Posted by Mark Pugsley.

A 10-count federal indictment was unsealed by the FBI and Thursday that charges Utah resident Christopher D. Hales with mail fraud, wire fraud, and bank fraud and with money laundering in an alleged mortgage fraud scheme. The indictment was one of many that have been investigated by Utah’s new Mortgage Fraud Task Force.

According to the FBI’s press release Hales and others conspirators “executed a scheme to produce income from false appraisals to artificially inflate the purchase price of the residences. Hales arranged to purchase the homes through straw buyers and took the false equity proceeds stemming from those sales for himself, the straw buyers, and the co-conspirators.”

A “straw buyer” is someone who provides their name to help someone obtain a mortgage. While in many cases straw buyers accept money for participating in a mortgage fraud, they might also be a friend or family member with good credit who is trying to help a person with bad credit get a mortgage. After the sale closes the straw buyer quit-claims the deed to their friend with bad credit.

Here is the catch, even though the bad credit friend and gets the house and takes over the payments (with many promises not to default) the straw buyer’s name stays on the mortgage. Their name and credit is still on the hook! If the bad credit friend defaults, the straw buyer is responsible. This is yet another example of how people will take advantage of their friends and family members to commit fraudulent schemes.

There are a simple ways to avoid becoming a straw buyer:

  1. Do not provide your personal information to other people.
  2. Don’t try to trick the loan officer when submitting a loan application.
  3. If you want to help someone get a mortgage, make sure this is a person you can really trust.

If you are offered money in exchange for your social security number and other personal information report them to mortgage fraud investigators, or the FBI. This is a growing problem in Utah and in the Unites States. In 2004, the FBI warned that mortgage fraud was becoming so rampant that the resulting “epidemic” of crimes could trigger a massive financial crisis. According to a December 2005 press release from the FBI, “mortgage fraud is one of the fastest growing white collar crimes in the United States.”

In June the Deseret News reported that the US Attorney filed thirty-four criminal cases as part of a nationwide crackdown on mortgage fraud. The article reported that the Financial Fraud Enforcement Task Force has identified 1,215 criminal defendants across the country, including 485 arrests. They are responsible for more than $2.3 billion in losses, authorities said. Additionally, the operation has resulted in 191 civil enforcement actions and the recovery of more than $147 million.

UPDATE – September 10, 2010.

The Salt Lake Tribune reports that Judge Stewart denied bail to Mr. Hales, overruling the $15,000 bail amount set by Magistrate Brooke Wells. It was unusual for the U.S. Attorneys office to make this request in a white-collar case, and it is also unusual for them to appeal a magistrate’s ruling. In my mind this demonstrates that they (1) think this guy is a flight risk, and/or (2) have additional charges they intend to charge him with. Or both. AUSA Mayfield said “We know he’s a compulsive fraudster” at the hearing and related how this guy continued to engage in multiple scams even after he knew he was being investigated by the FBI. Wow, what was he thinking?

I understand his wife was at the hearing, I wonder if this was all a surprise to her, or if she knew all along that he was scamming people for a living. I hate to generalize, but if you know someone who drives a Cadillac Escalade, lives in a huge house in Utah County and has never had a job, please don’t give them your money.

Another indication that there are more charges to come is that the federal investigators are asking anyone who might have been a victim of Christopher D. Hales or have information about him to call Dave Smith at 801-524-6092.

Copyright © 2010 by Mark W. Pugsley. All Rights Reserved.

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