A Web site maintained by one of the key players in a Modesto-based mortgage elimination scheme sug- gested that homeowners could legally write off their loans by filing some simple paperwork with government agencies.
Real estate agents who face a host of fraud and theft charges must have known they were engaged in a risky venture, an investigator said in court records, because they created a fictitious fall guy.
The men rented an office in Menlo Park for "Seth Davis," who had a desk and computer as well as a cell phone that could not be traced by law enforcement. According to authorities, the men intended to blame everything on that imaginary financier when the scheme inevitably failed.
A tip from a suspicious lender may have foiled that plan.
"If they wouldn't have been so greedy, they might still be in business," said Richard Morris, a partner with Capital Finance Mortgage Brokers in South Lake Tahoe.
The Stanislaus County district attorney's office last month filed a 68-count criminal complaint against three real estate agents and seven alleged accomplices from Modesto, Ceres, Waterford, Turlock and Stockton.
They are accused of stealing more than $2 million from lenders by filing false documents with the county clerk-recorder's office, indicating that loans to three properties had been paid so straw buyers could get new loans, then cash out the proceeds.
In the past, sophisticated fraud cases of this type might have gone undetected or been passed off to federal authorities. Such cases now are handled locally by a 2-year-old real estate fraud unit that is funded by a $2 surcharge on every real estate transaction recorded by the county.
Deputy District Attorney Mar-lisa Ferreira declined to discuss the allegations in detail, but the government's case is laid out in a 38-page affidavit filed in support of an arrest warrant.
Authorities think Eric Charles Braun, 29, of Modesto did most of the legwork by meeting with lenders and managing the paperwork. His attorney, Bruce Perry, said Braun cooperated with authorities once they had a paper trail in hand, something that could help limit his culpability.
"There's more to the story that I can't get into at this point," Perry said.
Suspects had worked together
Authorities suspect that Noah Adam Yates, 29, of Modesto masterminded the scheme. His attorney, Jakrun Sodhi, could not be reached for comment.
Doug Eugene Wallick, 32, of Waterford told authorities that he got involved after he lost money in a restaurant business and fell behind on his mortgage payments. His attorney, Robert Forkner, said Wallick believed he was involved in a legitimate investment opportunity when he purchased a home he later turned over to Braun.
"The only reason my client is being charged in this case is because he had perfect credit, a consistent work history and thought he was investing in this property with legitimate business people," Forkner said.
At one point, Braun, Yates and Wallick worked together at Franklin Financial in Modesto. Later, they worked for Affluent Realty, which became Braun Investments, according to records filed with the California secretary of state.
Only Wallick remains fully licensed, according to the California Department of Real Estate. Braun's license is suspended because he has not completed ongoing education as required, and Yates' status is listed as nonworking.
Much of the story line found in the affidavit comes from Braun, who initially told authorities that "Seth Davis" was in charge of the scheme, but later said "Seth Davis" doesn't exist.
Braun told an investigator that he learned how titles are re- corded through research at the San Joaquin County clerk- recorder's office.
Next, he said, he downloaded legitimate deeds from a public access computer in the Stanislaus County clerk-recorder's office, which he and his partners used to create fraudulent documents filed with the same office.
Braun said he purchased four notary stamps from a supply store, so they could forge the names of notaries who certify documents in the Modesto area.
During an interview in the district attorney's office, Braun told the investigator that Yates was the brains behind the scheme, which was supposed to run until November 2006, when they would claim that "Seth Davis" took the money and fled the country.
Idea came from a seminar
Braun said mortgage lenders wired money to three bank accounts. He said he withdrew the money and gave it to Yates. He said he got the idea for such transactions by attending a seminar held by a Bay Area group that is in trouble with federal authorities.
For a fee and a portion of the money a homeowner made through refinancing, the Dorean Group filed documents to make lenders believe loans had been repaid.
Dorean's operators, D. Scott Heineman and Kurt F. Johnson, argued that borrowers are not legally responsible for repaying mortgage loans. Authorities disagree, so the men are on trial in federal court in Oakland, accused of eliminating $5 million in mortgages on 17 properties in nine states.
According to the FBI, mortgage fraud costs more than $1 billion annually, with industry insiders accounting for 80 percent of fraudulent practices.
Lenders typically absorb the losses, passing on the cost to consumers and the Federal Deposit Insurance Corp., which was created by Congress to ensure that banks do not fail.
Warren Racine of Cupertino, a foreclosure consultant who teaches real estate classes at schools across the state, including Modesto Junior College, said fraudulent schemes are common because they can be money- makers.
But the consequences are stiff for those who get caught.
"The guards are out there," Racine said. "Anybody who does it is taking a terrible risk."
Although the Modesto crew is believed to have been inspired by the Dorean Group, they are not accused of luring any customers. Prosecutors allege that the Web site Yates created was meant to make the venture, and "Seth Davis," look legitimate.
Their case remains in the preliminary stages in Stanislaus County Superior Court.
Judge David Vander Wall issued an order that forbids the defendants from liquidating bank accounts or transferring assets to friends or family, so they can pay restitution if convicted. The order covers 23 bank accounts, 22 vehicles and seven homes.
Judge Ricardo Córdova held hearings to make sure the money the defendants used to post bail does not come from ill-gotten gains. Thursday, Córdova said a two-week preliminary hearing, which is needed to determine if the defendants should be held for trial, will begin March 18.
Morris, the lender who prompted the investigation, said he became suspicious after he issued a $400,000 loan to Braun. A title company said Braun owned 3401 Palliser Ave., the property he used as collateral for the loan, free and clear. Later, Morris got another report showing loans for $700,000.
The mortgage broker said he questioned Braun, who gave him paperwork showing that the loans had been satisfied, but Morris was on the hook for $400,000 and still thought something was fishy.
Morris said he was was more careful when Braun sought to borrow $755,000 against a home at 600 Walnut Woods Court, which was appraised for $1.25 million.
He and his partners went to see the home and found that it was vacant and in poor condition. Next, they went to the home on Palliser Avenue, which also was vacant, save for a man who was sleeping on a mattress on the floor.
After taking a look at Braun, who showed up in a new Cadillac Escalade, Morris said the brokers began to think they had been taken, because the young man didn't seem sophisticated enough to be a businessman who needed to pay off a palimony lawsuit, as he claimed.
"Nothing made sense to me," Morris recalled.
Checked with other lenders
Instead of issuing another loan, Morris called the lenders whose claims allegedly had been paid, according to the documents Braun filed with the county. Morris found that the properties still carried mort- gages and passed his information on to the district attorney's office.
The title company that cleared the Palliser Avenue property reimbursed Capital Finance Mortgage Brokers through an insurance payout, so Morris was made whole.
He said the scheme could have gone undetected for months if Braun, who made payments on the mortgages, had gone elsewhere for additional loans.
"You can commit hundreds and thousands of dollars in fraud," Morris said. "All you have to do is record a single piece of paper."
Bee staff writer Susan Herendeen can be reached at firstname.lastname@example.org or 578-2338.
AT A GLANCE
The cash: More than $2 million
The consequences: A 68-count criminal complaint the Stanislaus County district attorney's office lodged against 10 defendants who have pleaded not guilty and are free on bail.
Real estate agent Eric Charles Braun, 29, of Modesto is charged with 63 felonies. He is accused of masterminding the scheme with Noah Yates, who handled the paperwork while Braun did the legwork.
Real estate agent Noah Adam Yates, 29, of Modesto is charged with 53 felonies. He is accused of having a home full of computers used to create fraudulent documents and a Web site that said people legally can eliminate their mortgages.
Jearod Miles Robinson, 34, of Ceres is charged with 18 felonies. He is accused of acting as a straw buyer in a mortgage elimination scheme run by his cousin, Braun, who never paid Robinson $100,000 as promised.
Real estate agent Doug Eugene Wallick, 32, of Waterford is charged with 15 felonies. He is accused of using a Modesto home he owned in a mortgage elimination scheme with Yates and Braun.
Darin Eric Abell, 41, of Turlock is charged with nine felonies. He and his wife are accused of using a Turlock home he owned in a mortgage elimination scheme with Braun and Yates.
Dawna Lea Abell, 38, of Turlock is charged with nine felonies. She and her husband are accused of using a Turlock home he owned in a mortgage elimination scheme with Braun and Yates.
Elizabeth Marcela Ayhens, 24, of Stockton is charged with two felonies. She is accused of forging names on real estate documents and receiving $1,000 from Yates.
Nicholas Matthew Ayhens, 24, of Modesto is charged with two felonies. He is accused of using forged names on real estate documents and receiving $20,000 from Yates.
Arnold Vergara Rodriguez, 32, of Modesto is charged with two felonies. He is accused of receiving $50,000 for referring Braun to a lender who was targeted in a fraudulent scheme.
Brian William Heytz, 32, of Ceres is charged with one felony. He is accused of attempting to defraud a lender by making false representations while trying to purchase a home from Wallick and Yates.