Four Seattle area residents were arrested today on a 21-count indictment charging them with conspiracy, bank fraud, wire fraud and mail fraud, announced U.S. Attorney Jenny A. Durkan.

The mortgage fraud scheme ran from 2006-2008 and defrauded more than ten banks, financial institutions, and mortgage lenders, of more than $8.6 million. More than 50 mortgages were involved on properties in a variety of communities around Puget Sound including Medina, Renton, South Seattle, Bellevue, Redmond, and Kirkland.

Jonathon Mendoza Martinez, 34, of Bellevue, his sister, Jazim Villalba Martinez, 30, of Seattle, Cecia Perez Morales, 35, of Kirkland and Jorge Castrejon Pichardo, 41, of Mountlake Terrace made their initial appearances in U.S. District Court in Seattle.

According to the indictment, three of the defendants worked at Emerald City Escrow and at Nationwide Home Mortgage and conspired to use straw buyers to defraud banks. The fourth defendant worked at a tax preparation business and provided some of the false documentation submitted with the loan applications.

The conspirators submitted false financial, employment, and tax information to apply for residential mortgage loans. They falsely inflated the sale price of the properties. After the lenders funded the loans, the conspirators kept the excess proceeds and the straw buyers quickly defaulted on the mortgages. The victim banks included Washington Mutual (now JPM Chase), Bank of America, American Sterling Bank, ING Bank, IndyMac Bank, and Merrill Lynch & Co., Inc., among others.

Documents in the scheme were submitted via mail and wire. In all, the defendants secured, or aided and abetted in securing, through unqualified buyers, at least fifty mortgage loans, representing approximately $22,396,660 in loan proceeds, based on false and fraudulent representations, resulting in a loss to financial institutions and mortgage lenders totaling approximately $8,672,330.

Each count in the indictment is punishable by up to 30 years in prison and a $1 million fine.
Read more on this story here.

The good faith estimate of closing costs that lenders are required by law to give borrowers within three days of their mortgage application is supposed to put a stop to growing closing costs. But a survey taken this year shows the rules don’t always work as they should.

Lawmakers already recognize that, which is why regulators were directed under the Dodd-Frank Wall Street Reform and Consumer Protection Act to revamp the good faith estimate, as well as the HUD-1 settlement sheet that borrowers receive at closing.

Accuracy is higher than it used to be, but it still leaves a lot to be desired, according to a survey of 205 closing agents by the American Land Title Assn.

Although the poll is too small to be statistically valid, title professionals are in a position to address on the topic because of their involvement in closings. And it shines a light on several practices that violate Section 5 of the Real Estate Settlement Procedures Act.

Under that law, lenders’ estimates for services rendered by third parties such as appraisers and surveyors are supposed to be within 10% of the final figures. If the charges listed on the HUD-1 exceed that, lenders are required to eat the difference.

But nearly 3 of 4 closing agents who responded to the survey said lenders sometimes pad their initial estimates so they can be certain that they are within the 10% limit at closing.

“Over quoting” violates the spirit of the law, if not the law itself, which is intended to empower consumers to protect themselves from being gouged at closing, said Michelle Korsmo, chief executive of the American Land Title Assn. Even if borrowers are never charged for things like document preparation and warehouse fees, giving false information prevents consumers from making accurate comparisons when they shop for closing services.

Another troubling finding: More than half of the respondents said they’ve been pressured to cut their fees to help lenders avoid tolerance violations at closing.

Just as real estate agents don’t like being forced to cut their commissions to make deals work, title agents don’t like being told to slice their fees. But they don’t have a lot of power to push back against the companies that help them find clients, Korsmo says.

So what’s the point of the good faith estimate anyway, if consumers aren’t going to use it?

One northern California real estate agent might be forced to get comfortable in a small jail cell after being convicted of mortgage fraud.

Behrooz Badie, 53, a Sacramento real estate agent, was found guilty Wednesday of 13 counts of mail fraud following a six-day mortgage fraud trial in federal court.

Badie, with co-defendants Derek Davis and Dino Rosetti (both previously pleaded guilty), cooked up a scheme to defraud mortgage lenders and operated it for about 18 months before being caught, according to the evidence presented at trial.
Badie acted as the buyer’s real estate agent for the purchase of 16 residential properties by four straw buyers. Rosetti served as the mortgage broker for 15 of the purchasers, and Davis orchestrated the scheme.

With Badie’s assistance, Harriette Davis, Derek Davis’s ex-wife, purchased six homes. Kristina Harvey, Mr. Davis’s girlfriend, purchased five. William Emmons, an elderly friend of Mr. Davis, purchased four. Alan Bolton, a person to whom Mr. Davis owed money, bought one.

Each of the purchase agreements drafted by Mr. Badie indicated the offer was being submitted by one of the foregoing buyers who intended to occupy the property as his or her primary residence.

But that wasn’t part of the plan, testimony revealed.

For his part, Badie received more than $260,000 in commissions.

Badie is scheduled to be sentenced by U. S. District Judge Edward Garcia on Aug. 28. He faces a maximum statutory penalty of 20 years in prison.

Another San Diego real estate agent is behind bars after being caught in the most recent example of loan fraud in Southern California.

The next episode in our weekly round-up of real estate fraud involves a mother and son who were convicted in a San Diego federal court Wednesday for what prosecutors called an $8 million mortgage fraud involving 16 homes in San Diego and Riverside counties.

A jury convicted Carlsbad real estate agent Aida Agusti Castro, 67, and her son, Orange County attorney Stephen Kenneth Chrysler, 46, on multiple counts of wire fraud for allegedly submitting phony documents in support of false loan applications for unqualified buyers.

After the verdict was announced, District Judge Jeffrey Miller sent both into federal custody, pending a July 30 sentencing. The two face 20 years in prison on each of five counts.

This marks at least the 4th or 5th set of family members caught conspiring to break the law. Has nepotism run wild in real estate? Do you know of any family members working together who do things the right way? We’d love to hear what they think of this recent wave of familial crime.

The House Financial Services Committee voted in favor of moving the Consumer Financial Protection Bureau (CFPB) funding under the authority of an appropriations panel.

The House budget panel instructed the financial services committee to find almost $30 billion in savings over the next 10 years. Republicans on the committee elected to shed $35 billion in costs from the Dodd-Frank Act orderly liquidation authority, the Home Affordable Modification Program and redirect any funds the Federal Reserve would send to the CFPB back to the Treasury Department.

The CFPB estimates it will spend $356 million in 2012 as part of its continued buildup. This will increase 26% in 2013 to roughly $448 million.

Under the Dodd-Frank Act, the bureau can use up to 12% of the Fed budget in 2013, which is estimated to be roughly $598 million. It could also request an additional $200 million above that, which CFPB Director Richard Cordray said in previous testimony the bureau is not expected to need.

Republicans claimed by moving the bureau to under an appropriations committee, the bureau would have more accountability.

“Let’s put CFPB on budget and let them come and justify why they’re hiring all these people and leasing all this space, and let’s hold them accountable. If it’s on the up and up, it won’t be a problem,” said Rep. Randy Neugebauer, R-Texas.

Democrats charged the GOP with attempting to defang the new agency.

“When we have oversight hearings in which the absent oversight is lamented, no one has lamented what the bureau has done. In fact, it has drawn praise,” said Rep. Barney Frank, D-Mass.

Frank and Rep. Brad Miller, D-N.C., made a move during the session Wednesday that silenced some on the Republican side. Each filed separate amendments to the bill that would place Office of the Comptroller and Federal Reserve regulatory spending under an appropriations committee as well.

Members on both sides of the aisle balked at the idea of placing the agencies independent in charge of ensuring the safety and soundness of the financial system under the influence of Congress.

Frank and Miller each admitted that their amendments were bad ideas, but argued removing independence from a consumer protections agency was also troubling.

Kamala Harris, the Attorney General of California, has been one of the leading advocates for many attempts to get the housing industry in California back on the right track.

Harris has long made combating mortgage fraud one of the centerpieces of her time in office. And now it appears as though she’s willing to take the next steps in the process – the California Homeowner Bill of Rights.

Harris is lobbying state lawmakers to pass a bundle of mortgage-protection bills, currently undergoing tests in legislative committees in Sacramento. These bills would give homeowners more security with their mortgages while allowing the AG’s office to have fewer restrictions when looking into financial crimes.

The new 11-bill bundle will ban those actions that contributed to the housing crisis and apply to all mortgage lenders.

“A lot of the reform… was agreed to by the banks in the national foreclosure settlement, but it only has a life of three years,” Harris explained. “Let’s not go back to the days of robo-signing… Let’s learn from our mistakes.”

In an obvious move, lenders are opposing many of the important elements of the bills, including the sections concerning homeowners’ due process rights, the expansion of the national settlement for all California homeowners and, perhaps most importantly, giving homeowners the right to sue banks if they feel they have been wronged.

Harris’ defense is simple – if lenders do everything properly, they won’t have anything to worry about.

The 11 bills contain components of six separate proposals, five of which are duplicated in Assembly and Senate bills.

Do you appreciate Kamala Harris’ continued pursuit of the Homeowner Bill of Rights?

Please let RE-Insider know.