A federal judge indicated Monday that he didn’t see Bank of America Corp. as the victim of three local defendants accused of defrauding the bank because of the bank’s practices that helped lead to the national real estate collapse in 2008.
However, U.S. District Judge Philip Simon also expressed skepticism that the defendants — Minas Litos, who owns several Round the Clock restaurants in the area, and husband-and-wife Adrian and Daniela Tartareanu — should not be let off the financial hook completely.
“Because otherwise they get a freebie,” Simon said during a hearing at the U.S. District Court in Hammond. “I’m not crying a river for [Bank of America], but why should they be held for the full loss?”
Litos pled guilty to and the Tartareanus were found guilty of wire fraud in a scheme to recruit buyers for houses, mostly in Gary, Indiana, owned by their company, Red Brick Investment Properties.
The buyers recruited by the defendants did not have the financial means to qualify for mortgages, so the defendants provided them with the money for down payments and lied on their loan applications to get loan approval.
Kerry Connor, defense attorney for Litos, argued BofA made it a policy at the time in 2007 to go after what she called “liar loans,” or loans approved without any verification of income and other assets.
The bank made money by charging fees to transfer the loan, Connor said, but took no risk for them because the bank would transfer the loans within a week to other companies, such as Fannie Mae.
Many of the home buyers defaulted on their mortgages, and the houses had to be sold at a sheriff’s sale for a loss.
Alexander Beeman, attorney for the Tartareanus, showed some of the loan applications for the home buyers and pointed out what he called red flags, such as one client saying she earned $3,400 a month but had $350,000 in a bank account, that a reasonable mortgage officer would have investigated.
“These problems persist throughout these applications,” he said, adding the same bank employee handled all of the applications.
Connor argued BofA didn’t just stick its head in the sand but helped put home buyers in a situation where they would almost certainly default.
“Your client did as well,” Simon responded.
Federal attorneys had originally requested the defendants pay more than $2 million to BofA and Fannie, but Assistant U.S. Attorney Gary Bell said at the hearing that the government was dropping the request for Fannie, for $1.25 million, because those loans were part of a larger, $10.3 billion settlement Bank of America agreed to.
That leaves almost $900,000 in losses for BofA on 16 loans it agreed to take back from Fannie after that company noticed issues with a lack of supporting documents for the loans applications.
Simon questioned the attorneys as to why he shouldn’t just say BofA shared responsibility for the loss and apportion it among the company, the Tartareanus and Litos, admitting that it would be unusual to say the victim in a case was at least partly responsible for its loss.
Bell acknowledged the problem, indicating the government would not fight a move by Simon to include BofA in the restitution.
“I think the heart of the issue is do you want to award restitution to an institution that took part in liar loans,” Bell said.
Simon said he would not issue an order on restitution at the defendants’ sentencing hearings Tuesday morning but would instead issue a written opinion in 90 days.
