A "cash back" mortgage swindle involving in excess of $1 million in stolen funds and more than $11.3 million in fraudulently obtained loans on 16 homes in the Sacramento region was alleged Friday in a federal indictment.
Derek Davis of Sacramento, described in court records by those who have dealt with him as a smooth-talking con artist, and Dino Rosetti, a Roseville mortgage broker, are charged in the indictment.
They are accused of inflating purchase prices, securing 100 percent financing with bogus paperwork, and then kicking back part of the money to straw buyers.
The pair allegedly defrauded mortgage lenders in connection with residential purchases in Sacramento, El Dorado and Placer counties.
Davis, 62, was first charged a month ago in a criminal complaint and ordered held without bail as a flight risk because he uses multiple identities and has a somewhat fluid lifestyle, records show.
He and Rosetti, 39, are charged in the indictment with mail fraud and making false statements in loan documents.
Davis is separately charged with trying to avoid a legal requirement that banks notify the IRS of currency transactions of $10,000 or more.
Rosetti is separately charged with using criminally derived assets to do business with a stockbroker.
They pleaded not guilty Friday before a U.S. magistrate judge.
With the concurrence of Assistant U.S. Attorney Courtney Linn, the judge ordered Rosetti released on $50,000 bail partially secured by a 401(k) account with a $35,000 balance.
Michael Long and Rachelle Barbour, attorneys for Davis and Rosetti, respectively, declined comment as they left the courtroom.
"Over the course of numerous investigations we have seen how fraud-for-profit mortgage schemes took root in our Sacramento-area housing market, particularly in the 2005 to 2006 time frame of this case," said U.S. Attorney McGregor Scott.
Davis is accused in the indictment of recruiting nominal buyers to purchase 16 homes.
He orchestrated the transactions. Rosetti, through his company, 1st Option Mortgage, acted as broker, the indictment says.
According to the indictment, 100 percent financing was based on false representations, including misstatements about purchasers' monthly income, liabilities, and intent to occupy the home.
An amount approximately equal to the difference between the inflated purchase price and the market price was diverted as "cash back" at the close of escrow to the bank account of a Nevada corporation called Calorneva Land Co. that was controlled by Davis, the indictment says.
The kickbacks were either concealed from the mortgage lenders or falsely disclosed as credits meant for improvements to the properties, the indictment states.
The kickbacks ranged from approximately $42,000 to nearly $138,000 and totaled "in excess of $1 million," Linn said.
Cash withdrawn from the Calorneva account found its way into the pockets of Davis and Rosetti and into accounts in the names of the nominal buyers.
Call The Bee's Denny Walsh, (916) 321-1189.
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