Indictment says they preyed on homeowners facing foreclosure and stripped away the remaining equity.
Two Bloomington residents were arraigned Thursday in Minneapolis on charges that they ran an $8 million equity-stripping scheme under the guise of a nonprofit that claimed to help troubled homeowners avoid foreclosure.
Richard Scott Spady, 38, and Michele Denise Sengstock, 48, were each charged Jan. 19 in a sealed indictment with conspiracy, fraud and money laundering involving transactions that took place from 2005 through October 2007.
Spady owned and operated Unified Home Solutions, which he promoted as a nonprofit but ran as a for-profit entity, the indictment says.
He also owned and operated American Mortgage Lenders, a mortgage brokerage that facilitated the transactions. And Sengstock owned and operated a company called MLAA Holdings, which also played a role, the government says.
According to the indictment, Spady told homeowners facing foreclosure that Unified Home Solutions offered a rescue program backed by investors who would buy their homes and sell them back after they'd regained their financial footing in a year or two. The homeowners could live in the homes and pay rent and upkeep in the meantime. Some homeowners only learned that their homes were being sold when they attended the closing.
The indictment says mortgages were obtained with fraudulent financial information, a common pattern in such schemes.
Investors collected a "risk fee," generally 3 percent of the purchase price, but most of the equity in the home went to Unified Home Solutions and American Mortgage Lenders in the form of "undisclosed kickbacks," according to an affidavit filed in the case by IRS criminal investigator Angela Johnson. She said Spady and his companies facilitated the sale of about 79 properties; fewer than five avoided foreclosure.
Spady closed the two companies in 2008 and opened new firms that he's believed to be operating, Johnson said. They include New Start Homes, Start to Finish Realty, RVenture Inc. and RInvestment I. None of those firms was mentioned in the indictment, however.
U.S. District Judge John Tunheim released Spady and Sengstock on $25,000 unsecured bonds.
The IRS criminal division and U.S. Postal Inspection Service investigated the case.
Dan Browning • 612-673-4493