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Friday, June 20, 2008 | In February, a homebuyer paid $591,000 for No. 602, a bank-owned unit in the Parkloft development near Petco Park.
Two years ago, the buyer of the same unit paid $1.1 million.
But the 46 percent price plunge in two years represents more than the effect of a despondent housing market, prosecutors say.
The unit was never worth $1.1 million and buyer Gloria Agundez never earned the $301,000 salary to make the mortgage payments on that sum, officials said. And the employer listed on Agundez’s application for a mortgage, U.S. Mergers, never existed, officials said.
Agundez said she never bought it, either. She told the FBI that her identity was stolen and her signature forged to purchase the property in the first place, according to court documents.
Agundez’s unit, No. 602, a two-bedroom, two-bathroom unit with a terrace overlooking the downtown skyline, counts among 21 properties considered by investigators at the IRS and the FBI to be purchased fraudulently, part of an alleged mortgage fraud ring announced Thursday. Six individuals were charged in relation to the ring, which law enforcement officials said caused potential losses to mortgage lenders of $5.1 million.
The court documents filed detail an operation carried out in 2005 and 2006. The majority of the properties involved are in San Diego County and at least three of them are condo units in downtown San Diego. The group, operating under the name Creative Financial Solutions Inc., allegedly obtained mortgages for unqualified or unknowing borrowers.
The alleged scheme fits the profile of a variety of mortgage fraud against lending institutions called “cash back at closing.” Such a scheme centers on inflating purchase prices, obtaining loans for the inflated amount and distributing the difference in cash among some or all of the parties in the transaction after the seller’s asking price has been paid. Then, the buyer walks away from the property, leaving the bank with a house that was never worth what it lent the borrower to buy it in the first place.
The court documents in this case offer insight into some of the machinations by which San Diego’s housing market reached a dizzying peak earlier this decade and has since spiraled into a freefall. By purchasing homes at inflated prices, buyers pushed up the values of the units or homes around them. And in this case, as mortgages for 18 of the 21 properties analyzed by the FBI have already ended in foreclosure, the properties involved have sold at bottom-scraping prices — often drastically undercutting the values for the whole neighborhood or condo building.
Though many in the real estate community have known such deals were happening for years, these are the first charges brought in cash back at closing transactions.
“This is exactly what I’ve been screaming about for the last 18 months,” said Todd Lackner, a Mission Valley real estate appraiser and mortgage fraud expert. “I’m elated to hear law enforcement’s going after these crooks. Certainly this isn’t the only one.”
No. 602 in Parkloft shows how the alleged scheme worked.
Defendant Aviva Betech worked as buyer’s agent for the transaction. Court documents state that on May 2, 2006, the asking price in the Multiple Listing Service for No. 602 was a price range of $845,000 to $925,000. Two days later, the asking price was raised to a range of $925,000 to $1.125 million.
On May 31, defendants Rafael Santiago, Abner Betech and Aviva Betech, working at Creative Financial Solutions, submitted mortgage applications for Agundez, the buyer, to First Franklin Financial, a mortgage lender, according to the court documents.
They sought $1.1 million in two mortgages, and attached bank statements from Washington Mutual that showed a fraudulently inflated balance in the account and allegedly falsified transactions, according to prosecutors.
The mortgage lender wired the funds to purchase the property, and the escrow company paid commissions on the sale price to the defendants’ companies totaling $45,123, according to the charges.
And when escrow closed on No. 602, the seller was paid the original asking price, then dispersed the difference between that sum and $1.1 million to Santiago and Abner Betech, officials allege. In June, an escrow company wired $143,745 into Santiago’s account and $30,255 into Abner Betech’s account, according to court documents.
The loan fell into default and went into foreclosure in March 2007, and the lender took back its collateral for the loan, the house. But instead of a house worth $1.1 million, the bank could only find a buyer to pay $591,000 for it. That meant at least a $509,000 loss for the lender.
The charges include four more descriptions of deals like No. 602 among the 21 properties examined, including a unit in each The Mills at Cortez Hill and The Grande North, also downtown condo buildings. A house on Hawthorne Drive in Chula Vista and a house on Rock Rose in 4S Ranch, a North County subdivision, were involved in similar inflated-price cash back transactions, according to the court documents.
The U.S. Attorney’s Office would not release the addresses of the other 17 properties referenced in the complaint.
Beside the three defendants involved in No. 602, officials named three other defendants, Said Betech, Lucette Montane and Angel Armendariz. The three Betechs have been arraigned and are next due in court on July 1. Montane, Armendariz and Santiago remain at large.
Knut S. Johnson, attorney for defendant Abner Betech, said it was premature to comment on the case.
“We just received the complaint and we’re looking at it,” Johnson said. “It’s obviously a very complex case. It’s going to take a while to absorb it and figure out what happened.”
Attorneys for Aviva Betech and Said Betech did not return calls for comment Thursday.