The most detailed look yet at an alleged Myrtle Beach-area mortgage fraud operation accused of stealing millions of dollars during the real estate boom is unfolding in a pair of federal lawsuits in which RBC Bank claims 45 individuals and businesses conspired to make fraudulent home loans.
The defendants include area developers, real estate agents, mortgage brokers, a lawyer and bank officials, including insiders at RBC Bank.
RBC Bank said the defendants are to blame for more than $11.2 million in losses on 28 real estate transactions the bank funded along the Grand Strand between July 2007 and October 2008.
The group also is suspected of arranging fraudulent loans with JP Morgan Chase, Plantation Federal Bank, Countrywide Bank, City National Bank and SunTrust Bank, according to court documents.
RBC Bank, in its lawsuit, calls the group's actions "willful, unfair, offensive to public policy, immoral, unethical and oppressive."
However, Myrtle Beach lawyer Robert Hedesh - one of the defendants in the lawsuit - said the bank shoulders much of the blame.
"The banks are all a part of this, but once the foreclosures start happening they start looking to point the finger at someone else," Hedesh said.
Gary Finklea, a Florence lawyer who represents one of the developers, said the bank has cast a wide net in naming defendants and the lawsuit has caught many people by surprise.
"All my client did was build the house," said Finklea, who represents Myrtle Beach builder John Warner of Warfin Developers. "He didn't pick the appraiser or the buyer and he didn't pick the bank. He had no idea what was going on, on the financial end."
RBC Bank claims the 45 individuals and businesses were part of an enterprise that used dozens of straw buyers from across the country to obtain fraudulent mortgage loans based on falsified documents, phony down payments and inflated home appraisals.
The defendants and four named co-conspirators then split the proceeds from those loans by sending payments to themselves, their businesses or shell corporations they controlled when the loans closed.
Some of the straw buyers received kickbacks for their help while others were lured with the promise they could flip the homes for even higher prices. Some buyers did not realize loans had been taken out in their names, according to the lawsuit.
The buyers, many of whom had never been to the Myrtle Beach area, wound up with mortgages they could not pay. The homes eventually went into foreclosure.
In addition to the 28 loans that RBC Bank approved, another six transactions were stopped after the bank identified suspicious loan documentation coming from its Oak Street branch in Myrtle Beach. Two of the bank's employees - Jamie Barfield and Matthew Skinner - were fired after the documentation was discovered, the lawsuit states.
RBC Bank declined to comment on the lawsuit beyond what has been filed in court.
"We have provided all relevant information in great detail, filed within the complaint," said bank spokeswoman Dorsey Landis.
The lawsuits - one filed in South Carolina, the other in North Carolina - parallel an ongoing criminal investigation involving many of the same individuals. Five of the people named in the civil lawsuits already have pleaded guilty to federal bank fraud charges and are awaiting sentencing.
Bill Day, the assistant U.S. attorney who is prosecuting the criminal cases, said he expects more indictments will be issued as the civil cases make their way through court.
"I will say that we have worked aggressively to cooperate with the authorities in their investigation," Landis said.
None of the defendants in the civil lawsuits have filed answers to RBC Bank's complaint.
Kickbacks and kin
RBC Bank's court filings detail transactions in developments throughout the Grand Strand, with most of the alleged fraud originating with a Myrtle Beach mortgage broker called Dunes Mortgage, which was owned by Darin Epps.
Epps has pleaded guilty to one felony bank fraud charge in the criminal case. His lawyer, Billy Monckton, said Epps is cooperating with investigators.
Epps and Dunes Mortgage recruited straw buyers, arranged fraudulent appraisals and submitted falsified loan applications to RBC Bank, according to the lawsuit.
A pair of businesses Epps controlled received about $1 million in what the bank terms "stolen funds," according to the lawsuit.
Dunes Mortgage employee Jeremy Eason also is accused of receiving kickbacks from fraudulent loans.
Epps and Eason could not be reached for comment. Eason is identified as an unindicted co-conspirator in the criminal investigation.
Another mortgage broker - J&M Mortgage Services of Irmo, also known as Challenge Home Equity - also received kickbacks from fraudulent mortgages it arranged, according to the lawsuit.
J&M Mortgage Services owner Michael Skinner is the cousin of Matthew Skinner, the RBC Bank employee who was fired following the discovery of the suspicious loan documentation.
Among the false documents RBC Bank claims it received from the mortgage fraud group are phony tax returns, falsified verification of employment forms and altered bank statements.
Jill Brennan, one of the defendants in the RBC Bank lawsuit, has pleaded guilty to one felony bank fraud charge after admitting in the criminal case that she falsified bank statements for home buyers while she was an employee at Bank of America in Myrtle Beach.
RBC Bank claims the mortgage brokers worked closely with real estate agents - including Alissa Smith, David O'Connell and Dunes Investment owner Michael Green - to recruit straw buyers and structure fraudulent mortgages in exchange for kickbacks to themselves or companies they controlled.
Smith and O'Connell declined to comment. Green could not be reached for comment. Those three individuals have not been charged with any crime.
Malia McCaffrey, the owner of Belle Terre Title Agency in Myrtle Beach, performed the title work for many of the group's real estate transactions, according to the RBC Bank lawsuit.
McCaffrey also was the co-owner - with Eason - of Prodigy Consulting LLC, which received at least $475,000 from the fraudulent loans, according to the lawsuit.
McCaffrey could not be reached for comment. She is identified as an unindicted co-conspirator in the criminal investigation.
Hedesh, the Myrtle Beach lawyer, was the closing attorney for most of the group's loans, according to court documents.
Hedesh said that he was not aware of any alleged fraud when the loan closings were taking place. He said most of the closing documents were prepared by McCaffrey, who shared his Myrtle Beach office.
RBC Bank agrees in its lawsuit that Hedesh was not an active participant in the fraud but named him as a 46th defendant, claiming his negligence and breach of fiduciary duty allowed the scheme to succeed.
The bank also says Hedesh failed to collect purported down payments at the loan closings. The bank said it later learned the down payments shown on documents were false.
Hedesh said the bank is at least partly to blame for its losses because all of the payments it now contends were fraudulent kickbacks were disclosed on closing documents known as HUD-1 statements.
"The bank approves the HUD statement before the closing takes place," Hedesh said. "Certainly their employees were reviewing those documents."
'We don't know anything'
The Kelly Court condominium project in Garden City Beach is among the developments where RBC Bank claims mortgage fraud occurred.
Kelly Court was built by Duplex Development Inc., which is owned by Larry Prosser.
RBC Bank said Prosser worked with co-defendants to sell four Kelly Court units for prices far above their fair-market value. Prosser then allowed the co-defendants to split loan proceeds that exceeded the fair-market value.
For example, Prosser sold 1004-B Kelly Court for $655,000 in June 2008 to a straw buyer from Greensboro, N.C., named Spencer Chaplin, according to the lawsuit. RBC Bank said the sale price was more than $200,000 above the fair-market value, and an inflated appraisal was used to support the loan.
The more than $200,000 in excess loan funds were distributed to Dunes Investments and a company called ZAG LLC, which was owned by Dunes Investments employee Theresa Feschuk, according to court documents.
Gary Crawford, a Florence lawyer who represents Prosser, said his client had no knowledge of any fraudulent real estate transactions.
"We don't know anything about it," Crawford said, adding that he will file a response to the lawsuit denying any involvement on Prosser's part.
Chaplin, the buyer, could not be reached for comment. He was making $21,557 a year working for a Greensboro roofing company at the time he bought the Kelly Court house, according to his bankruptcy court filings.
Chaplin was approved for the RBC Bank loan despite owing more than $95,000 on his primary residence in Greensboro. It is not clear what income was reported on his RBC Bank loan application or whether his other mortgage was disclosed.
Chaplin's case is similar to those of other buyers involved in the alleged fraud. One elderly couple from California, for example, obtained an $801,000 loan for a duplex in Garden City Beach despite having Social Security benefits as their only income source. Another buyer received a $633,700 loan for a Garden City Beach home even though she had no income and qualified for food stamps, according to court documents.
All of the loans involved in the alleged fraud went into default within a year, court records show.
For example, RBC Bank said five payments were made on the mortgage Chaplin received before the loan went into default.
The bank said it believes the co-defendants - not the straw buyers - made several payments on each mortgage after the loans were closed in an attempt to either flip the property again for more money or hide the fraud by waiting until the loan was sold into the secondary mortgage market.
The defendants "believed that once a loan was sold in the secondary market, it would get 'lost' - because it was bundled with other, unrelated loans - and it would be harder to see that the default was part of a scheme," RBC Bank said in its lawsuit.
The remaining three Kelly Court properties sold for a combined $2.1 million - or about $847,000 above their fair-market value, according to RBC Bank. Prosser allowed the co-defendants to split the excess loan funds, the lawsuit states.
The bank said similar real estate transactions occurred at Myrtle Beach-area homes built by Trinity Development, a Myrtle Beach company owned by Theron Floyd and David Godby; Kenneth Paul Holmes, an Irmo developer who has pleaded guilty to one felony bank fraud charge in the criminal case; and Warfin Developers, which is co-owned by Finklea, the Florence lawyer. Finklea is not a defendant in the lawsuit.
Floyd, a defendant in the lawsuit, and Godby could not be reached for comment. Godby is not named as a defendant in the RBC Bank case.
The lawsuit also details several transactions involving condominiums in Myrtle Beach and North Myrtle Beach.
For example, RBC Bank said O'Connell, Jeff Shoup and Tommy Hix sold a condo they owned at Atlantis Villas to a straw buyer for $925,000 - nearly double the fair-market value, according to the lawsuit. RBC Bank said the three men "paid substantial kickbacks" from the loan to other defendants that were part of the fraud scheme. The loan went into default after 10 months.
Seven people have pleaded guilty over the past year to bank fraud charges related to real estate transactions in the Myrtle Beach area. An eighth person - the first area buyer to be criminally charged with making false statements on loan applications - will have a pre-trial hearing this week in Florence.
Contact DAVID WREN at 626-0281