Appraiser Sentenced in Massive Mortgage Fraud Case

Rizk was sentenced by United States District Judge Dean D. Pregerson, who warned that other professional real estate appraisers should know that if they inflate appraisals and lie about the value of homes, “there is an overwhelming likelihood that they will be caught and go to prison.

Lila Rizk, 43, Rancho Santa Margarita, California, a former state-licensed real estate appraiser, was sentenced to three years in federal prison and ordered to pay more than $46 million in restitution for her role in a massive mortgage fraud scheme that caused tens of millions of dollars in losses to federally insured banks. Rizk received the three-year prison term after her conviction last summer on conspiracy, bank fraud and numerous loan fraud charges.
As previously reported on Mortgage Fraud Blog, as per the court documents (part 2 of court documents), the evidence presented at Rizk’s trial last summer showed that she was part of a wide-ranging and sophisticated scheme that obtained inflated mortgage loans on homes in some of California’s most expensive neighborhoods, including Beverly Hills, Bel Air, Holmby Hills, Malibu, Carmel, Mill Valley, Pebble Beach and La Jolla. Members of the conspiracy sent false documentation, including bogus purchase contracts and appraisals, to the victim banks to deceive them into unwittingly funding mortgage loans that were hundreds of thousands of dollars more than the homes actually cost. Lehman Brothers Bank alone was deceived into funding more than 80 such inflated loans from 2000 into 2003, resulting in tens of millions of dollars in losses. [Editor’s Note: Deceived? I doubt it. They probably got part of the fee]
The evidence presented at trial showed that Rizk profited by collecting hundreds of thousands of dollars in fees for providing inflated appraisals in the scheme. Her appraisals typically valued the homes three times higher than what the homes really cost. In order to supposedly justify these inflated values, Rizk used “comps,” or comparable homes, that were far bigger, more luxurious, and in better neighborhoods than the homes she appraised. Once she had inflated a few dozen homes, she then used those homes as “comps” to supposedly justify inflated prices for homes later in the scheme.
Ten other real estate professionals have been convicted of federal charges related to the scheme. They are:
Charles Elliott Fitzgerald, scheme leader, a developer formerly of Newbury Park and Beverly Hills, California, who previously was sentenced to 14 years in prison.
Mark Alan Abrams, Los Angeles, California, a mortgage broker who along with Fitzgerald orchestrated the scheme, who is scheduled to be sentenced on April 12, 2010.
Nicole LaViolette, Palm Springs, California, a loan processor, who is scheduled to be sentenced on June 14, 2010.
Jamieson Matykowski, Laguna Niguel, California, who found houses for the scheme, is scheduled to be sentenced on March 29, 2010.
Timothy Holland, Santa Ana, California, an escrow officer, who is scheduled to be sentenced on July 19, 2010.
Richard Maize, Beverly Hills, California, a mortgage banker, who is scheduled to be sentenced on June 28, 2010.
Thomas R. Schiff, Brentwood, California, a mortgage banker, who was previously sentenced to 6 months in prison.
L. Scott Robinson, Dana Point, California, an appraiser, who is scheduled to be sentenced on April 2, 2010.
Kyle Grasso, formerly of Santa Monica, California, a real estate agent, who is scheduled to be sentenced on February 19, 2010.
Joseph Babajian, Los Angeles, California, a real estate agent, who is scheduled to be sentenced on February 22, 2010.
Rizk was sentenced by United States District Judge Dean D. Pregerson, who warned that other professional real estate appraisers should know that if they inflate appraisals and lie about the value of homes, “there is an overwhelming likelihood that they will be caught and go to prison.”
This case is the result of an investigation by the Federal Bureau of Investigation and IRS-Criminal Investigation

9 Responses

  1. This is just the tip of the iceberg. I would bet that there are thousands of mortgage fraudsters across the country. Let them shake in their boots and wait for the knock on the door in the middle of the night.
    I feel sorry for the poor people buying their first house and they overpaid by $60,000 to $100,000. They though they were getting a good deal. In fact the house had been flipped several times to inflate the price..

  2. Edit – last comment – Last 2 paragraphs of previous post “as a side note” are by ANONYMOUS – and not the by Lita Epstein for the quoted post.

  3. The only way to really fight the fraud is by demonstrating that government programs are counter-productive to help America and homeowners. The more people that “walk away” from “under water” mortgages – the more pressure is put on the government to investigate the phony inflated appraisals and phony mortgages. See Below – and yet you still have the idiot commentators who claim the people should pay the inflated loans that were based on inflated home appraisals. These are the “investor debt buyers” who are crying because they are afraid they cannot make a bundle on American hardships.

    DailyFinance Toolbar
    Should You Consider a ‘Strategic Default’ on Your Mortgage?
    By LITA EPSTEIN Posted 11:15 AM 02/06/10 Investing, Real Estate
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    “If you owned a house that’s now worth a lot less than what you owe on your mortgage, would you walk away from the home and default on the mortgage? If so, you’d have plenty of company. In 2009, Reecon Advisors released a national survey indicating that nearly one out of 10 homeowners, 9.2% or 7.4 million, would likely choose to default if they were in that situation. And today, we’re seeing more and more evidence that some people are beginning to do just that. They’re choosing to “strategically default” on their mortgages.

    First American Logic did a recent study that suggests when a home falls below 75% of the amount owed on the mortgage, the homeowner begins to think about walking away, even if he or she can pay the mortgage.

    That conclusion is backed by a study of trends data by TransUnion released in January, which found people were maintaining car payments as their first priority, credit cards as second and mortgages last. The national average for 60-day delinquent auto loans was 0.81% for the third quarter of 2009. For credit cards, the national 90-day delinquency average was just a bit higher at 1.1%. But for mortgages, the national 60-day delinquency rate was six times higher at 6.25%.

    4.5 Million Underwater Homeowners

    So, how many people have crossed that critical threshold where their home falls below 75% of the amount owned on the mortgage? First American reports that by third-quarter 2009 an estimated 4.5 million homeowners reached that point. The next report on negative equity is due out in mid-February. If prices continue to fall in the hardest-hit areas of the country, that number could top 5 million by the middle of 2010.

    First American estimates that it would cost about $745 billion, slightly more than the TARP bailout of the banks, to restore all underwater borrowers. Can the government afford to even think about that? Probably not.

    Who is actually responsible? Jon Maddux, CEO of website You Walk Away, puts most of the onus on the banks because he says lenders made bad loans. “Those loans created a massive demand for housing because all of a sudden everyone could have the American dream.” He strongly believes that lenders are the “root of the problem” because they created the exotic mortgages that led up to this disaster.

    Short Sales Not Easy

    He agrees that borrowers made mistakes, too, but the “lenders did it thousands and thousands of times, and made billions of dollars” doing it.

    For many in the hardest hit areas, working out a short sale is frequently not an option when the home value is so low that a buyer starts considering walking away. That’s because the banks are often not willing to accept a low enough offer. For example, in Central Florida, where I live, real estate agents have told me they stopped even showing short-sale homes because they can’t get the banks to agree to the offers and it’s a waste of their time.

    Stricter guidelines from the Treasury Department may get the banks to make a faster decision and put short sales back on the table as an option. Always check with your bank to discuss your options before thinking about a short sale or walking away. Some banks, especially a smaller community bank or a credit union, may be willing to work out a deal. In fact, some banks have even been willing to negotiate a reduction in mortgage principal, so it never hurts to ask as you develop your strategy.

    Just a Business Decision?

    Today, Maddux helps thousands of people “strategically walk away” from their loans. While many people may think a borrower has a moral obligation to pay the mortgage even if the home is $100,000 or more underwater, Maddux disagrees. He says if the mortgage were a moral obligation, that would be stated in the contract. He sees mortgages simply as a business deal, and the decision to walk away as a business decision.

    Maddux, who first worked in real estate finance for 12 years, saw the need to help financially distressed homeowners in 2007. He partnered with an attorney and developed his program and his You Walk Away website. Visitors can use the site to consider four options: Walk Away, Strategic Default, Short Sale and Stay. The goal is to help people make the decision that’s best for them.

    People who are stuck in a home that doesn’t have a chance of regaining its value in 10, 20 or maybe more years, get guidance on how to strategically default, but the site does advise people to work with an attorney in their home state. Each state has different laws that can make strategic default easier or more difficult.

    Credit Scores Can Recover

    Essentially when people strategically default, they stop paying their mortgage and instead put all their cash toward paying down other debt, such as car loans and credit cards. Since in many states foreclosures take 12 to 16 months, this gives people a significant amount of cash to pay off their other debts.

    Yes, it’s true the borrower’s credit score will be harmed initially: Maddox has found that people he’s worked with lose 100 to 125 points on their score. But as long as they pay all their other bills on time and start to decrease all other debt, he finds that within a year the credit score can regain 80 to 90 points. And it will be a lot better two years after a default. A foreclosure will stay on your credit report for seven years, but as it ages, it has less impact on the score.

    Maddox has worked with about 5,000 people, and he says none has had trouble getting a rental after a foreclosure. In fact, he says several landlords have told him they find that people who owned a home know how to take care of property and tend to be better tenants. As apartment vacancy rates rise around the country, landlords will be even more willing to ease any credit restrictions that may have been in place previously.

    There Are Many Risks

    So what are the risks? You do face the possibility that a bank will try to collect any shortfall on the amount due on your mortgage. But if you work with an attorney, you may be able to minimize the likelihood of being chased for the money.

    Prior to the recent tax law change, you risked having to pay taxes on any debt that a bank forgives, but that provision has been waived until 2012. However, some states still expect you to pay taxes on any forgiven debt after a short sale or foreclosure, so be sure to check with a tax adviser to find out the laws in your state.

    The big question for many will be: Can I ever buy a home again? Surprisingly, yes. Some financial institutions even specialize in “mortgage repair” loans. For example, in California, Golden 1 Credit Union’s Mortgage Repair Loan is targeted to people who have been been in a foreclosure in the last six to 18 months. It advertises that it’ll will help you buy a home sooner than you expect.

    Mortgage-Repair Programs

    If you’ve defaulted on a loan and would like to take advantage of some great foreclosure deals out there, look for similar mortgage repair programs in your state. Also, now that millions of people have defaulted on their mortgages, it’s likely that when the economy recovers and banks are ready to start lending again, the stigma of a foreclosure stemming from the housing bubble will likely fade. But in today’s economy, most banks won’t agree to lend to someone who recently foreclosed.

    While I wouldn’t advise anyone to strategically default, it is an option you may want to consider if you’re stuck in a home with a huge loss that you don’t expect to ever recover. This can be especially helpful in these tough times if you live in a area where there are no jobs and you need to relocate in order to work again.

    As a side note – Bloomberg news questioned TransUnion as whether or not it was the right thing to do as to paying credit credit payments before the mortgage. TransUnion representative said that the people need to survive – be able to put food on the table – pay for school supplies – pay for everyday expenses. Bloomberg says – and ” we assume you think concept is right? TransUnion – answers “yes”. Bloomberg was not very happy.” end.

    Is a class action possible?? for failure to modify inflated loans to reasonable terms and principal? Whatever law firm can do this will make a bundle if they win But the law firm must also realize that the class members must be compensated – their homes must be saved. Need to get such a class action in the public eye. I just see a lot of very wimpy law firms – who simply do not have the courage.

  4. Appraisal License Levels:

    Cerified General – can appraise any type of property, resdential, commercial, land, farm, unique, airport, etc. regardless of transaction value (how much is lent out).
    This is the licensure equivalent of an MAI (PhD) level.
    * No deminimus value limit to their appraisal activity with respect to federally related funding transactions.

    Cerified Resdential – can appraise any type of property with commercial limit of $250,000 and residental or Ag
    to $1,000,000.

    Licensed – the beginner’s level. * Note – this is often the level of appraiser whom these pretender-lenders
    emply as they are the babies of the grouping, need the experience to gain their ‘licensure experience’ and thus can be more readily manipulated in the learning phase (thus why I call it the baby phase … they learn or are taught poor methods and only know what they’re exposed to or what it takes to ‘get that paycheck’. Too often this is the case, though not all licensees are obviously corruptible nor unethical. Here is a good starting point when examining for audit or expert witness review in your defenses, then the focus shifts to the adjustments of market sales grid and the cost analysis (Boechk Building Valuation Manual, updated.)
    as the subjective factors then come into play where the appraiser gets to say good, average, poor and place a ‘quality or condition’ rating on the larger items and property as a whole … and a very very vulnerable area for infant licensees to be manipulated by lender underwriters since the licensee lacks guts to defend his own judgment against an AVM or feels they can question the underwriting ‘expert’ (who does NOT sign the appraisal which sets the loan-to-value ratio limits).
    If a young or new appraisal licensee has no other bad or good appraisals from which to compare, then they can only believe or assume the ‘boss’ ust be right because that is what makes loans, right? * Note: the problem is that USPAP prohibits concluding to an estimated “opinion” of value (that’s ALL an appraisal is, by the way, an opinion and they vary with appraiser) to ‘make’ the loan. The lending underwriter applies a little pressure, the licensee doesn’t have the skills or experience to refute their weak self-serving arguments
    and then the broker starts demanding the ‘value’ or he will blame the young licensee who feels compelled and is often threatened under fear of retaliation or firing
    or nonpayment. A seasoned appraiser at Level-II or III is much much less likely to succumb to such extortion,
    which is what it amounts to, and hijacking of their own signatures (for a few hundred dollars while the broker and lender make off with tens of thousands per loan).
    This is why Dept of Regulation & Licensing + USPAP were bolstered in the late 1980’s after the Savings and Loan fiasco yet the lender’s aren’t dumb and they knew
    they had a lot of fresh sheep (licensees) to manipulate.
    And … they did just that. The outcome is obvious to me.
    There are few of us honest experts still around.

  5. These battles will not be won in court, at least certainly not most of them. This has become much bigger than just bogus mortgages by crooked lenders. This is about a “government” that is as “in on it” as the rest of them. Otherwise, how could we have arrived at the horrific mess we as a nation are now in ? The only way to fight fire is with fire.

    Steve
    99Libra@gmail.com

  6. I have looked at so many “phony appraisals”, that it seems like they were standard procedure, along with “inflated income statements” during the 2000-2008 real estate bubble here in Florida.
    Usually, they were no money down deals or else
    80-20’s, where a first mortgage and second were written at the same time. The borrowers never had
    anywhere near the income to qualify for the loans.
    They all included private mortgage default insurance,
    so it is clear they were designed to fail from day one.
    All the correspondent lenders wanted was a warm
    body to sign a Note in blue ink so they could sell it
    to Wall Street and earn a huge “Yield Spread Premium”, usually around 15% of the loan, based
    on the “margin” spread between what the wholesale
    lender charged, (usually around 5%) and the 6-8%
    the consumer Note was being charged.
    The remedy for fraud in lending is to reduce the
    interest rate to Zero. In this manner, the homeowner
    could afford to pay back the principal and the investors
    would at least get back most of their invesment, “sans
    interet”. That’s better than a boot in the pants!

  7. I would be jumping with joy if it read “big SOB from wall street was sentenced to 25 years in prison” with all due respect to Neil of course, thanks Neil for bringing us all this info; it’s not about you it’s about what the government is doing AGAIN!!! who gives it rat’s ass about some looser appraiser? don’t be surprised if a few Real Estate Agents follow that path also, just to make it more “REAL”, like if they are actually doing something about it; it is all a big F(*&^%ing lie!!!!!!!, once again they are trying to distract us from the REAL problem and the REAL ISSUES, but what else is new??? our whole country it’s going to hell with all politicians deeping their hands in the BIGGEST SCAM AND BIGGEST ECONOMIC RAPE ever perpetrated in this land, “the land of the free”? is more like the land of the dummies!, they just keep screwing us over and over with no relief in sight!, who knows what next. The whole things it’s really sad. God help us all!!!

  8. Excellent article. It reveals the complicity required by several parties to enact such fraud. Very good reason to obtain copy of our purchase & refinance appraisals, then ask ourselves does that seem right to me?
    Note: fair market value is defined as what “typical” buyers & sellers would agree upon in an open-market arms-length transaction, all parties knowing the rules of the game: NOT what ‘one’ buyer might pay ‘one’ time.

    Once duped by RESPA or other deception, their game continues until someone goes to Regulation and Licensing to prompt valid investigation. How many of you know that lenders have their approved-appraiser lists, despite State certification verifying one’s license
    ability and compliance with education and USPAP
    (Uniform Standards of Professional Appraisal Practice): the lender manipulation starts there. As we lack checks and balances on broker/lender biased relationships, if you suspect abuse of appraiser
    ‘subjective’ adjustments on ‘quality and condition’ ratings of your property and adjustments seem to “fall into place” where adjusted sales conclusions come in very close proximity rather than having some variations then that is a good sign it’s all just too smooth. Few neighborhoods are cookie-cutter copies, even in new subdivisions. We all like different trim, landscape and flooring for example, and rooflines can vary greatly in cost yet seldom add market value since square feet of living area is the primary market factor adjustment … and few appraisers do that correctly either. These are areas which can all be audited for possible abuses.

    Serious review of appraisers & their tendencies to do most all their work inside a brokers office or those whom do all one lenders work are good indicators
    that their may be no independent opinion being at all rendered. To me it smacks of collusion, with resultant price-fixing, as those types prey on borrower’s naivete as buyers are focused on their new home. You know the feeling, when you see that late night infomercial and it seems so great … its the dopamine flooding your brain with excitement, and they are preying on that feeling you are ‘under’ for something new you want.

  9. Neil,

    Wonderful, but look at what’s happening?
    They are frying the “little fish”. And they
    have certainly EARNED the batter on
    their souls and being tossed by the Judge
    into the frying pan.

    But, SO WHAT. The big fish just swim
    away laughing!

    It is abundantly clear that the REAL
    perpetrators of this MESS
    yet to feel any real HEAT.

    Castigation, yes. But they
    need to feel the fire just like
    the “small fry”.

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