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Guilty plea expected in real estate fraud scheme

Mortgage broker admits to participation

Mike Heine/The Week

More: Fraud is 'bank robbery with a pen' I List of properties I audio

A Lake Geneva-based mortgage broker orchestrated a fraud scheme that swindled eight lending companies out of more than $4 million through the sales of about 19 Walworth County properties, according to federal court documents.

James J. Lytle, 33, used "straw buyers" and prepared numerous fraudulent loan applications to obtain properties, collect seller's fees and then let the properties go into foreclosure, often at a loss to the banks, according to a plea agreement he signed May 15.

He is expected to plead guilty June 27 to a single charge of wire fraud, a federal felony punishable by up to 20 years in prison and a $250,000 fine.

Between Jan. 1, 2004 and Nov. 1, 2005, Lytle and other unnamed individuals orchestrated the real estate fraud scheme, according to the plea.

While working as a mortgage broker, Lytle prepared bogus loan applications that he submitted to lenders to support the purchase of properties located mostly in Walworth County.

The sellers, who often conspired with Lytle, paid him for the sale of the properties, according to the plea documents.

As part of the scheme, Lytle made up information relating to the identity and credit worthiness of prospective buyers named in the loan applications and also fabricated information about the condition or appraisal value of the properties, according to the plea documents.

The object of the falsifications was to qualify the named buyer or straw buyer-a person who is not a bono fide purchaser who never intends to own the property or pay the mortgage-for a home loan.

In exchange for preparing the fraudulent loan applications and securing the financing, the sellers with whom Lytle conspired paid him between $3,000 and $20,000 for closing the sale of the property.

Lytle shared his payments with others, including the straw buyers and those who recruited straw buyers, according to the plea documents.

At closing, the buyers sometimes used a stolen identity, which required the use of a false photo identification in the name of the buyer on the loan application, according to the plea documents.

Assistant U.S. Attorney Carol Kraft said Lytle was the only person charged "so far." She could not comment further. The complaint did not say how many others are involved.

Lytle, who had addresses listed in court documents at W3645 Lortin Ave. and N1659 Williams Plaza, Lake Geneva, could not be reached for comment.

His defense attorney, Jack Rimland, did not return a phone call seeking comment.

Mike VanderBunt, association executive of the Lakes Area Realtors Association, said rumors have swirled about the investigation for more than a year.

More than 50 FBI agents conducted multiple searches in the county on Feb. 9, 2006, searching for evidence of a mortgage fraud conspiracy, according to a source close to the investigation. The source, an individual in law enforcement, requested anonymity because the investigation was ongoing and they did not have authorization to discuss the case.

Dave Gorr, FBI supervisory special agent in charge of Milwaukee's White Collar Crime Program, said there were at least four searches that day at realty-related homes or offices. He believed others would be charged later.

"I had a million realtors telling me they knew what was going on," after the searches, VanderBunt said. "I heard five or six stories and I couldn't believe any of them.

"It will be interesting to see who he brings up. As far as all the other players, that's what really needs to come out. None of us really know. I could speculate, but I don't want to do that. It's not the right thing to do."

As part of the plea, Lytle agreed to cooperate with investigators and testify before a grand jury if there are others charged. He will likely not be fined, but will have to pay restitution, according to plea documents.

More on Mortgage Fraud

According to the FBI, mortgage fraud is one of the fastest growing white-collar crimes in the United States.

Mortgage fraud is defined as "material misstatements, misrepresentations or omissions relied upon by an underwriter or lender to fund, purchase or insure a loan."

There are two types of mortgage fraud: fraud for property or fraud for profit.

Fraud for property usually involves the borrower as the perpetrator on a single loan. The borrower makes misrepresentations on loan applications to gain property, which they intend to keep.

Fraud for profit involves industry professionals. There are generally multiple loan transactions with several financial institutions involved. They include numerous misrepresentations including income, assets, overrated length of employment or fictitious employment, not disclosing debt, altered credit history and more.

Often, the borrower assumes the identity of another person (a straw buyer). The borrowers say they intend to occupy the property, but really intend to use it for rental income or purchase it for another party.

Down-payments often do not exist, and to generate cash proceeds, property values are inflated with fraudulent appraisals.

By the numbers

2006

36,617 mortgage fraud complaints reported to the FBI

818 developed into cases

263 indictments

204 convictions

$1.01 billion in reported losses

$388.9 million in restitution recovered

$231 million in fines collected

2005

21,994 complaints

721 developed into cases

206 indictments

170 convictions

$1.014 billion reported losses

2004

17,127 complaints

534 developed into cases

241 indictments

172 conviction

$429 million reported losses

(Source: FBI)

Common fraud schemes

-- Appraisal Fraud: A property is over- or undervalued, often due to pressure from loan originators and real estate agents to alter appraisals. The pressure can range from threats to gifts and illegal kickbacks.

-- Flipping: A home is purchased and "flipped" or sold immediately for an inflated price, sometimes 50 percent of the original selling price. The initial transaction is often concealed from the lender. The loan is never repaid and the lender is left high and dry.

-- Identity theft: Ranges from stealing a customer's identity to using false names for loans, to appraisers using another's name to make false valuations.

-- Straw buyers: One person or company pays someone else to pose as a home buyer, using their own information and credit score to purchase a property. The scammers then take over the title and mortgage. Lenders think they're loaning money to one person when the home will actually be owned by someone else.

 

(Source: flippingfrenzy.com, an informational Web site about real estate and mortgage fraud)

 

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