In a case involving the FBI, the Department of Housing and Urban Development Office of Inspector General, and Federal Housing Finance Agency, 12 defendants in the Atlanta, Georgia area have been charged with mortgage fraud.
Multiyear Scheme
The scheme was the brainchild of two, real estate listing agents, Eric Hill and Robert Kelske. They were representing a major homebuilder. The homebuilder was not named. They simply enabled Hill and Kelske to have plenty of product.
The two agents started a scam to submit fraudulent loan applications to banks on behalf of more than 100 unqualified homebuyers.
The agents told the potential homebuyers the kinds of assets they needed in order to satisfy the bank. That’s all well and good, but then the agents created a scam. They started working with what the Department of Justice has called “multiple document fabricators.”
A document fabricator, a forger, faked the homebuyers’ bank statements. In this manner, they inflated assets and then faked bank entries to show false direct deposits.
How could they do this? They paid off “fictitious employers” who then produced fake earnings statements to go along with the false direct deposit slips. This, of course, made it appear as though the home buyers were gainfully employed.
In all, it took 12 people, working in concert, to make it appear as though the fraud was legitimate.
Consistency
The two main defendants Eric Hill and Robert Kelske were characterized by the FHA as “use(ing) their knowledge of the real estate lending process to manipulate the system for their own benefit.”
In creating the web of deceit, they also had to use “employment verifiers” in addition to forgers and fictitious employers. When the bank called, the verifiers happily told the bank they were employees. Hill and Kelske were orchestra leaders, whose sole intention was to confuse the bankers.
And finally, in the last phase of the scheme, two other real estate agents, Anthony Richard and Cephus Chapman, claimed to represent the potential homebuyers, while the truth was, they never met with any of them. They simply wired instructions to the attorneys at the closing to tell them where to wire the funds when the closing was complete.
When the funds were received, all of the commissions were sent to Hill or Kelske for distribution.
The problem was, like a faulty Ponzi scheme, none of the 12 could outrun their own web of deceit. The scheme caved and they started pointing fingers at one another. As long as a united front was maintained, it held together but obviously, the lenders began to notice a faulty pattern.
Falling apart
Every fraud needs a lack of oversite in order to create an opportunity. Eric Hill and Robert Kelske knew this. They knew if they created the appearance of a “closed system,” a series of checks and balances, they could stay ahead of the banks and ultimately the FHA. They understood that once a deal went through, as long as the homeowners kept up with their payments, everything would continue to run smoothly.
However, none of the homeowners had been qualified from the beginning to keep up with their payments. They were high-risks to begin with, and when some of them started to default, the 12 defendants were readily exposed.
Hill and Kelske obviously had a need for the money, and given that the scam created more than 100 home sales, they raked in a great deal of money. Their rationalization might have been that they could hide behind the web they created. It worked up until the FHA and FBI started working their way up the ladder.
The fraud went on for four years. Whether it was finally toppled by the pandemic or simply the economic weight of trying to maintain payments for too long, is unimportant. What is ethically important is that everyone involved, from the unqualified homebuyers to the 12 fraudsters, were complicit.
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