over $2 million in restitution.

U.S. Attorney Laura Duffy commented: “It is our sincere hope that we have closed a chapter on the destructive wave of mortgage frauds that heavily contributed to this nation’s financial crisis. Due to the determined efforts of the FBI to ensure that financial crimes do not go unpunished, Kathryn Sylvester and her conspirators have been held accountable for the serious damage they caused.”

FBI Acting Special Agent in Charge Robert Howe commented, “This FBI investigation unraveled a sophisticated mortgage fraud scheme that involved straw buyers and people in trusted positions who had a role in protecting the integrity of the mortgage lending process. Because of her lies and deception, motivated by greed, Ms. Sylvester will now be spending close to four years in federal prison to think about whether it was all worth it. Today’s sentencing sends a message that the FBI will continue to aggressively investigate those individuals that engage in fraudulent financial schemes that cause harm to our banking industry.”