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Latest Legal News from the Criminal Courts in Houston, Texas
June 15, 2007
FIVE INDICTED IN MORTGAGE FRAUD SCHEME
[HOUSTON, TX] – A licensed Texas attorney and real estate developer, a sports agent, two bank loan officers, and a real estate appraiser have been indicted in a multimillion dollar mortgage fraud scheme, United States Attorney Don DeGabrielle, interim Special Agent in Charge Alex J. Turner of the FBI Houston Division, and Special Agent in Charge Daniel P. Salas of the U. S. Department of Housing and Urban Development announced today.
Jerome Karam, 44, of Friendswood, TX, a real estate developer and licensed Texas lawyer; Dwight Sean Jones, 44, of Beverly Hills, CA, a former NFL player and sports agent; Tommy Jay Trammel, 44, and David Ranostaj, 40, both of Houston and former loan officers with Southwest Bank of Texas, Bank of Houston and Whitney National Bank, and Jay Westrick, 44, of Houston, a real estate appraiser, have been charged in a 12-count indictment for their alleged involvement in a mortgage fraud scheme that allegedly reached every aspect of a real estate loan: seller, buyer/borrower, loan officer, appraiser, escrow officer, and title company.
All five defendants surrendered this morning at the offices of the Federal Bureau of Investigation in Houston, TX and are expected to appear in federal court before a U. S. Magistrate Judge at 2:00 p.m. today for arraignment and bond consideration.
“Mortgage fraud affects our communities and financial markets, victimizing lenders, homeowners, and others,” said United States Attorney DeGabrielle. “My office has dedicated significant resources to work with our law enforcement partners to detect and prevent mortgage fraud and to prosecute and hold accountable those responsible.”
"Mortgage fraud continues to be a major crime problem here in the Houston area,” said Interim Special Agent in Charge Alex J. Turner of the FBI Houston division. “Mortgage fraud affects everyone and we have seen communities in distress due to excessive foreclosures that impact all of us through lower home values and increased property taxes. The FBI continues to be proactive in combating mortgage fraud through several investigative initiatives to include the Houston Area Mortgage Fraud Task Force. We ask that the public contact us at 713-693-5000 whenever they have any information relating to mortgage fraud."
The indictment charges the defendants with 12 counts of bank fraud in connection with loans funded by three different banks between 1999 and 2001. The scheme was the same at each bank, according to the indictment – collusion between the seller, buyer/borrower, and lender to lend more money than the property was worth, and thereby reap personal profit. Most properties were appraised by the same appraiser and all closed at the same title company. The indictment alleges the loans to have been made between September 1, 1999 and April 5, 2001, and to have taken place at Southwest Bank of Texas, Bank of Houston, and Whitney National Bank. The value of all the loans made by the Defendants, pursuant to this alleged scheme, totaled more than $42 million.
According to the indictment, Jerome Karam was an attorney and real estate developer who specialized in converting apartments to condominiums. His alleged frequent co-investor was Defendant Sean Jones, a former NFL football player and licensed sports agent for professional athletes. Allegedly, Defendant Jones both invested in many of Karam’s projects, and recruited additional investors from among his professional football player clients.
Defendants Karam and Jones allegedly induced the loans based on false representations as to the value of the property and the distribution of the loan funds. They did so, according to the charges, with the assistance of two former bank loan officers, Defendant Tom Trammell and Defendant David Ranostaj. The two men are accused of facilitating loans to unqualified lenders, and for amounts in excess of the properties’ values, in exchange for loan proceeds diverted to themselves at the closings. They kept their allegedly unlawful conduct a secret from their employers, who were the ultimate lenders.
In order to divert money from closings, Defendants Karam, Jones, Trammell and Ranostaj allegedly created shell corporations, using names that would disguise their true ownership. “Shell corporation” is a term used to describe an entity established with legal formalities which limits the personal liability of its owner(s). One purpose of a shell corporation is to serve as a conduit through which assets pass so as to conceal their true source, ownership, destination or control. For example, the indictment alleges Defendant Karam created a company called Jet Landscaping, which never actually did any business. But at closings where investors or individuals bought condominium units from Karam, he would supposedly include a line-item in the HUD-1 closing statement for substantial fees owed to Jet Landscaping. That money would simply go into Defendant Karam’s hands, according to the indictment. The line-item disbursements were hidden from the lenders.
Defendant Jay Westrick, a licensed appraiser, is alleged to have prepared false and inflated real estate appraisals to further the scheme. Westrick allegedly wrote appraisals in amounts dictated by Defendant Karam, without regard to independent analysis or the standards of conduct for licensed real estate appraisers.
A closing statement is a document in a loan transaction which reflects the agreement between the lender and the borrower/buyer as to distribution of the loan proceeds. Closing statements are customarily on a form called HUD-1. The closing statement/HUD-1 contains an acknowledgment that it is a federal crime to knowingly make false statements thereon, and that the title company will disburse funds accordingly. Specifically, Defendant Karam allegedly directed that the signature page of the lender approved closing statement/HUD-1 be attached to a closing statement/HUD-1 with a different distribution of the seller’s funds. Thus, according to the indictment, the lenders were left to rely on the prior, fraudulently certified, closing statements/HUD-1s in deciding whether to fund the loans and in reviewing their loan portfolio.
The indictment charges each defendant with 12 counts of bank fraud each of which carries, upon convicted, a possible sentence of up to 30 years imprisonment, and a possible fine of up to $1 million
The case was investigated by the Federal Bureau of Investigation and the U. S. Department of Housing and Urban Development, Office of Inspector General, and is being prosecuted by Assistant United States Attorney Cynthia DeGabrielle.
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