6 accused of plot to defraud lenders

Six people conspired to bilk lenders out of an estimated $8.5 million by fraudulently flipping houses in Washington in 2004 and 2005, according to an indictment unsealed Thursday.

The case was part of the Justice Department's Operation Malicious Mortgage, which it said resulted in 144 mortgage fraud cases nationwide and charges, convictions or sentences for 406 people from March 1 to June 18.

Agents arrested four of the local defendants Thursday morning, and up to 50 similar cases are under investigation in Washington alone, FBI agent Steven Dean said after a court appearance Thursday afternoon.

"The schemes are continuing to evolve," he said.

Richard Hagar, a Mercer Island appraiser who teaches fraud-prevention classes and is familiar with ongoing fraud investigations, said the conspiracy charged Thursday was not an exceptional example.

"There's a lot of people doing that kind of (fraud) volume," Hagar said. "There are a lot of ongoing investigations right now in every city in Washington."

The indictment charges wire fraud and conspiracy to commit wire fraud by William Anderson, 47, of Bellevue; Robert Ernest Brandt, a 40-year-old Seattle lawyer who has since been disbarred; Mustafa "Marc" Khosraw, 46, of Sammamish, a mortgage broker and real estate agent who reportedly controlled a business called Mortgage Lending Solutions; Isaac Palmer, 42, of North Bend, who owned GMI Construction; and loan officers Zachary Joseph Namie, 30, of Seattle and Kristyn Jupiter Moss, 38, of Tacoma.

The indictment also references five others who were involved by initials along with "others known and unknown."

"The investigation is ongoing," U.S. Attorney's Office spokeswoman Emily Langlie said. "It's always possible that there will be more members of the conspiracy identified and charged."

Wire fraud is punishable by up to 20 years in prison and a $250,000 fine.

The basic idea of the scheme, according to the indictment, was to buy homes and then flip them at inflated prices to "straw buyers," who were recruited for a fee to pretend to buy the houses as their residences.

"The conspirators simply split the proceeds from the fraudulent mortgages, and the straw buyers defaulted on the loans after pocketing as much as $20,000 for their fee," according to a news release from the U.S. Attorney's Office for the Western District of Washington. "The homes were foreclosed and financial institutions and mortgage lenders suffered substantial losses."

Prosecutors were not ready Thursday to say how much money the defendants allegedly made off of the deals, Langlie said.

Speaking outside court Thursday afternoon, Assistant U.S. Attorney Nicholas Brown said such conspiracies have a wide impact.

"The nationwide mortgage crisis is affected by this type of criminal action," Brown said. "It leads to legitimate companies going out of business."

Hagar said Thursday's nationwide announcement was planned "as a way to get people's attention to how big this problem is and to quit being so lackadaisical about it."

Professionals such as real estate agents, loan and escrow officers, and appraisers can prevent the vast majority of fraud, he said. "We have all failed to do our jobs properly, and this is the price."

Here's how the arrangement worked, according to the indictment:

Anderson used shell companies Sterling Investments and SFN LLC, to buy the homes and then he, Khosraw, Palmer and Namie recruited the straw buyers.

Khosraw, Moss and Namie prepared loan applications with false information about the straw buyers' incomes, employment, savings and intention to live in the homes, while Anderson and Moss created false documents purporting to show buyers' cash available. Others, including someone with the initials L.P., prepared false appraisals backing up the inflated values.

The indictment also said Anderson and Brandt ran a company called Escrow Authority, creating settlement forms with false information and then collecting fees, including some of roughly $10,000 per transaction above typical charges, without disclosing that to lenders.

The indictment lists loans from Deutsche Bank, Ameriquest Mortgage and JPMorgan Chase for homes in Seattle, Burien, Tacoma and Mercer Island.

Deutsche Bank spokesman Ted Meyer said he was not immediately familiar with the case Thursday afternoon but was contacting the lender's attorneys. Representatives of Ameriquest and JPMorgan Chase could not be reached for comment.

Brandt, Khosraw, Palmer and Namie made initial appearances Thursday afternoon, looking somewhat disheveled as they were escorted into the courtroom but saying little aside from their not guilty pleas. As the charges were read, Brandt periodically frowned and shook his head.

Prosecutors agreed to release Namie and Brandt with conditions, including travel limitations and a stipulation that neither can work in the mortgage, loan or banking industry. The judge agreed to let Brandt go on a planned family vacation to Yellowstone National Park.

Detention hearings are set for next week for Khosraw and Palmer, who are being held in the meantime. Prosecutors expected initial appearances Friday for Anderson, who turned himself in too late for Thursday's hearing, and Moss, who has promised to turn herself in on Friday.

The FBI, King County Prosecutor's Office and state Department of Financial Institutions investigated the case.