The Stories That Shaped 2008, No. 1: Mortgage fraud, Greenleaf debacle fuel area foreclosures

The investigation of alleged mortgage fraud schemes contributing to the rising number of home foreclosures in the Springfield area culminated in late 2008 with the federal grand jury indictments of six people.

At roughly the same time, state and federal authorities ramped up their investigation of Springfield-based Greenleaf Cos. LLC, which has taken a public beating in recent months for failing to pay its property investors as promised. Consequently, many investors have defaulted on mortgage loans they took out for area homes now in various stages of foreclosure.

Greenleaf marketed the properties to third-party buyers with tarnished credit who agreed to make monthly payments to the company and eventually obtain a conventional loan to purchase the home through a contract for deed. But in recent months, many buyers were forced to leave their homes under the threat of impending foreclosures.

Nixa couple Tim and Marcie Thompson pulled out the legal stops to stave off foreclosure proceedings on their 4,000-square-foot home in 14 Park Place. In early December, the couple filed a lawsuit against Greenleaf, its owners and affiliates in U.S. District Court, alleging the companies engaged in fraudulent business practices.

On Dec. 16, the Securities Division of the Missouri Secretary of State's Office issued an order prohibiting Greenleaf from selling securities in Missouri. The news came just one week after authorities served a search warrant at its South Campbell Avenue office, which also houses sister company The Real Estate Co.

Meanwhile, the FBI is continuing its investigation - one of more than 1,500 nationwide - into multimillion-dollar mortgage fraud schemes that primarily involved homes in Greene and Christian counties. An initial wave of indictments in late November involved four local mortgage brokers who allegedly submitted falsified loan applications to out-of-state lenders without disclosing that substantial amounts of money would be returned to borrowers outside of closing.

The indicted mortgage brokers are Charles M. Davis, of Rogersville; Cheryl Joan and Scott Allen Kassebaum, of Ozark; and Randall Lee Hall, of Springfield. All have entered innocent pleas.

Also indicted were Steven Ray Spencer, of Carl Junction, and Springfield resident Shanda Lynn Moore, a clerical aide at local office equipment dealer Office Concepts. Moore, who also has entered an innocent plea, allegedly verified false income and employment information for Spencer and other borrowers, court records show.

Employment history and claimed income were the most common types of fraud found in mortgage loan originations in 2007, according to an annual mortgage fraud report released by the Virginia-based Mortgage Asset Research Institute in March.

Federally regulated financial institutions filed more than 46,000 suspicious activity reports related to mortgage fraud in 2007, representing an estimated $1 billion in losses, according to MARI.

Co-conspirators in mortgage fraud schemes may include appraisers, mortgage brokers, real estate agents and others who have been promised kickbacks from illegally obtained loans. The schemes often hinge on inflated appraisals that skew property values and pave the way for loan defaults and, ultimately, foreclosure.

As of mid-December, Greene County had logged almost 970 foreclosures year-to-date, a 40 percent increase compared to the same period in 2007, according to the Greene County Recorder's office.

As of Dec. 15, foreclosures in Christian County were nearing the 400 mark, a 53 percent increase compared to the same period last year, according to Recorder of Deeds Roy Meadows. Greenleaf investors owned dozens of the properties foreclosed on by lenders in Christian County, where Nixa subdivisions Copper Leaf and 14 Park Place have emerged as hotspots.

FBI Special Agent Josh Nixon said he's seen research that suggests between 30 percent and 70 percent of foreclosures nationwide may be tied to fraud. Nixon and IRS Special Agent Tim Arsenault are leading the investigations into local mortgage fraud, which thrived when lenders loosened underwriting standards."The people who are committing mortgage fraud found those openings and exploited them," Nixon said.

The foreclosure trend has largely been blamed on subprime loans made to borrowers who couldn't obtain conventional financing, but an economist with the Federal Reserve in Kansas City told Springfield Business Journal in December that the crisis isn't contained to one sector and will likely worsen next year.

"I had thought at one point that we may see some significant improvement in 2009, because a lot of subprime mortgages haven't been made since 2007 - they're almost gone," Kelly Edmiston said. "But with the significant decline in economic activity, I think the problem's going to stay pretty bad for a while."

The Mortgage Bankers Association reported that the percentage of loans in the foreclosure process at the end of the third quarter was a record-breaking 2.97 percent.

[[In-content Ad]]