Sunday, October 01, 2006

Star Is Right: There Were Red-Flags Of Home Fraud In Marion County

The Indianapolis Star hits the nail on the head today in it's front-page story recounting how there were plenty of red-flags preceding the filing of Countrywide Home Mortgage's mortgagge fraud lawsuit against Robert Penn, involving potentially hundreds of mortgage transactions. The story begins:

Federal, state and local authorities received warnings, some dating back two years, about the Fishers man at the heart of a mortgage fraud lawsuit involving the foreclosure of scores of Indianapolis-area homes.

Yet the operation continued, according to court documents and observers. Homes were sold at inflated prices, defrauding lenders out of tens of millions of dollars and leaving investors on the brink of financial ruin.

Suspicions that something was wrong were so widespread in the real estate community that two title companies sent out notices warning other title companies to be wary about any deals involving Fishers businessman Robert Penn.

He is named as mastermind of the scheme in a lawsuit by Countrywide Home Loans, the largest U.S. mortgage lender.

In the lawsuit filed in Marion Superior Court in June, Countrywide claims Penn and several cohorts tricked dozens of Virginia residents into buying houses and townhomes at inflated prices in Indianapolis and Westfield.

The investors, according to the lawsuit, were led to believe they were participating in a risk-free "investment opportunity." In reality, the suit says, Penn and his associates were taking out home loans in the investors' names, inflating the appraisals and pocketing the difference . . .

What the Star article doesn't reveal is that Penn is not alone in these schemes. I have received countless of calls at my law office over the past two to three years from Marion Co. homebuyers complaining about being the victim of similar schemes. Unfortunately, none of these folks had any money to pay for the costs of litigation. As a sole practitioner, I simply cannot afford to take on cases of this nature without knowing that I'm going to be compensated. However, I urged these folks to contact the local FBI office, the state Attorney General and the Marion Co. prosecutor's office to explain what had happened to them because I believed crimes were being committed.

I also personally represented a homeseller in a case that was filed last year in Marion County Superior Court by First Horizon Home Loan Corporation against a mortgage broker accused of wide-scale mortgage fraud. First Horizon alleged that 4M Financial Services d/b/a Marquis and its principal, Robert Turner, had in nine transactions in Indianapolis engaged in mortgage fraud and had "depended on the vulnerability of and ignorance of Hispanic immigrants to carry out their fraudulent deeds." [Note: those are the words of the First Horizon's attorneys; I would not have described Hispanic immigrants as ignorant]. My client and his wife were wrongly accused by First Horizon of conspiring with Marquis and Turner to commit fraud. First Horizon eventually dismissed the complaint against my client and his wife after it reached a settlement agreement with Marquis and Turner.

At the time that lawsuit was initially filed, the plaintiff's attorney, Abraham Murphy, communicated to me that Marquis and Turner were being investigated by the Secretary of State's office and local prosecutors. I did not independently confirm whether these parties were being investigated for any crimes, but this lawsuit confirmed in my mind just how wide-scale mortgage fraud is in Marion County. I was shocked by the lack of safeguards exercised by First Horizon to prevent the fraud from happening in the first place. Employment verification forms were not being independently confirmed, and it had failed to confirm a buyer's employment with recent tax returns, W-2s and paycheck stubs. If the mortgage lenders were doing their jobs properly, guys like Penn and Turner could not engage in these questionable transactions.

I think the Star is right to question where the responsible government authorities were in looking out for the public's interest. I think if the truth is told, you will find that the FBI, the Attorney General, the Secretary of State, the Marion Co. Prosecutor and the Mayor Bart Peterson's office have all received numerous complaints over the past two to three years about this serious problem. Unfortunately, everyone involved here appears to have looked the other way.


Anonymous said...

This disgusting practice is mostly instigated and carried out by:

*Bad mortgage brokers. All that's required in this state is a general license.
*Slimey real estate brokers: more is required of RE brokers, and they can have their licenses jerked.
*Bad appraisers: here's the real cuplrit. They're everywhere.

Appraisers were not licensed in this state until 1991, when the federal government mandated all states set up strict appraser guidelines, qualifications and continuing education. This was a result of the Silverado S&L debacle and similar Texasa-based thirfts loaning out hundreds of millions on bad properties and bad appraisals.

The Indiana Real Estate Appraisers' Certification Board was appointed by Gov. Bayh in 1990. They set up those standards. They continue to enforce them.

As a professional practioncer who must use appraisals a great deal, I'm continually amazed at the sloppy and lackadaisacal manner many appraisers employ.

There are good ones. But there are far, far too many bad ones.

Without a state-certified appraiser's document (appraisal), the whole scheme described in the Star article is dead.

And do you know how many investigators the state has to oversee all the Professional Licensing Bureau's barbers, appraisers, real estate brokers/salespersons? Three.

Yep. That's what Indiana gets for cheap government.

And you're right, AI--this is the tip of the iceberg. There are many, many more out there.

citizen kane said...

This problem is definitely widespread. Before this story broke, I was looking at sales in my neighborhood on (thank God, the information is now public), and noticed that the house behind my home sold for $53,000 in May, 2006 and 95,000 in July 2006. Besides the fact that something appears to be very fishy; a cluster of fradulent sales can impact how a neighborhood is assessed for tax purposes. If the assessors are supposed to rely on sales data, it is paramount that the sales data actually reflect home value. That is why I will be contacting the Warren Township Assessor to find out how they are dealing with these situations.

I really don't have time to do my own investigation, but I feel that I will have to. Of course, when I discover something, who is going to take action? But the real problem is that all of this is the result of cheap government. When you have regulations, you have to have investigators who ferret out fraud, enforce regulations and help maintain a level playing field. White collar crime and street crime result from the same issue; there is common knowledge that you can ignore most laws without getting caught. Because generally, no one really cares. The problem with the Star is that they should have someone assigned to real estate who actually reviews data and understands the real estate market. They should be bringing these issues to the light of day and not just reporting that a lawsuit was filed.

I also have heard of builders using similar tactics to inflate house prices so that they can artificially raise the prices of their newly built homes.

There are people in government who want to help but they are typically those who don't have investigative powers. But they can help in the front end if the public would seek them out. They are typically lower to mid level employees who actually care about the public and are not interested in promoting themselves or being mouthpieces for self promoters.

Anonymous said...

It's harader for builders to do it...the comps are too readily-available because they rarely vary the type of materials or plans, at least in a big way.

Existing homes are so easy to over-appraise. And it's a racket. It's happening in large and small price ranges, in every corner of the county.

Wilson46201 said...

Ms. Tandy has been working in the inner-city mortgage business recently. It's curious she hasn't expressed any opinions about the topic of corrupt and shady financing ...

GadFlier said...

What proportion of Indiana's "leading" status in foreclosure might be due to these scams?

Anonymous said...

Does anyone have any experience working with Charter Homes, Carole Jaquess, Excel Realty Group or anyone related to them? I have suspicions...

Anonymous said...

What do you think of Charter Homes? I am very curious as to what you may think. I have been approached by them to do loans.. and am not really sure if I should or not ? Advice Please....

Hunkston said...

Having done some research into living conditions I have made the decision to move to the US! Apart from the medical care (which having just watched the film Sicko I am slightly concerned about) I have decided that there are more positives then negatives and am therefore very excited about the prospect of moving.
However I am concerned with purchasing a house, are mortgages over there the same as there are here? Do I need a large deposit and having spoke to a few people online I am concerned I wont be able to find a company to give me mortgage broker bonds.
and if I cant can I buy a house? Also I am familiar with the term surety bond so is a mortgage bond just a guarantee I will pay on time or is it more?

David Orton said...

Still dealing with the consequences of these parties actions. The other day a client walked in and asked for legal advice on what she should do to straighten her credit score and not owe $37,000 in back property taxes to the county. I'm curious to know if the realtors involved are still practicing real estate.