I KNEW D. BELL HAD BREAD BUT DAMN
$11 million netted in S.D.-area scheme
By Greg Moran (Contact) Union-Tribune Staff Writer
2:00 a.m. April 8, 2009
Related documents
Indictment in mortgage fraud case case (PDF)
Federal prosecutors indicted 24 people in a massive mortgage fraud scheme that they said was led in part by a gang member from San Diego and netted participants $11 million in profits.
In an indictment unsealed yesterday, prosecutors laid out a wide-ranging racketeering conspiracy that ran from 2005 to 2008 and targeted homes across the county. Among the identified leaders was Darnell Bell, a documented member of the Lincoln Park street gang.
Bell, 38, used his status in the gang to recruit other members for the scheme and “maintain discipline,” according to the indictment.
The sweeping conspiracy involved almost every element in the real estate transaction chain. The defendants include a real estate broker, a group of straw buyers, an escrow officer, an appraiser, tax preparers and a notary.
Prosecutors allege the network used fake buyers to purchase homes for more than the asking price, with the defendants pocketing the overage. Lenders were duped into funding mortgages for the inflated price and later suffered losses when the buyers walked away and the property was foreclosed.
The value of the properties involved is estimated at $100 million.
At a news conference, U.S. Attorney Karen Hewitt said the enterprise was the largest such scheme ever uncovered in the San Diego area. Both she and Keith Slotter, special agent in charge of the San Diego FBI office, said it was the first time that the federal Racketeer Influenced and Corrupt Organizations law, known as RICO, was used anywhere in the country for a real estate scam.
“From our perspective, this is an extremely important case because it involved properties throughout San Diego,” Hewitt said. She indicated that federal authorities are not finished.
“Please know our work in this area is far from over,” Hewitt said.
Straw buyers and kickback scams proliferated during the housing boom, said Todd Lackner, a San Diego appraiser who has uncovered hundreds of suspicious transactions. But this one stands out for its size.
“It was pretty rampant, but this was the biggest one I've ever seen,” he said yesterday. “This was a very large scheme.”
Lax lending standards during the housing boom made it easy for such schemes to flourish, real estate experts say. Stated-income “liar loans” and zero-down-payment financing were easily available to borrowers.
Moreover, safeguards to check the accuracy of income and other information submitted by borrowers were largely ignored, said Mark Goldman, a mortgage broker and real estate lecturer at San Diego State University.
Bell appeared briefly in federal court yesterday, where a plea of not guilty was entered for him by Magistrate Judge Nita Stormes. Bell is already serving a 37-month sentence in federal prison after pleading guilty to drug distribution charges in February 2008.
The other defendants were arrested yesterday, most in San Diego, and are scheduled to appear in court today. Four defendants were arrested in other cities and will be returned to San Diego.
According to the indictment, the scheme ran from January 2005 to April 2008. Bell and another identified leader, Michael Ivy, 43, set up a business dubbed The Real Estate Center of La Mesa to orchestrate the frauds. While the properties were spread around the county, they were largely concentrated in Spring Valley, Encanto, Lemon Grove and La Mesa.
Working with Stanley Gentry, 49, a real estate broker who provided access to multiple listing services, they targeted homes that had been on the market for months and whose asking price had been reduced.
They recruited straw buyers, including Bell's wife, to obtain loans from lenders. The ring would then make offers on homes above the asking price and arranged to have the extra amount paid to a shell construction company that Bell set up.
That extra money amounted to a kickback, prosecutors allege. Lenders were told the extra amount was needed to pay for handicap access and other property upgrades, leading the lenders to believe the whole loan was backed by the value of the home.
But Hewitt said no work was ever done on any of the homes. The proceeds were used by the ring. Prosecutors estimate that the net take was about $11 million.
The ring used appraisers to back up the inflated values. One named defendant, Esteban Valenzuela, produced more than 40 inflated appraisals, according to the indictment.
Moreover, the mortgages were 100 percent of the purchase price of the home – meaning those in the ring had no money at stake. When the deal was done, they walked away from the property, sending it into foreclosure.
That damaged neighborhoods and defrauded lenders out of millions, authorities said.
For example, a 1,984-square-foot house on San Bernardino Avenue in Spring Valley was purchased in August 2006 by a straw buyer for $610,000. It went into foreclosure. It resold last August for $299,900 – a 51 percent decline.
Home sellers, grateful to be getting a sale, did not know they were dealing with a web of fraudulent transactions. The identities of the duped lenders, which Hewitt said totaled about 70, were not available.
The scheme was uncovered by FBI agents who were reviewing reports that banks and lenders file on suspicious activity, Slotter said. Thousands of these reports are filed yearly. After reviewing many of them, investigators began to see the shape of the fraud, he said.
Payouts among ring members varied. Gentry got a flat fee of $10,000 per month, plus commissions and fees on transactions, and netted $1 million, according to the indictment.
Bell had $9 million in the account for the shell construction company. Ivy netted about $200,000, according to the court documents.
$11 million netted in S.D.-area scheme
By Greg Moran (Contact) Union-Tribune Staff Writer
2:00 a.m. April 8, 2009
Related documents
Indictment in mortgage fraud case case (PDF)
Federal prosecutors indicted 24 people in a massive mortgage fraud scheme that they said was led in part by a gang member from San Diego and netted participants $11 million in profits.
In an indictment unsealed yesterday, prosecutors laid out a wide-ranging racketeering conspiracy that ran from 2005 to 2008 and targeted homes across the county. Among the identified leaders was Darnell Bell, a documented member of the Lincoln Park street gang.
Bell, 38, used his status in the gang to recruit other members for the scheme and “maintain discipline,” according to the indictment.
The sweeping conspiracy involved almost every element in the real estate transaction chain. The defendants include a real estate broker, a group of straw buyers, an escrow officer, an appraiser, tax preparers and a notary.
Prosecutors allege the network used fake buyers to purchase homes for more than the asking price, with the defendants pocketing the overage. Lenders were duped into funding mortgages for the inflated price and later suffered losses when the buyers walked away and the property was foreclosed.
The value of the properties involved is estimated at $100 million.
At a news conference, U.S. Attorney Karen Hewitt said the enterprise was the largest such scheme ever uncovered in the San Diego area. Both she and Keith Slotter, special agent in charge of the San Diego FBI office, said it was the first time that the federal Racketeer Influenced and Corrupt Organizations law, known as RICO, was used anywhere in the country for a real estate scam.
“From our perspective, this is an extremely important case because it involved properties throughout San Diego,” Hewitt said. She indicated that federal authorities are not finished.
“Please know our work in this area is far from over,” Hewitt said.
Straw buyers and kickback scams proliferated during the housing boom, said Todd Lackner, a San Diego appraiser who has uncovered hundreds of suspicious transactions. But this one stands out for its size.
“It was pretty rampant, but this was the biggest one I've ever seen,” he said yesterday. “This was a very large scheme.”
Lax lending standards during the housing boom made it easy for such schemes to flourish, real estate experts say. Stated-income “liar loans” and zero-down-payment financing were easily available to borrowers.
Moreover, safeguards to check the accuracy of income and other information submitted by borrowers were largely ignored, said Mark Goldman, a mortgage broker and real estate lecturer at San Diego State University.
Bell appeared briefly in federal court yesterday, where a plea of not guilty was entered for him by Magistrate Judge Nita Stormes. Bell is already serving a 37-month sentence in federal prison after pleading guilty to drug distribution charges in February 2008.
The other defendants were arrested yesterday, most in San Diego, and are scheduled to appear in court today. Four defendants were arrested in other cities and will be returned to San Diego.
According to the indictment, the scheme ran from January 2005 to April 2008. Bell and another identified leader, Michael Ivy, 43, set up a business dubbed The Real Estate Center of La Mesa to orchestrate the frauds. While the properties were spread around the county, they were largely concentrated in Spring Valley, Encanto, Lemon Grove and La Mesa.
Working with Stanley Gentry, 49, a real estate broker who provided access to multiple listing services, they targeted homes that had been on the market for months and whose asking price had been reduced.
They recruited straw buyers, including Bell's wife, to obtain loans from lenders. The ring would then make offers on homes above the asking price and arranged to have the extra amount paid to a shell construction company that Bell set up.
That extra money amounted to a kickback, prosecutors allege. Lenders were told the extra amount was needed to pay for handicap access and other property upgrades, leading the lenders to believe the whole loan was backed by the value of the home.
But Hewitt said no work was ever done on any of the homes. The proceeds were used by the ring. Prosecutors estimate that the net take was about $11 million.
The ring used appraisers to back up the inflated values. One named defendant, Esteban Valenzuela, produced more than 40 inflated appraisals, according to the indictment.
Moreover, the mortgages were 100 percent of the purchase price of the home – meaning those in the ring had no money at stake. When the deal was done, they walked away from the property, sending it into foreclosure.
That damaged neighborhoods and defrauded lenders out of millions, authorities said.
For example, a 1,984-square-foot house on San Bernardino Avenue in Spring Valley was purchased in August 2006 by a straw buyer for $610,000. It went into foreclosure. It resold last August for $299,900 – a 51 percent decline.
Home sellers, grateful to be getting a sale, did not know they were dealing with a web of fraudulent transactions. The identities of the duped lenders, which Hewitt said totaled about 70, were not available.
The scheme was uncovered by FBI agents who were reviewing reports that banks and lenders file on suspicious activity, Slotter said. Thousands of these reports are filed yearly. After reviewing many of them, investigators began to see the shape of the fraud, he said.
Payouts among ring members varied. Gentry got a flat fee of $10,000 per month, plus commissions and fees on transactions, and netted $1 million, according to the indictment.
Bell had $9 million in the account for the shell construction company. Ivy netted about $200,000, according to the court documents.
