Federal prosecutors in Philadelphia have cracked a mortgage fraud ring that preyed on buyers who couldn’t afford the homes they were sold.
Five people have been indicted for using predatory lending techniques to target low-income buyers for federally insured loans, federal prosecutors said in a statement.
The defendants allegedly made approximately 100 fraudulent loans totaling $9.2 million in a scheme that cost taxpayers more than $1.1 million, according to Patrick Meehan, U.S. District Attorney for the Eastern District of Pennsylvania.
“Predatory lenders sell the American dream of home ownership which quickly becomes the American nightmare when the buyers go broke,” Meehan said in the statement. “The buyers are led down a path that eventually ends in foreclosure, bankruptcy and a huge bill for taxpayers.”
Named in the indictment was Philip Garland, 44, of Lancaster, Penn., the owner of a home building company called Garland Homes.
Also indicted were salesman Richard Myford, 40, of East Berlin, Pa.; Judy Gemmill, 44, also of East Berlin, a mortgage broker; David Gregory Herb, 49, of New Oxford, Pa., a real estate agent; and James Ballantyne, 39, of Quarryville, Pa., a loan officer.
“The defendants…targeted unsophisticated customers, particularly first-time home buyers with low incomes and poor credit histories,” prosecutors said.
A quarter of the homes sold under the scam have been foreclosed on, authorities said.
Myford and Gemmill worked for Garland. The three each face up to 84 years in prison and fines of $8.25 million.
Herb and Ballantyne face five years behind bars and fines of $250,000.
The defendants face a total of 33 counts for making and covering up fraudulent, federally-insured Federal Housing Administration (FHA) loans. None could be reached to comment.
According to the indictment, Garland sold more than 250 homes between 1996 and 200. About 100 of the sales involved “undisclosed advances which were fraudulently made to appear to be from family, friends and employers,” Meehan said.
The total of the loans was $9.2 million.
In other words Garland is accused of illegally offering private loans to low-income buyers that would make them eligible for the FHA loans.
The buyers were then to repay the illegal loans to Garland, prosecutors allege.
“The defendants practices overburdened some Garland home buyers with debt, which forced them into bankruptcy,” prosecutors said.
Meehan said because Garland and his associates knew the mortgage business, they preyed on low-income buyer who were ripe to be caught in the scam.
“Because of their experience in the field, the defendants usually knew after their initial meeting with and evaluation of prospective buyers that many of them could not qualify for conventional or FHA-insured mortgages,” prosecutors said. “The defendants used various fraudulent techniques to make it appear that these prospective buyers were qualified for mortgage loans.”
For instance, the indictment alleges that in December of 1997, Garland “secretly funded the purchase” of an $83,500 Garland home in New Oxford, Pa., “with an undisclosed, unlawful advance of approximately $15,500, $12,500 of which was a loan.”
Phony gift letters, including one from a charity and the buyer’s parents, were used by Garland and Herb to secure the FHA loan, the indictment alleges.
For about a year, the buyer of that home made secret loan payments ranging from $314 to $50. But eventually the buyer went into bankruptcy, according to the indictment.
