Mortgage Loan Modification Scheme

Seven California defendants were indicted for allegedly promising to provide home mortgage loan modification services in exchange for upfront fees ranging from $2,500 to $4,300. The indictment alleges that the individuals operated under false aliases and at least 30 California-based companies that targeted individuals with difficulty repaying their home mortgage loans. The boiler room scheme involved cold calling and impacted Connecticut residents and across the US. The alleged victims of this scheme were instructed to mail their checks to addresses set up in states other than California. One of the defendants pled guilty to conspiracy to commit wire fraud. Each of the named defendants is faces a maximum term of 20 years per count with certain sentencing enhancements if convicted.

The mortgage loan modification scheme involved false misrepresentations of the following: home owners were already preapproved for loan modifications on favorable terms and these terms had already been negotiated with the homeowners’ lenders. The alleged victims were also told they qualified to receive assistance from government mortgage relief programs (when in fact many of them did not) and that they would receive a full refund in they were not able to obtain a favorable mortgage loan modification.

The individuals indicted also face sentencing enhancements for participating in “telemarketing” fraud and what is known as “vulnerable victim enhancement.” Under USSG Section 3A1.1(b), a sentencing enhancement increase of 2 levels is mandated if the defendant knew or should have known that a victim of the offense was a “vulnerable victim”, i.e., because of age, physical or mental condition, or otherwise susceptible to criminal conduct.

Defenses to these enhancements may explore whether there was in fact a connection between the victim’s vulnerability and the crime’s ultimate success. The burden of proof on the government is that they must prove that the defendant knew or should have known that a victim of the offense was vulnerable, but not necessarily in every case.

It is important to note that the government cannot just presume vulnerabilities among broad classes of victims. Typically it must be shown that the victims’ vulnerability was known from the outset, or learned of in the course of the conduct deemed to be fraud.

Other enhancements faced by defendants could be for responsibility as a manager/ supervisor, or for mass marketing, or where the loss exceeded $1,500,000.