A national mortgage scam has ensnared hundreds of victims in 27 states, including at least 17 homeowners in New Jersey, Gannett New Jersey newspapers has learned.
Two mothers in Ocean County, a widow in Middlesex County and a disabled Vietnam veteran in Delaware said they are among the defrauded.
"If I have to leave this house, I'd probably die," said 62-year-old widow Rita Galgano of Old Bridge, who fears sheriff's officers may arrive any day to serve an eviction notice because her home is in foreclosure.
An IRS search warrant lists 256 affected properties stretching from Maine to Hawaii. The warrant identified 106 homeowners as victims and 99 third-party, or straw, buyers, who may have unwittingly propelled the fraud forward. Two-dozen companies are also named, but it is unclear what their role was in the investigation.
An FBI spokesman and an IRS agent last week confirmed the investigation into the companies and people behind what had been touted as a way for small investors to save financially strapped homeowners.
"It is a large and significant case," FBI spokesman John Cauthen said. "We're investigating with the full force and weight of the FBI."
Cauthen said no charges have been filed. Nonetheless, the FBI has sent letters to homeowners and investors to inform them they are victims. Those letters identified Charles Head, operator of the now -- defunct FundingForeclosure.com, as the focus of the investigation.
Head could not be reached for comment. Private attorneys representing the victims said Head, believed to be of Florida, cannot be located.
The FBI letters also let victims know they can apply for a portion of the sale proceeds from a 2005 Mercedes Benz worth $88,250 that was seized in the case for a "violation of money laundering." The owner of the car was not noted in the letter.
But former homeowners and investors who face foreclosure and a ruined credit history say a fraction of a car sale will be of little help to them.
"I just want my house back for my son and me," said Marie Citarella of Waretown. "I don't care if I never get a penny. I just want my house."
The 34-year -old single mother of an 11-year-old boy had thought she'd taken a $27,000 equity loan to help her bridge gaps in her finances as she moved between jobs. The company ended up taking out a $204,250 loan on the property.
The FBI letters have proven helpful to some.
Citarella and William Adderley, a disabled Vietnam veteran in Delaware, have successfully used the letters to convince judges to postpone the foreclosure proceedings.
Under the scheme, homeowners who had been struggling to make mortgage payments, or were in foreclosure, say they were contacted by one of the suspect companies and persuaded to agree to what sounded like a wonderful deal: An investor would buy their property temporarily, and then they would pay rent to live in their own house and buy it back within two years.
In some cases, homeowners said they were not aware they were selling their property.
The rent may be lower than their monthly mortgage payments, or an influx of cash from the deal would pay off debt, according to interviews. But the bottom -- line arrangement was supposed to allow distressed homeowners time to catch up on bills, find new jobs and earn better credit ratings.
The third-party investors, or straw buyers, were excited, too. They were promised an income of $5,000 to $40,000 a year in exchange for lending their names and good credit scores to people who needed a hand. The company said it would make mortgage payments for the investors through the rent proceeds.
Everyone would win, the company promised.
But land records show new, larger loans were taken out on the properties well above the mortgages they replaced all in the names of the straw buyers.
No mortgage companies were named in the IRS search warrant. In many instances, the loans were resold among mortgage companies and investment banks in the subprime, or high -- interest rate, markets.
Kevin J. Carlin, a Hamilton lawyer representing three former homeowners, said homeowners and straw buyers unwittingly signed waivers to wire the proceeds to Head's other companies, such as Creative Loans LLC.
Several sellers' packets examined by Gannett New Jersey included a wire authorization to send money to an account at a Costa Mesa, Calif., bank.
Records kept by two of the victims show they made rental payments to two other companies now under investigation. Rental payments apparently floated the loans for several months, Carlin said, but eventually the properties ended up in foreclosure when the mortgage payments were stopped.
"This is the fraud to end all frauds," Carlin said.
Carlin said he hopes court mediation will result in the clients assuming the amount of their prior mortgage, which could allow them to continue to live in their homes.
Carlin said mortgage and title companies are partially to blame for missing obvious discrepancies in the documents involving realty taxes, dates, and costs. He said they should have flagged the transactions.
"Systemically, this should not be possible," Carlin said. "It happens because (lenders) and title companies don't play the policing role that they should. Then it is left for the judges of our equity courts to serve as stoppers for the holes left in the law."
FundingForeclosure appeared to market its products to those unfamiliar with land deals and financially vulnerable.
Todd A. Hawk of Lancaster, Ohio, a state concrete inspector who makes $35,000 a year, lent his name to buy four properties, including a home in Jackson, in the hopes of receiving a $5,000 payment for each.
The 39 -- year -- old single father of three sons said he was attracted to the FundingForeclosure Web site that pictured a family and asked: "Could you use an extra $40,000?"
Hawk said he never signed loan documents or applications, but did sign an agreement with the company that stated the company would make the mortgage payments on the properties. But FBI agents have since told him those agreements are illegitimate.
"I can't believe how stupid I was," Hawk said. "I would not think something like this would be possible, but they did it."
Hawk said he received one $5,000 check, but it bounced.
He is listed as the legal owner of the home of Christina Franklin, 51, in Jackson, according to a deed dated January 2006. Franklin operates a towing business and is the mother of six children ranging in age from 20 to 32. Four children and an 11 -- year -- old grandson live with her.
Franklin said she ran into financial trouble after she separated from her husband and she could not meet the mortgage payments. She turned to FundingForeclosure in late 2005 after her house was slated for a sheriff's sale.
She said that FundingForeclosure would buy her house and then allow her to live in it for $850 a month for a year. She felt confident that as she rebuilt her credit and finances, she could then obtain a lower -- rate mortgage and repurchase her home. But the house has fallen into foreclosure again.
"I don't want to move," said Franklin, who has lived in the blue, one -- story, A -- frame house since 1999. "Do you know what I'd have to do to pack everything up? It's my home."
In Old Bridge, widow Rita Galgano said she and her late husband agreed to the FundingForeclosure deal while in bankruptcy as a last -- ditch attempt to avoid foreclosure. Her husband, Carlo1 "Nick" Galgano, had been disabled by an assault for 30 years. Heart problems had forced him to even give up the part -- time handyman jobs he had worked.
Galgano said her husband's health declined quickly last year after he learned that a $377,000 mortgage loan had been taken on the property, that the straw buyer was not making payments, and that the matter was part of an FBI investigation. He died last December.
"It made my husband sicker than he was," Galgano said. "My husband loved it here he said we'd never leave."
In Waretown, single mother Marie Citarella said she had sought to take out a $27,000 equity loan in 2005 after she quit her job as an assistant to an attorney for the Stafford Board of Education. She said she had been emotionally affected by her parents' divorce and other life events. A mortgage originator referred her to FundingForeclosure because her credit was poor.
Citarella said she was not aware she was selling the property.
Two mortgages, worth $204,250, were taken out in the name of two straw buyers.
She said she simply signed the papers where a local notary told her to sign. She said she did not read them, but relied on what she was told by a friendly woman from FundingForeclosure.
"I don't know these things," Citarella said. "Nothing looked like a deed. Nothing. This was my house. I bought this house for my son and me. I worked two jobs to get this house."
Citarella, who is cleaning houses, said she's learned some lessons through the hardship.
"I wasn't always assertive," she said. "I've learned."