Massive Mortgage/Real Estate Fraud in Temecula

[mydogsarelazy]

Hi Everyone,

This is from the North County Times of Jan 5th.

JS
______________________________________________________

Suit alleges massive mortgage scam

By: CHRIS BAGLEY – Staff Writer

A network of scam artists convinced unwitting investors to buy houses using questionable loans and then backed out, leaving the investors on the hook for as much as $5 million apiece, according to a lawsuit filed Friday in Riverside County Superior Court.

Temecula attorney Richard Ackerman filed the suit against Jovane Investments on behalf of an anonymous client, who he said was duped into buying five houses in and around Murrieta in early 2005.

The purchases allegedly relied on mortgage loans brokered by Stonewood Consulting Inc., Ackerman said. Stonewood isn’t named as a defendant in the suit, but the company and its president appear to be at the center of tangled web of financial advisers and family members who were involved in the alleged scheme, he said.

Stonewood representatives did not immediately respond to e-mail messages or to calls to the company’s Murrieta office and its president’s cell phone.

According to the suit, the anonymous plaintiff is stuck with 10 loans and payment obligations of more than $20,000 a month, far beyond her ability to pay.

All told, the alleged scheme involved as many as 400 investors and an estimated $1.2 billion of property, Ackerman alleged in the complaint.

The district attorney’s white-collar crime division began to investigate the matter late last year, Kelly Hansen, a senior supervisor in the office, said Friday. Hansen declined to comment on the specific case, but said it is one of 19 cases of alleged mortgage fraud the division is pursuing. Mortgage-fraud scams are particularly common when real estate values are already skyrocketing, as they were in Riverside County from 2003 through 2005, Hansen said.

The alleged scam worked like this, according to Ackerman and another attorney whose clients were involved: An investor would buy two, three or as many as eight houses within days of each other. Stonewood would apply for loans on behalf of the client, typically for two loans totalling 20 percent to 25 percent more than the appraised value of each house. The investor would pay the seller close to the asking price, typically $450,000 to $600,000. Jovane Investments would then pocket the excess cash, often $100,000 to $120,000.

Part of that money would be used to make regular mortgage and tax payments on the houses, the attorneys said. It seemed to be a great deal for the investors, the suit alleges, so they would bring in friends and family members. Most were middle-class professionals with annual incomes of $40,000 to $70,000, and many of them were nurses at Rancho Springs Medical Center, Ackerman said.

The cash from each new round of loans was used to cover the regular mortgage and tax payments on the last round, giving the arrangement the form of a classic “pyramid” scam, Ackerman said.

Aside from Jovane, the suit names Sunburst Financial Systems Inc., Oetting Enterprises and several lenders as defendants. The suit also cites payments among the defendants and other parties, including Stonewood Consulting and Hendrix Montecastro, Stonewood’s chief executive; and his mother, Helen Montecastro, whom Ackerman said is a nurse at Rancho Springs. Ackerman said he expects to add additional defendants to the suit.

Ackerman said he was still trying to understand the exact relationship among the various participants. But financial documents and recorded telephone calls indicate all were involved, he said: The monthly mortgage payments came from Oetting Enterprises, known most recently to be based in Palm Desert; Jovane Investments was listed on one typical mortgage application as a securities firm managing $96,000 in a clients’ assets, Ackerman said.

Sunburst is licensed to do business in Riverside County as Jovane Investments, according to county records. Sunburst is registered to a Chris Oetting of Palm Desert, according to state records.

Investors had no written guarantees that Oetting Enterprises would continue to make the monthly mortgage payments, said Ashley Abano, a San Diego attorney retained by two families that bought houses in the arrangement.

Things began to come apart in the fall, Abano said, when Oetting Enterprises simply stopped making payments on most of the loans. One of the families had taken out loans on eight investment properties and refinanced their own house, Abano said. The family received nine notices of default since mid-December, he said.

In most cases, the families put up little or none of their own money, the attorneys said. But several already have seen their credit ratings plummet, and several are in danger of being evicted from their own homes, the attorneys said.

Banks and other lenders can typically cover part of a defaulted loan by taking possession of the house and selling it.

“The lenders are the biggest victims of all,” Ackerman said.

An investor with four, five or six mortgages who attempts to buy another house on credit would set off red flags among lenders, Ackerman noted, especially if he or she had no proven income from renting out the properties. But because most of the loans were completed within days of one another, they hadn’t appeared on credit reports by the time the lenders checked, Ackerman said.

Ackerman’s own client chose to sue anonymously after she received nonspecific threats over the telephone. Ackerman said he would apply for class-action status next week, a move that would allow him to represent numerous other investors who aren’t already aware of the lawsuit.

Abano said he hadn’t reviewed the complaint Ackerman filed, but might recommend that his clients join the suit after doing so.

Chris Oetting couldn’t be reached for comment. Hendrix Montecastro didn’t immediately respond to messages left on his cell phone and at Stonewood’s office Friday afternoon. Helen Montecastro also could not be reached.

Stonewood’s attorney, Bill Sauls, was in meetings Friday afternoon and couldn’t be reached, according to another attorney in his San Diego office, who acknowledged the firm had received the lawsuit. Ackerman said Sauls has denied that Montecastro and Stonewood are involved with Jovane, a claim Ackerman rejected.

A San Diego financial adviser said three of her own clients were involved in the operation. Including investors known to the adviser, to Ackerman and to Abano, the alleged scam took in at least a dozen investors with two to three dozen properties.

“The total number of loans affected by Jovane-related activities is likely in the hundreds, if not thousands, within the Temecula/Murrieta area,” the complaint filed Friday alleges.

Depending on the number of properties involved, and depending on how heavily the properties are concentrated in individual neighborhoods, the alleged scam could levy a big blow to local real estate values, according to Ackerman and one prominent real-estate agent.

Large numbers of empty, foreclosed homes in a neighborhood can make it difficult for the banks to sell them for close to the amount of the mortgages they issued. The empty homes for sale can also force other sellers to slash their prices.

Ackerman estimated that renters occupied half or more of the investment properties, but said they were not paying nearly enough to cover the mortgage payments.

Rising numbers of foreclosures last year have already begun to undercut the market, economists, analysts and real estate agents have said.

In Riverside County, one notice of default —- the first step in foreclosure proceedings —- was issued for every 330 residents in September, according to RealtyTrac, an information provider. That rate has been rising for more than a year and is now the highest rate in the state.

Contact staff writer Chris Bagley at (951) 676-4315, Ext. 2615, or [email protected].

[TheBreeze]

Wow! That is huge. You know that if massive fraud has occurred in Temecula, that it has occurred in other areas as well. I think the real estate market is going to unravel quickly this year.

[JJGittes]

Its hard to know who to feel sorry for in this story. Seems like all parties were greedy and deserve to go down in flames. I guess the real victims might be the regular folks who made the unwitting mistake of buying their (one and only) homes in neighborhoods where this went on and will now see their equity vanish as the repos are dumped by the banks.

I wonder if this went on it places like 4S and San Elijo and maybe the Carmel Valley/ 56 corridor area.

[Steve Beebo]

I don’t know how they got loans of 20-25% more than the homes’ value, but some appraisers / mortgage brokers / escrow officers should probably go to jail in addition to losing their licenses, and the lenders must be complete idiots.

[lostkitty]

Steve-
Isnt this how they did it?:

“An investor would buy two, three or as many as eight houses within days of each other”

I read soemwhere that if the deals were done simultaneously the lenders couldnt see that they were being scammed and couldnt see the multiple properties.

I agree – someone should go to jail.

[Bugs]

A borrower can’t pull out more money that the property is worth without a crooked appraisal from a crooked appraiser; and no crooked appraisal occurs except at the behest of a crooked loan originator and a stupid/crooked lender.

[salo_t]

A friend of mine experienced this. She had her house on the market for three months without an offer but then she got a strange offer out of the blue. An “investment club” offered her full asking price plus an extra 80k on top of that. Only thing was that she would have to return the 80k at close of escrow. So the buyer would pay full price then come out of the deal with 80k in cash. I was trying to figure out how this made sense as an investment and also how they were able to do this in the first place. If maybe it was a group of people established as a corporation than wouldn’t the individuals be free and clear when the crap hit the fan and able to bail with all the extra cash they collected?
Needless to say it wreaked of a scam so she passed on that offer.

[PerryChase]

I would’ve taken that offer. What does it matter to your friend? Yes, she has good ethics. 🙂

[barnaby33]

Well Perry, you’re honest and slimy at the same time. I’m not sure which affects me more; your honesty about a willingness to engage in fraud, or your recognition of it as such.

Josh

[salo_t]

PC, something about being an accessory to a crime may have helped her shy away from that one. At any rate, a few weeks later some other dummy stepped up and gave her full asking price with a beautiful 100% interest only loan.

[FormerOwner]

The scale of this is incredible:
$1.2 billion worth of property / average value of $525K per property = 2,286 houses! The city of Murrieta has a population of 92,000. Assuming an average of 3 people per house, thats around 31,000 houses in the city. If 2,286 of them are owned by this investment group, that’s 7% of the total number of houses in the city! Every one of them will probably foreclose or become a short sale. If half of the houses are in Temecula and half in Murrieta that would still be around 3.5% of the housing stock of both cities – just involved in this scam alone.

Add to that all of the people who got in over their heads with teaser-rate loans and all of the people over their heads with home equity loans and you’ve got a major meltdown underway. My guess is that the % of houses involved in this scam is dwarfed by the number of houses where people just got in over their heads and will not be able to continue making mortgage payments. What would happen to R/E values if 10%-20% of the houses in Temecula/Murrieta goes into foreclosure? Is this going to be another Texas oil-patch situation where there are thousands of empty houses no one wants?

[Steve Beebo]

 

According to this article in the Press-Enterprise,

 

http://www.pe.com/localnews/inland/stories/PE_News_Local_D_suit06.379821a.html

 

there are several hundred loans affected.  I think the attorney or the reporter misplaced a decimal point when they quoted the figure of $1.2 Billion.  Still, even a few hundred more possible REOs could do a lot more damage to the already weak market in that area.

[aguho]

I can tell by some of the players in this scam that we have many Filipinos involved.Attorney Abano is Filipino as are most of his clients,many of the nurses at Rancho Springs Medical Center are Filipino(as are many nurses in hospitals all over SoCal)

As I’ve said before, I believe the ethnic market (Filipino & Hispanic) here in SoCal will take the biggest hit as this current real estate cycle spirals down.Mortgage fraud is rampant in the South Bay, and it’s just a matter of time before we see a similar story in SD County.

Everyone involved with this fraud in Riverside County is guilty in some way or another.There are no innocent victims here.Greed and dreams of “easy money” made these “investors” an easy target for scam artists.

How soon we forget Ed Rubi..Almost all of his victims were Filipino nurses and active/retired Navy personnel.They too, had dreams of “easy money” and let their own greed destroy themselves financially in the process.

Man Who Ran Ponzi Scheme gets 70 Months in Prison

On February 13, 2006, San Diego, CA, Edmundo P. Rubi was sentenced to 70 months in prison for conspiracy to commit mail fraud and money laundering. Rubi previously pleaded guilty to the charge that the conspired to conduct a scheme to defraud investors out of more than $12 million using his companies, Knights Express, Ltd. and Djmler Enterprises, Inc. Rubi was also ordered to pay restitution in the amount of $12,483,000. According to the plea agreement, beginning in 1999 and continuing up to October 31, 2001, Rubi formed and operated Knights Express Ltd. and Djmler Enterprises, Inc. for the purpose of soliciting investments from members of the public. In connection with his guilty plea, Rubi admitted that he made false, fraudulent, and misleading representations that investor funds would be used to purchase and resell Federal Reserve notes in an international trading program. In actuality, no such international trading program existed. Rubi further admitted that he knew that the investors’ funds were not being used for the purported investment program. Millions of dollars of investor funds were used instead to pay the periodic returns that investors received and to make unsecured investments. Rubi also intentionally concealed from investors the fact that millions of dollars of investor funds were converted for his own personal use and benefit.

Repeat after me…. Get Rich Quick Schemes Don’t Work

aguho
88 SNDVL

[FormerOwner]

Aguho, I completely agree that the ethnic market will take the biggest hit. I’ve watched the demographics in Temecula change a lot over the last couple of years. I wouldn’t really have major concerns about that except that a lot of the new home debtors don’t appear to have jobs that pay anywhere near enough to buy houses at the prices they paid unless they’re using extremely risky loans. They probably barely qualify at the initial teaser rate. Downpayments appear to be a thing of the past and debt/income ratios are going to get really ugly once the loans reset to higher rates. On top of that, you’ve got 1.6%-2% tax rates plus HOA’s! I’ve also heard of a number of cases where people of roughly median income own multiple “investment” properties, all bought near the peak of the market. Yikes! I think a lot of these have nothing to do with the Stonewood scam but the owners are still stuck with huge debt on deflating assets.

[SD Realtor]

Steve this makes me think about that Poway listing I posted about awhile back.

SD Realtor

[Author]

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