Charles Donaldson, 58, Bowie, Maryland, was sentenced by U.S. District Judge William D. Quarles, Jr. to 41 months in prison followed by three years of supervised release for conspiracy to commit wire fraud in connection with a mortgage fraud scheme which caused the issuance of over $4.7 million in fraudulent mortgage loans and homeowners to lose over $1.2 million in equity in their homes.
As previously reported by Mortgage Fraud Blog, Donaldson‘s plea agreement and court documents, co-conspirator Mary Dean was a loan originator and operated Sunset Mortgage Company from her home. Donaldson, who was also a loan originator, steered clients to Dean‘s mortgage brokerage franchise.
Beginning in 2005, Donaldson identified homeowners who were in financial distress because they were unable to make the mortgage loan payments on their homes and enticed the homeowners to participate in a foreclosure “rescue” plan. Donaldson told the homeowners that he would locate “investors” to purchase their homes and thereafter, the homeowners would pay rent to the “investors,” who would pay the mortgage and receive a small percentage of the homeowners’ equity; that the remainder of the homeowners’ equity would be transferred to Donaldson, who would hold it in escrow; and that the homeowners would buy back their properties after 12 to18 months, giving them time to “repair” their finances and credit while they continued to live in their homes.
Donaldson recruited family members and associates as “investors” to purchase the properties and paid them a small percentage of the seller’s equity at the time of settlement. Prior to the sales of the homes, Donaldson created and recorded second deeds of trust or promissory notes that purported to show debts owed by the homeowners to Donaldson, and which were secured by the existing equity in their home.
At the closing of the home sales, the title companies disbursed funds to Donaldson‘s bank account to payoff the liens he had created. Donaldson assured the homeowners and “investors” that he would assist them with their rent and mortgage payments, using that equity which he claimed he was holding in his “escrow account.” In fact, Donaldson and Dean knew that Donaldson was simply putting these funds into his personal checking account, and using them for personal and business purposes, including the purchase of a personal residence with a cashiers check in the amount of $169,132.60.
Donaldson and Dean obtained the new mortgage loans on the properties in the names of the “investors” with higher monthly mortgage payments, and most times, higher interest rates, than that which the homeowners were currently paying. In the loan applications Dean false represented that the “investors” intended to live in the homes as primary residents and inflated the incomes of the “investors.” In some instances, Dean submitted fraudulent loan applications for the same “investor” to purchase multiple properties as their ‘primary residence’ in a short period of time. Donaldson assisted Dean by procuring false verification of employment letters.
Based on the false loan applications, lenders funded loans at high interest rates for the “investors,” yielding large transactional fees and premiums for Dean. Donaldson and Dean knew that the homeowners who sold their home to the “investor” had lost control of their home; could not afford the new mortgage loan with higher payments and interest; and could not qualify for a refinance.
The homeowners and “investors” were forced to use their personal savings and credit cards to make mortgage and rent payments until they were no longer able to do so. Donaldson only used a small amount of the equity from the sale of the homes to assist with the payments and the loans went into default. Fourteen of the homes have been foreclosed upon and foreclosure proceedings against two other homes are ongoing.
As a result of the scheme, lenders made over $4.7 million in mortgage loans. Their final loss remains uncertain as some of the homes remain in foreclosure to this day. The homeowners lost over $1.2 million in home equity. More than 20 victims were defrauded by Donaldson and Dean.
Mary Anne Dean, 57, Severna Park, Maryland, pleaded guilty to the conspiracy and faces a maximum sentence of 20 years in prison and a fine of $250,000. Judge Quarles scheduled her sentencing for March 22, 2012.
The sentence was announced by United States Attorney for the District of Maryland Rod J. Rosenstein; Special Agent in Charge Richard A. McFeely of the Federal Bureau of Investigation; and Inspector General Jon T. Rymer of the Federal Deposit Insurance Corporation.
“Charles Donaldson promised to rescue homeowners who were behind in their mortgage payments, but instead he stole the equity from their homes and used it to buy his own house, ” stated U.S. Attorney Rod J. Rosenstein. “We are prosecuting mortgage fraud crimes thanks to the coordinated efforts of federal and state investigators.”
The Maryland Mortgage Fraud Task Force was established to unify the agencies that regulate and investigate mortgage fraud and promote the early detection, identification, prevention and prosecution of mortgage fraud schemes. This case, as well as other cases brought by members of the Task Force, demonstrates the commitment of law enforcement agencies to protect consumers from fraud and promote the integrity of the credit markets. Information about mortgage fraud prosecutions is available www.justice.gov/usao/md/Mortgage-Fraud/index.html.
This law enforcement action is part of President Barack Obama’s Financial Fraud Enforcement Task Force. President Obama established the interagency Financial Fraud Enforcement Task Force to wage an aggressive, coordinated and proactive effort to investigate and prosecute financial crimes. The task force includes representatives from a broad range of federal agencies, regulatory authorities, inspectors general, and state and local law enforcement who, working together, bring to bear a powerful array of criminal and civil enforcement resources. The task force is working to improve efforts across the federal executive branch, and with state and local partners, to investigate and prosecute significant financial crimes, ensure just and effective punishment for those who perpetrate financial crimes, combat discrimination in the lending and financial markets, and recover proceeds for victims of financial crimes.
United States Attorney Rod J. Rosenstein praised the FBI and FDIC Office of Inspector General for their work in this investigation and thanked Assistant U.S. Attorney Mark W. Crooks, who prosecuted the case.