Courthouse notebook | Appraisers could be next Myrtle Beach area mortgage fraud focus

An increased focus on mortgage fraud investigations in the Myrtle Beach area has, to date, led to civil lawsuits and criminal charges against real estate sales agents, buyers, mortgage brokers and bank employees. This year, the scope could widen to include appraisers.

But instead of calling them active participants in a widespread mortgage fraud scheme, the appraisers are accused of aiding the fraud through negligence, according to a civil lawsuit working its way through federal court.

That lawsuit is among several that are worth watching as the new year progresses.

In the lawsuit, RBC Bank accuses 13 appraisers and apprentice appraisers of inflating the values of homes in 20 real estate transactions that occurred between January 2008 and August 2008. The faulty appraisals cost the bank nearly $9.7 million after all of the homes went into foreclosure.

RBC Bank said its loan underwriting decisions “hinged upon adherence to a strict loan-to-value ratio,” and the bank relied on the appraisals to determine whether the mortgages were properly secured by the property being purchased.

“In each of the transactions … the appraiser negligently appraised the property, rendering a conclusion as to market value which was inflated,” the bank said in its lawsuit. “If the appraiser had exercised due care, the conclusion as to market value would have been substantially lower and would have resulted in denial of the borrower’s loan application.”

Most of the alleged negligence centers on the improper use of “comparables” – recent sale prices of similar properties that help back up the appraiser’s opinion of value. For example, the bank said appraisers: used active listings as comparables; relied on comparables that were closer to the beach than the subject property; relied on comparables of homes built by the same developer; made adjustments to site values that were not supported by market evidence; and misstated the amount of time a home had been on the market.

The appraisers, in answers to the RBC Bank lawsuit, deny they did anything wrong and say their work met all professional standards.

The appraisers blame the bank for its losses, saying RBC Bank was negligent in the way it handled the mortgage loans. The appraisers also say they are not responsible for alleged criminal acts committed by third parties, such as the mortgage brokers and sellers.

None of the appraisers named in the RBC Bank lawsuit have been charged with any crime. RBC Bank is asking for unspecified actual damages and attorney’s fees in its lawsuit.

Federal investigators nationwide have started looking closely at the appraisal process in mortgage fraud cases. That is because the Fraud Enforcement and Recovery Act of 2009 broadened the false statement statute for mortgage loans to include any willful property overvaluations used to influence a mortgage lender’s decision. Violations of the statute carry a maximum 30-year prison sentence.

Among the other court cases to watch this year:

Global Holdings LLC | The U.S. Securities and Exchange Commission alleges Myrtle Beach lawyer Mark McAdams and business partner Dane Freeman bilked 35 customers of an investment scheme out of more than $3.5 million in a civil case scheduled to go to trial in February.

The SEC says McAdams used his position at the McNair Law Firm to give the scheme credibility, using the firm’s letterhead and e-mail system to communicate with investors about the company – Global Holdings LLC – that he and Freeman formed as part of the alleged scheme.

McAdams and Freeman typically promised customers that they could make $1 million off of a $20,000 investment in just 60 days – a return of 4,900 percent, according to the SEC’s lawsuit. Investors were told that Global Holdings could buy bonds directly from issuers at a discount and then quickly resell the bonds for a profit, according to the SEC.

Most investors never received any profits or a return of their investment, according to the lawsuit.

McAdams, who resigned from the McNair Law Firm in 2008, and Freeman are accused of fraud and securities violations. Both men deny any wrongdoing and Freeman said in court documents that a German company called Curaconsult was the one that actually stole the investors’ money.

AVX Corp. | Opening briefs are due by the end of this month in AVX Corp.’s appeal of a federal ruling last year that the company is solely responsible for environmental contamination in a neighborhood adjacent to its Myrtle Beach manufacturing facility. AVX says the military contributed to at least some of the contamination during its operations at the former Myrtle Beach Air Force Base, which was located adjacent to the manufacturer.

A federal judge said there is no evidence that the military contributed to the pollution, which includes groundwater contaminated by the industrial degreaser trichloroethylene, or TCE. AVX has not yet stated its basis for an appeal of that ruling.

The company, which makes electronic components, wants the military to share in the estimated $5.4 million cost to clean up the neighborhood’s groundwater.

A separate class-action lawsuit filed against AVX by residents living near the facility could go to trial late this year or in early 2013. The company faces potentially millions of dollars in property damage claims in that case.

State health officials have said the pollution is not a health hazard because the groundwater is not used for drinking water. Federal law states, however, that the groundwater must be cleaned to drinking water standards.

Duwayne Woods | The purported money man behind a pair of failed condominium projects in North Myrtle Beach – Bahama Island and Crystal Palace – continues to elude federal officials more than six years after he allegedly stole millions of dollars from those projects’ escrow accounts. Tommy Hix and Jeff Shoup, the would-be developers of those projects, now are serving prison sentences for their part in the scheme. Woods, however, is said to have fled the country with escrow money Hix and Shoup gave him in exchange for a promise to finance the condos through a shell corporation called Atlewa Trust.

A federal judge issued an arrest warrant for Woods in October, about four months after prosecutors hinted during a court hearing that they have picked up Woods’ trail. That news has given hope to condo investors that this will be the year that Woods faces felony charges of orchestrating an advance-fee loan scheme that stole their down payments and dreams of owning property along the Grand Strand.

Chamber investigation | The FBI continued to interview area business leaders late last year in an investigation of political donations and payments to vendors with ties to the Myrtle Beach Area Chamber of Commerce. Those interviewed have said the investigation centers on possible money laundering, tax fraud and criminal conspiracy.

About $325,000 in political donations were made in 2009 to politicians who enacted a 1 percent sales tax for tourism promotion that gives the chamber millions of dollars each year for marketing. Most of the donors were corporations owned by chamber leaders or businesses that have since profited from the sales tax.

Critics of the tax have said the donations were political paybacks for what amounts to corporate welfare – subsidizing private businesses’ marketing budgets with public money. Politicians have said the tax was necessary to help the Myrtle Beach area compete with other destinations.

William Bailey | Motion hearings are scheduled for this month in William Bailey’s wrongful termination lawsuit against the city of North Myrtle Beach. Bailey, who was forced to retire in 2010 after a 20-year career with the city’s public safety department, was public safety director when his police handgun was stolen from an unlocked truck on Dec. 21, 2009. City officials said Bailey lied about the storage of his weapon and gave him a retire-or-be-fired ultimatum. Bailey says he did not lie and that city officials made him a scapegoat for criticism over their handling of a wildfire that destroyed homes in Barefoot Resort in April 2009. Bailey is seeking monetary damages including lost wages and benefits as well as punitive damages.