“It used to be that, as an agent, you would have to look for a really good case. Now, they’re coming in the door all the time.” — Julie Halferty, Federal Bureau of Investigation’s white-collar crime unit in Phoenix

A ring of Romanian house-flippers signals the beginning of a wave
of mortgage-fraud cases coming to Phoenix courts this year.

Prison time can motivate people. And when the legal system applies the right pressure, it usually gets what it wants.

In the case of Phoenix resident Brandon Azadegan, 29, that meant leniency in exchange for giving up details about an elaborate house-flipping scheme involving several Romanian families living in Phoenix and at least 18 houses Valleywide, seven of which were in Phoenix. Azadegan was a low-level player in what authorities call a “cash back” scheme that foreshadows just how hectic 2010 will be for FBI agents here.

“We have so many really good cases that we have to really scrutinize all the referrals we get to pick out the best and most significant cases to put our resources into,” says Julie Halferty, a 13-year veteran of the Federal Bureau of Investigation’s white-collar crime unit in Phoenix who oversees its mortgage-fraud task force. “It used to be that, as an agent, you would have to look for a really good case. Now, they’re coming in the door all the time.”

Halferty says the mortgage fraud began en masse in 2007 with the collapse of the housing bubble and has increased “exponentially” ever since. In 2008, when the FBI formed a task force with other law enforcement agencies to target the issue, there were up to 1,775 mortgage fraud incidents in the Phoenix area, according to FBI statistics. By 2009, there were 2,394 – an increase of 35 percent. The agency estimates that the total financial loss from this period is $170.3 million.

At first, the cases were referred by everyday folks in the real estate industry on both sides of the housing transaction. But after the collapse, banks became more active by using an online tool to file “suspicious activity reports” directly to the FBI. Still, only 47 people have been charged with mortgage fraud since spring 2008, and of those, 24 have been convicted.

Azadegan was one of them. He pled guilty last spring and was sentenced to 18 months in prison last fall, but not before he gave authorities more details about how the “cash back” scheme works.

Azadegan would help locate distressed properties in the $375,000 to $900,000 range, then find “straw buyers” – people with good credit who took out a loan in exchange for cash or to be part of an investment opportunity – to help buy that property. Court records show he would help them fill out a loan application to buy the house, negotiate the sales price, attend the closing and obtain appraisals from third parties who willingly inflated the price. Halferty says the difference between the sales price and the loan price was pocketed by Azadegan’s group as cash.

Business was good. A few years ago, Azadegan had bought homes, thoughtfully renovated them and then legitimately sold them as a living. After joining Daniel Morar, Cipriano Ionutescu, Samuel Dobos and four others to buy real estate, the money poured in and afforded him a lavish lifestyle.

“He was driving a Bentley. He was going to clubs. He was living high on the hog,” says Azadegan’s lawyer, Patrick McGillicuddy.

Then the housing bubble popped. When groups like Azadegan’s were caught sitting on several overpriced properties with no buyers, Halferty says it became a game of musical chairs. The ones who couldn’t sell and sit out were exposed. When Biltmore Bank executives noticed the pattern, they notified state and federal authorities.

Azadegan and the rest of the group were charged with wire fraud, conspiracy and money laundering. He received a shorter prison sentence in exchange for testifying against Ionutescu and Dobos, and he has been released on probation. [Charges against Ionutescu were eventually dismissed after press time.]

The Romanian case is just one bubble in thousands of bubbles that floated to the top after the real estate meltdown. To start popping more of them, several law-enforcement agencies are redirecting or hiring more staff to address the problem.

“With all of that coming together in 2010, and because we have a number of cases that we call ‘targeted cases’ in the pipeline ready to go, I think you’ll see more cases being indicted, more subjects being indicted in 2010,” Halferty says.