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Court of appeals vacated a criminal restitution judgment and ordered a new hearing because the government failed to link false documentation to mortgage fraud loss

U.S. v. Singletary is a classic example of mortgage fraud seen in Miami and other parts of Florida. Singletary was charged with conspiracy to defraud a federally insured bank in violation of 18 U.S.C. §1344 and other federal criminal charges stemming from a scheme to defraud mortgage lenders and the Federal Housing Authority (F.H.A.) which insured mortgages loans issued by the banks. The defendants pleaded guilty and sentenced to federal prison, but they appealed the criminal restitution order, which is the amount of loss caused by their fraud.

The defendants purchased and repaired homes in need of substantial work to be marketable. After restoring the property the defendants would place the homes on the market. Potential buyers would be referred to mortgage companies controlled by the defendants. The mortgage officers would then assist the potential buyer obtain a mortgage that would be insured by the F.H.A. The F.H.A. would insure a mortgage up to 97% of the sale price as long as the buyer was able to invest a minimum 3% down payment of the price at which the defendants agreed to sell. If the buyer received a portion as a gift, it had to come from a relative or employer, and the lender had to document the gift with a gift letter specifying the nature of the relationship, the source of the funds, and had to be signed by the parties donor and borrower. Of course the defendant’s mortgage brokers committed mortgage fraud by sending bogus gift letters to verify the buyer’s down payment. Other times they created false employment verification letters or provide false “credit explanation” letters to beef up creditworthiness.

The issue here is the amount of restitution the defendants owed. The sentencing court determined the amount was a loss to the F.H.A. of $3 million in expenses as a result of the 89 foreclosed properties. The defendant objected to the loss determination. The government had the burden at sentencing of establishing by a preponderance of the evidence the amount of the F.H.A. losses and the sentencing court was required to explain its findings with sufficient clarity to enable the appellate court to conduct review.
At the sentencing, there were obvious credibility problems with loan officers that handled the false gift letter files. These were some of their credibility problems:

  • They could not recall some of the closings
  • They could not say with certainty that some of the gift letters identified were false; and
  • They could not say that the buyers had not received the gift.

The appellate court ordered a new hearing on the issue of the amount of restitution. It ruled the government failed to meet its burden with respect to each mortgage for which it sought restitution. The sentencing court pegged the loss at $1 million but gave no explanation for how it came up with that estimate. Furthermore, the sentencing court did not identify the particular false loans mortgages that had caused losses.

There was no factual finding by the sentencing court showing how it arrived at its calculation. The sentencing court was required to determine by a preponderance of the evidence which of the 56 mortgages were obtained through false gift letters of other false documentation and then determine the extent of the loss suffered by H.U.D. due to the mortgage foreclosure.