Denver "Mortgage fraud" alledged -- Denver 'Owner Occupant' Shawn Tieskotter and Craig Patterson, actual charges wire fraud, mail fraud and money laundering

Shawn Tieskotter and

Craig Patterson

Live in a lot of houses!

Local Appraiser Phil Rice Calls Foul

Two Denver men arrested on Charges relating to

Mortgage Fraud

Let's see, I have my city house, then one in the country on acreage, and of course my mountain condo, and everyone needs a house in Castle Rock, and geez, let's have the next big party at my posh Denver pad!

We don't know that is what Tieskotter and Patterson told people after Tieskotter bought 13 properties with Patterson's help including property in Aurora, Parker, Castle Rock and Centennial, Colorado. We do know the pair were indicted by the Grand Jury.  Harold Pankratz of the Denver Post said the two were charged with five counts of wire fraud; four counts of mail fraud; and two counts of money laundering surrounding the purchase of 13 Metro Denver, Colorado properties.

According to a press release by the FBI,  "Tieskotter and Patterson prepared (and) submitted applications for residential mortgage loans and related documents in Tieskotter’s name. The applications included a first mortgage and second mortgage for each of the 13 properties. Each of these applications contained materially false and fraudulent representations that Tieskotter intended to use the property as his primary residence."

Tieskotter's problems may have come to light as the result of a diligent home appraiser in the Denver area, Philip G. Rice  of  MKG Appraisal.  In a letter to Colorado Governor Owens, Mr. Rice outlines what he calls "a shopping spree".  He says:

"On Friday, April 15th, 2005, Shawn Tieskotter purchased the property 7273 Winter Ridge in Castle Rock, Colorado, “contract price” of $500,000. Mr. Tieskotter applied for and received 2 mortgage loans (80% first and 20% concurrent second) for a total loan of $500,000 which is 100% of the contract price."

So far, so good.  One can purchase a home and finance it 100% if he qualifies.  So what is the beef?

Rice continues:

" In support of this transaction, Adam Conner produced an appraisal report which states:

“The subject [7273 Winter Ridge] is listed at $500,000....”.

This is factually incorrect because the report is dated 3/31/05, and on that date, the MLS asking price (copy attached) was $419,650. This is even more troubling because the MLS information makes it clear the seller agreed to accept $410,00."

This could be a problem if the Rice accusation is correct.  As I understand it, Mr. Rice suggests the price on the Castle Rock home was inflated from $410,000 to $500,000.  The home was financed 100%, based upon the inflated purchase price, meaning no money was paid as a down payment.  The buyer over-mortgaged the house by $90,000!

Where did the difference in the purchase price go?  The Rice allegation suggests the money may have gone into the buyer's pocket!  That might be o.k. if the lender knew about it and the supporting documents disclosed all of the facts surrounding the deal, including the purchase price. 

There are not many lenders that would go along with such wild financing.  Phil Rice points to the page in the Multiple Listing Service MLS indicating the ask price and the sold price. 

Rice claims 7273 Winter Ridge in Castle Rock Colorado listed at $419,650, sold at $410,000 and was financed by Tieskotter at $500,000!

Phil Rice invites your emails at the following link.  phil.rice

"Honest and sincere intent is not enough"

I frequently advise young investors to use their bodies to make money by moving into their first home.  The idea is, they get better loan terms if they occupy the property than if they don't.  However, along with my advice comes a caveat:  The young investor must intend to move into the property and use it as his home. 

In today's mortgage climate, an honest and sincere intent is not enough.  The intent needs to be followed by action.  Move in.  Live in the property.  Make it your home.  After a few years you will have some equity and can look for your next home, or borrow on your equity and use the money for a down payment on an investment property. 

How long do you have to live in the home before you buy your next one?  The technical answer depends upon your intent.  All you have to do is intend to occupy the home.  Last minute changes do occur. 

     How do you demonstrate intent?  Let's just say, if you have rented the property before the end of the first year you better have a good explanation.  In the Shawn Tieskotter and Craig Patterson case I am not sure how they are going to explain 13 houses.  That is a lot of mind-changing.

Never claim you are going to occupy a home that you plan to rent.  It is illegal, and it can land you in the same kind of hot water that Tieskotter and Patterson are in. 

Rice claims 17578 East Baker Place was listed at $255k but mysteriously sold for $310K.  With 100% financing Tieskotter allegedly put $55K in his pocket!

When it comes to the movers and shakers, one lie may lead to another.  The FBI alleges:

"It was further part of the scheme for Tieskotter and Patterson to hide from lenders the extent of Tieskotter’s liabilities for the other mortgages."

When you sign a mortgage agreement you must disclose the debt you owe.  Even if the debt does not appear on your credit report, if you owe it the lender needs to know about it.  According to the allegations, Tieskotter and Patterson hid the existence of certain liabilities so Tieskotter could qualify for loans more easily.  

"When the high flyers come through town it is a good time to take a nap"

Real estate brokers see these schemes frequently.  As tough as it is to sell a house, it is foolish for any broker to participate in mortgage fraud like these two men are accused of doing.  To knowing allow this kind of financing to move forward puts the broker, the appraiser, the lender and anyone else who is in the chain in as much hot water as the investor is.  Sometimes, when the high flyers come through town it is a good time to take a nap.

Patterson was arrested by federal agents without incident. He appeared in U.S. District Court in Denver on March 12, 2010, and was arraigned today, March 17, 2010. Shawn Tieskotter received a summons to appear in U.S. District Court in Denver on March 25, 2010, where he will be advised of the charges pending against him.  In the event of conviction, Tieskotter and Patterson may forfeit any "fruits" of their activities like cash found in bank accounts and of course, the real property.  

Mortgage fraud is a major part of President Barack Obama’s Financial Fraud Enforcement Task Force.  Mortgage fraud undermines our financial system and puts the entire lending structure at risk.

Most mortgages are not kept by the company that originates the mortgage. Rather, the mortgage is packaged and sold with other mortgages to institutional investors. These investors rely upon the originating mortgage company to be honest in their dealings. While starting a mortgage company is relatively inexpensive, the institutional investor has millions of hard dollars on the line. Therefore, if the mortgage company goes out of business they can hang the institutional lender for big money.

For example, many of the lenders which appraiser Rice claims funded the Tieskotter-Patterson lenders, are out of business or not taking loans.  Fieldstone says they are not taking applications any longer.  Liberty American Mortgage has closed it's doors.  Lender's Direct Capital Mortgage has closed.  Stone Creek Funding closed.  Freemont Investment and Loan either failed or was bought out.  Bank of America has acquired the very troubled Country Wide lending.  This is not to say any of these companies h
ave done anything wrong but it is not a good sign.

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Was your home loan legal? 

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“The use of the Postal system to carry out or further any fraud is a crime which is investigated thoroughly by the United States Postal Inspectors,” said U.S. Postal Inspector in Charge Shawn Tiller.

"Claiming you are occupying a home when your real plan is to rent it out is illegal"

“IRS Criminal Investigation will work diligently with our law enforcement counterparts to insure mortgage fraud is vigorously investigated and brought to justice. Mortgage fraud directly threatens the financial health of the communities in which we live, said Christopher M. Sigerson, Special Agent in Charge, IRS Criminal Investigation, Denver Field Office.”

Every person has the right to be presumed innocent unless and until they are judged guilty in a court of law. Tieskotter and Patterson have the right to make their case and defend themselves and we should give them the courtesy of the presumption.  At the very least, this is a lesson in what can happen in the world of real estate high finance. 

If you have been involved in one of these mortgage high finance deals you may want to consult an attorney immediately. I suspect there will be other arrests shortly.

Shawn Tieskotter and Craig Patterson have a lot of explaining to do.  Namely, why are so many of the houses purchased by Tieskotter occupied by someone else besides him?  If the allegations are true, why didn't he disclose all of his debts?  Claiming you are occupying a home when your real plan is to rent it is illegal.  Thanks to Phil Rice, the mortgage Fraud Task Force may have another case under it's belt.  Play these games and you might end up not only losing the investments but losing your freedom as well!