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Mortgage Fraud, Magnified (and the Lucie Tondreau fiasco)

In my last post, I spoke in general about what mortgage fraud looks like, and how the economic downturn of the late ‘00s has exposed countless such frauds in Florida and around the nation. Strictly speaking, mortgage fraud can be accomplished by one crooked borrower who provides false information on a loan application (income, assets, liabilities, intent to live in the property, etc.), if the lender relies on that false information to approve a loan it would not otherwise have approved.

However, such scams are usually conducted more systematically, involving multiple participants. For an illustration, let’s consider the ongoing case of former North Miami mayor Lucie Tondreau.

On February 2, Ms. Tondreau’s former fiancé and business partner, Karl Oreste, was sentenced to eight years in federal prison, following a guilty plea, for his role in an $11 million scam involving the purchase of over 20 properties throughout South Florida with fraudulently obtained loans. (Ms. Tondreau, who was convicted in a December jury trial for her role, will be sentenced in March.) The scheme employed a format that has become quite familiar to federal investigators.

How Did The Scam Work?

Karl Oreste was the owner and president of several South Florida businesses, including KMC Mortgage, a mortgage brokerage firm, and LTO Investment Corporation. Lucie Tondreau was the vice president of LTO Investment Corporation. According to the Feds, Tondreau and Oreste hosted several programs on Haitian radio stations which advertised residential loans offered by KMC Mortgage, and recruited “straw buyers” to help purchase various properties, either personally or via third parties.

(A “straw buyer” is a person who allows his or her identity and credit to be used to purchase property for another person, usually in exchange for a fee or other compensation, in order to conceal the identity of the true purchaser or the true nature of the transaction. A straw buyer generally puts up no money for the transaction, does not appear at the closing, and has no intention of ever living in the property.)

The straw buyers would provide their credit information to Tondreau, Oreste, and other co-conspirators, who would then prepare fraudulent mortgage applications and bogus supporting documents, and submit them to federally-insured lenders throughout the United States. Once the applications were approved, according to the Feds, another co-conspirator came into the picture: Okechukwu Odunna, an Oakland Park attorney who owned Direct Title, a Broward-based title insurance company.

Mr. Odunna allegedly* handled real estate closings through Direct Title and his own law office, providing fraudulent HUD-1 settlement statements to lenders and diverting loan proceeds, once received, to himself and other co-conspirators for their own use. These diverted funds were disguised as various fees, commissions, and other normally legitimate disbursements; they frequently did not appear on the settlement statements provided to the lenders. These tainted proceeds were used to pay the straw buyers, as well as other parties who recruited them. Or they were used to make payments on the fraudulently obtained mortgages, in order to maintain the loans and further conceal the fraud.

In addition, Mr. Oreste rented out several of the properties to third parties, even though the “buyers” were supposed to live in them as their primary residencies. Ms. Tondreau collected the rent payments, deposited them into LTO Investment Corporation’s bank accounts, and used the proceeds to make payments to the lenders to maintain the bogus loans.

You can guess what happened next. Even before the economy drove into the ditch—the conspiracy charge covered a period from December 2005 through May 2008—the payments on the fraudulently obtained mortgages started drying up. The properties went into foreclosure, and the various lenders took a pounding (over $11 million in losses). As Warren Buffett might put it: the tide went out, and look who got caught swimming naked.

In any event, the government’s case must have been compelling: Ms. Tondreau was convicted on all five counts she faced. (*Mr. Ordunna has not gone to trial. He is currently a fugitive, along with co-defendant Kelly Augustin, a former KMC Mortgage employee who is accused of recruiting straw buyers into the scheme.)

If You Think You Need a Lawyer, YOU DO!!

As I mentioned in my last post, the federal statute of limitations for prosecuting mortgage fraud cases is 10 years. The economy crashed in the fall of 2008. We’re less than seven years removed from that proverbial outgoing tide. There’s still plenty of time for a lot of people out there to get caught swimming naked. Except that in Warren Buffett’s paradigm, all that’s being lost is money. If your skinny-dipping has put your freedom at risk, that’s another story altogether.

You can’t take on that kind of situation without an experienced attorney at your side. If you think you need a lawyer, YOU DO!!

And you need a lawyer who can think on the fly, under pressure. In the Tondreau case, Karl Oreste was expected to be the key witness for the government. The theory of defense was that Mr. Oreste was such an accomplished con artist that he even duped Ms. Tondreau, both romantically and business-wise, just as he did his other victims. The cross-examination had all the potential of a courthouse classic.

Except it never happened. The government decided not to call Mr. Oreste to the stand. (Trust me, they knew what was coming.) So if you’re in the shoes of Ms. Tondreau’s attorneys, how do you still put on your intended defense when you get thrown for a loop like that? It’s critical that you hire an attorney who has the experience to handle such developments in high-pressure situations.

So how about you? Are you facing mortgage fraud charges in federal or Florida state court? Or do you think you may be under investigation (e.g., as a possible straw buyer or recruiter)? If so, your prompt action is vital. Please contact Attorney Tony Moss at the Tony Moss Firm, L.L.C. to discuss any defense matters. He has locations in Miami and Fort Lauderdale, and he is prepared to put his skills and expertise to work for you.

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