Illinois Department of Financial and Professional Regulation

 

NEWS
   
For Immediate Release:
March 8, 2010
 

State’s Mortgage Fraud Task Force unravels
$7.7 million scheme to defraud lender

 

Key players cited in ring that led to unprecedented
foreclosure rate in 27-unit building on Chicago’s South Side

 

CHICAGO –Officials from the Illinois Department of Financial and Professional Regulation’s (IDFPR) Mortgage Fraud Task Force (MFTF) today announced a series of disciplinary actions, including $769,000 in fines, against 16 licensees—including a title company, 7 mortgage companies, 6 loan originators, and 2 appraisers—plus three unlicensed companies and a number of straw buyers, all of which were involved in an alleged $7.7 million scheme to defraud lenders in a rehabbed 27-unit condominium building located at 4725 S. Michigan Avenue and other properties on Chicago’s South Side. All 27 apartments at 4725 S. Michigan are in foreclosure.

“This is the first time that we have seen a case in which all of the building’s units are in foreclosure,” said Brent E. Adams, IDFPR Secretary. “We believe this case will serve as a dramatic example of the damaging ripple effect that mortgage fraud has on communities by lowering the property values of neighboring homeowners.”

The type of fraud scheme alleged by IDFPR, which puts entire neighborhoods at risk and can net millions of dollars for the perpetrators, involves complicated financial transactions that can be successfully unraveled partially as a result of the 2004 consolidation of all three state agencies with responsibility for overseeing portions of real estate transactions: from listing a property to transferring the property to a new owner. Illinois is one of the few states in the nation that has the capability to conduct investigations into alleged mortgage fraud within one state agency.

Tipped off by a confidential informant, MFTF investigators late last year began to unravel the alleged fraud that resulted in every unit owner in the building being unable or unwilling to keep up their mortgage payments.  The alleged scheme involved title agents, mortgage brokers, loan originators, appraisers, unlicensed real estate brokers and straw-buyers who were induced or compensated to participate in the origination of loans using knowingly false information on loan applications. 

According to IDFPR’s investigation, most if not all of the units were alleged to have been sold to straw buyers, beginning in late 2006 and continuing through October 2007, at artificially inflated prices based on fraudulent appraisals. The buyers would allegedly sign loan documents stating that the address was going to be their primary residence when, in fact, they had no intention of ever living there. At least one of the alleged straw buyers purchased five units claiming that each unit was her primary residence. Often times, the sellers would allegedly ask the buyers to risk their good credit for generous cash kickbacks or on the promise that a bevy of renters will cover the cost of the mortgage. In the end, the buyers failed to make payments, defaulted on their loans and the lenders began the foreclosure process.

According to the informant, Schaumburg-based Traditional Title Company LLC was the alleged ring leader in the fraud and, two of its principals, Ira Kaufman and Elbert Reniva, both of Chicago, were “outwardly committing fraud” by recruiting investors, mortgage brokers, appraisers and straw buyers. Traditional Title’s title insurance license was revoked by IDFPR’s Division of Financial Institutions and the company was fined $24,000.  Traditional Title is contesting IDFPR’s revocation.

In its revocation order, IDFPR said that Traditional Title demonstrated “untrustworthiness” in transacting the business of guaranteeing titles.  It alleged that the condo development’s seller hired Kaufman as the attorney of record for 19 transactions in which alleged straw buyers signed purchase agreements for properties they could not reasonably afford.  Many of the alleged straw buyers reported inflated incomes from working as employees of E&H Distributors, Inc.  IDFPR could not confirm employment and found no evidence that the company was doing business. Some of the alleged straw buyers purchased multiple properties as their primary residence.

In addition to Tradition Title, the MFTF’s investigation also cited and fined several other licensed companies and individuals.

IDFPR’s Division of Banking revoked, fined and/or disciplined the licenses of:

Mortgage Companies

Loan Originators

IDFPR’s Division of Professional Regulation also filed formal complaints against the following licensed professionals:

Real Estate Appraisers (complaints seeking revocation, suspension or other disciplinary action)

According to investigators, Muzaffar and Powell allegedly inflated the value of the properties by $50,000-$75,000, failed to select appropriate comparable sales, and failed to accurately reflect certain information necessary for a valid appraisal.

In addition, ENH Services LLC, Zeal Management LLC, and Eliot Higueros were all charged with unlicensed practice as real estate brokers for accepting commissions on the sale of condos at 4725 South Michigan. In multiple instances, ENH and Zeal are alleged to have received commissions of more than $20,000 on the sale of single units.

Due to the nature of the investigation—including possible evidence of criminal fraud—IDFPR has referred this case to the Federal Bureau of Investigation for further review.

The Mortgage Fraud Task Force (MFTF)—which consists of representatives from the Illinois Divisions of Financial Institutions, Banking, and Professional Regulation—was formed four years ago to ensure that businesses and individuals involved in real estate transactions comply with the strict standards of conduct established by state laws. Since its inception, the MFTF has taken disciplinary action against more than 100 persons and entities and assessed fines of almost $2 million and conducted a regulatory sweep of more than 150 mortgage companies.