Oct 14 2009

The “mother of all mortgage frauds” came to an end Friday when an Indianapolis man has pleaded guilty for his lead role in a massive mortgage fraud scheme believed to the largest of its kind ever.

Though Federal law enforcement authorities are still investigating, to date the scheme may have ripped off more than 100 people for as much as $80 million.

Robert A. Penn pleaded guilty to criminal counts of wire fraud, conspiracy to commit wire fraud and money laundering conspiracy.   Penn faces a maximum possible prison sentence of thirty-five years and a maximum possible fine of $750,000.00. He faces sentencing at a later date.

Operating through a number of companies he had formed, Penn signed purchase agreements on a number of properties in Indiana at highly inflated prices. Family members in Martinsville, Va. convinced friends and parishioners of their church to participate in a “no risk” investment to buy the properties, mostly located in the Indianapolis area. They were told there was no financial investment involved; they merely had to allow use of their names and good credit and sign some documents. Most of these straw purchasers were unwitting participants in the scheme.

Robert Penn then completed purchase of the homes he had under agreement in the names of his Virginia investors. He paid the sellers of the homes only the actual market value while recording highly inflated values on the purchase and loan documents. They prepared fraudulent loan applications, containing false statements, including: that the straw purchasers owned bank accounts, stock (in Penns companies) and other assets which they did not own; that the straw purchasers had income which they did not actually have; and that the straw purchasers were making the down payments on the properties from their own funds. In reality, other participants in the schemes actually provided the down payments for the properties, and were paid a fee of $1,000.00 – $3,000.00 for doing so.

Appraisers were employed by Penn and his co-conspirators to prepare appraisals which vastly overstated the values of the properties, in order to support the sales price which was ultimately shown on the closing documents. The false loan applications, appraisals, and other fraudulent documents were then submitted to the lenders. The lenders, relying upon the false statements in the loan packages, issued the loans. The loans were handled through mortgage companies which were apparently either owned or controlled by Penn.  They were funded via wire transfers of money from the lenders to a title company, which the scheme participants used to assist them in preparing false closing documents and issuing title company checks. At the time the loans closed, the properties sold for the fraudulently inflated sales price, and the fraudulently obtained loan proceeds were shared by scheme participants. The sellers were paid the amount they had negotiated to receive, and the co-conspirators shared the excess proceeds.

Source Real Estate Economy Watch