State probes Fossil Butte Drive mortgage-fraud allegations

Belinda Gardner thought it was too good to be true when a mortgage broker offered to pay her $20,000 if she would buy a new house on Fossil Butte Drive in northeast Colorado Springs and promise to live in it, even though she had no intention of moving.

But $20,000 was too much money to pass up, so Gardner, who works as a hospital customer service representative, went along while the broker - she says she doesn't remember his name - arranged financing for the $379,900 house.

Her younger sister, Katina Scott, also realized it was probably too sweet a deal when the same broker convinced her to buy the new house next door for $396,900.

Turns out, both deals were too good to be true. Gardner's house is headed to foreclosure and Scott already has lost her house. Both would simply be statistics in the national mortgage meltdown except for the keen eye of Pete Preston, executive director of Mortgage Solutions of Colorado. His company processed Scott's loan in April and when her paperwork later landed on his desk in a routine audit, Preston recognized something was wrong and started digging.

Preston now believes the loan was a classic example of mortgage fraud: straw buyers recruited and paid a kickback to buy houses at inflated prices that they never intend to live in. In typical schemes, the builder, broker, appraiser, real estate agent and title company might split the profits from the sale while the house slips into foreclosure, leaving the lender to absorb the loss and the buyer with ruined credit.

Preston reported the incident in an August complaint to the Colorado Division of Real Estate, which is investigating it. And last week he contacted the FBI. Supervisory agent Steve Smith confirmed the FBI was aware of the Fossil Butte complaint, but he had no comment on the case.

In his complaint, Preston asked for an investigation of appraiser Gerri Harvey of Harvey & Associates and Dave Cortez, owner of Ascend Mortgage One/Evergreen Mortgage.

"Circumstances indicate a cooperative effort to commit fraud," Preston said in his complaint. He suggested Harvey's appraisal was not supported by comparable sales and that she inflated the value of the house by $100,000. And he said Ascend/Evergreen failed to properly police the loan paperwork.

Harvey sobbed when asked about the complaint.

"It's not true," she said. "I'm going to lose my job. I was given appraisals to do. They gave me contracts and comps from the builder. I was just doing my job. Do I need a lawyer?"

Harvey said she has talked to investigators at the state real estate agency and has been assured they don't believe she is part of the alleged scheme.

Cortez said he, too, is cooperating with the state. Cortez is a high school basketball coach and was an absentee partner in his company when the Scott loan was written. He said it was written by his office manager, who has since left his company.

"We are definitely cooperating with their investigation," Cortez said. "We've provided full disclosure to the state. All our files. Any information they want."

The Preston-initiated probe is being combined with a 5-month-old investigation of a mortgage meltdown on nearby Balsam Street, where at least five houses went into foreclosure earlier this year amid allegations of fraud by El Paso County Assessor Mark Lowderman, said Cary Whitaker of the state Division of Real Estate.

Preston said Gazette stories about the Balsam Street incident echoed in his mind as he read the file on Scott's loan.

"It was just by dumb luck that we discovered this case," he said. "It was a random audit. And we believe we have found a payroll document that was forged. An asset document was fabricated, I believe. And down payment checks were forged."

Scott, 34, said she was shocked when Preston told her documents were forged, and she denied knowing anything about them. She said she was duped into believing the house purchase was legal.

"A neighbor at my townhome said, ‘I know a guy and he can help you buy a house,' and I told him I don't know if I'd qualify," Scott said, recalling the conversation that led her and Gardner into the alleged scheme. "He said, ‘We'll make sure you qualify,' so I went along. It was stupid of me believing him."

Scott said her neighbor/broker arranged all the paperwork, promised to get renters for her house and even money in return for signing for the loan.

Gardner gave a similar account of her transaction.
"These guys were looking for people to buy houses, and they offered me $20,000 cash and $20,000 in equity if I bought the house," Gardner said. "Then they were going to find renters for my house."

So she gave $12,000 to her sister for a down payment and put $12,000 down on her own house.

After the deal closed in February, she said she received $20,000 from the broker and invested some of it in a cleaning company.

"And I went to Vegas," she said. "I didn't know the $20,000 payment was an illegal kickback until I talked to a lawyer."

Both purchases unraveled quickly. Scott didn't make enough rent to cover her payments and quickly found herself sinking into debt.

"My townhouse is $2,100 a month and the house is $2,500 a month," Scott said. "I'm a quality assurance agent for a cable company. I don't make that kind of money."
Ditto for Gardner.

"When the renters stopped paying, it was just too hard," Gardner said. "I'm six months behind in my payments. I'm in foreclosure right now."

This is where Scott got lucky. Preston opted to take her house back rather than force her into foreclosure, giving her a chance to salvage her credit record.

"We took the deed in lieu of foreclosure, so we now own the property," Preston said. "It's bad enough she has late payments on her credit record. This way, she gets to move on with her life. We had nothing to gain by foreclosing on her."

Scott says she is embarrassed about her participation in the scheme and hopes it doesn't get her in any more trouble.

"It was stupidity on my part," she said. "It blew my mind when my attorney showed me the fabricated documents. My attorney wants me to go to the district attorney's fraud office and turn in the fabricated documents. I'm going to."
Gardner says she hopes her lender will be as forgiving as Preston.

"I was stupid," Gardner said. "I should have checked things out. Stupidity is not an excuse."

Meanwhile, Scott has been contacted by state investigators about the allegations, and Gardner said she expects the same.

"I'm most definitely worried," Gardner said. "I understand I could be in huge trouble. I have talked to an attorney. It's a mess."

Whitaker said the real estate regulatory agency has made the Balsam/Fossil Butte investigation a priority and the probe is expanding. Lowderman's original complaint, filed in April, sought an investigation of real estate broker Robert B. Teegardin of Teegardin Realty and Investments.

Lowderman's request came after an investigation by The Gazette into the foreclosures of five houses on Balsam Street. In the Gazette story, landscaper Andrew C. Aranda said he was part of a real estate kickback scheme involving a mortgage broker, a real estate agent, an appraiser and others. Aranda bought all five houses on Balsam within a 48-hour period in November 2006, using $1.9 million obtained from five lenders.

The houses subsequently were sold out of foreclosure for about $100,000 less, apiece, than their original appraised values and Aranda's purchase prices.

In June, real estate agency investigators issued subpoenas for Legacy Title Group of Colorado Springs to turn over all documents related to the sale of the houses on Balsam.

The agency also asked Morning Star Real Estate on Lehman Drive to voluntarily surrender its files as the broker representing builder Contour Homes in the Balsam transactions. It was the first indication state investigators were looking at Contour, which has not been accused of any wrongdoing. Contour also built the homes on Fossil Butte Drive that Scott and Gardner bought.

Legacy Title and Morning Star deny wrongdoing and are cooperating in the state investigation of Balsam Street, which Whitaker said has been expanded to include an inquiry into the activities of Zengiro J. "Zengi" Wilson, who owns development company Rich Port Properties and the defunct First Touch Lending Group.

Rich Port became partners with Contour to build homes on 28 lots in the Balsam/Fossil Butte area, according to a contract signed June 22, 2007, by Wilson and Robin Mitchell of Contour. Mitchell denies any wrongdoing in the Balsam mortgage meltdown and said he is a victim because his company is unfairly being associated with the scheme.