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Multimillion-dollar mortgage fraud scheme
Saturday, 07 October 2006

Mortgage fraud rocks Fifth Third Bank
A multimillion-dollar mortgage fraud scheme involving pricey homes in Bloomfield Hills and Birmingham has resulted in a half-dozen firings and resignations at Fifth Third Bank, according to court documents.The alleged scheme involved a conspiracy among bank employees, appraisers, title companies, and others.

Mortgage fraud rocks Fifth Third Bank
Paul Egan / The Detroit News 

SOUTHFIELD -- A multimillion-dollar mortgage fraud scheme involving pricey homes in Bloomfield Hills and Birmingham has resulted in a half-dozen firings and resignations at Fifth Third Bank, according to court documents.

The alleged scheme involved a conspiracy among bank employees, appraisers, title companies, and others.

Fifth Third first went to court last year over one of the suspect mortgages but later said at least 11 fraudulent deals were part of the scheme. It filed an amended lawsuit in August seeking more than $10.8 million in damages from 44 defendants it alleges were involved in seven of the real estate deals.

The bank has asked for a criminal investigation, said Jack Riley, vice president of marketing for Fifth Third Bank in eastern Michigan.

"We've definitely gone to the authorities," Riley said. "We're going after justice."

Fifth Third, with Michigan offices based in Southfield, "recently discovered that it has been the victim of an extensive fraudulent mortgage loan scheme," the bank said in documents filed in Oakland County Circuit Court.

Federal officials said they are aware of the case but would not confirm Thursday whether a criminal investigation is under way. Two of the defendants in the lawsuits, which were fired by the bank, are former Fifth Third Mortgage loan agent Robert M. Hance and Anthony Reed, former office manager of Fifth Third's Bloomfield Hills Banking Center.

It's the latest development in what has been described as an explosion of mortgage fraud cases in Michigan and across the nation. But while much of Michigan's mortgage fraud has been concentrated in low-value homes in Detroit, the Fifth Third case involves deals worth more than $1 million each.

The alleged scheme involved inflated appraisals of the targeted properties, fraudulent sales, or "flips," of the properties to reflect the inflated appraisal values, and the use of "straw buyers" who were paid for their participation. Those involved in the scheme obtained loans in amounts that in some cases were more than $1 million higher than the value of the properties securing the loans, the bank alleges. Fraudulent bank statements and other documents were provided to make the straw buyers, who had good credit ratings, appear wealthier than they were.

The participants shared in the proceeds, the bank alleges.

Some of the loans were based on planned construction on vacant properties or following tear-down of existing homes, court records show.

Among the names that have arisen in the case is that of Cleveland Cavaliers guard Ira Newble, a Detroit native. Newble is not a defendant but was the buyer in one of the suspected fraudulent transactions not included in the lawsuit, according to court filings. Newble bought a property that had an inflated appraisal, is in a dispute with the bank, and may have been a victim of fraud, his agent Steve Kauffman said Thursday.

Another defendant in the civil suit is Robert S. Shumake, a prominent Detroit-area businessman and former city track star who is CEO of Inheritance Investment Group in Southfield.

Shumake has denied wrongdoing and has filed a counterclaim alleging breach of contract by Fifth Third.

Central to the bank's accusations is Bloomfield Hills lawyer Paul J. Nicoletti, who is also president of Continental Title Insurance Agency Inc.

Fifth Third alleges Continental Title Insurance was involved in closing six of the seven allegedly fraudulent transactions complained about in the lawsuit. At least six other defendants in the case either list Nicoletti's law office as their business address or had their corporate legal documents filed by Nicoletti's firm, or both, according to Fifth Third's complaint.

Nicoletti and many of the other defendants have denied wrongdoing in documents filed in court.

Gregory Thomas of Southfield, a lawyer for Nicoletti, said Nicoletti's law office was next door to Fifth Third in Bloomfield Hills and Nicoletti had close ties with the bank and its customers.

Nicoletti has alleged in court documents the bank is "on a quest seeking deep-pocketed scapegoats," and that the bank actually profited from "a fraudulent scheme that was masterminded by (its own) high-ranking officers and employees."

Riley, the vice president at Fifth Third, said Nicoletti's allegations are false.

The bank's lawsuit alleges fraud in connection with seven Fifth Third loans involving six Bloomfield Hills properties and one in Birmingham.

The loans did not immediately go into default and the alleged fraud only came to light when one of the straw buyers went to Birmingham police in fall 2005 after a $50,000 check she received from Tyrone A. Hogan of Rockridge Holdings Inc. for participating in the scheme bounced, the lawsuit alleges.

Hance, who joined Fifth Third Mortgage on June 14, 2004, was fired Nov. 9, 2005, according to the suit. Hance and his wife, Stephanie, formed a company, Executive Estate Builders LLC, which participated in some of the fraudulent transactions, the bank alleges.

Hance, who could not be reached for comment, filed court papers saying he would exercise his Fifth Amendment rights against self-incrimination and refuse to answer questions if he was called to testify at civil proceedings.

"He's of the position he was duped, just like everybody else," said Hance's attorney, Douglas Schroeder of Troy. "All he did was complete the paperwork."

Nicoletti alleges in court pleadings that at least seven other Fifth Third employees resigned or were fired over the fraud. Riley said that number is roughly accurate.

"There were people inside the bank who had not discovered this as part of their job and they either resigned or were asked to resign," Riley said.

Appraisal companies named in the lawsuit include State Appraisals Inc. of Novi; The Appraisal Place, Inc. of Plymouth; Greyhound Appraisals and Investments LLC of Southfield; and CJ Appraisals Ltd. of Oxford.

Loans in question

Fifth Third Bank is suing two former employees and others seeking more than $10.8 million in damages related to seven mortgage deals the bank alleges were fraudulent. The bank alleges the loans were issued based on inflated appraisals.
Property: 88 Brookside Lane, Birmingham
Borrower's appraisal: $1.4 million ($600,000 lot and $800,000 planned construction)
Loan amount: $1.12 million
Bank's appraisal: $315,000.
Property: 286 Lone Pine Court, Bloomfield Hills
Borrower's appraisal: $5.1 to $5.2 million
Loan amount: $1.86 million
Bank's appraisal: $535,000.
Property: 3320 Franklin Road, Bloomfield Hills
Borrower's appraisal: $5.2 million
Loan amount: $1.62 million
Bank's appraisal: $900,000.
Property: 4000 Overlea Court, Bloomfield
Borrower's appraisal: $3.8 million
Loan amount: $1.26 million
Bank's appraisal: $835,000.
Property: 3941 Quarton Road, Bloomfield Hills
Borrower's appraisal: $3.8 million
Loan amount: $1.37 million
Bank's appraisal: $500,000
Property: 3935 Quarton Road, Bloomfield Hills
Borrower's appraisal: $3.8 million
Loan amount: $1.75 million
Bank's appraisal: $475,000
Property: 264 Lone Pine Court, Bloomfield Hills
Borrower's appraisal: $2.1 million
Loan amount: $2 million
Bank's appraisal: $750,000
Source: Oakland County Circuit Court records

You can reach Paul Egan at (313) 222-2069 or This e-mail address is being protected from spam bots, you need JavaScript enabled to view it .

http://www.detnews.com/apps/pbcs.dll/article?AID=/20061006/BIZ/610060413

 
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