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Topic: Could mortgage fraud be happening again?

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El Supremo

Could this be happening again?

Mortgage fraud crackdown reaches inside Genesee County as former Grand Blanc Township real estate broker Kurt Heintz faces bank fraud charge
Print Email Bryn Mickle | bmickle1@mlive.com By Bryn Mickle | bmickle1@mlive.com
on June 20, 2008 at 7:47 AM, updated June 20, 2008 at 8:06 AM
Editor's note: This is an expanded story from an earlier version.

DETROIT, Michigan -- Former Grand Blanc Township real estate broker Kurt W. Heintz is charged with bank fraud in an alleged $20-million scam using inflated property appraisal values on about 70 properties around the area.

The U.S. attorney's office in Detroit claims Heintz and Howell real estate appraiser James J. Fish engaged in systemic mortgage fraud in Genesee County.

Feds charge 28 in Michigan with mortgage fraud

Hundreds nationwide swept up in mortgage fraud arrests

The announcement came as the U.S. attorney's office in Detroit said Thursday it has charged 28 people with mortgage fraud in 15 separate criminal cases.
The offenses, which led to losses of more than $50 million, include wire, mail and bank fraud, money laundering and conspiracy. The suspects, from the Detroit and Flint areas, include real estate appraisers, investors, mortgage brokers and lenders.

The Michigan efforts are part of a national crackdown. Since March 1, 406 people have been arrested nationally in the sting dubbed Operation Malicious Mortgage resulting from 144 cases across the country.

Heintz, who operated Great Lakes Broker Funding, allegedly bought numerous properties and paid Fish and other appraisers to inflate their true market value, investigators said.

Straw buyers then got mortgages based on the inflated values, then defaulted on the loans.

In all, federal officials estimate the lenders were exposed to losses of about $20,000.

The federal bank fraud charge stems from a claim that Heintz and Fish defrauded IndyMac Bank two years ago on a vacant lot known as 14 Golden Gate Estates off Belsay Road in Grand Blanc Township.

Fish allegedly appraised the property at $250,000 instead of its actual value of $130,000, according to federal records.

Officials claim Fish stole the identity of other appraisers and forged their signatures on fraudulent appraisals.

Federal investigators claim Heintz then filled out a mortgage loan application using a straw buyer that included false and inflated income and asset information.

The appraisal and the fraudulent mortgage application were used to get a $225,000 loan from IndyMac Bank in February 2006, according to the federal information filed this month against Heintz and Fish.

The deal ultimately cost IndyMac $135,000 after loan payments were not made and the property ended up in foreclosure, federal officials claim.

Heintz and Fish could not be reached for comment Thursday.

A date has not been set for the pair to turn themselves in for arraignment, officials said.

Federal bank fraud carries a maximum penalty of a $1-million fine and 30 years in prison.

The federal charges are just the latest problems for Heintz, who with his wife, Lisa, has been hit with numerous civil lawsuits during the past few years.

Lisa Heintz was not named in the federal information filed against her husband.
Flint Journal extras
Related articles to the Christmas eve stabbing:
Jan 25, 2008: Psychologist charged in stabbing case files lawsuit
Jan. 9, 2008: Psychologist to undergo testing in stabbing case
Dec. 27, 2007: Christmas Eve stabbings part of 'hit list'
Dec. 26, 2007: Man charged in Christmas Eve stabbings

In December, one upset investor was arrested on charges that he attacked Lisa Heintz with a knife at the Heintzes' former Grand Blanc Township home.
The investor, William L. Harshman, claims he lost $90,000 to the pair. He faces criminal charges in the Christmas Eve stabbing.

Lawsuits filed against the Heintzes and Great Lakes Broker Funding echo the claims of the federal criminal information filed against Kurt Heintz this month.

Fifth Third Bank already has gotten a default judgment against the Heintzes for more than $17 million. IndyMac has a $1.5-million default judgment entered against the Heintzes.

Among the properties involved in the civil allegations are those in Rivershyre in Davison Township and the Grand Blanc areas of Kings Pointe Green and Misty Meadows.
Post Sun Mar 18, 2018 10:14 am 
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El Supremo

Investors have been coming into Flint to buy property. One has already been arrested over warrants in another state.
Post Sun Mar 18, 2018 10:18 am 
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El Supremo

How a Ponzi scheme used Flint homes to fleece $15M from realty ...
Apr 18, 2016 - County records show the scam has left a glut of vacant properties in its wake after investors walked away from the often dilapidated homes that could not be sold.
Post Wed Mar 21, 2018 7:07 am 
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El Supremo

How a Ponzi scheme used Flint homes to fleece $15M from realty investors
Updated on July 17, 2017 at 3:31 PM Posted on April 18, 2016 at 6:00 AM

By Gary Ridley
FLINT, MI - The house at 4808 Miami Lane is an eyesore.

Beige stalactites hang from the house's kitchen ceiling as paint slowly peels from the drywall. The decaying remains of an unknown animal - most likely some sort of large varmint - lies mixed with garbage and building scraps where a dining room table possibly once was.

The small ranch-style house in the Manley Village neighborhood on Flint's northwest side was once a home.

Today, it is nothing more than a depository for dumpers after the home and 20 houses like it in and around the city were left to rot following a multimillion-dollar Ponzi scheme that preyed on Flint properties.

More than 2,500 miles away, the California man who authorities say masterminded the swindle sits in a federal prison cell.

Here's the story on how William D. Yotty, 70, and his business, Fortuno Inc. used a hard-luck Rust Belt town victimized by a sagging economy, declining population and flourishing crime to scam $15 million.
Fortuno Inc.

It was 2008 and California resident Rick Jensen was trying to find a way to bring in some extra money when he was turned on to a potential investment opportunity.

He traveled to Irvine, Calif., to hear the pitch from Fortuno during a seminar.

Yotty ran Fortuno and its so-called "Millionaire Club," which sold its potential investors on a program that could help them make millions of dollars in real estate. He was the only person charged as part of the scheme.

It was a simple plan: Fortuno would purchase foreclosed homes in bulk for pennies on the dollar in places like Flint and sell them to its investors at a small markup. The investors would then be able to turn around and sell the properties on a rent-to-own basis for a profit.

"We provide hundreds of properties as low as 40 cents on the dollar," Fortuno claimed in a brochure explaining the program. "All properties have a guaranteed instant equity and guaranteed positive cash flow."

The program promised each property had market appraisals of $50,000 to $120,000 and were guaranteed to be livable. But, the best news for investors, these properties could be had for half the price.

"You tell a Californian you can get a house for $30,000 and you're like 'whoa,'" Jensen said.

It sounded easy.

Fortuno would pick out the homes and conduct a market survey on rents and mortgages in the area. It would maintain the homes and eventually list it for sale as a land contract. It would even collect the down payment and monthly payment from the new buyer.

Within 3-5 years, the investor would have completely paid off the home and the monthly payments after that were pure cash flow, the program promised.

The seminar was par for the course for Fortuno, which was based out of a small office building in Lodi, Calif.

After some research and attending multiple seminars, Jensen said he was hooked.

"Everything was done for you," Jensen said. "It was appealing. It sounded good."

Flint, Mich.

The Great Recession of the late 2000s was the last thing a city like Flint and its surrounding area needed.

The city had already experienced the loss of tens-of-thousands of manufacturing jobs as General Motors retreated and Flint's population was about half of what it was when it peaked around 200,000 in the 1960s.

A 2006-2010 survey by the U.S. Census Bureau showed nearly a third of the city's remaining residents were living below the poverty line.

The area's housing market suffered just as badly as foreclosures in Flint and the surrounding area surged.

Genesee County recorded nearly 6,000 foreclosure filings in both 2008 and 2009, according to data from RealtyTrac.com. By 2011, Flint would have the ninth highest foreclosure rate in the country.

Home sales prices plummeted, which set out the welcome mat for property speculators and those looking to cash in on the area's distress.

Alan Mallach, a senior fellow at the Center for Community Progress, said the median sales price for a home in Flint was $44,000 in 2006. That fell to $38,500 in 2007.

"It fell sharply for years and now it's continuing to go down," Mallach said, adding that urban areas with lower incomes were the hardest hit by the recession.

Other cities throughout the industrial Midwest didn't fare much better.

But, for Yotty, Flint was just the opportunity Fortuno needed.

"For every tragedy there is opportunity," Fortuno told potential investors in a brochure pitching the program.

Genesee County Register of Deeds records analyzed by Mlive-The Flint Journal show Fortuno purchased at least 164 homes in the Flint area, mainly in 2008 and 2009.

Properties in Michigan and Ohio were cheap, and Fortuno was there to scoop them up from thousands of miles away for pennies on the dollar.

Prosecutors said Fortuno began buying up properties, properties that would eventually victimize residents who had no say in joining the scam.

"The ramifications of his scheme are tremendous," said Central District of California Assistant U.S. Attorney Ranee Katzenstein, who eventually secured Yotty's conviction. "He was taking advantage that the Midwest had suffered."

The land rush

Many of the Flint-area deals were facilitated by a Michigan-based real estate agent, according to investigative records from the Federal Bureau of Investigation.

He was not charged for his role in the scheme and could not be reached for comment.

The agent told federal investigators in April 2014 that he had been contacted by two Fortuno employees, records show.

"The men were interested in buying foreclosed homes and re-selling them on land contract," federal investigators were told by the agent.

Only Yotty was charged for the scam.

The agent told investigators there were thousands of homes in the Flint area for sale under $15,000, and the men from Fortuno indicated they wanted to buy about 100 homes over the course of three to six months. They needed properties that would only need $3,000 to $5,000 of work to make them salable.

Fortuno started submitting offers on about 10-12 houses per week, and actually securing about 3-4 of them weekly, the agent told investigators.

The agent said the properties cost an average of $7,000-$9,000, with a low price of $3,000 and a high price of $12,000. He added that he told the Fortuno reps they could likely be sold through a land contract for $25,000 to $30,000.

Eventually, Fortuno told the real estate agent the company needed more.

Fortuno began purchasing so many homes so frequently that the company was sending $10,000 checks to the agent on almost a weekly basis to cover the $1,000 minimum deposits on the properties, the agent told investigators.

At one point, the agent told federal authorities that Yotty asked him to help re-sell the properties, wanting them to be listed for $40,000 to $60,000. But, the agent told Yotty that price was "ridiculous and unreasonable" because of the area's declining market.

Too good to be true

Rick Jensen kept going to Fortuno seminars and asking questions. Eventually, he decided he wanted in.

"People got to get started somewhere," Jensen said. "How much investigating do you need to do before you pull the trigger on this?"

He borrowed against his father's home and wired $60,000 for two homes. It was a decision he would come to regret.

Despite Fortuno's claims that it would sell its investors homes at only a minor markup, Genesee County records show Jensen paid $60,000 for two homes that Fortuno paid $14,500 combined for just days earlier.

One of the homes, a small bungalow, was located on Kansas Avenue on the city's east side. The other was a tiny two-bedroom ranch on Scottwood Avenue in Burton.

"I immediately realized these houses were in the ghetto and worth about $5,000 at best," Jensen said. "I immediately went back the next day and demanded my money back."

But, Jensen said Fortuno wouldn't return his money and eventually company officials stopped answering his calls.

Jensen claimed the home's pre-foreclosure value was actually less than he paid for it and soon realized the homes were a money-losing venture. He said he didn't pay property taxes and allowed the houses to be foreclosed upon by the county.

Janet Matter, a teacher from California, found herself in a similar situation.

She was sold on the idea that she could purchase homes at a discounted price and use alternative financing to sell them. She was excited that she could make extra money while helping out people who may otherwise not be able to purchase their own home.

"You know what, this is a good idea," Matter said. "I don't mind helping people out."

She felt it was such a good idea that her mother even purchased an investment property of her own for $17,500.

Fortuno representatives sent her pictures showing the properties were in decent shape. However, Matter claimed they failed to show that the kitchen ceiling had collapsed in one of the homes, the toilet was missing from a bathroom and there were holes in the walls.

The homes could not be sold, at least not at the price she paid for them.

Matter said she started getting letters from the city and county about the houses and eventually reached out to neighbors to pay them to mow the yards.

"I didn't know what to do," Matter said. "It was a mess."

Eventually, she wanted out.

Matter was able to sell two of her properties from Fortuno at only a fraction of what she paid. In total, she lost nearly $40,000. A third property she owned burned down before a sale could be finalized. Fortuno was supposed to insure the property but never did, she claimed.

Her mother, before dying from a massive stroke, sold her property for $1.

"I'm sure that took years off her life," a crying Matter said.

Jensen and Matter weren't the only ones to lose money with the investments.

Prosecutors claimed Yotty and Fortuno had no intention to help its investors earn money through the properties by passing on the savings from buying houses in bulk.

Rather, Fortuno purchased the homes at deep discounts and then sold them to investors for double or triple the purchase prices, prosecutors argued.

Genesee County property records show Fortuno was able to purchase a small ranch on Louis Avenue in Beecher for $4,500. Ten days later it sold it to an investor for $30,000.

The company purchased another home on Sloan Street in Flint for $6,000. Three days later it was sold to an investor for $30,000, county records show.

However, prosecutors say it wasn't the only way Yotty was making money.

Yotty, using multiple companies he operated under different names, solicited money from victims by promising high-interest rates on a number of financial investments. He promised investors the companies had the funds to make the interest payments, and their initial investments would be returned when they matured.
He lied.

In reality, Yotty was using other investor's money to cover the interest payments, according to his plea agreement to wire and mail fraud charges.

Yotty and others who were not charged raised more than $10 million in the debt obligation scheme and more than $6 million in the real estate flipping scheme.

Soon, it would all collapse.

In 2010, Fortuno investors filed a civil lawsuit against the company, accusing it and its employees of racketeering.

Then, the California Department of Businesses Oversight in April 2014 issued an order to Yotty and Fortuno to stop offering their investment opportunities to consumers.

Less than a month later, federal prosecutors issued a seven-count indictment against Yotty.

He was eventually convicted and sentenced in December 2015 to nearly five years in federal prison and ordered to repay more than $15 million in restitution.

The aftermath

County records show the scam has left a glut of vacant properties in its wake after investors walked away from the often dilapidated homes that could not be sold.

Some of the properties were able to be sold to buyers. Others, like the Miami Lane house, eventually wound up with the county treasurer.

Genesee County Land Bank records show 14 homes in the Flint area tied to Fortuno have been demolished as part of ongoing efforts to remove blight from the city. The demolitions cost more than $162,000 in taxpayer money.

Seven more homes, including the Miami Lane property, are scheduled to be demolished in the upcoming year as part of the federal Hardest Hit fund demolition program.

The land bank has taken ownership of another 47 houses once owned by Fortuno after the properties were foreclosed on for back taxes, according to county property records.

However, the economic cost of the scam goes beyond the price tag to maintain or demolish the homes.

A 2007 Michigan State University Land Policy Institute report on Flint housing found that the sale price of a home dropped by 2.27 percent if it has an abandoned structure within 500 feet.

"Getting rid of these vacant properties helps because they certainly drag a neighborhood down," said Alan Mallach, a senior fellow at the Center for Community Progress.

Mallach said home sales prices have continued to plummet in Flint even after the housing market began recovering across the country.

Median sales prices in Flint were $16,000 in 2013. That fell to $15,400 in 2014.

And it's those decreasing prices that allow scams like Yotty's to flourish often undetected.

"These types of scams were probably going on in the distressed cities of the Roman empire," Mallach said. "The lower the price, the easier it is to make this kind of killing."

Gary Ridley is a staff writer with Mlive-The Flint Journal. He can be reached at 810-280-9516. You can also follow him on Twitter @GaryRidley or on Facebook.
Post Wed Mar 21, 2018 7:10 am 
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El Supremo

Flint is said to be contemplating the buy back of foreclosed properties from the Land Bank. No word yet on how many or what area or whether they want all of them. With the rate of abandonment in Flint, this could be a daunting task.
Post Wed Mar 21, 2018 7:16 am 
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