Minnesota: Alleged fraud scheme involved real estate pros

The Minnesota Department of Commerce said Tuesday that it has been investigating what it called an elaborate kickback and mortgage fraud scheme allegedly involving at least 45 properties and a number of real estate professionals.

Civil charges made public Tuesday by Commissioner Mike Rothman allege that Michael Stephen Hyland, a primary broker of Split Rock Realty, let salespeople there carry out a "builder bailout" scheme between 2006 and 2007 to sell off excess housing inventory. They allegedly recruited property buyers, submitted phony financial information on mortgage applications, used trumped up appraisals to inflate sales prices and paid the buyers kickbacks of $25,000 to $70,000.

The charges say the scheme included cooperation among real estate companies, closers, appraisers, mortgage brokers and numerous buyers.

"Our investigation uncovered a carefully orchestrated system of fraud," Rothman said. "These weren't just ordinary crooks. These were industry professionals who knew the system and willfully took advantage of it."

To conceal the kickbacks, Hyland's associates allegedly routed payments through Robert Aslesen, owner of Options Plus Realty and Split Rock Title (which is not affiliated with Split Rock Realty), who retained a fee from each sale, according to a Commerce Department news release.

Hyland's attorney, Thomas Fafinski, could not be reached immediately for comment.

Neither Hyland nor Aslesen has been criminally charged.

Elsafy, owner of the Mortgage Shop Service Inc., admitted that he had overstated the buyers' income and assets and understated their liabilities on 37 mortgage applications. In nearly every case, these properties went into foreclosure, were sold in short sales or were in default. Elsafy, who awaits sentencing, has been barred from originating mortgages in Minnesota.

The Commerce Department alleges that in 2007, Hyland's group began running kickbacks through a shell company called Eastwind Construction Consulting "to cover their tracks." Eastwind was owned by Aslesen.

Other real estate professional implicated in the alleged scheme include Thomas Rosensteel, owner of Split Rock Realty; his brother, Sean Rosensteel, a salesman; salesman Justin Joseph Christenson; and Jonathan Neal Roman, an appraiser. None of them has been charged with a crime.

All of their licenses have been revoked with the exception of Christenson, who recently pleaded "no contest" to the civil charges against him. Sean Rosensteel also was ordered to pay a civil penalty of $70,000, and Aslesen has been ordered to pay $100,000.

Hyland could be subject to a civil penalty of $10,000 for each violation of the law, plus the suspension or loss of his license. A pre-hearing conference on the case is scheduled for Oct. 13 at the Office of Administrative Hearings in St. Paul.