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Authorities believe real estate fraud scheme relied heavily on ID theft

Mike Heine/The Week

(Published June 10, 2007, 10:38 a.m.)

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As the FBI continues to sift through evidence in a complex Walworth County real estate fraud case, authorities have discovered the scheme relied heavily on identity theft.

One man, who spoke no English, went to mortgage broker James J. Lytle, the central figure in the fraud case, to apply for a home loan.

The man was denied, his attorney, Jeff Hahn said, but later received foreclosure papers in the mail for a house he had no idea he apparently purchased.

Despite being turned down, the FBI recovered a loan application for a house that contained fraudulent income and employment information for the man, who now has a $235,000 foreclosed home on his credit history, according to court documents.

"They literally ran him up the flagpole and he was never involved," Hahn said of his client.

That was one of at least 11 Walworth County properties connected to the fraud scheme that had "buyers" whose identities were stolen, according to federal court documents.

Another man was pressured into signing a document that said he was going to live in a home he never intended to buy, and another man was paid $3,000 for use of his identity to secure a mortgage loan, according to a federal search warrant application and affidavit.

Lytle, of Lake Geneva, was the mortgage broker in the purported sale of 19 Walworth County homes, including his own, according to a plea agreement Lytle signed May 12. He and others conspired to falsify information and used the identities of others-real or fraudulent-to obtain home loans on properties that had their values inflated, according to the plea agreement.

Perhaps most brazen is information in the affidavit that says Lytle used the stolen identity of someone to fraudulently "purchase" his own home at W3645 Lortin Place, Lake Geneva, for $150,000 more than what he paid for it three-and-one-half years earlier. He also continued to live and maintain an office there after the alleged sale, according to the affidavit.

To help secure the loans, Lytle made up employment and income histories for some of the buyers, according to the affidavit and his plea.

Lytle, 33, made between $3,000 and $20,000 per sale and divvied the proceeds among those he conspired with, including the people whose identity he used and those who helped find the so-called straw buyers, which are people listed as a buyer who never intend to live at the property, according to the plea.

Lytle is expected to enter a guilty plea to a single charge of wire fraud in United States District Court on June 27. He is the only person charged, but other charges are expected, according to an FBI source.

The Week was unable to reach Lytle for comment.

"This is pending litigation with serious allegations and serious charges and I am not in a position to comment at this time," said Jack Rimland, Lytle's defense attorney.

The affidavit requested the search of seven locations in Walworth County that may have contained information linked, knowingly or unknowingly, to Lytle's alleged scheme. On Feb. 9, 2006, FBI agents and sheriff's deputies simultaneously searched the locations, all but one of which had people there who were in the real estate business.

Looking for evidence of the frauds linked to Lytle, agents recovered hundreds of real estate files and computer disks and confiscated entire computer systems from some of the seven locations, according to search warrant returns.

"We're continuing to evaluate evidence and evaluate this case," said Assistant United States Attorney Carol Kraft.

She would not say whether anyone of those whose homes or offices were searched, conspired with Lytle.

The investigation has been ongoing since June 2005, according to the affidavit.

Hahn represents about six people who had their identities used in the scheme.

Another of Hahn's clients had his driver's license presented at a property closing that had another man's picture copied onto it, Hahn said. That client never attended the closing meeting.

Other clients were renters who thought Lytle was their landlord and paid him rent but later had foreclosure papers served to them with the name of a another purported homeowner who was not Lytle, Hahn said.

That information was consistent with information contained in the affidavit.

Some of Hahn's clients in the case have had their credit ruined. Some can't even get a car loan because they have a mortgage foreclosure on their credit score.

"It's been crazy. The amount of work we've put in to correct these problems is astronomical," Hahn said. "We're writing letters to banks. At some points I've called the FBI to see if they can call banks and lawyers to tell the banks my clients were defrauded."

Locations searched Feb. 9, 2006

The affidavit requested the search of seven locations in Walworth County that may have contained information linked, knowingly or unknowingly, to Lytle's alleged scheme:

-- Lytle's home at W3645 Lortin Place, Lake Geneva.

-- The home of Martin Valadez, 905 Phoenix St., Delavan. Valadez was a mortgage broker with Lytle at Lakeview Financial Services in Lake Geneva, according to the affidavit.

-- Lakeview Financial Services, 728 Wisconsin St., Lake Geneva.

-- Titan Real Estate, 400 Broad St., Lake Geneva.

-- The home office of James Begg III, an appraiser for Alexander and Associates, at 723 Aweogon Road, Fontana.

-- The home office of Tamara Knutson, an appraiser for Knutson Appraisal Service, at 2933 Elm. St., East Troy.

-- Valadez Furniture, 123 Park Place, Delavan.

Properties suspected of being involved in fraud scheme

(According to information in the search warrant affidavit and from the Walworth County Register of Deeds office)

-- 105 Glenwood Drive, Delavan-Sold in the fraud scheme for $165,000 on June 17, 2004. Prior sale price was $45,000 on Feb. 11, 2003. A subsequent loan application for the property was prepared, but never executed, for someone who denies intending to purchase the property. Foreclosure on Sept. 1, 2005.

-- 532 S. Second St., Delavan-Sold in the fraud scheme for $138,000 on July 21, 2004. Prior sale price was $44,000 in 1999. Fake identity for purported buyer used at closing. Foreclosure on July 26, 2005.

-- 407 S. Second St., Delavan-Sold in the fraud scheme for $146,000 on Aug. 6, 2004. Prior sale price was $60,000 in 1992. Purported buyer told authorities he was paid $3,000 to attend the closing and sign purchase documents. Foreclosure on Sept. 1, 2005.

-- 950 Center St., Lake Geneva-Sold in the fraud scheme for $235,000 on Sept. 21, 2004. It is unclear if there was a previous sale of this property. False identification used in sale. Purported buyer denies purchase. Foreclosure on June 7, 2006.

-- 1159 County H, Genoa City-Sold in the fraud scheme for $167,000 on Oct. 29, 2004. Prior sale price was $98,000 on April 21, 2003. False employment information was included on loan application. Foreclosure on Jan. 24, 2007.

-- 1617 N. Lincoln Avenue, Lake Geneva-Sold in the fraud scheme for $330,000 on Nov. 19, 2004. Prior sale price was $209,000 on Aug. 12, 2004. Same stolen identity used for the purported buyer in the 523 S. Second St., Delavan, property. Foreclosure on Jan. 19, 2006.

-- 1577 N. Lincoln Ave., Lake Geneva-Sold in the fraud scheme for $242,000 on Dec. 6, 2004. Prior sale price was $159,000 on June 29, 2004. Man told authorities he was pressured into signing documents to say he lived at property even though he never intended to live there. Foreclosure on Jan. 5, 2006.

-- N7574 County O, Whitewater-Sold in the fraud scheme for $205,000 on Jan. 20, 2005. Purported buyer's identity was stolen to obtain loan.

-- 900 Inlet Shore Drive, Delavan-Sold in the fraud scheme for $300,000 on Jan. 27, 2005 and again for $330,000 on June 30, 2005. One purported buyer had identity stolen for purchase of property. Renters continued to pay Lytle rent after its alleged sale. Foreclosure on Feb. 21, 2006.

-- 904 Inlet Shore Drive, Delavan-Sold in the fraud scheme for $300,000 on Jan. 20, 2005. Stolen identity used to purchase 900 Inlet Shore Drive used to purchase this property. Foreclosure on Feb. 21, 2006.

-- 911 Grant St., Lake Geneva-Sold in the fraud scheme for $141,000 on March 30, 2005. Prior sale price was $120,000 in March 2004. Foreclosure on Dec. 9, 2005.

-- 897 W. Wisteria Road, Pell Lake-Sold in the fraud scheme for $163,000 on May 4, 2005. Prior sale price was $97,000 on March 25, 2004. Appraisal for property may have really been for a completely different property altogether.

-- 62 E. Walworth Ave., Delavan-Sold in the fraud scheme for $140,000 on May 13, 2005. Previous sale price was $27,000 in 1999. Purported buyer's identity was stolen. Foreclosure in May 2006. House has since been razed.

-- 1614 N. Geneva Avenue, Linn Township-Sold in the fraud scheme for $270,000 on May 27, 2005. Previous sale price was $162,000 on Dec. 13, 2004. Stolen identity used at closing.

-- W3645 Lortin Place, Lake Geneva-Sold in the fraud scheme for $339,000 on Oct. 28, 2005. Previous sale price by Lytle was $189,000 on Feb. 13, 2002. Stolen identity used at closing. Lytle continued to live there at time of the search. Foreclosure on Feb. 13, 2007.

 

The author covers courts and government for The Week.

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