The FBI and the Department of Justice unveiled Operation Malicious Mortgage last week, a nationwide bust that produced more than 400 arrests over the past three months for fraudulent home-loan schemes. In South Florida alone, more than 100 people have been arrested since last September, including 19 just last week. In a study released in March by the Mortgage Asset Research Institute, Florida ranked first in the country in 2006 and 2007 for the amount of loans that were misrepresented.
Among those arrested in the state were Evelyn Rivera and William Louisma, twentysomethings who live in the same sprawling development in the upper-class city of Wellington, part of Palm Beach County. The two, along with at least one other person, allegedly concocted a plan in February to buy 55 townhomes in Fort Lauderdale, inflate their values and establish "straw borrowers" whose incomes were pumped up to qualify for the big loans. The gang reportedly hoped to make as much as $8 million in profits after they got the loans and then abandoned the homes to foreclosure.
The 55 units involved in the case are part of a 67-townhome development that was already an example of the South Florida property boom gone bust a stagnant pool waiting for fraud to fester. The Residences at Rookery Park was initially marketed in 2004 as three- and four-bedroom townhomes for under $250,000 in west Fort Lauderdale, within earshot of a busy executive airport, on a busy corridor and miles from the beach. As the market boomed, the townhomes' starting prices soared to $349,000. A former broker said the units sold quickly, but then closings languished and buyers sought to get out of their contracts. The corporation managing the property changed hands earlier this year, and units remain unsold. Web advertisements indicate that some of the townhomes are available for rent.
The precipitous drop in values is apparently what spurred Rivera, Louisma and their associates to come up with their alleged scam. Here's how it seems to have worked.
Rivera, the owner of a title company, allegedly created a shell firm whose name (Rookery Park Estates PH) mirrored the real corporation that owned the townhomes, then acted as owner and seller of the townhomes when filing the loan applications all without ever buying a unit. Louisma allegedly used his chiropractor business to falsify borrower names and incomes (making it seem they were his employees). The duo's accused associate, Michael Acosta, a Boca Raton property appraiser, allegedly filed paperwork listing the value of each townhome at $400,000, as Rivera put together a plan to buy them at a mere $216,000 each. The applications were then said to have been shepherded through the process by an unidentified mortgage broker.
The goal of this financial finagling: to pocket the difference between the $400,000 loan and the actual $216,000 purchase price, and then simply abandon the home and force the banks to foreclose sticking them with property worth far less than the amount they had loaned. It was a textbook attempt to beat the system: fraudulent paperwork, straw borrowers, all concocted by real estate professionals.
But the plan unraveled within two months. Only two units were "sold," prosecutors say, and a bank wire transfer of $690,000 to an account held by Rivera led to the arrests. The bogus sale price of the homes may have been the giveaway. "Generally, where there's been the fastest price appreciation is where we've seen the greatest incidents of mortgage fraud," says John Mechem, spokesman for the Mortgage Bankers Association.
Rivera, Louisma and Acosta face up to 30 years in prison and a $1 million fine on counts of wire fraud. Meanwhile, Rivera and Louisma face separate foreclosure proceedings that may see them losing not only their own personal property but, in Rivera's case, her business. Neither Rivera nor Louisma have entered pleas. But Louisma's lawyer Harold Long told TIME, "This was a pretty extravagant and elaborate scheme. It's really uncertain if [Louisma] knew the parameters of this thing. I think he is prepared to assume responsibility for what he did at some point in time." Acosta has filed a not-guilty plea and cannot do appraiser work while the charges are outstanding. Housing experts are certain more schemes will unravel in Florida and beyond. As the mortgage institute's report states, "The unsettled state of the mortgage market as a whole does not bode well for avoiding fraud in the coming year."