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Four Twin Cities residents face racketeering charges in what Hennepin County Attorney Michael Freeman described Wednesday as "the next wave" in mortgage fraud schemes.
The first wave involved mostly subprime lenders who required little or no verification of a home buyer's financial information, enabling property "flippers" to sell homes at inflated prices to unqualified buyers who couldn't afford the mortgage payments.
This time, Freeman says, the alleged frauds involve a sophisticated equity-stripping scheme that relied on forged documents -- including property records, college transcripts, pay stubs and even court records -- to qualify "straw buyers" for mortgage loans that required extensive documentation because they were guaranteed by the Federal Housing Administration (FHA).
The fraudsters even concocted a way to provide verbal employment verifications by at least seven non-existent companies, Freeman said at a news conference in the Hennepin County Government Center. They created a "phone tree" with a code that alerted them how to identify themselves whenever a lender called to verify a loan applicant's employment, he said, pointing to a large blow-up of the code.
Freeman said the suspect transactions were complex deals that took advantage of provisions of Minnesota foreclosure law. Many of the mortgages on the involved properties are now past due, and the homes are heading for foreclosure again or to short sales, a process where the mortgage holder sells a property for less than the outstanding debt.
A complaint filed Tuesday in Hennepin County District Court charges James Darrell Ober, 43, Wendy L. Ober, 41, both of Hudson, Wis.; Raul Burgos Pliego, 31, of Farmington; and Alejandro Sanchez, 32, also known as Silverio Alejandro Sanchez Cruz, 34, of Bloomington, with one count of racketeering. If convicted, they could face up to 20 years in prison and a fine of $1 million.
None of the defendants has been arrested. Subpoenas were issued for the Obers and Pliego, and an arrest warrant was issued for Sanchez. None of the defendants could be reached for comment.
$10 million in FHA loans
Brandon Johnson, a detective with the Minnesota Department of Commerce insurance fraud division, outlined the investigation in a 23-page complaint. It summarizes nine transactions that the defendants allegedly brokered through Franklin American Mortgage Corp. (FAMC). The defendants collected loan origination fees of $7,000 to $8,000 per transaction, and "kickbacks" on those transactions ranging from $63,000 to $157,000, for a total exceeding $840,000, the complaint says.
FAMC's internal review found that in 2009 and 2010, the defendants brokered about $10 million in FHA-insured mortgage loans from the firm on 65 properties. But FAMC wasn't the only lender, the complaint says. HUD estimates that the defendants brokered a total of about $23 million in loans, which were used to buy 136 properties in the Twin Cities area and outstate Minnesota.
"It's clear that the individuals behind this fraud defrauded not only HUD, but also the state of Minnesota," said Barry McLaughlin, special agent in charge of HUD's inspector general's office in Chicago, who attended the press conference in Minneapolis.
Public records indicate this isn't the first time James Ober has locked horns with HUD. He previously was listed as an officer and director of Ober Financial Corp. in Vacaville, Calif., which did business under the name Combined Mortgage. In September 1999, HUD terminated its origination approval agreement, citing excessive default rates.
A California firm by that name now operates as a financial advisory business, but a company spokesman, Ed Ober, said Wednesday that it has "no relationship whatsoever" to James Ober.
According to the Minnesota Department of Commerce, James Ober holds a non-resident real estate broker's license but Wendy Ober has none. The department says in an administrative complaint filed Tuesday that the Obers owned and operated Mortgage Planners Inc., a licensed mortgage originator in St. Paul, through which they did most of the suspect property transactions. Pliego and Sanchez were loan officers at Mortgage Planners, the department says.
Commerce alleges that the Obers arranged to have straw buyers purchase properties in which the Obers had a hidden interest via fictitious second mortgages in favor of one of three companies they owned: Accredited Financial Inc., a Wyoming company; Eagle River Financial, a Wisconsin firm; or OFC Properties, which holds a Minnesota license as a master plumber, mechanical contractor and residential builder.
Although the allegations in the administrative complaint mirror the criminal complaint, it's somewhat broader, naming additional parties who allegedly helped facilitate the transactions.
The criminal complaint says to obtain loans for the straw buyers, one or more of the defendants allegedly submitted phony college transcripts that would justify why the straw buyers supposedly got large salary increases before they applied for loans. It says they also allegedly submitted fraudulent divorce records from Hennepin, Ramsey, Anoka, Dakota and Rice counties.
The bogus divorce decrees contained signatures of fictitious judges and the forged signatures of some sitting judges, effectively stealing their identities, the complaint says. The divorce papers were needed so that certain straw buyers would qualify for mortgages as first-time home buyers, the complaint says.
Dan Browning • 612-673-4493.