Federal officials on Thursday announced a crackdown on mortgage fraud in the Myrtle Beach area and statewide through the formation of a U.S. attorney's financial crimes task force and an additional full-time prosecutor to handle real-estate-related cases exclusively.
"The mortgage fraud problem is statewide, but the Myrtle Beach area is particularly vulnerable," William Nettles, the U.S. attorney for South Carolina, said during a news conference at Francis Marion University.
Nettles said many Grand Strand home buyers in recent years have been victimized by a network of real estate professionals working together to steal money from banks.
"It's not just strapped developers over their heads in debt," Nettles said. "It's bankers, loan officers, appraisers, lawyers, mortgage brokers and title employees. They prey on vulnerable investors in many instances, and the motive is sheer greed."
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Jeff Brunig, supervisor of the state's white-collar crimes program for the FBI, said "a significant number of our high-dollar loss cases are in the Myrtle Beach area."
"Any place where the price of real estate went up significantly in this state, we're seeing an increase in the growth of mortgage fraud," Brunig said.
Thursday's announcement came on the same day that U.S. Attorney General Eric Holder announced a federal crackdown on such fraud cases called Operation Stolen Dreams, in which 485 people already have been arrested nationwide. Federal officials estimate those suspects are responsible for $2.3 billion in bank losses.
Nettles and investigators with the FBI, the Internal Revenue Service, the U.S. Department of Housing and Urban Development and other agencies outlined several local cases in which indictments recently were issued. They include:
Condominium projects touted by North Myrtle Beach developers Jeff Shoup and Tommy Hix, including Bahama Island and Crystal Palace. Shoup and Hix are accused of stealing more than $7 million in condo deposits for the projects, which never were built. Darin Epps, a Myrtle Beach mortgage broker, has pleaded guilty to a felony charge of bank fraud in a related case.
South Strand vacation homes sold to buyers nationwide by Irmo developer Ken Holmes. Prosecutors allege that Holmes and at least four Myrtle Beach area business owners and bank officials conspired to steal money by providing lenders with false information on loan applications and bogus appraisals that made the homes appear to be worth more money than their actual value. Holmes and two others have pleaded guilty to felony charges.
"This is the first wave in our effort to restore integrity in the financial market and restore the American dream," Nettles said. "If you engage in financial fraud, we will catch you and introduce you to justice."
Brunig said the FBI has seen a dramatic increase in mortgage fraud cases nationwide in recent years - from 150 new investigations in 2004 to more than 1,500 last year.
The collapse of the housing market has brought many of those crimes to the forefront, Brunig said.
"As long as the market goes up and developers can sell their units and make a profit, nobody ever comes back and says, 'Wait a minute, you lied about this stuff,' " Brunig said. "It's only when the market falls that the fraud is exposed."
The discovery of fraud in the Myrtle Beach area has come later in the national real estate cycle than many other places where vacation homes make up a large percentage of sales.
"Property values in South Carolina went up substantially later than other hot markets, such as Florida, so the fraud is just now being exposed," Brunig said. "We know about a lot of it, but there's a lot more to come. This is a problem that's not going away any time soon."
Brunig said this area's fraud was fueled by greed and the "herd mentality" of investors who jumped on the real estate bandwagon, thinking prices would never fall.
"They would hear about friends or people at work who made money flipping properties, so they would jump right into it without doing any research," Brunig said. "It was like the dot-com bubble, when people were buying any stock with a website. Some unscrupulous people saw that greed and they took advantage of it."
Tom Gasser, an inspector with the U.S. Postal Service, said his agency is stepping up its efforts to work with law enforcement in fighting fraud. The mail often is used to transport loan documents associated with real estate crimes, and mail fraud often is among the charges filed in such cases.
"We've been fighting consumer fraud for 135 years," Gasser said. "In that time, the frauds have changed and the crooks have changed, but there are common threads. The crooks are still going to take advantage of economic conditions and current events to play their schemes, and they are always going to take advantage of others."