Here is another example of a recent legal case involving fraudulent real estate loan schemes and bank fraud, all related real estate transactions involving real estate professionals. I try to post case summaries in order to provide timely updates to real estate professionals on important issues.
On April 16, 2009, the two owners (Jonathan Helgason and Thomas Balko) of a Minnesota real estate company were sentenced in federal court for mortgage fraud in connection with a scheme involving at least 162 properties, principally in north Minneapolis, and mortgage proceeds of approximately $35 million.
Mr. Helgason was sentenced to 96 months in prison and three years of supervised release. Mr. Balko was sentenced to 84 months in prison and three years of supervised release. Restitution will be ordered at a later date.
According to their plea agreements, Mr. Helgason, a licensed real estate agent, and Mr. Balko were the owners of numerous companies, including TJ Waconia, Total Title LLC, Complete Real Estate Services, Inc. and CityWide Management, LLC and Investor’s Warehouse LLC (collectively, “the TJ Group”).
From approximately 2005 to 2007, Mr. Helgason and Mr. Balko executed a scheme to defraud and to obtain money by means of false and fraudulent pretenses. Using the TJ Group, Mr. Helgason and Mr. Balko purchased approximately 162 properties throughout the Twin Cities metropolitan area, principally in north Minneapolis. They would then resell the property within a few weeks to an “investor” who would purchase the property, sight unseen, at a price set by Mr. Helgason and Mr. Balko without negotiation, often times $20,000 to $60,000 more than the TJ Group had paid.
According to the plea agreements, people were told by Mr. Helgason and Mr. Balko that the investors were simply “lending” their credit to TJ Waconia (one of their companies). In exchange for “lending” their credit, the investors would receive a kickback payment of about $2,500 and a promise of an additional payment after two years when the TJ Group was to repurchase the property from the investor.
Through the scheme, the defendants perpetrated a fraud on the lenders who were led to believe that the “investors” were the actual owners of the properties, when, in fact, the “investors’” ownership was in name only. During the two-year period during which the investor owned the property, the TJ Group was responsible for all payments and maintenance on the property. In some instances, Mr. Helgason and Mr. Balko also provided investors with funds to pay the buyer’s portion of the property purchase price and worked with others to provide lenders with false loan applications on behalf of the investors so that they would qualify for the loan.
The two men, on behalf of the investors, obtained approximately $35 million in mortgage proceeds to purchase the properties from the TJ Group. Ultimately, the scheme collapsed, and the TJ Group did not repurchase the properties or continue making payments to the investors in order to pay their mortgages. The investors were left owning properties with mortgages that exceeded their property’s market value.
This case was the result of an investigation by Federal Mortgage Fraud Task Force, including the Federal Bureau of Investigation and the U.S. Postal Inspection Service. It was prosecuted by the United States Attorney's Office.
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