Attorney reveals details of alleged mortgage fraud

Andy Hodges with Catt Hodges & Marquardt said some of his clients targeted by the schemes are hundreds of thousands of dollars in debt after purchasing property in high-end subdivisions without consulting an attorney or an independent appraiser.

“This has the potential to rock some foundations on what people think their houses are worth,” he said. “The seller may be getting $680,000 for a house that’s probably worth $400,000.”

Hodges said he’s hopeful an FBI investigation into reports of alleged mortgage fraud in the Springfield area will result in federal indictments against those who organized the scam that allegedly fleeced his clients.

Hodges, who declined to identify his clients for confidentiality reasons, explained how the schemes typically work.

Hooking buyers

Mortgage fraud schemes hinge on a “straw buyer” who applies for a home loan.

Schemes uncovered in several states by federal authorities have shown that the straw buyer is sometimes a co-conspirator who provides personal information – most of it falsified – for loan documents. But many times, the buyer is a real estate investor who has been lured to the table with cash incentives and doctored appraisals.

Hodges said that’s what happened to his clients.

First, a builder or developer hooks an interested buyer by telling the buyer he needs to unload some inventory and is willing to sacrifice his commission to expedite the sale, Hodges explained. That amount – often more than $50,000 for high-end homes – is paid out in cash at closing, he said.

“That’s the carrot – a builder needs out,” Hodges said. “It’s ridiculous. Why would a builder want to (lose) his commission?”

Area builders typically mark up their homes anywhere from 10 percent to 20 percent, depending on how they classify their overhead, said Matt Morrow, executive director of the Home Builders Association of Greater Springfield.

“Without making it hard and fast, that’s a pretty good rule of thumb,” Morrow said.

Closing the deal

The buyer is further deceived when the seller produces artificially inflated appraisals or lies about the appraised value of adjacent homes, Hodges said. Closer examination reveals that the appraisals are based on larger homes in an area’s most expensive subdivisions, he added.

“These appraisals are coming in at $700,000 and $750,000, and the comparables are ridiculous,” Hodges said. “It’s classic bootstrapping. They’re picking themselves up by their own bootstraps.”

To close the deal, Hodges said, the seller often tells the straw buyer that he’s lined up another buyer willing to pay top dollar for the property or that he will buy the property back if it doesn’t sell.

At closing, a broker who’s likely in on the scheme persuades the buyer to sign off on falsified loan documents that overstate income and indicate that the home will be owner-occupied. More often than not, Hodges said, out-of-state banks and lenders fail to verify information before approving the loan, thereby handing over hundreds of thousands of dollars to the scheme’s organizers.

There’s definitely room for improvement on the part of the lenders, said Rich Weaver, deputy commissioner with the Missouri Division of Finance.

“I think the lenders really need to tighten up their underwriting,” Weaver said. “When I look at these deals … after the fact, there were a lot of red flags that they could have or should have picked up on.”

He added, “The person who’s controlling the money – that’s where you stamp out a lot of this.”

High prices followed by foreclosures

Olde Ivy in southeast Springfield is at least one newer subdivision where higher-than-normal home prices have been followed by foreclosures. Michael Pulscher and Poppenga’s Concrete owner Dave Poppenga co-developed Olde Ivy near Living Memorial Park and U.S. Highway 65.

Early last year, three adjacent homes on South Irish Ivy Avenue each sold for more than $530,000, according to deeds of trust filed with the Greene County Recorder’s Office.

Poppenga’s Concrete sold two of the homes to buyer Bret Hignutt, who borrowed a total of more than $1 million from Tulsa, Okla.-based Gateway Mortgage Group LLC and Washington-based Mortgage Investment Lending Associates Inc.

Both of the homes Hignutt bought have since been foreclosed on.

In January, the five-bedroom, four-bath home at 4457 S. Irish Ivy was sold to a California-based mortgage company that, in turn, sold the property to current owner Mark Feuerbacher. According to deeds of trust filed with the recorder’s office, Feuerbacher borrowed $294,900 from Metropolitan National Bank for the purchase.

A partial appraisal of the property done by the Greene County Assessor’s Office in 2005 put the home’s appraised value at $325,000. And at $100 per square foot – the typical builder’s estimate for new construction at the time – the 3,900-square-foot house without a basement would sell in the neighborhood of $390,000.

The adjacent home at 4473 S. Irish Ivy will go on the auction block at noon March 26.

Poppenga did not return calls seeking comment, and attempts to reach Hignutt were unsuccessful.

Are buyers criminally liable?

Hodges said his clients are concerned that they could be held criminally liable for signing loan documents that may have contained fraudulent information. But he said they were – at best – “marginal participants” targeted by con artists.

“The FBI’s goal is not to string up numbers of people,” he said. “Their goal is to find the organizers of this.”

FBI Special Agent Josh Nixon previously told SBJ that the U.S. Attorney’s Office ultimately decides whom to prosecute in alleged mortgage fraud schemes.

“Anybody that participates in a fraudulent transaction is a possible co-conspirator,” Nixon said.

The best way to avoid becoming an unsuspecting victim of mortgage fraud is to use common sense, Hodges said. His best advice: If something’s too good to be true, it probably is. Consulting an attorney is also a good idea, he said.

“Do what businesspeople do: Hire a lawyer,” Hodges said. “That’s the difference between business and gambling. There’s a lot of sharks swimming out there, and (some people) are jumping into shark-infested waters.”[[In-content Ad]]