MILWAUKEE-Federal prosecutors say a Lake Geneva mortgage broker swindled lending companies out of more than $4 million through the sales of 19 Walworth County properties.
James J. Lytle, 33, used "straw buyers" and fraudulent loan applications to obtain properties, collect seller fees and then let the properties go into foreclosure, often at a loss to the banks, according to a plea agreement he signed May 15.
Lytle is expected to plead guilty June 27 to a charge of wire fraud, a felony punishable by up to 20 years in prison and a $250,000 fine.
Between Jan. 1, 2004, and Nov. 1, 2005, Lytle and other unnamed individuals orchestrated a real estate fraud scheme, according to the plea.
While working as a mortgage broker, Lytle prepared bogus loan applications he submitted to lenders to support the purchase of properties located mostly in Walworth County.
James Lytle
The sellers conspired with Lytle and paid him for the sale of the properties, according to the plea documents.
As part of the scheme, Lytle made up information about the identity and credit worthiness of prospective buyers and fabricated information about the condition or appraised value of properties, according to the plea documents.
The object was to qualify the named buyer or straw buyer-a person who might be using a fake identity and who never intends to own the property or pay the mortgage.
In exchange for preparing the fraudulent loan applications and securing the financing, the sellers with whom Lytle conspired paid him between $3,000 and $20,000 for closing the sale of each property, according to court documents.
Lytle shared his payments with others, including the straw buyers and those who recruited straw buyers, according to the plea documents.
At closing, the buyers used their own name or a stolen identity, according to the plea documents.
Assistant U.S. Attorney Carol Kraft said Lytle was the only person charged "so far." She declined to comment further.
The complaint did not say how many others were involved.
Lytle, who has two Lake Geneva addresses listed in court documents-W3645 Lortin Ave. and N1659 Williams Plaza-could not be reached for comment.
His defense attorney, Jack Rimland, did not immediately return a phone call seeking comment.
Mike VanderBunt, association executive of the Lakes Area Realtors Association, said rumors have swirled about the investigation for more than a year.
More than 50 FBI agents conducted multiple searches in Walworth County on Feb. 9, 2006, searching for evidence of a mortgage fraud conspiracy, according to a source close to the investigation. The source, an individual in law enforcement, requested anonymity because the investigation was ongoing and the person did not have authorization to discuss the case.
Dave Gorr, FBI supervisory special agent in charge of Milwaukee's White Collar Crime Program, said there were at least four searches that day at realty-related homes or offices. He believed others would be charged later.
"I had a million realtors telling me they knew what was going on," after the searches, VanderBunt said. "I heard five or six stories, and I couldn't believe any of them.
"It will be interesting to see who (Lytle) brings up. As far as all the other players, that's what really needs to come out. None of us really know. I could speculate, but I don't want to do that. It's not the right thing to do."
As part of the plea agreement, Lytle will cooperate with investigators and testify before a grand jury if there are others charged. He will likely not be fined, but will have to pay restitution, according to plea documents.
Types of mortgage fraud
Mortgage fraud is one of the fastest-growing white-collar crimes in the United States, according to the FBI.
There are two types of mortgage fraud:
Fraud for property usually involves the borrower as the perpetrator on a single loan. The borrower makes misrepresentations on loan applications to get the property, which they intend to keep.
Fraud for profit involves industry professionals. Multiple loan transactions with several financial institutions generally are involved. The fraud often includes overstated income or assets, exaggerated length of employment or fictitious employment, undisclosed debt, altered credit history and more.
Often, the borrower assumes the identity of another person, becoming a so-called straw buyer.
Property values often are inflated with fraudulent appraisals to increase the sales value to make up for the lack of a down payment and to generate cash proceeds.
Plea agreement
» Click here to read a pdf of James Lytle's plea agreement.
Common fraud schemes
Appraisal fraud: A property is over- or undervalued, often because of pressure from loan originators and real estate agents. The pressure can range from threats to gifts and illegal kickbacks.
Flipping: A home is purchased and "flipped" or sold immediately for an inflated price, sometimes 50 percent of the original selling price. The initial transaction is often concealed from the lender. The loan is never repaid and the lender is left high and dry.
Identity theft: Ranges from stealing a customer's identity to using false names for loans, to appraisers using another's name to make false valuations.
Straw buyers: One person or company pays someone to pose as a homebuyer, using their own information and credit score to purchase a property. The scammers then take over the title and mortgage. Lenders think they're loaning money to one person when the home will actually be owned by someone else.
Source: flippingfrenzy.com
By the numbers 36,617 Mortgage fraud complaints reported to the FBI in 2006
263 Mortgage fraud indictments
$1.01 billion Reported losses from mortgage fraud
$388.9 million Restitution recovered in mortgage fraud cases
