As their part of a yearlong, nationwide push to bring mortgage-rescue scammers to justice, federal law enforcement officials in Sacramento announced Tuesday that 17 defendants were charged in six felony cases in eastern California.
"These cases involved thousands of homeowner victims and losses estimated by law enforcement to exceed $9 million," U.S. Attorney Benjamin Wagner announced at a news conference highlighting the prosecutions in the Sacramento-based Eastern District of California. The announcement followed a news conference earlier in the day by U.S. Attorney General Eric Holder ballyhooing the initiative's yield nationally.
The government brought charges against 530 people who victimized more than 73,000 homeowners and caused more than $1 billion in losses, according to Holder.
From Oct. 1, 2011, to Sept. 30, the so-called "Distressed Homeowners Initiative" honed in on frauds such as foreclosure-rescue schemes that prey on homeowners who have fallen behind on their mortgage payments.
"Typically, the con artist in such a scheme promises the homeowner that he can prevent foreclosure for a substantial fee by, for example, having so-called 'investors' purchase the mortgage, or transferring title in the home to persons in league with the con artist," Wagner explained. "In the end, the homeowner can lose everything."
One case noted by Wagner is the criminal complaint pending against Martin Wayne Flanders and Ligia Sandoval Spafford, both of Roseville, who were arrested last week on charges of orchestrating a fraud scheme and filing sham bankruptcy petitions. According to court papers, Flanders took advance fees from economically distressed homeowners in exchange for a variety of promised financial services, including loan modifications, mortgage loan audits, credit repair, debt relief, bankruptcy filings, and a program to sell homes to "investors" with a rent-to-own option for the owners.
Flanders, 48, and Sandoval, 46, marketed these services primarily to Spanish-speakers. During a radio program aired twice weekly by a Bay Area Spanish-language Christian radio station Radio Luz Sandoval promoted the services. Flanders also advertised on a Spanish-language television station, Univision, and in Spanish-language magazines. Many of the pair's clients spoke little or no English.
The investigation to date has identified 25 to 30 individuals who paid for services and did not receive them for a total loss of approximately $120,000. Lenders foreclosed on some victims who failed to obtain relief.
As a result of an immigration hold, Flanders is being held without bail. Sandoval is free pending indictment on a $75,000 unsecured bond co-signed by her mother.
"The foreclosure crisis hit this district hard," Wagner stressed. "Several of the municipalities with the highest foreclosure rates in the country are in the Eastern District of California. Some of those foreclosures are connected to mortgage fraud schemes."
With respect to all types of mortgage fraud, Wagner said that in the fiscal year ended Sept. 30 more people were charged in his jurisdiction "by a large margin" than in any other district in the country. "We are still counting but, according to FBI figures, the number will be around 100 defendants."
Many of those cases involve people who ripped off mortgage lenders during the housing boom from 2004 to 2008. But, as the housing market shifted from bubble to bust, Wagner said, "the nature of mortgage fraud schemes also shifted, targeting homeowners rather than banks and mortgage companies."
It was that shift, he said, that launched the U.S. Justice Department's "Distressed Homeowner Initiative" a year ago.
At Holder's news conference in Washington, D.C., FBI Associate Director Kevin Perkins said mortgage fraud targeting vulnerable homeowners accounted for about 4 percent of the bureau's mortgage fraud investigations two years ago. Today, he said, the number is closer to 20 percent.
Earlier this year, state and federal authorities signed a $25 billion settlement with five of the nation's biggest banks over rampant foreclosure abuses. That deal requires the banks to reduce loan balances for some homeowners and overhaul loan-serving practices. In addition, state attorneys general have brought hundreds of their own mortgage fraud cases.
Officials agree that, much like the war on drugs, their efforts can go only so far in stamping out mortgage rackets, which have persisted in good times and bad. But they insist the cases they file make a meaningful difference.
"This problem will be with us for a while, and there is a lot more to be done," Wagner acknowledged. "But this (Distressed Homeowner) Initiative has been a success so far, and we expect that it will continue to make a substantial contribution to the battle against mortgage fraud."
The initiative was organized by the Mortgage Fraud Working Group of President Barack Obama's interagency Financial Fraud Enforcement Task Force chaired by Holder. The working group is co-chaired by Wagner.