Real Estate Investors Admit Roles in Multi-Million-Dollar Loan Fraud and Kickback Scheme

Allison Tussey —  October 14, 2014 — Leave a comment

Grant McCollough, 38, Kearney, Nebraska, a real estate investor and owner of Tycoon Investments, and his wife, Marisa McCollough, 36, pleaded guilty to participating in a conspiracy to defraud mortgage lenders and impede the Internal Revenue Service.

As part of their conspiracy, the McColloughs recruited investors to act as straw buyers and arranged for false information to be submitted to mortgage lenders in support of the buyers’ loan applications. The McColloughs also fraudulently inflated the value of the homes and disguised the source of the down payments, in order to skim funds from the fraudulent transfer of property among their co-conspirators. They also admitted hiding their skimmed profits from the IRS.

Over a dozen of the fraudulent mortgages were arranged by coconspirator Donald Totten, a mortgage loan officer and broker operating from Rancho Santa Fe. Totten pleaded guilty in February 2014 to mortgage fraud, bankruptcy fraud, and filing a false tax return that failed to report more than $3 million in taxable income. Totten operated the businesses “Money World” and “Integrated Home Loans,” and specialized in brokering a particularly toxic stated-income, stated-asset “negative amortization” loan product, which allowed borrowers to make monthly payments less than the interest charged over the same period and without paying down the principal balance, so that the monthly payments were low but the outstanding balance of the loan increased over time. As part of his plea agreement, Totten admitted that defaults in the mortgages he brokered caused losses of between $2.5 million and $20 million. Totten, who is in custody, will be sentenced on October 20, 2014, by U.S. District Judge Michael M. Anello.

McCollough’s business partner at Tycoon Investments, Jason Kent, was also charged in the scheme. On July 21, 2014, Kent pleaded guilty to wire fraud, and admitted assisting Totten, Grant McCollough, Marisa McCollough, and others with carrying out this mortgage and kickback scheme. Kent’s case was transferred to the District of Hawaii and he is scheduled to be sentenced on February 26, 2015, before U.S. District Judge Leslie E. Kobayashi.

As admitted as part of the guilty pleas, the McColloughs arranged for loan applications to include made-up employment (including false employment at Tycoon Investments) and represented that borrowers earned substantial salaries from the company when, in reality, Tycoon Investments had no employees. In addition, with Totten’s help, the McColloughs and Kent would falsely represent that they jointly owned a bank account at Wells Fargo Bank, to support false claims by Marisa McCollough and Kent that they held significant assets. In reality, the funds were Totten’s. During the conspiracy, Marisa McCollough worked at Wells Fargo Bank, a position she used to help falsify records about the loan applicants’ account balances.

With Totten’s help, Marisa McCollough bought a $3.4 million oceanfront home in Lahaina, Hawaii. In order to qualify, she falsely claimed that she earned $90,000 per month, had close to $700,000 in savings, and made a down payment of $630,000. This was all false, and in fact Ms. McCollough did not contribute any of her own funds to the purchase. The McColloughs lived in the home for several years, but never made the mortgage payments they owed.

The McColloughs’ guilty pleas were taken before U.S. Magistrate Judge Ruben B. Brooks. They are scheduled to be sentenced by Judge Anello on January 5, 2015 at 9 a.m.

In addition to these defendants, Totten’s employee and loan processor, Shellie Lockard, also pleaded guilty to participating in a conspiracy to defraud mortgage lenders. According to her plea agreement, Lockard processed fraudulent loans for Totten, and earned commissions of approximately $1,000 per loan. She was sentenced on September 15, 2014, by Judge Anello, and ordered to serve six months in home detention.

According to court documents, many of the fraudulently-obtained mortgage loans subsequently defaulted, causing mortgage lenders and secondary purchasers, including Fannie Mae and Freddie Mac, to suffer significant losses as a result of the conspiracy. Fannie Mae and Freddie Mac are government-sponsored enterprises with a mission to provide liquidity, stability, and affordability to the U.S. housing market. Both enterprises assist mortgage lenders by purchasing the loans they originate, enabling the lenders to replenish their funds to finance additional mortgage loans for American home buyers. The statements borrowers make in loan applications are an important factor in Fannie Mae’s and Freddie Mac’s determination whether to purchase a mortgage loan.

“This kind of fraud has a ripple effect through our nation’s economy,” said U.S. Attorney Laura Duffy. “We will continue to investigate and prosecute those who defraud the mortgage market.”

FBI Acting Special Agent in Charge, Robert Howe, commented, “FBI investigations such as this expose the vulnerabilities in the mortgage industry and how criminals motivated by greed will stop at nothing to support their lavish lifestyles. This kind of dishonesty is profitable only in the short run, and ultimately leads to arrest and prosecution.”

IRS Criminal Investigation’s Special Agent in Charge Erick Martinez stated: “Today Grant McCollough and Marisa McCollough are being held accountable for their role in defrauding mortgage lenders and impeding the IRS. IRS Criminal Investigation is working hard to detect income from illegal sources intentionally hidden from the IRS and ensure that all forms of income are taxed.”

Allison Tussey

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