Tuesday, August 18, 2009

Real Estate Investor Indicted For Mortgage Fraud; The Need For Indiana Attorney General to Establish Real Estate Fraud Unit

Today's Indianapolis Star today reports that a federal grand jury has indicted Robert Andrew Penn on conspiracy to commit wire fraud, wire fraud, and conspiracy to launder money. According to the allegations, Penn, who now lives in Naples, Florida, had owned and operated several businesses that borrowed $12.6 million from 2003 through 2005 as part of 114 alleged fraudulent real estate transactions.

The Indianapolis Star describes how the alleged schemes would work:
In one example, officials say LaFavers, acting for Realty Options, agreed to buy a home at 2050 N. Delaware Street for $235,000 in 2004. Then another conspirator, acting for Robert Penn, recruited someone identified as a "straw" borrower to purchase the same house.

A false appraisal showing the property was worth $370,000 was submitted to Argent Mortgage, officials say, along with a $333,000 loan application that falsely showed the borrower was providing the down payment from her bank account.

In the Windsor Village matter, Realty Options entered a deal with Homevestors, a firm associated with Indianapolis real estate investor Jerry Jacquess, to buy 184 duplexes from the same owner for $50,000 each. According to officials, Penn and unnamed conspirators received inflated appraisals showing the bulk of the properties were worth $120,000 each.

Penn and his wife then recruited straw purchasers, including relatives in Virginia, to form what the Penns called an investment club to buy the properties for $120,000 each. The mortgages were made by Argent, Countrywide, Peoples Choice and The Money Station, officials say.

Donald Brown also aided the deal by forming Brown Funding bank to make it appear to the lenders that the straw purchasers had access to a large volume of cash in the fund, the indictment says. Brown and Jacquess were indicted earlier with Tamara Penn.
Those of us who have worked in the real estate regulatory field, know the name Robert Penn quite well. As head of the title insurance division at the Indiana Department of Insurance, I was naturally very interested in any title company agents or agencies who had aided Penn in his allegedly fraudulent schemes. In virtually any real estate fraud situation, the person committing the fraud will use the same title company time and time again, knowing that at the very least the title company would look the other way when it comes to fraud. I believed title insurance agencies and agents had a higher duty than to simply turn a blind eye to obvious elements of fraud.

The regulation of real estate though involves a number of different players. The Attorney General regulators appraisers and real estate agents. The Department of Financial Institutions regulates lenders. The Secretary of State is over mortgage brokers. The Department of Insurance regulates title insurance agents. Then you have state and federal law enforcement officials and prosecutors. Since any sort of real estate fraud involves multiple players, regulated by multiple agencies, at the very least you need incredible cooperation and active involvement of the regulators.

The case of Robert Penn highlights a problem with the prosecution of real estate fraud. Certainly the Marion County Prosecutor Carl Brizzi had evidence of all of Penn's alleged criminal activities and never bothered to bring charges. As a result, it was left to the feds to prosecute. The feds though just have time to concentrate on the most extreme cases involving millions and can only prosecute violations of federal law. Violation of Indiana criminal law, which might make for a better prosecution, can only be tackled by county prosecutor.

Certainly I would blame Brizzi for never tackling the severe problems with real estate fraud in Marion County, including those supposedly committed by Penn. White collar crime has victims too, a fact that Brizzi seems to often forget.

But there is a reason why county prosecutors often are reluctant to tackle real estate fraud. Real estate fraud is extremely complicated. It is difficult to prosecute crimes when prosecutors and their deputies lack the understanding of the complexities of real estate transactions, the role of the various players, and the how these schemes can be pulled off.

That's where the Attorney General can play a vital role in assisting prosecutors. The time is long past for the Indiana Attorney General to set up a mortgage fraud unit to provide real estate expertise to local county prosecutors wanting to prosecute mortgage fraud. The Attorney General could even providea Deputy Attorney General who could be sworn in by county prosecutors to conduct the prosecution or sit as second chair assisting a less knowledgeable prosecutor.

Real estate fraud is not going away. Indiana with its patchwork regulatory structure and county prosecutors who are reluctant to prosecute something they don't understand, is an inviting target for any schemer wanting to commit real estate fraud. The time is right for Attorney General Greg Zoeller to take action to make Indiana less inviting for people like Robert Penn.

4 comments:

I know said...

White collar crime in Indiana is the norm. Carl Brizzi is not to be given all the blame at his feet. The entire legal profession is afraid of the shadows cast by the "wealthy" that continue to steal with no sense of being caught because even the lawyers who have extreme blatant cases of theft, corruption, conflict of interest and profiteering laid at their feet refuse to do anything about it.

Is it fear, the excuse of lack of time or gee ignore it and it will go away? Fear, intimidation, good old boys friends and excuses are really what feeds white collar crime and the wealth many reap from it.

Until the "legal" profession in unison does something about it one should not keep calling it out. Many a fine gentleman in Indiana understands how he can keep getting away with the game by just being in Indiana.

Diana Vice said...

You nailed it, ik.

Wayne Kirk said...

There is one solution to this problem that could greatly help in stopping this mess from happening. All the State of Indiana have to do (through their respective counties) is ensure that all sold properties are entered into a public database that is easily viewable by the public. It should show the following data: Selling Price, Selling Date, Size of Home (sq footage), Size of Lot, and any seller-paid concessions as an Adjusted Sales Price. Then require all mortgage and real estate transactions to offer a link within the appraisal, mortgage, or the real estate contracts/documents. Of course, there is always a chance that the person committing fraud will not provide this web address in their documents and defraud their clients in another way, but this will help stave off some of the fraud in this industry.

Paul K. Ogden said...

Wayne, you are right about the need for disclosure. There should be a requirement that both grantor and grantee sign the deed as is the case in many states. Also, putting more information on the deed, including purchase price, would tip off people to the fraudulent transactions.

There has for awhile been a movement afoot to adopt some of the reforms you suggest to curb the fraud. Unfortunately it's gotten derailed in territorial disputes. We need a strong AG to lead the charge. In the past, the AG was actually the weakest link in the regulatory chain. We're hoping for better things from Zoeller.