Mortgage Fraud Still A Priority For U.S. Department Of Justice
The United States Department of Justice (“DOJ”) continues its efforts to prosecute cases of mortgage fraud and related crimes in the wake of the residential mortgage backed securities (“RMBS”) crisis that erupted in 2008. Recent examples of these efforts include cases where DOJ has either charged or obtained guilty pleas from one individual involved in a scheme to rig bids in public real estate transactions and three individuals involved in separate multi-million dollar mortgage fraud schemes.
On July 23, 2012, David R. Bradley agreed to plead guilty to conspiracy and assist DOJ in its ongoing investigation of a real estate bid rigging scheme. According to court documents, Bradley conspired with others not to bid against one another at public real estate foreclosure auctions in Alabama. After a public auction, the conspirators would then hold a second secret auction to bid on the property above the public auction price.
Bradford J. Rieger, a Connecticut attorney, pled guilty on July 12, 2012, to one count of conspiracy to commit wire fraud and bank fraud. Rieger, along with others, conspired to defraud mortgage lenders and financial institutions by obtaining millions of dollars in fraudulent mortgages for the purpose of purchasing dozens of multi-family properties in New Haven, Connecticut. Based on falsified HUD-1 forms, the mortgage lenders would issue mortgages based on an inflated sale price. In total, more than $10 million in fraudulent mortgages on more than forty properties were obtained through the conspiracy.
On July 17, 2012, Mitchell Cohen and Erin Davis, the owner and sales manager of the Buy-A-Home Real Estate Brokerage firm, were indicted in the United States District Court for the Southern District of New York for participating in a $7.5 million mortgage fraud scheme involving FHA loans. According to the U.S. Attorney for the Southern District of New York, Preet Bharara, “As the indictment alleges, Mitchell Cohen and Erin Davis were engaged in 360 degrees of fraud – they lied to and exploited borrowers to induce them to buy homes beyond their means, they lied to banks about the borrowers’ financial condition, and they lied to HUD so the loans would be FHA-insured. While Mr. Cohen and Ms. Davis enriched themselves, everyone else lost out as the homeowners went into foreclosure, the banks were stuck with bad loans, and HUD had to pay out insurance, as detailed in the indictment.”
In January 2012, DOJ announced the creation of the RMBS Working Group, a task force devoted to cracking down on fraud or other misconduct by market participants in the creation, packaging, and sale of mortgage-backed securities. On May 24, 2012, DOJ launched the RMBS Working Group website (www.stopfraud.gov/rmbs.html), which will allow anyone with knowledge of RMBS-related fraud to report such misconduct directly to DOJ or the Securities and Exchange Commission (“SEC”).
The increase in resources within the RMBS Working Group comes in the wake of sharp criticism from Iowa Senator Chuck Grassley, regarding DOJ’s efforts in prosecuting mortgage fraud cases. At a hearing of the Judiciary Committee on March 9, 2012, Senator Grassley stated that, “the [DOJ’s] message is that crime does pay,” referring to DOJ’s failure to bring criminal charges against the former Countrywide CEO accused of lying about the risks of Countrywide’s loans.
In light of Senator Grassley’s criticisms and the increase in resources dedicated to the RMBS Working Group, expect mortgage fraud prosecutions to continue to be a priority for DOJ.