Mortgage Crimes, Part 1: Small Houses, Big Mortgages

February 1, 2016

TWO SMALL REAL ESTATE INVESTORS 

WH was a 73-year-old man, living in an apartment near Ft. Lauderdale, when he ventured into the world of real estate in 2007. WH bought three houses in West Palm Beach, Florida in four months. He paid $195,000 for a house at 2408 Saginaw Avenue on February 16, 2007.(See Photo 1.01.) Less than two weeks later, on February 28, 2007, he paid $250,000 for a house at 514 44th Street in West Palm Beach.(See Photo 1.02.) Less than three months later, on May 14, 2007, he paid $230,000 for a house at 715 42nd Street. (See Photo 1.03.) The total price of the three houses was $675,000. WH financed these purchases with mortgages of $629,750. WH died shortly after these purchases. All three properties went into foreclosure. The courts entered final foreclosure judgments totaling $812,259. The houses were eventually resold. The combined sales price of these three houses after foreclosure was $83,000.

WH got mortgage loans to purchase all three homes. Transcontinental Lending Group lent WH $185,250 to purchase the Saginaw Avenue house. American Brokers Conduit lent WH $237,500 to purchase the 44th Street house and another $207,000 to purchase the 42nd Street house.

The mortgage companies that made these loans to WH sold the loans to securities companies almost immediately after the loans closed. The securities companies combined WH’s loans with other loans to form loan pools, called residential mortgage backed securitized trusts or RMBS trusts. These RMBS trusts often held as many as 5,000 loans with a total value of over a billion dollars per trust.

American Brokers Conduit, the mortgage company that loaned $237,500 to WH to buy the 44th Street house, sold the loan to American Home Mortgage Securities, LLC. This company sold the loan and mortgage to American Home Mortgage Investment Trust (AMHI) 2007-1. This trust had 5,340 loans worth $1,901,018,000. All of the loans were originally made by American Home Mortgage Investment Corporation or one of its subsidiary companies, which included American Brokers Conduit, WH’s lender. All of the loans had adjustable rate mortgages.

Deutsche Bank National Trust Company was the trustee for the AMHI 2007-1 trust. When Deutsche Bank foreclosed, the principal balance on WH’s loan for $237,500 was $253,622. WH’s loan balance was so high at the time of the default because the loan had an initial rate – often called a teaser rate – of 1.875%. After the first year, the rate increased to 9.208%. The total principal on WH’s loan for $237,500 could increase to $296,875.

Large institutional investors, especially pension funds, banks and insurance companies enthusiastically bought interests in the RMBS trusts created by Wall Street. These investors were lured by the AAA ratings that the three major ratings companies gave to these investments.

If the investors knew that a 73 year-old man was entering the world of small real estate investments, either as a landlord or “flipper,” would they have supported his efforts? If they knew that the houses were built in 1945, 1948 and 1955, and were small, less than 1,500 square feet, deteriorating, and in neighborhoods peppered with abandoned houses, would they have had confidence that the collateral was sufficient to protect their investments? If they knew that the houses had doubled or even tripled in price in the few years leading up to WH’s purchases, would they have used their pensions to bankroll these deals?

These small real estate transactions were an integral part of the housing crisis. The mortgage companies that made these loans, and the the securities companies that bought these loans, formed the trusts and marketed the trusts, cheated American pension funds and other investors of billions of dollars. The Securities and Exchange Commission and the Justice Department looked the other way.

In retrospect, WH’s purchases seem inexplicable, as do the loans made by the mortgage companies, as do the subsequent purchases by the securities companies. Very strange deals were being transacted in the neighborhoods and cities, on Wall Street, in Washington D.C., and in London, Frankfurt and Zurich.

The first house WH purchased, for $195,000, was at 2408 Saginaw Avenue in West Palm Beach. The house was small, 933 square feet, built in 1945, in a neighborhood of small, old deteriorating houses in Westgate, a low-income section of West Palm Beach. Many of the roads in Westgate were not paved. Very few streets had sidewalks or streetlights. In stormy weather, Westgate was always once of the first sections of the city to flood.

After foreclosure, this house sold at auction for $23,200. Fannie Mae was the winning bidder. Fannie Mae sold the house three months later for $17,000.

The second house WH purchased was at 514 44th Street in West Palm Beach. The house was wood-frame, 1,359 square feet, and built in 1948. WH bought the house for $237,500 from JM, who had bought the house less than six months earlier, together with JB, for $220,000. This house was in the Broadway Corridor section of West Palm Beach. The homes in the Broadway Corridor were mostly small, old homes. Many recent immigrants working construction lived in the Broadway Corridor. After foreclosure, the trust bought the house at auction in September 2014 for $41,100 and still owned the house in 2016.

WH’s third purchase at 715 42nd Street was 816 square feet, built in 1952. By the time WH bought this 42nd Street house, there were foreclosures and abandoned homes on almost every block of this neighborhood.

After foreclosure, the JEA Credit Opportunities Trust bought this house at auction in May 2011 for 416,600 and sold it six months later for $24,900. WH died in October 2008.

 

WH’s Three Purchases

Purchase Prices: $675,000

Mortgages: $629,750

Judgments: $812,259

Post-Foreclosure Sales Prices: $83,000

CZ, a 60-year-old man from Broward County, also began buying houses from in 2007. Like WH, CZ, had not previously been in the real estate business. From February 2007 to July 2008, CZ bought six single-family houses in Palm Beach County. These houses were similar to the houses sold to WH. They were small, old, deteriorating and in financially depressed neighborhoods.

 

CZ’s Purchases

$230,000 for 931 30th Street, West Palm Beach (July 2007) (See Photo 1.04.)

$230,000 for 928 30th Street, West Palm Beach (October 2007)

$235,000 for 728 50th Street, West Palm Beach (December 2007) (See Photo 1.05.)

$233,900 for 708 58th Street, West Palm Beach (January 2008) (See Photo 1.06.)

$252,000 for 615 44th Street, West Palm Beach (February 2008)

$230,000 for 327 South E Street, Lake Worth (July 2008) (See Photo 1.07.)

Total Purchase Price: $1,410,900

CZ got mortgage loans on all six houses.

 

CZ’s Mortgages

$218,500 for 931 30th Street from HSBC Mortgage Corporation

$207,000 for 928 30th Street from Bank of America

$176,250 for 728 50th Street from Suntrust Mortgage

$187,120 for 708 58th Street from Citizens Community Bank

$201,600 for 615 44th Street from Citizens Community Bank

$184,000 for 327 South E Street from Citizens Community Bank

Total of Mortgages: $1,174,470

Shortly after each purchase, CZ defaulted on all six loans. The lenders, or their successors, successfully sued for foreclosure

 

CZ’s Foreclosure Judgments

$236,719 for 931 30th Street

$263,948 for 928 30th Street

$197,846 for 728 50th Street

$203,191 for 708 58th Street

$218,861 for 615 44th Street

$200,626 for 327 S. E Street

Total Foreclosure Judgments: $1,321,191

After the foreclosures, the banks bought the houses at the county foreclosure auctions and sold the houses to new buyers.

 

Post-Foreclosure Prices of CZ’s Houses

$21,000 for 931 30th Street

$28,000 for 928 30th Street

$24,500 for 728 50th Street

$15,100 for 708 58th Street

$19,900 for 615 44th Street

$25,100 for 327 S. E Street

Total Re-sale Prices: $133,600

 

Summary of CZ’s Real Estate Purchases

Purchase Prices: $1,410,900

Mortgages: $1,174,470

Judgments: $1,321,191

Post-Foreclosure Sales: $133,600

CZ’s real estate decisions were not as inexplicable as WH’s. In September 2011, a federal prosecutor charged CZ with attempt and conspiracy to commit mail fraud. He was identified as a straw buyer in a mortgage fraud scheme orchestrated by JB and SM, who were involved in most of the CZ transactions as sellers.

The usual role of a straw buyer in a mortgage fraud scheme is to purchase properties with mortgages that have been fraudulently obtained. In most schemes, the assets and income of the straw buyer are falsified when the buyer applies for a mortgage. While the straw buyer claims to be paying closing costs and down payments, the straw buyer most often pays nothing, and receives a cash payment for buying each property and walking away.

The straw buyer usually signs loan applications that contain false information. Even if the scheme is never discovered, the straw buyer will eventually have significant deficiency judgments entered against him. Straw buyers are usually individuals with few assets to protect. The organizers in a straw buyer scheme usually take complicated steps to hide the source of the closing funds. In some cases, CZ paid the closing costs with a cashier’s check that he knew was purchased with funds from JB or SM, even though CZ was identified as the remitter. In other cases, JB or SM wired funds into CZ’s account to purchase a cashier’s check to pay the closing costs.

Straw buyer schemes usually involved preparation of two different HUD-1 closing statements by the conspirators. A house selling for $50,000, for example, would have a HUD-1 given to the seller at closing that accurately stated the $50,000 sales price. The conspirators would prepare a second, fraudulent HUD-1 statement that would show the sales price to be $250,000 or an amount substantially more than the actual sales price. This second HUD-1 would be submitted to the lender who would loan $250,000 for the purchase. When the lender wired the funds, the fraudsters would pay the $50,000 actual sales price to the seller, and would pay a fee, $10,000 for example, to the straw buyer. The conspirators would then pocket the remaining $190,000, sometimes setting aside enough funds to pay the mortgage payment for the first few months to help avoid discovery of the scheme. Sometimes the conspirators would even rent out the property for the two to three years that the eventual foreclosure was pending. CZ admitted that he did not pay the closing costs on the properties in the scheme and that the money actually came from JB and SM.

CZ pled guilty and was sentenced to four months in prison and ordered to pay restitution of $829,229. In 2014, CZ received permission from the Court to pay his restitution with $25 each month from his SSI check.

JB and SM also pled guilty. Both were sentenced to 20 months in prison and both were ordered to pay restitution of $1,477,925.

JB and SM sold 23 other small, old, very high-priced homes, from 2006 through 2008. These sales followed the pattern of the WH and CZ sales. JB and SM identified themselves or related land trusts as the sellers. Like WH and CZ, the buyers often bought multiple properties within a few months. The buyers defaulted a few months after the purchases and lost the homes to foreclosures. The federal prosecutor did not allege that any of these other sales were part of the mortgage fraud scheme. The 23 sales included the following transactions:

The house at 625 42nd Street, West Palm Beach sold in June 2006 for $180,000. (See Photo 1.08.) After foreclosure, the house sold for $25,500. The house was 788 square feet and was built in 1940.

The house at 636 47th Street, West Palm Beach sold in December 2006 for $212,000. (See Photo 1.09.) After foreclosure, the house sold for $35,000. The house was 1,036 square feet and was built in 1958.

The house at 3407 Rudolph Road, Lake Worth sold in December 2006 for $270,000.(See Photo 1.10.) After foreclosure, the house sold for $43,000. The house was 1,372 square feet and was built in 1960.

The house at 722 49th Street, West Palm Beach sold in May 2007 for $230,000. (See Photo 1.11.)

After foreclosure, the house sold for $38,900. The house was 837 square feet and was built in 1930.

The house at $230,000 for 5006 Pinewood Avenue, West Palm Beach sold in April 2007 for $230,000. (See Photo 1.12.) After foreclosure, the house sold for $15,100. The house was 968 square feet and was built in 1948.

The house at 2864 Alabama Street, West Palm Beach sold in January 2008 for $239,000. (See Photo 1.13.) After foreclosure, the house sold for $60,000. The house was 1,434 square feet and was built in 1948.

The house at 1009 South F Street, Lake Worth sold in April 2006 for $269,000. (See Photo 1.14.) After foreclosure, the house sold for $26,900. The house was 1,034 square feet and was built in 1931.

The house at 1111 North H Street, Lake Worth sold in April 2008 for $245,000. (See Photo 1.15) After foreclosure, the house sold for $38,100. The house was 1,172 square feet and was built in 1947.

The house at 860 West 7th Street, Riviera Beach sold in May 2006 for $180,000.(See Photo 1.16.) After foreclosure, the house sold for $11,000. The house was 959 square feet and was built in 1945.

Over a dozen different mortgage companies made the loans to fund these purchases. Sellers of high priced, small old houses often targeted recent immigrants. Several of the buyers of houses sold by JB and SM were Haitian immigrants. Although these buyers had never before owned any properties prior to 2006, they were able to buy multiple houses in 2006 and 2007, often obtaining mortgages for 100% of the purchase prices.

Why did the mortgage companies make these loans? Why did the appraisers certify that these houses were worth the purchase prices? Who insured these risky mortgages? Why did the securities companies buy these loans? Why was the adequacy of the collateral securing the loans in the pools given so little consideration? Why were investors so easily duped? Why did the real estate market collapse so dramatically in 2008? Why was the housing sector so slow to recover after the collapse?

A FEW OTHER WEST PALM BEACH MORTGAGES

The house at 110 North D Street sold for $140,000 in 2006. (See Photo 1.17.) The house was 1,120 square feet, wood-frame and was built in 1929. The house next sold for $30,100 at a foreclosure auction in 2013.

The house at 2619 Hiawatha Avenue was refinanced for $171,000 in 2005. (See Photo 1.18.)  The house was 1,088 square feet, wood-frame, built in 1958 and in very poor condition. The house was sold for $100 at a foreclosure auction in 2010 and sold the following year for $38,287.

The same buyer also refinanced a nearby house at 1815 Donnell Road in 2007 for $180,000. (See Photo 1.19.) The house was 1,378 square feet, wood-frame and was built in 1954. That house was sold to Wells Fargo Bank at a foreclosure auction for $55,400 in 2014. Wells Fargo still owned the house in August 2015.

Tens of thousands of other small, deteriorated houses across Florida and across the country were sold at vastly inflated prices. The lenders relied on the appraisers, but the lenders also controlled the appraisers. Verifying the accuracy of appraisals was far easier than it had been in previous decades. Lenders could use a variety of online tools to view any particular house and to travel, virtually, through any neighborhood, and determine prior sales prices, and tax appraiser values, but the majority of the lenders were willfully blind. The straw buyer schemes produced easy money. In some high-profile cases, federal and state prosecutors successfully brought cases that targeted the buyers, agents, brokers and appraisers and the Justice Department touted its successes without ever targeting the root causes of the schemes.

 

THE SEECHARAN SCHEME

A straw buyer scheme in Indian River County, Florida, targeted Guyanese residents of South Florida. A husband and wife team, Bhardwaaj “Deo” Seecharan and Gergawattie “Kamla” Seecharan, along with two co-defendants, solicited Guyanese residents of Florida and other states to act as straw buyers on fraudulent applications for more than $50 million worth of mortgage loans in connection with the purchase of more than 150 homes in Indian River County and Miami-Dade County. Approximately 80 individuals served as straw buyers of properties in Vero Lake Estates in Indian River County, and other developments. The proceeds were used to buy more properties, sustain the deception, service pre-existing mortgage loans in the scheme, and pay kickbacks to the straw buyers.

Deo and Kamla Seecharan were charged and convicted. Kamla was sentenced to 121 months and ordered to pay restitution of $9,041,133. Deo was sentenced to 60 months and ordered to pay $2,040,343.14 in restitution. A co-defendant, Linda Rovetto, was sentenced to 42 months.

 

OHIO’S REAL ASSET FUND

Real Asset Fund bought and sold real estate throughout Northern Ohio. Uri Gofman, a principal in the company, was indicted in 2009 along with six other defendants for a scheme to fraudulently purchase 19 properties in Cleveland. Thirteen of the 19 properties were purchased on August 16, 2005. Gofman secretly provided the down payment money. After the mortgage companies funded the loans, the down payment money was returned to Real Asset Fund. Gofman was identified as a principal in the scheme and was sentenced to 8 ½ years. His sentence was reduced to 60 months because of his cooperation with the prosecutors. Gofman was also ordered to pay restitution of $2.6 million.

Co-defendant Anthony Viola was the president and owner of Realty Corporation of America and one of the owners of Central National Mortgage, the mortgage broker for 18 of the properties in the scheme. Viola was also the manager of Transcontinental Lending Group, and one of the owners of Title Network of America and American Title Network, which served as two of the title companies on properties purchased in the scheme. Viola was sentenced to 12 ½ years. Viola was also ordered to pay restitution of $2.6 million.

Co-defendant Paul Lesniak served as the straw buyer of the properties. The loan applications included false information about Lesniak’s employer, his income, his assets and the source of his down payment funds. Lesniak was sentenced to four years’ probation. Co-defendant Dave Pirichy served as the mortgage broker in the scheme and signed the loan applications. He was sentenced to probation. The scheme was the largest mortgage fraud case prosecuted in Ohio. Prosecutors claimed that the scheme involved more than 450 houses and $44 million in loans.

 

DETROIT’S MORTGAGE FRAUD RINGLEADER RONNIE DUKE

In April 2013, Ronnie Duke was sentenced in federal court in Detroit, Michigan to 13 years in prison in connection with a multi-million-dollar mortgage fraud conspiracy. Duke was also ordered to pay a $1 million fine and restitution of $94 million. Duke pleaded guilty in July 2012. Prosecutors claimed that the scheme operated for four years, involved more than 450 fraudulent mortgage loans, more than 100 straw buyers, and approximately 180 residential properties in Detroit. Fifteen of Duke’s co-defendants were also convicted and sentenced with two defendants, Ryan Zundel and Nicole Lynn Rothe, each sentenced to 10 years.

According to prosecutors, Duke spent his fraud proceeds to operate a car racing business called Hardcore Racing Inc. He purchased numerous sports cars, race cars, boats, motorcycles, and a helicopter. Duke’s co-defendants used their proceeds to finance unrelated businesses and to purchase luxury items, including cars, boats, motorcycles, race horses, residential properties, and travel to the Caribbean and other overseas vacation destinations.

 

LAS VEGAS REAL ESTATE AGENT BRETT DEPUE

In August 2015, Brett Depue, a former Las Vegas real estate agent, was sentenced to nearly 22 years in prison for a straw buyer mortgage fraud scheme that allegedly involved 110 homes in the Las Vegas Valley and $55 million in mortgages. According to prosecutors, the scheme involved 12 co-defendants and netted $15 million for Depue who used his parents, his wife and others as straw buyers. Depue was also ordered to pay $1,567,429 in restitution. Depue established a fictitious company, Mauzzy Management so that straw buyers would appear to have employment and qualify for loans. Depue represented himself at trial.

 

JOHN BARRY AND THE EAST TEXAS SCHEME

In 2010, 40 people were arrested and charged in federal court in Plano, Texas, with crimes relating to a mortgage fraud scheme that allegedly began in 2004. The defendants were from Texas, Florida, Massachusetts, Tennessee and Georgia. John Barry of Windemere, Florida owned and operated, TKI Group, Inc., Sail Away, LLC and JAB Consulting, through which he solicited real estate agents, property finders, mortgage brokers, title company attorneys or escrow officers, property appraisers, and straw buyers to facilitate the scheme. The purpose of the scheme was to defraud lending institutions by convincing them to approve mortgage loans for residential properties for which the property values had been fraudulently inflated and the buyers’ credentials had been falsified. The indictment specifically listed 114 residential properties located in 28 East Texas cities.

The 40 indicted individuals either pled guilty or were convicted at trial for their part in the scheme.

Eight of the defendants were 55 or older, and several defendants were in their mid-60s

John Barry pled guilty and was sentenced in March 2012 to 120 months in prison and ordered to pay restitution of $17,556,613. William Douglas Mitchell, a certified and licensed real estate appraiser was accused of inflating the value of at least 35 properties, causing $8 million in losses to lending institutions. Mitchell was also sentenced to 120 months in prison and ordered to pay restitution of $8,245,423. Azza Bassiouny, 44, and Kamilla Kirch, 65, both mortgage brokers, were convicted at trial for their roles in falsifying loan applications. Bassiouny was sentenced to 70 months and Kirch was sentenced to 84 months.

 

DAVID DIGGLES’ NORTH TEXAS STRAW BUYER SCHEME

In North Texas, prosecutors alleged that between December 16, 2005, and August 22, 2006, Patricia Hines and David Diggles schemed to defraud mortgage and investment lenders by fraudulently representing the purchase and subsequent sale of properties in Dallas with fraudulently inflated prices. Both pleaded guilty to conspiracy to commit mail fraud. Hines was sentenced to 52 months in prison and ordered to pay nearly $1.6 million in restitution. Diggles was sentenced to 97 months of incarceration and ordered to pay $7.3 million in restitution. Diggles sentence was later reduced to 60 months. Diggles was the pastor of a church for several years. He worked with foster children and programs that provided food for the homeless. Diggles argued that he received bad information from a course he had taken in real estate transactions that taught that straw borrower transactions were legal, as long as the monies are present at closing.

 

NORTH MIAMI MAYOR MARIE LUCIE TONDREAU

The house at 216 NW 100th Street in Miami was a small house with a carport, built in 1946. In 2005, the house sold for $95,000, then for $155,000, and then for $165,000. In 2006, the house sold for $500,000 with two mortgages from HSBC Mortgage Company for $400,733 and $99,991. The buyer defaulted. HSBC bought the property at auction for $86,000.

The house at 9906 North Miami Avenue in Miami Shores sold for $798,000 in 2006 with two mortgages from HSBC Mortgage for $640,564 and $160,070. The house was a single-story 3-bedroom home built in 1955. After foreclosure, the house sold for $166,100.

The house at 16325 NE 6th Avenue in North Miami Beach sold for $350,000 in 2006 with two mortgages from National City Bank of Indiana for $277,501 and $69,548. This was a three-bedroom house built in 1954. After foreclosure, the house sold for $99,000.

These three houses were all identified as houses in a mortgage scheme involving Marie Lucie Tondreau, the former mayor of North Miami and Karl Oreste, the president of three South Florida companies: KMC Mortgage, JR Investment and Mortgage Corporation and LTO Investment Corporation. Oreste was the fiancée of Tondreau, North Miami’s first female Haitian-American mayor. Oreste and Tondreau hosted Creole-language local radio shows that advertised KMC residential loans. Both recruited straw borrowers to be used in the purchase of residential properties and then paid the borrowers to use their identities and credit.

Tondreau was involved in 13 loans, which netted $8 million in mortgage money. She was indicted and suspended from office in May 2012. She was found guilty after a 12-day trial in December, 2014. Tondreau was sentenced to five years and five months in prison in March, 2015. Oreste was sentenced to eight years and four months in prison, and was ordered to pay $8.2 million in restitution.

Okechukwu Josiah Odunna, a disbarred Lauderdale Lakes lawyer, was also indicted in the scheme. Odunna fled and was classified as a fugitive.

Kelly Augustin, a former North Miami recruiter for Oreste’s mortgage firm, was sentenced to 100 months in prison and was ordered to pay $8.2 million in restitution.

 

BROOKLYN’S EMMANUEL “TOTO” CONSTANT

In July 2006, Emmanuel “Toto” Constant was one of six people charged in Brooklyn with grand larceny, forgery and falsifying records in a mortgage fraud scheme.

Constant and other co-conspirators were charged with fraudulently arranging mortgage loans for the purchase or refinancing of three Brooklyn properties using straw buyers and inflated appraisals. Constant and the co-conspirators diverted the proceeds of the fraudulently obtained home loans to themselves. Many of Constant’s co-conspirators contributed to the testimony against him.

For part of the period of the mortgage fraud scheme, Constant served as the Suffolk County branch manager for D & M Financial, a New Jersey-based mortgage bank. Before living in Brooklyn as a banker, however, Constant was an infamous criminal.

Constant was the founder of FRAPH, a Haitian death squad. Constant had been convicted in absentia by a Haitian court in 2000, and sentenced him to life in prison for directing a massacre of slum-dwellers in Raboteau, a shanty-town, during a brutal period of military rule in Haiti in the early 1990’s. Human rights groups alleged that FRAPH squads cut off the faces of thousands of their victims. Constant did not serve any prison time. In the mid 1990’s, he fled Haiti for the United States, through Puerto Rico. Toto Constant reportedly had sometimes worked for the CIA. Despite his conviction and sentence in Haiti and a deportation order, the United States refused to extradite Constant, and he settled in Brooklyn.

On December 22, 2004, the Center for Justice and Accountability filed a complaint in federal court for the Southern District of New York against Emmanuel “Toto” Constant. On August 16, 2006, the District Court issued a default judgment, finding Constant liable for torture, crimes against humanity and the systematic use of violence against women, including rape. The plaintiffs, three women raped by FRAPH squads, were awarded $19 million in damages. The court declared: “Constant’s conduct was clearly malicious. As commander of FRAPH, Constant founded and oversaw an organization that was dedicated principally towards terrorizing and torturing political opponents of the military regime. His direction – or at a minimum, approval – of FRAPH’s state-backed campaign of violence constitutes an inexcusable violation of international law and merits a stiff punishment.”

This judgment marked the first time that anyone was held accountable for the state-sponsored campaign of rape in Haiti. 

Constant appealed the decision to the U.S. Court of Appeals for the Second Circuit. On December 1, 2009, the Second Circuit rejected Constant’s appeal and upheld the $19 million judgment against him. The Court ruled that plaintiffs had presented sufficient allegations that Constant had “worked in concert with the Haitian military to terrorize and repress the civilian population.” Further appeals by Constant, including an appeal to the U.S. Supreme Court, also failed.

On July 25, 2008, after hearing two weeks of testimony, a Brooklyn jury convicted Constant of several mortgage fraud felonies, including Scheme to Defraud and Grand Larceny. On October 28, 2008, Judge Abraham Gerges of the Kings County Supreme Court sentenced Constant to serve 12–37 years in prison. In his sentencing memorandum, Judge Gerges talked about the role of mortgage fraud in the housing market collapse, saying: “This case, while serious in and of itself, takes on an added resonance given the current global financial crisis. While the defendant and his confederates cannot be held accountable for the nationwide economic meltdown and the foreclosure crisis, this scheme, and others like it, have played a role in the situation.”

Judge Gerges concluded his memorandum with a plea that the United States government order Constant to serve his entire sentence in New York State, rather than return him to Haiti “where he may evade justice due to the instability of the Haitian judicial system.” Constant was sent to a maximum security prison in New York to serve his sentence.

 

GROW HOUSES

A few entrepreneurs combined mortgage fraud with marijuana grow house schemes. One group of 22 defendants in Port St. Lucie, Florida, owned over a dozen grow houses at the time they were arrested. The scheme used Global Home Builders, a construction company, as a front. Mortgage applicants told lenders that they were employed by Global Home Builders and earned substantial salaries. Manuel Caro bought houses in Port Saint Lucie, Florida, with mortgages for $370,000 from Saxon Mortgage and $260,000 from Finance America. Caro reported that he earned a substantial salary as an account executive for Global Homes. Police seized 110 marijuana plants from the houses. Manuel Claro fled and was classified as a fugitive. Sergio Caro was sentenced to 37 months for mail fraud and money laundering in connection with the scheme and ordered to pay restitution of $671,166. Prosecutors alleged that most of the houses were bought with funds obtained through Hugo Oliva, a mortgage broker, and his company, MBA Mortgage Services. The defendants submitted loan applications with false bank statements, W-2 forms, pay stubs, verifications of deposit and verifications of employment. Oliva was sentenced to 87 months in prison and ordered to pay restitution of $886,418.

Similar marijuana grow house schemes stretched from coast to coast. In upscale suburbs of Seattle, police and federal investigators raided at least 50 houses. Most of the people arrested in the grow houses were Vietnamese immigrants who were recruited from Massachusetts and from Vancouver, Canada, to live in the houses and tend the pot plants. In one scheme, a grow house operator was able to purchase 12 houses worth about $6 million, most with “no documentation” mortgages. The owner of a garden supply business was also charged in the Seattle scheme. Grow house/mortgage fraud schemes were also prosecuted in Detroit, Fresno, Trenton and Las Vegas. DEA authorities reported that they closed 153 indoor grow sites in Nevada in 2010 and seized more than 13,000 plants, while California authorities reported closing 791 indoor grow sites. In Southern California, Raymond Foakes, a past president of the Sonoma County Hells Angels motorcyclist club, was sentenced to five years and 10 months in prison and ordered to pay $1,085,000 in restitution in a scheme involving $10 million in fraudulent mortgage loans to purchase and refinance homes that were used as grow houses.

From 2004 through 2007, mortgage fraud schemes similar to the scheme that sent JB, SM and CZ and hundreds of others to federal prison were carried out across the country. In July 2010, the Justice Department began an initiative that it named “Operation Stolen Dreams.” On the one-year anniversary of Operation Stolen Dreams, the Justice Department announced that in its first year, the program targeted 1,517 criminal defendants nationwide, included 525 arrests and involved an estimated loss of more than $3 billion. In almost every case, the lenders were identified as the victims.

 

Photography by Zachary Cullen & Google Streetview