Finally, the long, slow arm of the law has thrown one of the local mortgage fraud scammers into the slammer. This case began in 2005, and the perpetrators won't be sentenced until September 17, 2009. Still, they have been convicted, and the day of reckoning has come!
Back in mid 2008, I posted a blog about a Mortgage Fraud Bust in Honolulu, which involved five people, including loan officers and middlemen, basically run with the "We Buy Houses" signs, used as bait to find distressed homeowners. Back then, the FBI had said that they were investigating several more cases that were run during the years from 2004 through 2006, and that there would be many more cases to come.
This particular case involved a husband and wife team, owners of a mortgage company. The founder of Mortgage Alliance LLC, one John M. Dimitrion, and his wife, Julie A.B. Dimitrion, pleaded guilty in federal court. Mr. Dimitrion Faces a maximum prison sentence of 45 years and $1.5 million in penalties; Mrs. Dimitrion faces a maximun of 15 years and penalties of $500,000.
The scam this couple, and their cohorts ran, was basically one where they used the "subject to" clause in a contract, a technique taught in many of those so called "Investment Seminars". The clause is legal, but it is fraught with danger. By using the subject to clause, a homeowner signs the title of their home over to the "Rescuer", who claims they will save the home from foreclosure (by the way, the term "Rescuer" could be considered to be the type of person the "Distressed Property Consultant" regulations are meant to protect homeowners from). The "Rescuer" then owns the property, "subject to" the underlying mortgage, which the original homeowner is still liable for. The "Rescuer" promises to make the mortgage payments, while temporarily renting the home back to the homeowner. In the meantime, the "Rescuer" can secure a new loan on the property, using a third party "straw" person as a new purchaser.
The twists and turns to this scam can become complex. The "Rescuer", in this case the Mortgage Alliance company, never told the homeowners they were signing away the title to their home. Instead, they thought they were simply refinancing their home. The Mortgage Alliance company then went on to create a fake escrow account, made fraudulent loans on the property, greater than the home's actual value, and stole the proceeds. Often in cases like this, the underlying mortgage is never paid, and eventually the original homeowner gets foreclosed on and evicted, which also occurred in this case.
One thing I want to mention is that this type of fraud and mortgage scam has been happening for years. The obvious malfeasance should be easy to spot and avoid, but the scammers manage to gain the homeowners trust. The homeowners are desperate, and fall victim to these scams because they are hoping for a miracle. In a way, this is not unlike the subprime mortgage fiasco, which bears similarities to this type of fraud.
The plethora of subprime mortgages that many homeowners unwittingly signed onto, in many cases, caught many unwitting buyers unaware of the pitfalls they were falling into. Often, they were looking for a miracle, the chance to own their own home, and trusted greedy, unscrupulous lenders.
Unfortunately, most of those situations will not result in any criminal prosecutions.