Sacramento-area prosecutors focus on mortgage fraud crime

Hailey Allen Wednesday, August 12, 2009

Sacramento-area prosecutors focus on mortgage fraud crime

By Chelsea Phua

About two years ago, El Dorado County District Attorney Vern Pierson hired a forensic auditor and increased training for his prosecutors in the area of real estate fraud and other financial crimes.

He dedicated two prosecutors and two investigators to handle a majority of the fraud cases.

As a result, more financial schemes that in the past might have been dismissed as belonging in civil court are instead being prosecuted as criminal offenses, El Dorado prosecutors and investigators said.

Pierson said his office has made mortgage fraud crime cases a priority. "The magnitude of the loss is so great on the individual victim and also on our economy as a whole," he said.

Prosecutors in the Sacramento area have taken varying approaches to the surge in real estate fraud. Some, such as El Dorado County, have devoted more resources, while others have used existing anti-fraud units.

Nationwide, the number of suspected cases of mortgage loan fraud has increased from 52,868 in 2007 to 64,816 in 2008, the FBI says.

Former U.S. Attorney McGregor Scott said that about 2 1/2 years ago his office started receiving reports of mortgage fraud on an increasingly regular basis.

"It was just a recurrent theme I was hearing over and over again," said Scott, now a partner with Orrick, Herrington and Sutcliffe.

Scott pushed for a mortgage fraud task force that included the Internal Revenue Service, the FBI and the state’s real estate board.

As the cases poured in, Scott said his office and the task force realized that "we need to find allies in the region." The task force started to offer training to law enforcement agencies and local district attorney’s offices in the investigation and prosecution of mortgage fraud cases.

"We realized we were ground zero here for mortgage fraud in this district," said Assistant U.S. Attorney Matthew Stegman.

The U.S. attorney’s office for the Eastern District of California, which handles cases from the Oregon border to Bakersfield, had the most mortgage fraud indictments in the nation during fiscal year 2008, Stegman said.

Training provided by the federal government and organizations such as the California District Attorneys Association is helping smaller district attorney’s offices to handle the increasing workload as a result of the mortgage meltdown, said Bob Cosley, supervising investigator with the El Dorado County District Attorney’s Office.

Larger agencies such as the Sacramento County District Attorney’s Office usually have an established unit that handles real estate fraud and other types of white-collar crimes

"We have a unit specializing in this type of caseload for more than 20 years," Sacramento County Assistant District Attorney Albert Locher said.

The office participates in the Sacramento-area mortgage fraud task force.

"In times of economic downturn, there are more of these kinds of cases that surface," Locher said, but said it’s not necessarily because more crime happened.

"When times are flush, criminals can churn enough fraud to cover their tracks," Locher said. "When the tide goes down, you’ll see more rocks, but the rocks have always been there."

In Placer County, the District Attorney’s Office’s elder abuse unit encounters most of the real estate-related fraud cases. About 70 percent of elder abuse cases are financial in nature, Deputy District Attorney Jim Deslaurier said.

The number of cases hasn’t fluctuated much in the last few years, but as the population ages, the office might see more of these cases, Deslaurier said.

Yolo County District Attorney’s Office hasn’t had many mortgage fraud cases referred to the office, said Dan Stroski, lieutenant of investigation in charge of the insurance fraud unit at the District Attorney’s Office.

Stroski said the courts seemed apprehensive to hear them because it takes about three years for such cases to make their way through the system. Suspects in such cases also typically do not have an extensive criminal history and end up serving little time.

"That doesn’t mean we’ll give up," Stroski said.

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