Federal prosecutors and law enforcement agencies have launched a crackdown on an alleged mortgage flipping scheme in Southwest Ohio.
On July 22 a team of law enforcement agents led by the FBI raided five mortgage-related businesses and an individual’s home and vehicles.
Armed with federal warrants, the agents searched the mortgage lending, brokerage and title companies and left with boxes of evidence.
“Neighborhoods can become victims of fraud in the mortgage industry,” said Gregory G. Lockhart, United States Attorney for the Southern District of Ohio in Cincinnati, in a written statement. “Such fraud often prevents neglected properties from being repaired and drives up the costs for honest and hardworking homeowners.”
Officials have released few details about the investigation and no charges have been filed. But prosecutors said charges are expected.
All the businesses were in the suburbs of two Ohio cities, Cincinnati and Dayton. According to a statement from the U.S. Attorney’s office the businesses are: Charter First Banc, and Oaktree Financial, also known as TR Funding; Fairfield, Ohio; Premier Land Title, Glendale, Ohio; Global Agency Title, Sharonville, Ohio; and Knab Mortgage, Centerville, Ohio.
Also searched were the home and vehicles of Randall A. Davidson, Beavercreek, Ohio.
Agents did say that the warrants were part of an ongoing investigation into flipping, a practice that can be legal but one that can also be at the heart of a mortgage fraud scheme.
The common practice of flipping refers to the quick turnaround of a property. But in the investigation federal and state authorities have focused on illegal mortgage flipping, which “involves someone acquiring an over-inflated loan on a rundown or neglected property, often using fraudulent documents,” federal authorities said in a statement issued the day of the Southwest Ohio raids.
“The conspirators pocket the excess loan money, and the loan soon goes into default,” authorities said. “The property goes through foreclosure and remains unoccupied.”
A number of other agencies also took part in the investigation, including The Ohio Department of Commerce, The Internal Revenue Service, the United States Secret Service, the U.S. Postal Service and the Montgomery County Prosecutor’s office.
Lt. Gov. Jenette Bradley said in a statement after the raids that state law enforcement and regulators can impose harsh penalties on those who cheat the system.
“Today’s unified action sends a clear and powerful message to those who conduct fraudulent schemes,” Bradley said. “You will pay when these schemes are uncovered.”
Authorities said charges are expected to come out of the year-long investigation.
“Defrauding a financial institution can bring a punishment of up to 30 years imprisonment and a $1 million fine,” she said. “Other federal fraud, lending, conspiracy and tax-avoidance laws can also be brought to bear to fight such a crime.”
Congress warned of an increase in flipping three years ago following a nine-month investigation by the Senate Permanent Subcommittee on Investigations.
“This fraudulent scheme increasingly plagues our nation’s cities and victimizes first-time homebuyers,” Committee Chairwoman Susan M. Collins, D-Maine, said in June of 2000, when the report was released.
“Evidence gathered by the subcommittee during its nine-month investigation suggests that flipping is spreading like a virus that, if left unchecked, could reach epidemic proportions.”
