Case here reflects the national rise in mortgage fraud
By Robert Patrick
ST. LOUIS POST-DISPATCH
11/23/2006
**St. Louis — **A conspiracy to artificially pump up the price of 37 homes in struggling south St. Louis neighborhoods to cheat lenders out of more than $1 million resulted in a prison term Wednesday for the last of three men who pleaded guilty.
James McMullen, 33, of the 200 block of Bluff View Circle in St. Louis, was ordered to serve 38 months behind bars.
McMullen, Rodney Tate and Reginald Mays were part of a scheme that bought or controlled homes in up-and-coming neighborhoods in the southeastern portion of the city, then found “straw buyers” to pretend to purchase them at inflated prices, according to federal investigators and court documents.
In one case, a buyer was shown as paying more than three times the real $95,000 purchase price.
The straw buyers would walk away with $3,000 to $10,000 kickbacks, but McMullen, Tate and Mays together made hundreds of thousands of dollars between January 2004 and February of 2006, court documents show. Financial institutions took the loss by ending up with collateral worth much less than they lent.
It was part of a rise in mortgage fraud that has plagued the country in recent years. Reports of suspected mortgage fraud were 35 percent higher in the first three months of 2006 than a year earlier, according to a report released Nov. 1 by the Financial Crimes Enforcement Network.
Although a booming real estate market and low interest rates may have bumped the numbers up, suspected mortgage fraud rose 1,411 percent from 1997 to 2005, the report says.
Automated loan processing, “low document” or “no document” loans and faceless transactions conducted over the phone or online contribute to the problem, the report says.
The local scheme also played on a weakness when dealing with recovering neighborhoods. Lenders have trouble comparing properties and determining real worth in areas where values are inflating and a legitimately pricey rehabbed home may sit next door to a lower-value fixer-upper.
Frequently, mortgage fraud can lead to foreclosures and neglected property, experts say, damaging the value of neighboring properties.
Some of the homes involved in the scheme are now in foreclosure, court documents say.
U.S. Attorney Catherine Hanaway said that the men victimized neighborhoods that are on the rise.
“Obviously, we’re at a critical junction where the city is coming back,” she said, lamenting that because of fraud, properties that could have been sold to stable buyers end up empty or rented out.
FBI Special Agent Derek Schoon, who helped investigate the case with the Internal Revenue Service, testified Wednesday that McMullen had a role in at least 20 of the home purchases.
Tate, McMullen and an “unindicted co-conspirator” cooked up the idea, court documents allege. Tate and McMullen recruited straw buyers and then lied about the buyers’ assets, income and plans to live in the homes.
Mays was responsible for inflating the appraisals to match the figures on the loan documents in exchange for a $1,000 to $2,000 kickback, court documents show.
All the men pleaded guilty earlier this year rather than face trial.
McMullen appeared in court Wednesday for sentencing on charges of money laundering and conspiracy to commit bank fraud and wire fraud. U.S. District Judge Carol E. Jackson sentenced him to 38 months in prison, followed by three years of supervised release.
In court Wednesday and in legal papers, McMullen and his lawyer argued that he did not recruit buyers but only helped fund the operation. He also cooperated with investigators.
On Oct. 23, Tate, 41, of the 1100 block of Spring Orchard Drive in O’Fallon, Mo., got a 57-month sentence for conspiracy and money laundering Oct. 23.
Mays, 42, of the 4400 block of Athlone Avenue in St. Louis, was sentenced Nov. 3 to three years of probation.
The men also must pay restitution, but federal investigators have not yet determined how much.
Hanaway said the straw buyers were not charged.