Marc Engelmann, a Davenport, Iowa real estate attorney was found guilty of nine counts of wire fraud, bank fraud, and conspiracy on September 13, 2011. Engelmann filed a motion for a new trial based on his assertions that 1) the jury was confused regarding whether he acted in good faith, and 2) the investigating FBI agents were discussing the case during the trial.
The jury sent a question to the judge asking for more information on "good faith." The Judge responded that the instructions provided a clear definition of good faith, and the jury should refer to those instructions. Part of Engelmann's defense was that he acted in good faith that the lender was aware of the fraud scheme. He claimed that the closing agent was aware of the fraud, and therefore, he claims, the lender was aware. All of the employees of the closing agent testified that they were unaware of the kickback scheme. His own (former) real estate assistant testified that Engelmann told her not to discuss the kickback with the closing agent. He also prepared two closing statements--one which was marked "Numbers for HUD" and one which was marked "courtesy copy." The "Numbers for HUD" version was faxed to the closing agent, but it did not appear the "courtesy copy" was provided to the closing agent. The "Numbers for HUD" version did not show the kickback, while the "courtesy copy" did. As an experienced real estate attorney, he was certainly aware that the scheme was illegal, and if he believed the lender knew of the scheme and assented to it, he certainly should have had ample documentation in his file from the lender. No such documentation was presented at trial.
There was a clear and concise jury instruction defining good faith, which was taken from a set of model jury instructions. Engelmann wanted a more verbose version, though everything which was included in the verbose version was included throughout the rest of the jury instructions.
A long-time client of Engelmann's was apparently a spectator at the trial. This individual called the Judge after the trial. During a break, this individual claims he witnessed the two investigating FBI agents discussing the case. Normally, witnesses are not allowed to discuss the case prior to testifying. Obviously, it would not be appropriate for the closing agent employees and Engelmann's former assistant to get together to get their stories straight before testifying. These gentlemen, however, were the investigators. They talked to all of the witnesses. And they obviously talked with each other. Can you imagine Sgt. Friday not talking with Officer Gannon about the facts, ma'am? Pete Malloy and Jim Reed ignoring each other in Adam 12? Ponch and Jon with their fingers in their ears saying "la la la la I can't hear you?" In fact, one of the agents was present through the entire trial, and he also testified. The only reason the other agent was called to testify is that Engelmann denied telling the agents that he told them he knew the scheme was illegal when they first came to talk to him. To argue that two investigating agents cannot discuss a case on which they are working together is a bit of a stretch.
The motion was denied. His sentencing has been delayed until January 2012.
www.thomasmoens.com
Friday, November 18, 2011
Tuesday, September 13, 2011
Engelmann guilty on all counts
A federal jury found Marc Robert Engelmann, a Davenport, Iowa real estate attorney, guilty on all nine counts of bank fraud, wire fraud, and conspiracy.
Engelmann represented a seller who sold nine Davenport properties to Darryl Hanneken and Robert Herdrich. Hanneken and Herdrich recently were sentenced to 40 months in federal prison, five years of supervised release following their imprisonment, and restitution of almost $900,000 for their part in this fraud.
In the scheme, Herdrich and Hanneken would offer to pay a seller more than the asking price of the property, with a side agreement requiring the seller to refund the difference to them after closing. The side agreement, or kickback, was not disclosed to the lender. In one of the nine transactions in which Englemann was involved, the actual sale price was $95,000, but the parties represented to the lender that the purchase price was $125,000. The $30,000 difference was paid by the seller to Herdrich and Hanneken after the closing. Engelmann assisted with the fraud by preparing and sending false settlement statements to the closing agent, reflecting only the inflated price, and not showing the kickbacks. The wire fraud counts resulted from Engelmann transmitting the false statements via facsimile from his Davenport, Iowa office to the closing agent's office in Illinois.
How many other local attorneys were involved in these transactions?
Engelmann represented a seller who sold nine Davenport properties to Darryl Hanneken and Robert Herdrich. Hanneken and Herdrich recently were sentenced to 40 months in federal prison, five years of supervised release following their imprisonment, and restitution of almost $900,000 for their part in this fraud.
In the scheme, Herdrich and Hanneken would offer to pay a seller more than the asking price of the property, with a side agreement requiring the seller to refund the difference to them after closing. The side agreement, or kickback, was not disclosed to the lender. In one of the nine transactions in which Englemann was involved, the actual sale price was $95,000, but the parties represented to the lender that the purchase price was $125,000. The $30,000 difference was paid by the seller to Herdrich and Hanneken after the closing. Engelmann assisted with the fraud by preparing and sending false settlement statements to the closing agent, reflecting only the inflated price, and not showing the kickbacks. The wire fraud counts resulted from Engelmann transmitting the false statements via facsimile from his Davenport, Iowa office to the closing agent's office in Illinois.
How many other local attorneys were involved in these transactions?
Wednesday, June 29, 2011
Thinking of co-signing a loan?
Many people have a misconception that as a co-signer, you are not responsible for the debt, or you are less responsible than the primary borrower. Unfortunately, co-signers are just as responsible for the debt as the primary borrower.
Basically, what the lender is saying by requiring a co-signer is this: "We would not loan money to the primary borrower without the co-signer agreeing to pay." In other words, the primary borrower is not sufficiently credit-worthy in the opinion of the lender.
What can a co-signer do if the primary borrower does not pay the debt. The short answer is, get out the checkbook. If the co-signer had the foresight to have a written agreement with the primary borrower that the primary borrower was responsible for the debt, that still does not affect the rights of the lender to make every effort to collect the debt from the co-signer. In that very unlikely event there was such an agreement, collecting is going to be tricky.
First, the co-signer needs to locate the primary borrower. You would be surprised how many times the best of friends, family members, significant others, etc., become separated when the evil spectre of looming debt appears. Then the co-signer needs to try to collect. Obviously, if the primary borrower is not paying the debt, he or she is probably not likely to respond to a polite request from the co-signer to do so. The co-signer can sue the primary borrower, but the co-signer will need to demonstrate to the court that the primary borrower actually owes the co-signer money.
Even if the co-signer can find the primary borrower, and sues the primary borrower, and actually gets a judgment against the primary borrower, there is still the tricky matter of collecting. Getting a judgment does not put money in your pocket. It gives you the legal right to collect. If the primary borrower does not have the money to pay the debt, finding the money to satisfy your judgment can be difficult as well.
And if the primary borrower files bankruptcy, it is game over for the lender and the co-signer getting any money at all from the primary borrower. If the primary borrower files bankruptcy, and the debt is discharged, the co-signer is completely responsible for paying the debt.
The moral of the story: If you agree to be a co-signer for anyone, be sure you are willing and able to pay the debt. That, after all, is what you are agreeing to do.
www.thomasmoens.com
Basically, what the lender is saying by requiring a co-signer is this: "We would not loan money to the primary borrower without the co-signer agreeing to pay." In other words, the primary borrower is not sufficiently credit-worthy in the opinion of the lender.
What can a co-signer do if the primary borrower does not pay the debt. The short answer is, get out the checkbook. If the co-signer had the foresight to have a written agreement with the primary borrower that the primary borrower was responsible for the debt, that still does not affect the rights of the lender to make every effort to collect the debt from the co-signer. In that very unlikely event there was such an agreement, collecting is going to be tricky.
First, the co-signer needs to locate the primary borrower. You would be surprised how many times the best of friends, family members, significant others, etc., become separated when the evil spectre of looming debt appears. Then the co-signer needs to try to collect. Obviously, if the primary borrower is not paying the debt, he or she is probably not likely to respond to a polite request from the co-signer to do so. The co-signer can sue the primary borrower, but the co-signer will need to demonstrate to the court that the primary borrower actually owes the co-signer money.
Even if the co-signer can find the primary borrower, and sues the primary borrower, and actually gets a judgment against the primary borrower, there is still the tricky matter of collecting. Getting a judgment does not put money in your pocket. It gives you the legal right to collect. If the primary borrower does not have the money to pay the debt, finding the money to satisfy your judgment can be difficult as well.
And if the primary borrower files bankruptcy, it is game over for the lender and the co-signer getting any money at all from the primary borrower. If the primary borrower files bankruptcy, and the debt is discharged, the co-signer is completely responsible for paying the debt.
The moral of the story: If you agree to be a co-signer for anyone, be sure you are willing and able to pay the debt. That, after all, is what you are agreeing to do.
www.thomasmoens.com
Friday, July 2, 2010
Mary Lee Reinking guilty plea
Mary Lee Reinking has plead guilty to wire fraud for her actions as loan officer for Robert Herdrich and Darryl Hanneken. Ms. Reinking worked for Crow Valley Mortgage in Bettendorf, Iowa. You remember Messrs. Herdrich and Hanneken.
According to the Plea Agreement, Mr. Herdrich worked at the hair salon at Younkers making about $1,500 per month. Ms. Reinking prepared a mortgage application which showed Mr. Herdrich owned his own salon and made $20,000 per month, which of course was signed by Mr. Herdrich. Ms. Reinking took someone else's financial documents who owned his own salon and made $20,000 per month and pasted Mr. Herdrich's name over the salon owner's name. She then sent these documents to the lender claiming this was Mr. Herdrich's monthly income so he could qualify for the loan. She also sent Verification of Deposit forms with the forged signatures bank officials to the lender. Ms. Reinking was also aware of the kickback scheme involved in these transactions, but did not make any effort to notify the lender of the fraud. In fact, she agrees that that she had reason to believe that the lender would not be advised of the kickback agreement.
The Plea Agreement says that Mr. Hanneken told Ms. Reinking that the loan would involve "creative financing" and that Crow Valley would need to do what was necessary in order to "make the numbers work" so Herdrich and Hanneken qualified for the loan. The correct answer would have been, "No thank you gentlemen, that is illegal and actions such as those you suggest will result in devastation to our national economy." Apparently Ms. Reinking's answer was, "Okey dokey."
She has not yet been sentenced.
www.thomasmoens.com
According to the Plea Agreement, Mr. Herdrich worked at the hair salon at Younkers making about $1,500 per month. Ms. Reinking prepared a mortgage application which showed Mr. Herdrich owned his own salon and made $20,000 per month, which of course was signed by Mr. Herdrich. Ms. Reinking took someone else's financial documents who owned his own salon and made $20,000 per month and pasted Mr. Herdrich's name over the salon owner's name. She then sent these documents to the lender claiming this was Mr. Herdrich's monthly income so he could qualify for the loan. She also sent Verification of Deposit forms with the forged signatures bank officials to the lender. Ms. Reinking was also aware of the kickback scheme involved in these transactions, but did not make any effort to notify the lender of the fraud. In fact, she agrees that that she had reason to believe that the lender would not be advised of the kickback agreement.
The Plea Agreement says that Mr. Hanneken told Ms. Reinking that the loan would involve "creative financing" and that Crow Valley would need to do what was necessary in order to "make the numbers work" so Herdrich and Hanneken qualified for the loan. The correct answer would have been, "No thank you gentlemen, that is illegal and actions such as those you suggest will result in devastation to our national economy." Apparently Ms. Reinking's answer was, "Okey dokey."
She has not yet been sentenced.
www.thomasmoens.com
Ok, this was just funny
I heard a commercial for an asbestos/mesothelioma law firm. The overly sincere client was trying to tell me how great this firm is. She said, "They were more than just attorneys. They were human beings." So, apparently, most attorneys with whom she is acquainted are not human beings. I wish I could say I disagreed, but still, to actually say it out loud....
Thursday, June 10, 2010
Odd part three
In the continuing saga of Ronald Wheeler...
I decided to found out how much was lost by the lender (or more accurately, the American Taxpayer) on this foreclosure. The lender sold the property for $455,000. Remember, the first mortage was for $796,000, and the second mortgage to the seller was for $193,716.20, and the third mortgage a couple of months later was for $484,000.
The good/strange/interesting/ironic news is that the individual who sold the house to Mr. Wheeler is the one who bought it from the bank for $455,000. He then got a mortgage for $475,000, which does not appear to contain an owner-occupied requirement.
I decided to found out how much was lost by the lender (or more accurately, the American Taxpayer) on this foreclosure. The lender sold the property for $455,000. Remember, the first mortage was for $796,000, and the second mortgage to the seller was for $193,716.20, and the third mortgage a couple of months later was for $484,000.
The good/strange/interesting/ironic news is that the individual who sold the house to Mr. Wheeler is the one who bought it from the bank for $455,000. He then got a mortgage for $475,000, which does not appear to contain an owner-occupied requirement.
Odd part two
Update to the Well, this is odd story. Ronald Wheeler, Clarke County Attorney, sent a letter to the Osceola Sentinel-Tribune explaining his side of the story. Boiled down, he says he was duped, that he trusted Mr. Glessman, the individual for whom he acted as a strawman, and that he was inexperienced in real estate investing.
Mr. Wheeler and his wife (also an attorney) purchased property in Ankeny for $995,000 in June 2006. They mortgaged the property to Mid American Home Services for $796,000. Mid American immediately assigned the mortgage to Wells Fargo. Mr. Wheeler and wife also gave a mortage to the seller for $193,716.20. For those of you following along at home, this means they only put roughly five grand into a million dollar transaction.
But wait, there's more! In August 2006, Mr. Wheeler et uxor gave another mortgage to Citibank for $484,000. So, now they owe nearly $1.5 million dollars on something they paid less than $1 million for two months ago. So that is a half million bucks lining someone's pockets inside of two months. And that is without the messiness of having to sell the place at a profit. Not bad work if you can get it.
Now on the one hand, Mr. Wheeler presents this as if it was a real estate investment. But from all indications of the documents available at the court house, this was a loan for owner-occupied property. In fact, the following is copied from the actual mortgage signed by these two attorneys. See if you find it confusing.
"Borrower shall occupy, establish, and use the Property as Borrower's principal residence within 60 days after the execution of this Security Instrument and shall continue to occupy the Property as Borrower's principal residence for at least one year after the date of occupancy. . . ."
He is an attorney. The documents presented at closing, while voluminous, are not terribly complicated. In an owner-occupied property transaction, there are generally at least two documents which state very clearly that you intend to occupy the property as your residence. If it was FHA, there will be several more.
Mr. Wheeler also claims that Mr. Glessman appeared to be a "legitimate and very successful real estate investor." If he was legitimate and very successful, why was he unable to get his own legitimate finanacing?
He also seems surprised that when Mr. Glessman failed to make the payments, he was the one ultimately responsible. At least that is how I take the use of the word "I" in quotes, in the following sentence. "I then learned, to my horror, that the value of the property was far less than what he had told me, and far less than the amount for which "I" had financed it." Yes, "you" financed it. That is what it means when you sign promissory notes for $1.5 million. Pretty sure I remember that being discussed in first year law school contracts courses. And what did you think? You bought the property for less than $1 million, and two months later it is worth half again as much?
Why did the lender care whether or not Mr. Wheeler intended live in this property? Investors generally pay a higher interest rate and are required to have a larger down payment than people who are going to live in a property. The logic is that if things get tight, you are more likely to bail on property you own only as an investment than your home. And if it was an FHA loan, there is a certain amount of government subsidization, since the government guarantees the loan. There are also several documents which tell you that defrauding a lender is not a good idea, and the penalties can be steep. That may have been mentioned in first year criminal law class.
But, apparently Mr. Glessman told him it was cool....
Mr. Wheeler and his wife (also an attorney) purchased property in Ankeny for $995,000 in June 2006. They mortgaged the property to Mid American Home Services for $796,000. Mid American immediately assigned the mortgage to Wells Fargo. Mr. Wheeler and wife also gave a mortage to the seller for $193,716.20. For those of you following along at home, this means they only put roughly five grand into a million dollar transaction.
But wait, there's more! In August 2006, Mr. Wheeler et uxor gave another mortgage to Citibank for $484,000. So, now they owe nearly $1.5 million dollars on something they paid less than $1 million for two months ago. So that is a half million bucks lining someone's pockets inside of two months. And that is without the messiness of having to sell the place at a profit. Not bad work if you can get it.
Now on the one hand, Mr. Wheeler presents this as if it was a real estate investment. But from all indications of the documents available at the court house, this was a loan for owner-occupied property. In fact, the following is copied from the actual mortgage signed by these two attorneys. See if you find it confusing.
"Borrower shall occupy, establish, and use the Property as Borrower's principal residence within 60 days after the execution of this Security Instrument and shall continue to occupy the Property as Borrower's principal residence for at least one year after the date of occupancy. . . ."
He is an attorney. The documents presented at closing, while voluminous, are not terribly complicated. In an owner-occupied property transaction, there are generally at least two documents which state very clearly that you intend to occupy the property as your residence. If it was FHA, there will be several more.
Mr. Wheeler also claims that Mr. Glessman appeared to be a "legitimate and very successful real estate investor." If he was legitimate and very successful, why was he unable to get his own legitimate finanacing?
He also seems surprised that when Mr. Glessman failed to make the payments, he was the one ultimately responsible. At least that is how I take the use of the word "I" in quotes, in the following sentence. "I then learned, to my horror, that the value of the property was far less than what he had told me, and far less than the amount for which "I" had financed it." Yes, "you" financed it. That is what it means when you sign promissory notes for $1.5 million. Pretty sure I remember that being discussed in first year law school contracts courses. And what did you think? You bought the property for less than $1 million, and two months later it is worth half again as much?
Why did the lender care whether or not Mr. Wheeler intended live in this property? Investors generally pay a higher interest rate and are required to have a larger down payment than people who are going to live in a property. The logic is that if things get tight, you are more likely to bail on property you own only as an investment than your home. And if it was an FHA loan, there is a certain amount of government subsidization, since the government guarantees the loan. There are also several documents which tell you that defrauding a lender is not a good idea, and the penalties can be steep. That may have been mentioned in first year criminal law class.
But, apparently Mr. Glessman told him it was cool....
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