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Suit claims mortgage fraud in KC
Saturday, 07 October 2006

First Magnus says inflated appraisals have cost it more than $1 million
An Arizona mortgage company has sued six businesses and 28 individuals, alleging they conducted a multimillion-dollar mortgage fraud in the Kansas City area.The 82-page civil lawsuit by First Magnus Financial Corp. detailed a scheme that it said relied on intentionally inflated appraisals, false borrower information, stolen identities of legitimate estate appraisers and false appraiser names.

Suit claims mortgage fraud in KC

First Magnus says inflated appraisals have cost it more than $1 million.

The Kansas City Star

An Arizona mortgage company has sued six businesses and 28 individuals, alleging they conducted a multimillion-dollar mortgage fraud in the Kansas City area.

The 82-page civil lawsuit by First Magnus Financial Corp. detailed a scheme that it said relied on intentionally inflated appraisals, false borrower information, stolen identities of legitimate estate appraisers and false appraiser names.

Defendants, only one of whom could be reached for comment, perpetrated the scheme to generate increased business and collect “unjustified fees, commissions and kickbacks,” the lawsuit alleged.

The suit is the latest in a recent string of civil and criminal actions involving several businesses alleging mortgage fraud in the Kansas City area.

All but one of the 19 loans First Magnus cited were made on houses in the Kansas City area, stretching from Tonganoxie to Blue Springs and from Weatherby Lake to Olathe. The other was on a second home in Camdenton, Mo., for one of the defendants, the suit said.

The suit described a scheme that originated at Star Equity Funding LLC and then jumped to Reis Enterprises Inc., American Residential Funding Inc., which was not listed as a defendant, and Olympic Mortgage in succession. These companies often had the same phone number, address and employees as the predecessor.

“As set forth … even though the defendants switched the mortgage broker title under which they operated … they continued to function as a continuing unit, and to use the same appraisers to effectuate the fraudulent scheme,” the suit said.

It also said the “core members of the enterprise remained the same and the basic decision-making structure remained the same.”

First Magnus said that because of the fraud, it lent more than $2.5 million on homes that it said were actually worth less than $1.8 million at the time. The houses had been appraised at $3.1 million collectively.

The suit said all 19 loans have defaulted and First Magnus has lost more than $1 million when the foreclosed properties didn’t cover the money owed.

First Magnus said it only made the loans because of the fraudulent actions of the defendants. It seeks to recover three times its actual losses, punitive damages, damages to ensure the defendants did not unjustly enrich themselves through the scheme, and its costs plus interest.

According to the suit, Gary Shartzer directed loan officers at Star Equity to obtain appraisals on the houses to secure loans at predetermined and overstated values.

It said appraisers Jane Sanson, doing business as JS Appraisals, and Term Investment Group LLC supplied the appraisals and earned abnormally high appraisal fees. It said they “altered and outright falsified” information about comparable home sales in the area, misrepresented features of the houses being mortgaged, and used comparable houses that weren’t applicable to the houses being mortgaged.

Shartzer then moved the scheme to Reis Enterprises, using some of the same loan officers, the same location and the same phone number, the suit said.

Shartzer, Reis Enterprises, Joe Savaglia and Justin Cahow each were ordered by Kansas banking officials last year to pay fines under cease-and-desist orders that cited appraisal problems or failure to register with the state. The lawsuit noted the state’s action, which also involved others not named by First Magnus.

The suit also said Sanson admitted and stipulated to allegations of “fraudulent or altered appraisals” in a complaint by the Missouri Real Estate Appraisers Commission.

Furthermore, the suit said Term Investment Group and its principals, Terrell Ford and Maurice Ragland, “are the subjects of an ongoing federal criminal investigation.”

The suit said the scheme moved to American Residential through Brian Lee Eaton and Savaglia, then to Olympic Mortgage through Eaton.

None of these individuals could be reached Thursday.

The suit also named as defendants prominent Kansas City businessman William Worley, chairman of Kingston Environmental Services Inc., and his daughter, Susan Shartzer, wife of Gary Shartzer.

It said Worley and others made the scheme possible by their “intentional disregard and neglect, willful inattention and otherwise negligent supervision.”

Worley acknowledged he had invested in Star Equity, a limited liability corporation, but said he had no active role in the company or its operations. He said he was not aware of the lawsuit, filed Wednesday in U.S. District Court in Kansas, or of any claims of fraud.

The suit names 17 other individuals and another appraisal company as defendants. It noted that at least four of those defendants might be victims of identity theft or fictitious names.

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