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Lehman Bros. sues over potential mortgage fraud at Pasco condos
[November 02, 2006]

Lehman Bros. sues over potential mortgage fraud at Pasco condos


(Tampa Tribune (FL) (KRT) Via Thomson Dialog NewsEdge) Nov. 2--TAMPA -- A New York lender fears it is on the hook for millions of dollars in loans that now total more than the New Port Richey properties are worth.

Lehman Bros. Holdings, the global financial services corporation, filed suit in Tampa on Tuesday against a group of investors, title companies, a mortgage company and an appraisal company involved in potential mortgage fraud at a Pasco County condominium complex.



Sunset Bay Club has three-story triplexes that each have five bedrooms and a shared kitchen. The bedrooms, according to the lawsuit, are leased primarily to senior citizens.

Fifteen defendants used overvalued appraisals in a "scheme to defraud" the bank, according to the lawsuit. The 13 properties each were appraised for $733,000. The lawsuit says the triplexes are worth "barely one-third" of that value.


Companies named in the lawsuit are Equitable Title of Florida, based in Orlando; LandAmerica Financial Group, based in Richmond, Va., and its subsidiaries, LandAmerica Gulf Atlantic Title and Lawyers Title Insurance Corp.; Interlachen Residential Mortgage Co., based in Winter Park; and Passarelli & Potts Appraisal Service in Winter Park.

Individuals named in the lawsuit live in California and Minnesota.

A spokeswoman for LandAmerica Financial Group said she could not comment on pending litigation. Representatives at other companies involved did not return phone calls. Lehman Bros. declined to comment.

Lenders across the country are investigating mortgages that may be worth more than the market value of the properties. Some have filed lawsuits. Countrywide Home Loans, the nation's largest mortgage lender, sued various defendants for mortgage fraud on properties in Indiana in June. The lawsuit, first reported last month, involved investor buyers in Martinsville, Va., who discovered they were on the hook for mortgages in their names.

Countrywide would not release details of those transactions, but published reports estimated that the loans amounted to $80 million, which could make it one of the largest mortgage fraud cases in the United States.

Mortgage experts say lenders are bracing to discover such loans this year as the real estate market cools further. Part of the problem, they say, is that lenders usually don't spot problem mortgages until buyers start missing payments.

"These guys are very clever," said Don Effertz, a vice president with Interthinx of Agoura Hills, Calif., which develops software to help lenders detect fraud. "This is a righteous scam because it's so hard for lenders to catch it."

Lenders are discovering overvalued loans now for two reasons, said Doug Pollock, a mortgage investigator in Sanford. For one thing, fraudulent loans were easily overlooked during the past five years' real estate boom. Second, industry professionals may be tempted to participate in fraudulent deals to attract business, Pollock said.

Lehman's suit comes on the heels of investigations by four state agencies and at least two lenders into 36 inflated home sales in Pinellas and Hillsborough counties.

The sales, uncovered last month in a Tampa Tribune investigative report, involved the same listing real estate agent, the same title company, an appraiser and inflated home prices.

Lehman Bros. Bank was the lender on one of those St. Petersburg properties, which sold for $252,000 in June.

Countrywide was the lender on at least two of the properties and started an internal investigation into those mortgages last week.

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Copyright (c) 2006, Tampa Tribune, Fla.
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