Developers, real estate brokers, lawyers and recruiters were among a group of North Carolina conspirators sentenced to serve time in prison for their participation in a mortgage scheme that netted more than $44 million.
Eight people were convicted of fraud for their role in the complex scheme, which involved enticing buyers to purchase properties they could not afford and profiting from the sales.
The Federal Deposit Insurance Corporation, Department of Housing and Urban Development, the IRS and the FBI teamed up to investigate the Raleigh-based conspiracy that defrauded banks and HUD by misrepresenting buyers to qualify for undeserved loans.
In the scheme, a group of builders would purchase and develop properties through a series of companies they owned. Intermediaries were then paid cash kickbacks to recruit people willing to let their names and credit standing be used to purchase the properties, according to the Justice Department.
Builders promised the straw buyers a variety of perks in exchange for agreeing to participate, including lump sums of cash, rental payments from future tenants, no down payments and no interest payments on loans.
Intermediaries helped the straw buyers apply for loans from FDIC-insured banks through the Federal Housing Administration, a HUD agency, and later used those loans to buy the builders’ properties at their appraised values.
However, the builders would set aside a portion of the proceeds to write fraudulent checks to the bank for the straw buyers’ down payments, the DOJ said.
A real estate lawyer who was involved in the scheme would help the builders make the checks appear as if they had been written by the straw buyers in order to secure HUD settlements and lower interest rates on loans.
The straw buyers were able to secure loans that would otherwise have been denied or at rates they would not have gotten if the banks did not believe they had paid cash down payments at closing.
Despite the builders’ promises, many of the straw buyers were left without the promised rental income from tenants, which the builders often kept for themselves, and with interest payments on loans they could not afford.
The North Carolina court ordered the eight conspirators together to pay $10 million in restitution for their involvement, which spanned from 2002 to 2009. Seven were sentenced to time in federal prison; one of them was sentenced to five years of probation, including 18 months of house arrest.
“Mortgage fraud impacts the financial stability of our country’s housing markets. These individuals manipulated programs that make it possible for others to live the American dream of owning their own homes,” said John Strong, special agent in charge of the FBI in North Carolina.
The FBI estimates more than $10 billion was lost to mortgage fraud nationwide in 2010 alone.
