12/01/08

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How mortgage scammers make their mark

 
Last December, as he was flying back to New York from St. Vincent, his home country in the Caribbean, 49-year-old Maurice McDowall looked like any other successful, middle-aged businessman returning from an early winter holiday in the sun.

McDowall was the relaxed owner of Lost and Found Recovery, which billed itself as a company that helped homeowners avoid foreclosure. For a time, the firm was enviously busy; there were always people coming and going out of its office at 1009 Bergen Street in Brooklyn. From November 2003 to April 2005, McDowall helped push through 80 home mortgages or equity loans worth a total of more than $20 million.

But those loans often happened to be for more money than the homes underlying them were actually worth. In some cases, homes that were worth $300,000 to $400,000 were given plump $800,000 loans.

And an FBI investigation of those unjustified loans was about to catch up with McDowall. When he changed planes at the San Juan Airport for the second leg of his trip back to New York, the FBI pounced.

The party was finally over. A few days later, four of McDowall's ex-colleagues and alleged cohorts were arrested in New York, charged with conspiring to swindle New York homeowners out of their homes — and defrauding lenders out of $20 million. A fifth fled back to her home country of Guyana after reading her name, connected with the arrests, in the newspapers. She later returned to New York, where she, too, was arrested last January.

McDowall and his gang's alleged crime spree hadn't lasted long: not even 18 months. But the damage was enormous.

As the Feds closed in on McDowell, his victims (mainly Queens and Bronx homeowners who were in foreclosure or perilously close to losing their homes, including one devastated and helpless 84-year-old) were all either facing eviction or had already been kicked out of their homes.

"These homeowners are desperate, and they don't understand the intricacies of the property transactions," said an FBI field agent who investigates ongoing mortgage fraud cases and did not want to be named.

Because of ongoing cases and investigations, the victims cannot speak on the record. But the field agent said they all share similar characteristics and dreams that stem from their desperation.

The homeowners, the FBI agent said, "can't make their mortgage payments. They're looking for someone to save them.

"These are people who don't think more than six months down the road," the FBI agent said. "They don't understand anything, and just sign where they are told to sign without reading anything — just doing what their lawyers tell them to do without asking any questions."


Anatomy of a scam

Here's how the fraud worked: McDowall was in charge of a team that recruited unsuspecting, desperate homeowners and "straw buyers," locals with good credit who thought they were helping people in trouble.

The criminal network allegedly canvassed areas with newspaper ads and fliers and organized cold calls, door-knocking and other recruiting measures to find people who had bad credit and were desperately afraid of losing their homes through foreclosure proceedings, which in many cases had already begun.

Finding easy prey, it turned out, was as simple as casting a net in a pond filled with farmed fish.

The firm took out tempting newspaper ads with pitches like this: "… Homeowners who are in pre-foreclosure or foreclosures even up to one-year default in payment, we can still stop your house from foreclosure. Put cash in your pocket and pay up your mortgage for one year. Quick closing in five days, and you will still own your home."

They also sent out fliers promising they could "help you during this stressful time of foreclosure. Other programs will promise you many things and not live up to their word, we will!"

To seal the deal, McDowall and his gang promised to refinance the homeowners' properties through straw buyers — individuals who had credit good enough to buy the home. The gang promised to refinance the homeowner's debt, pay off the old loan, and make a year's worth of new loan payments.

During this time, the gang said, the homeowner could still live in the home, and the title would be returned at the end of the year.

Sound too good to be true? It was. Yet many desperate people bought into the scam. (If they didn't sign over their homes, their signatures were forged.)

The straw buyers — who often genuinely believed that they were helping to save people's homes —were easy enough to recruit. They were paid $10,000 for their trouble, and sometimes even recruited their friends and relatives to work as straw buyers as well.

"Most of the straw buyers think they are living the American dream, yet they don't question why they are getting mortgages [to buy homes worth $500,000 to a million dollars] even though they may only earn $24,000 a year," said the FBI field agent.

What the straw buyers didn't know is that the criminal group allegedly was often using the same straw buyer, with cleaned-up, falsified information regarding his finances and intent to live in the home in question, on up to four different loan applications at once.

Yes, that's four different loan applications on four different homes.

At $20 million, McDowall's scam was big; those arrested now face up to 30 years in jail for each count they are indicted on.

The others charged in the Southern District of New York case include: Andrea Moore, 53; Alexsander "Alex" Lipkin, 29; Marina Dubin, 32; Kerri Clarke, 28; and Michael Irving, 42.

According to the indictment, "virtually all of the loans funded as part of the defendants' foreclosure rescue scheme are in foreclosure status."

In the defendants' roles in helping wipe out the homeowners, the case claims were myriad: Along with Lost and Found Recovery, where McDowall employed Moore and Clarke, McDowall had previously owned Home Mergers LLC. Moore and Irving also owned Homes R Us USA LLC, which they represented as a "home foreclosure rescue specialist." The two also sometimes operated as straw buyers.

It's a complicated case; to simplify, think of the defendants' making money in two different ways. First, during the time relevant to the indictment, Lost and Found and Homes R Us earned at least $1.4 million in fees on the loans. Second, at closings, after retiring the homeowner's previous debt, they deposited the rest of the loan proceeds in bank accounts they controlled — while defaulting on the loans immediately, in most cases.


A $200 million ring

While McDowall is the latest, freshest fish caught in the FBI's mortgage fraud net, he wasn't the biggest. That distinction goes to Galina Zhigun, who was charged last July with organizing a mortgage fraud that reached from the outer boroughs of New York to the Upper West Side of Manhattan.

By the time of Zhigun's arrest last July, she and 25 others were charged with defrauding subprime banks and lending institutions out of a staggering $200 million, while negotiating more than 1,000 home mortgages and home equity loans.

There is evidence, too, that her criminal arm had ties to McDowall's own criminal network.

Lipkin, also arrested in the McDowall case, was a broker at AGA Capital NY, a mortgage brokerage firm with various Brooklyn offices. The owner of the firm was Zhigun. (Her firm then morphed into its successor, Lending Universe Corporation, and another related brokerage, Northside Capital.)

Many of the people arrested with Zhigun worked for her as well, according to the joint investigation by the FBI, the NYPD and the Department of Homeland Security's U.S. Immigration and Customs Enforcement (ICE).

Zhigun's massive fraud scheme occurred from 2004 to December 2006. Like those charged in the McDowall case, she now faces up to 30 years in jail on each count, along with the other defendants, according to Michael Garcia, the U.S. attorney for the Southern District of New York.

Like the McDowall network, Zhigun and her gang had their eye out for desperate homeowners along with straw buyers, who often believed they were helping people "save" their homes.

Zhigun and her colleagues then allegedly concocted loan applications and supporting documents providing false back-up information.

In one particularly audacious case, the alleged criminal network is charged with committing fraud related to the purchase of a block of 10 condo apartments at 243 West 98th Street on Manhattan's Upper West Side — even though the condos were rent-regulated, a fact the group arrested is accused of intentionally omitting.

These cases are the norm, not an aberration.

McDowall's case, meanwhile, is expected to be back in court in the next few months.