Mortgage scheme costing Chesco woman her home

Nothing short of a miracle, it seems, will keep Melissa Miller in the house in Honey Brook, Chester County, that has been part of her family for more than a century. Despite her best efforts, it goes to sheriff's sale Thursday.

The house is Miller's home, but she has not owned it since 2006, when she tried to save it with an "unconventional refinancing" and ended up being scammed out of the legal title to the property.

Miller, 40, is one of 350 victims of a complicated mortgage-fraud scheme federal prosecutors have dubbed "Operation Homewrecker."

Thus far, she is the only local victim to come forward. Other known victims, identified in court documents by initials, are from California.

"I literally gave my house to these people without knowing," Miller said in an interview. "I never had any intention of losing my house, let alone selling it."

From 2004 to 2006, the mortgage-fraud scheme entangled homeowners who were in financial trouble.

"These are not people who overextended themselves and bought McMansions," said U.S. Attorney Ellen V. Endrizzi, one of the government prosecutors handling the case. "These are people who fell on hard times. It's so heartbreaking because nothing can be done for them."

Led by Charles Head of Los Angeles, there are 16 defendants remaining from two 2008 indictments. All defendants have opted for jury trials, according to documents filed March 5 in U.S. District Court for the Eastern District of California in Sacramento.

Charges against them include mail fraud and conspiracy to commit mail fraud, money laundering, and related offenses, Endrizzi said. Though some defendants already have pleaded guilty, trials for the others probably will not start until May 2011.

Mortgage fraud is big business, by one estimate causing losses of $4 billion to $6 billion annually. The FBI focuses on what it calls "industry insiders" who practice, as in the case of Operation Homewrecker, equity skimming.

Common equity-skimming schemes involve corporate shell companies, corporate identity theft, and the use or threat of bankruptcy and foreclosure to dupe homeowners and investors, the FBI says. Straw borrowers often are used to conceal methods and override lender controls.

Here's how it works: A borrower facing foreclosure is enticed to hand over the deed to the house in return for a rescue plan, usually involving paying an "investor" rent.

The "mortgage broker" finds straw buyers for a loan application, submits fraudulent documentation to a lender, has his own appraisal firm determine value, and his own title company close the loan. Then the "broker" pockets the money after paying the straw buyers and the others.

About a decade ago, Miller, a single mother with two teenage children, suffered a severe brain hemorrhage that prevented her from working.

"One day I had a high-paying job, and the next day I was declared dead," Miller said. She was in an induced coma for many months, and when she came out of it, she had to relearn how to walk and feed herself.

Against doctors' advice, she tried to return to work, but was unable to. She exhausted her savings and disability benefits, and now collects SSI.

"She fell behind on her mortgage as a result," said her lawyer, Bruce Baldwin of Wolf, Baldwin & Associates P.C. of Pottstown.

Although selling the house likely would have netted $140,000, Baldwin said, Miller wouldn't consider it: "She wanted to save the family home" she'd always lived in.

No conventional lender would refinance her mortgage, Miller said. At the brink of foreclosure, she found Head Financial Services Inc. Miller "was induced to sign away title to her house in return for an 'unconventional' refinancing," Baldwin said.

Federal documents show the accused scammers targeted homeowners through the Internet and e-mail blasts to mortgage brokers. They would offer two options: a first, for which no one would qualify, prosecutors said; and a second, which Miller accepted, that added an "investor" to the property's title.

Under the arrangement, Miller would make a monthly rent payment that was less than the terms of her mortgage, thus repairing her credit. If the payments were kept up, she was told and court documents confirm, the investor would disappear in a year, and she would be sole owner of the house again.

Chester County deed records show Miller "sold" the house to Kenneth and Marjorie A. Sly of Lancaster, Calif., for $315,000 on Sept. 12, 2006. A quitclaim deed, typically used to convey property among family, was filed.

To finance the purchase, the Slys - who have not been charged, Endrizzi said - obtained a mortgage for $283,500 from Washington Mutual that subsequently was taken over by JPMorgan Chase & Co.

In July 2007, the Slys filed for Chapter 7 bankruptcy protection in Los Angeles. They claimed assets of $1.6 million and $1.65 million in liabilities. With a combined gross annual income of $96,000, the couple had mortgages on five houses, including Miller's and one in Cleveland Heights, Ohio, valued at $1.47 million.

The Slys did not respond to requests for comment.

The quitclaim deed on Miller's house was not recorded with Chester County until Feb. 15, 2007. Both Miller and Baldwin said she had no idea that her house had been purchased until she made her only monthly "rent" payment to a "trustee," Alliance Title, one of about a dozen limited-liability companies the Operation Homewrecker defendants set up in California.

Federal prosecutors say the Slys were among a group of straw buyers whose names appeared on loan documents and deeds. Head Financial Services and its related firms paid the straw buyers - some related to the defendants, others found through the Internet - and "added or replaced the homeowners on titles to the property."

According to federal documents, the defendants applied for mortgages from major lenders to extract the maximum cash equity from the homes, then shared the proceeds and the "rents" victims such as Miller were asked to pay.

Then, mortgage payments would stop, the lenders would begin to foreclose, and the unsuspecting victims would be left without homes, equity, or repaired credit.

According to the presentment in the case, equity stripping of properties nationwide reaped $5.9 million for the defendants. Head, the lead defendant, received 97 percent of that, the presentment said. Financial-rescue scams for other victims brought in $6.7 million.

Efforts to reach Head's lawyer, Scott L. Tedmon, for comment were unsuccessful.

The scam began to unravel in late October or early November 2006, about the time Miller realized what had been done to her.

Baldwin, Miller's attorney, said the Slys did not respond to JPMorgan Chase's foreclosure action on her house, or to a suit he filed in Chester County Court on Miller's behalf "against all the parties involved," including the Slys and Washington Mutual.

Based on the evidence, Baldwin said, County Judge Robert Shenkin, while agreeing that both Miller and Washington Mutual had been "innocent victims of fraud," determined in December that the burden of loss fell on Miller because she had agreed to the arrangement.

Because the matter is in litigation, JPMorgan Chase declined to comment, spokesman Michael Fusco said.

With Thursday's sheriff's sale set, Miller has reached out to legislators and other government officials, but to no avail. The loss of her home now seems inevitable.

"I am the victim," she said, "and I am being punished."

Estimated annual losses*: $4 billion to $6 billion.

Suspicious-activity reports:

Fiscal year 2009: 67,190, with more than $1.5 billion in losses; Fiscal year 2010: 29,780 (through 2/28).

FBI mortgage-fraud task forces/working groups: 77.

Pending FBI investigations (through 2/28): 2,989; 68 percent involving losses of more than $1 million.

Cases opened in fiscal year 2009: 1,571, compared with 136 in fiscal year 2004; 822 indictments/ informations; 494 convictions.

Sources: FBI; * Prieston Group; ** Mortgage Asset Research Institute.

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