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| A lawsuit has been filed against 11 major mortgage lenders by the bankruptcy trustee of a company that defrauded borrowers and investors out of tens-of-millions of dollars. The trustee is seeking the return of more than $20 million in payments collected by the lenders during the past four years.Lynn E. Feldmen, the trustee in the Chapter 7 Bankruptcy case of Image Masters Inc., filed the lawsuit in U.S. Bankruptcy Court for the Eastern District of Pennsylvania. Among the defendants are Chase Home Finance, CitiMortgage Inc. and Countrywide Home Loans Inc.
Beginning in September 2003, Image Masters — which was owned by Wesley A. Snyder — convinced 800 borrowers to extract equity from their homes through refinances. The proceeds were to be invested by Image Masters, and income from the investments would be used to pay down their mortgages at an accelerated pace. Borrowers agreed to illegal wrap-around mortgages to Image Masters — which they paid at a lower rate and sometimes for a shorter term than the underlying refinances. Image Masters promised to pay the difference between the lower payment and the underlying payment from investment earnings. But instead of using non-existent investment income, Snyder operated a classic Ponzi scheme by using funds from new customers to maintain payments for the old customers. Statements were provided to borrowers indicating that their balances were declining and the strategy was working. The borrowers were even sent IRS Form 1098 that corresponded to the fraudulent statements. Change-of-address requests were repeatedly sent to the underlying lenders so that Image Masters received the mortgage statements. “Defendants never questioned that any of these actions or the single source of payment of any of the multiple loans at issue,” the complaint says. As the housing market began to turn, Snyder turned to investors to continue funding his scheme by offering participation certificates in the worthless mortgages. In all, $65.6 million was received from the borrowers and the mortgage participation investors — of which $39.1 million was actually forwarded on to the legitimate mortgage lenders. Snyder’s scheme collapsed after he ran out of funds to keep it going. The statements turned out to be fake, and the borrowers turned out to owe far more than they had been led to believe. The money was never invested — just deposited to company bank accounts and used to pay business expenses and personal expenses of Snyder’s family. The U.S. Department of Justice filed criminal charges in U.S. District Court for the Middle District of Pennsylvania on Nov. 9, 2007. Snyder plead guilty to one charge of mail fraud on November 28, 2007, and was sentenced on July 2, 2008, to 146 months in prison — though he reportedly appealed that sentence then dropped the appeal earlier this month. Snyder was ordered to make $29.3 million in restitution. Image Masters filed bankruptcy on Sept. 18, 2007, as did OPFM Inc. — which operated as a legitimate, licensed mortgage broker in the name of Personal Financial Management Inc. Other Snyder-owned entities to file bankruptcy included Mortgage Assistance Professionals Inc. II, Discovered Treasurers Inc. and DIVIDIT Inc. The businesses all operated from Reading, Pa., and shared the same bank accounts. Borrowers filed a civil lawsuit in a state court, Jones v. ABN AMRO Mortgage Group Inc., et al., which was transferred to the U.S. District Court for the Eastern District of Pennsylvania. In the bankruptcy trustee’s lawsuit, she claims the defendants should have known about Snyder’s fraudulent activity. The trustee is seeking to recover $23.6 million of the $39.1 million that was received by the defendants during the past four years, plus interest. The biggest amount, $9.2 million, is being sought from SunTrust, while Wells Fargo stands to potentially lose $4.1 million. Another $3.7 million is being sought from Countrywide, CitiMortgage may be on the hook for $3.5 million and Chase stands to lose $1.9 million. Related: Bankruptcy Sends Borrowers Scrambling Lynn Feldman, as Chapter 7 Trustee of the Estate of Image Masters, Inc., et al., Plaintiff, v. Chase Home Finance, CitiMortgage, Inc., Countrywide Home Loans, Inc., Fifth Third Bank, GMAC Mortgage Corp., Provident Funding Associates, L.P., Saxon Mortgage, Inc., Sovereign Bancorp, Inc., SunTrust Bank, Wachovia Bank, N.A., and Wells Fargo Home Mortgage, Defendants. Jones v. ABN AMRO Mortgage Group, Inc., et al. United States v. Snyder. |
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