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Ninth Circuit Upholds Conviction for Mortgage Broker Involved in Mortgage Fraud Scheme - U.S. v. Rizk

October 26, 2011

As Moreno Valley foreclosure defense lawyers, we write occasionally about mortgage fraud because fraud at any level is part of what created the depressed real estate market every borrower must deal with today. A recent Ninth U.S. Circuit Court of Appeals decision was a good reminder that mortgage fraud frequently goes far beyond an individual lying on his or her loan application -- the corruption often extends to several loan professionals who cooperate in their lies. This was the case in U.S. v. Rizk, the appeal of a home appraiser convicted of participating in a Los Angeles-area fraud scheme. The Ninth Circuit ultimately decided that the convictions of Lila Rizk were valid and not unfair, but overturned a restitution order awarding more money to victims than they actually lost.

Rizk appraised homes mostly in Orange County and Los Angeles County, sometimes working with mortgage broker Mark Abrams and his business partner, Charles Elliott Fitzgerald. Between 2000 and 2003, the men and some associates carried out a scheme to purchase high-end homes for more than they were worth and simply keep the difference between the marked value they paid and the much higher loans they took out. The total profits from this scheme were $40 million, at the expense of the lenders. To convince lenders to make the inflated loans, they created false contracts and also used inflated appraisal reports, many of which were provided by Rizk. At trial, prosecutors introduced charts that showed the difference between the actual and purported closing dates and prices and other evidence. Rizk and the others objected, arguing that the charts were overbroad because they included ten times as many properties as appeared on the indictment, but they were overruled. Rizk was eventually convicted of conspiracy, bank fraud and 13 counts of loan fraud.

On appeal, Rizk challenged the admission of the charts, saying they were prejudicial because they put evidence before the jury about acts for which she was not charged, and about which prosecutors never presented evidence. The court noted that the kind of charts in question must contain only admissible evidence, but the evidence must not necessarily be admitted. Thus, the Ninth Circuit dismissed Rizk's first argument that it was prejudicial that prosecutors did not admit the evidence. It turned next to her arguments under federal rules permitting the exclusion of irrelevant evidence. Again, the Ninth Circuit found that the charts were admissible, under well-established caselaw allowing evidence of a conspiracy to be admitted even when not all the acts are in the indictment. On Rizk's arguments that the evidence did not support her convictions, the court found this untrue, noting that she ignored certain evidence in her brief. A rational jury, using the evidence at hand, could find her guilty, the court said. However, it accepted her argument that the restitution order was erroneous. Because Rizk had an insurance carrier who has already paid the victims, it said, the court should have ordered Rizk to pay back the insurer and then pay roughly half that amount to the victims.

Our Placentia foreclosure defense attorneys would like to note that the victims in this case are the lending institutions that financed the fraudulent sales. As a general rule, however, mortgage fraud often victimizes the unlucky people who just happen to live near the fraudulently obtained property. Because mortgage fraud often means letting homes go into foreclosure very quickly after purchase, it depresses property values in the neighborhood with a foreclosure sale. The neighbors' homes lose value, and they also often end up with an unsightly home in the area that is not being properly cared for. Observers of the housing bubble have likely seen this played out in a big way in communities hit hard by foreclosure. Many of those foreclosures were "organic," in that the borrowers truly couldn't afford to keep paying, but as Chino foreclosure defense lawyers, we are not fans of fraud that makes the situation worse for honest borrowers.

If you're in default or foreclosure, or you soon will be, and you haven't been able to get help from your mortgage servicer, try calling Howard Law, P.C., instead. For a case evaluation, send us a message online or call 1-800-872-5925.

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