Ten arrested in Crisp & Cole mortgage fraud case

Via the Bakersfield Californian
January 21, 2011

The once highflying Crisp & Cole Real Estate firm was a “full-service mortgage fraud factory,” federal authorities said on Friday as they detailed fraud, money-laundering and conspiracy charges against 10 people connected to the company.

Principals David Crisp and Carl Cole — who wowed and riled conservative Bakersfield by barreling down streets in convoys of expensive cars, showing up to fundraisers with bodyguards and airing ads that featured a private jet and gullwing Mercedes-Benz McClaren — were among nine people arrested Thursday, said Rob Guyton, an FBI supervisor in Bakersfield. Crisp’s wife, Jennifer, was allowed to surrender Friday morning in order to make child care arrangements.

Also arrested Thursday were former employees Jayson Costa, Julie Farmer, Sneha Mohammadi, Mike Munoz, Robinson Nguyen and Jeriel Salinas as well as Cole’s son, Caleb Cole.

The Crisps were arrested in San Diego County, Carl Cole was arrested in Oxnard and Nguyen was apprehended in Monterey. The others were arrested in Bakersfield and were taken to Lerdo Jail. None resisted arrest or tried to flee, he said.

The arrests follow years of work by federal investigators who pored over thousands of documents.

“In the mid-2000s, Crisp, Cole & Associates was a high-flying real estate firm,” U.S. Attorney Benjamin Wagner said. “Today it has crashed hard, and it has brought many people down with it.”

Crisp, Cole & Associates was the real estate company’s legal name. Crisp & Cole also operated a mortgage brokerage, Tower Lending, and several other companies.

A long anticipated indictment

The 56-count indictment unsealed Friday alleges conspiracy to commit bank, mail and wire fraud and to launder money from about 2004 to roughly 2007, according to the 31-page document. Charges vary for each person named.

Through a series of transactions, houses were bought and resold at inflated prices, sometimes multiple times in a matter of weeks, the indictment alleges. Many of the deals involved straw buyers and borrowers who lied about their income, jobs and the intended use of the property. Homes purchased for use as a primary residence are eligible for more favorable loan terms.

Some of the loans defaulted immediately. Payments were made on others for just long enough to secure financing for the next flip, authorities allege.

Prosecutors have estimated the crimes cost the mortgage industry at least $20 million, although most industry professionals say that figure is low.

Wagner acknowledged that $20 million was conservative, saying prosecutors went with a number they were confident they could prove in court.

“When there’s so much (housing) market movement, it’s hard to separate what is due to the market and what is due to fraud,” he said. “But we know that when there’s a concentrated effort on such a targeted area, it deliberately creates a bell curve in the values of the property.”

Under federal sentencing guidelines, the maximum penalty for some conspiracy charges is 30 years in prison and a $1 million fine. Money laundering carries a maximum 10 years and $500,000 fine.

The fallout

At a Friday afternoon news conference, FBI assistant special agent Manuel Alvarez called the alleged fraud “without a doubt one of the most egregious examples that our office has seen.”

Mortgage fraud doesn’t just hurt lenders, he said. It hurts taxpayers because loans sometimes are guaranteed by the federal government, and it hurts innocent homebuyers who purchased houses based in part on the sales price of comparable homes nearby.

“Many people in Bakersfield have lost their home as a result of this fraud, and many of them will spend years trying to repair the damage that has been done to their credit as well as to their personal lives,” Alvarez said. “By no stretch of the imagination are these victimless crimes.”

Bakersfield Police Chief Greg Williamson called Crisp & Cole “the biggest case of its kind that I have seen in this area, and I imagine probably one of the biggest cases in the United States.”

Federal raids

The FBI raided 13 sites related to Crisp & Cole in September 2007.

Cole, the supervising broker, and Crisp, a sales agent, lost their real estate licenses in 2008. The following year, the California Department of Real Estate banned Crisp from working in any real estate-related field for three years.

Three of Crisp’s in-laws — Kevin and Leslie Sluga and Megan Balod — as well as former loan officers Christopher Stovall and Jerald Teixeira, have accepted plea deals for fraud and aiding and abetting. Kevin Sluga is a former certified public accountant who helped falsify documents for mortgage loan applications.

Sentencing in the plea deals has been delayed to April in order to factor in the degree of cooperation with investigators. Wagner said he expects sentencing to be delayed again pending the resolution of the latest charges.

Asked why no appraisers were among those arrested, Wagner said the investigation is ongoing and he did not rule out additional defendants.

“These kinds of investigations, particularly white collar crime of this sort, you tend to have concentric circles with key players in the middle. Sometimes what we know changes as the investigation goes forward,” he said.


Foreclosures decline in California in 2010

California’s housing market was among the first to falter and may now be among the first to recover.  While foreclosures climbed 2% nationally, California saw a 14% drop. But California’s high unemployment rate and resetting loans mean the fall in foreclosure activity could be brief.

By Alejandro Lazo
Los Angeles Times

January 13, 2011

Fewer Californians grappled with foreclosure last year, bucking a national trend and giving homeowners fresh hope that the state’s housing market could be on the mend.

The 14% drop in foreclosure activity contrasted with a 2% rise nationally, according to data tracking firm RealtyTrac. Analysts noted that California’s housing market was among the first to falter and may now be among the first to recover. Home prices here hit bottom in April 2009, and have gradually risen since then.

“There are a lot of risks out there, but I think the trend is improvement — not dramatic, but substantial,” said Kenneth Rosen, a professor at UC Berkeley‘s Haas School of Business.

But Rosen and other observers caution that the state’s high unemployment rate of 12.4% and weak demand for housing are still a concern.

Another potential trouble spot: A large number of adjustable-rate mortgages are scheduled to reset to higher rates in coming months, said Rick Sharga, senior vice president with RealtyTrac. That could lead to another uptick in foreclosures if the borrowers cannot make the higher payments, or decide that they are throwing good money after bad.

“You have the three-headed monster of high unemployment, a weak economy and problem loans,” said Sharga, who thinks that California foreclosures in 2011 could surpass last year, and possibly the peak year of 2009.

The crisis certainly isn’t over for Guy Vernikovsky. He is facing foreclosure on his home in Torrance after trying multiple times to modify his loans, asking for lower interest rates from his bank, he said.

Vernikovsky, 32, said he lost his job installing energy-efficient light fixtures in 2008 but tried his best to keep up on his two mortgages, even burying himself deeply in credit card debt. He said he moved home with his parents in Northern California, found a new job and would now be able to make his mortgage payments if he could get reduced interest rates on his two loans.

“I applied two or three different times and they would not modify my loans,” Vernikovsky said. “I wasn’t looking to turn a fast buck on a real estate market that was hot at the time. I was really looking to own that home for the next 20 to 30 years.”

More than half a million California homes were involved in some stage of foreclosure last year, including notices of default as well as bank repossessions, according to numbers to be released by RealtyTrac on Thursday. Among those filings, 173,175 represented homes retaken by lenders, a 13% drop from a year ago.

Nationwide, a record 2.9 million homes were in foreclosure, up 2% from 2009.

Sharga said the national numbers would have been much higher were it not for several major banks’ slowing foreclosures dramatically late last year amid scrutiny from lawmakers, regulators and law enforcement officials over their foreclosure practices, including allegations that paperwork was not properly processed.

“There were delays over the last two months, or 2 1/2 months, and that just skewed the numbers wildly,” he said.

Sharga estimated that an additional quarter-million filings in the U.S. probably would have been logged if it were not for the delays brought about by the foreclosure fracas.

Several major banks, including Bank of America, Ally Financial Inc. and JPMorgan Chase & Co., suspended foreclosures late last year in states where a court order is required to take back a home. Bank of America went as far as to declare a national freeze as it reviewed its process, though it lifted that policy in November.

Analysts credited the Bank of America action for depressing foreclosure sales across the Golden State in November and a subsequent sharp increase last month.

How quickly banks will return to foreclosing in the new year remains the wild card in the equation.

Homeowners who have lost their properties to foreclosure are making gains challenging the foreclosure system through the legal process. Last week, the highest court in Massachusetts agreed with a lower-court ruling that two home foreclosures were invalid, and found that lenders Wells Fargo Bank and US Bank had failed to prove they owned the mortgages.

The case was significant because it was the first time that a state supreme court had ruled on the issue of chain of title. A spokeswoman for California Atty. Gen. Kamala D. Harris said such lawsuits might be brought in the Golden State, where foreclosures remain largely outside the court system.

“We have now officially begun the litigation phase of the foreclosure crisis,” Sean O’Toole, chief executive of data provider ForeclosureRadar, recently wrote on his blog. “Attorneys will likely be the biggest winners in the foreclosure business for 2011.”

About 4% of all homes in California were at some stage of foreclosure last year, RealtyTrac said. That acts as a drag on the housing market overall, as the availability of low-priced bank repossessions lowers the value of competing properties.

Christopher Thornberg, principal of Beacon Economics, said that high rates of default among borrowers in California are likely to push up foreclosures, but so far the state’s fairly efficient foreclosure system and active housing market have been able to absorb these properties.

“They get snapped up pretty quickly,” Thornberg said. “We are not ending up with swaths of empty homes the way that was being predicted.”

President Obama & Congress Sign New Law to Buy American!

Wow!  Has President Obama and Congress been reading our posts?  We applaud their recent Defense Department appropriations contract.

We’ve been saying it for a while now; Americans without jobs don’t buy homes.

Thanks to a much appreciated “Buy American” provision signed into law on Friday, the US Defense Dept is required to buy only American-made solar products.  The Buy American provision is part of the 2009 economic stimulus legislation.

Here’s what the Keith Bradsher of the New York Times wrote:

“The military authorization law signed by President Obama on Friday contains a little-noticed “Buy American” provision for the Defense Department purchases of solar panels — a provision that is likely to dismay Chinese officials as President Hu Jintao prepares to visit the United States next week.”

For more information on how President Obama is aiming to keep jobs and money in the US, read the full story in the NY Times.

Do your part and support real estate companies which don’t offshore jobs.

Another Brokers Worst Nightmare: Home Warranty Company Kickbacks May Violate RESPA

On Nov. 23, HUD General Counsel Helen Kanovsky announced HUD’s response to public comments regarding HUD’s interpretive rule directed to home warranty companies (HWC) and real estate brokers and agents. HUD’s response reiterates the Department’s unequivocal position that when HWC’s pay real estate brokers or agents for work performed on behalf of the HWC, and such work is directed toward a particular buyer or seller, then the payment is an illegal kickback for a referral in direct violation of RESPA. (RESPA News RESPA Archives, Posted On: 11/29/2010)

RESPA experts agree that HUD’s interpretive rule, intended to apply to HWC’s, could apply as well to others in the real estate, mortgage and settlement services industries.

HUD’s interpretation of Section 8 as it applies to HWC’s and the Realtor community is defined as the following:

A payment by an HWC for marketing services performed by real estate brokers or agents on behalf of the HWC that are directed to particular homebuyers or sellers is an illegal kickback for a referral under Section 8.
So what does all this mean to us? It seems to us that if you really want to avoid litigation or worse, you should just assume that referral fees based on orders in escrow are going to be risky. Just ask yourself, is a referral fee now, worth the possible headache and financial pain of a legal action later?

Is TransactionPoint a Broker’s Worst Nightmare: Part II

We just learned that Terry Tucker, an executive with Keller Williams Realty in Danville, CA sent an email to potential vendors alerting that the vendors would need to pay or their services may not be used. His office is transitioning to TransactionPoint and the only vendors that will be named as preferred providers are those vendors that agree to pay a fee for orders placed through TransactionPoint.

He writes, “Please be aware that our agents will be highly motivated to order within Transaction Point, as the only other option would be for them to pay for it out of their own pockets.”

Despite numerous calls to Mr. Tucker we haven’t received a call back. Please read the entire email here.

At a time when many federal agencies and every state attorney general are looking into the misconduct of companies in their foreclosure processes, we want to ask if the action by Keller Williams Realty described in Mr. Tucker’s e-mail would be permissible under RESPA. We wonder what HUD would think of this program if implemented at Mr. Tucker’s office?

In PART III, our next post, we’ll examine HUD’s latest ruling on illegal kickbacks under RESPA from Home Warranty Companies to real estate brokers or agents.

We are grateful for your insights and suggestions.

Reader Mail

Thanks for all the comments! We got some really good responses. Here is a sample of a few:

RB said (In reference to FATCO):

Oh yes, and they closed our office completely with one days notice. Eight employees and families on the street. They acted like no big deal, sorry! Well now I take time everyday and educate realtors and others that these companies outsource jobs. We should stop giving business to those who don’t give us jobs period…..Please pass this on and on or were doomed!

ksonti said:

Regarding out-sourcing jobs to India – keep real estate jobs in California

I agree we should keep California jobs in California – What will happen to our economy and people who depend on these jobs. I use American Home Shield for my Home Warranty Yes Stewart Title – & Of course Property I.D.

What do people in India know about California Real Estate?

We have outsourced jobs to Bangalore, India – Who will take care of us if we don’t take care of our own Californians? We should hold on to our jobs – No more outsourcing –

I Would like to have a Merry Christmas & Happy New Year – be able to feed my family and keep my home – for which I‘ve worked all my life. Keep California Working…… This goes to the reset of my fellow Californians. Love you all.

Alex Villa said:

Provident Title is holding the line for CA jobs!

Larry Wims said:

Please give Realtors information on all companies in our industry sending jobs offshore.

Keep sending them in, we love to hear your thoughts!

Where Have all the Home Buyers Gone?

It’s been a rotten fall season for home sales in California. Where have all the home buyers gone? Where have all your clients gone?

Yes, the pundits seem to offer loads of reasons why sales are down. But no one is talking about the obvious. People without jobs can’t buy homes.

Have you asked yourself, what are you doing to help keep jobs and home buyers in California? No real estate professional probably thinks of themselves as part of the problem. No one says,”I’m the guy who sent jobs to India.” But maybe you are sending your business to companies that are sending the jobs overseas? Companies like First American which proudly boasts that they have moved more than 4,000 jobs to India alone?

Fidelity expects to create and hire 1,800 jobs in India next year according to Inman News.

Are you aware which companies are controlled and/or related to First American and Fidelity? Here’s a few:

• First American Title
• First American Home Warranty

• Fidelity National Title
• Fidelity Home Warranty
• disclosureSource

Next time you buy a real estate product; why not invest with companies whose workforce and products are made entirely here in the U.S.? Companies like American Home Shield, Stewart Title. Home Warranty of America, Property I.D. or Hearst Disclosures come to mind.

Do you have an American company to suggest? We’d like to hear from you.