Don Gossman is the Managing Director of the IRR-Residential office in Kansas City.  Following is a two part series that discusses a 2006/2007 assignment he was involved with that resulted in a number of mortgage fraud convictions.  This part one describes the Case and the Investigation.   Part two will describe the Grand Jury and the Trial.

THE CASE
You might ask why a real estate appraiser from Kansas City has the FBI as a client.  Many appraisers were approached in the frenzy of the sub-prime mess to over value properties - to hit the number that the lenders needed to do the deal.  We are now finding the damage it is causing our industry, our economy and our country. 

On October 10, 2006, I received a phone call that changed my life and sent it in directions I could not have imagined. It was a sub-prime lender wanting to know if I appraised high-end residential properties in the Country Club District of Kansas City. I replied yes and quoted them a fee. I then instructed the lender to place the order on my website and to fax me a copy of the contract.  I reviewed the contract for $1,473,000 and ran MLS to search for comparables and the subject’s listing history.

The MLS data showed the subject property as an active listing for $699,000, less than half the contract price and the value the lender said they needed! I called the lender back and asked if I had the wrong address or if this was a construction rehab loan. I asked, “Did you know this house is listed for $699,000?” The lender said yes and I was told they had negotiated to sell it for the higher value and if I wanted the assignment I had to appraise it for that amount.

They wanted me to sell my soul and 28 years in business for a $1,200 fee!  I declined the order and called the listing agent to warn her. The agent noted she knew nothing about the contract. The sellers had excluded this buyer when she received the listing and were cutting her out of the commission.

I was enraged because I knew the mortgage system was broken and someone needed to act. I had attended the Appraisal Institute’s Mortgage Fraud Seminar the week before and met an agent with the FBI, Julia Jensen. I decided to call and let her know what was going on so she could put the property on the “watch list."

When Agent Jensen called me back the next day, I discussed the details with her. She inquired, “Who is the buyer?” When I told her the names, Agent Jensen was familiar with them as part of a mortgage fraud group operating in Kansas City. Agent Jensen also asked the name of the seller. I gave her those names as well. She replied, “Let me grab another agent and we will come see you in 20 minutes.” That was not the reply I was expecting. 

While I was at my office waiting for the FBI agents, I kept thinking, “What have I gotten myself into?” Special Agents Julia Jenson and Robert Shaffer came into my office and I showed them the information that I had obtained.  They asked if I was familiar with the sellers, which I wasn’t. The agents told me the seller’s dad was allegedly a made member of the mob that was executed in the 1970’s. That information grabbed my attention. The agents asked if I knew who his wife was, and I said no. They said I might know her by her public name, which they then told me. I knew that name. She was the county executive and was going to run for MAYOR of Kansas City.

The FBI agents asked if I would assist them with their investigation and I replied that I would. Next, they asked me to call the lender and tell them I would complete the appraisal.  I said sure. Then the agents asked the million dollar question. “Would you tape the conversation?” The moment of truth had arrived. If I said no, they would leave and I would go back to appraising as if nothing happened. If I said yes, I knew I was in for an unpredictable future.

The FBI agents pulled out a recording device and showed me how to use it. They noted the date and time of the call, who was present, who I was calling and the case number.  I called the loan processor and told her I would complete the appraisal. I tried to act normal when talking with her, but I am sure she could hear my knees knocking on the phone. 

I am a real estate appraiser, not an undercover agent. I had wanted somebody to do something about what was going on in the mortgage business. In this case, I decided that someone was me - an ordinary suburban dad that was taught to do the right thing.

After the agents left my heart was pounding. I tried to figure out how this might work out. The FBI agents had left another recording device to use while talking with the other people involved in the transaction.  I called the buyer’s agent to schedule a time to inspect the home.  I then spoke with the loan officer and processor, telling them when it was scheduled.  The processor noted to me since the loan was over 1 million dollars they would require another appraisal in addition to mine. She asked if I would call the other appraiser and work together to make the appraisals similar to pass underwriting guidelines.  Apparently, committing mortgage fraud was no big deal for them. It was their normal way of conducting business.

I called Agent Shaffer and informed him of the inspection time and date. He asked if I could drop off the recording device to him on Monday at FBI Headquarters and trade for a new one.  It was the longest weekend of my life.

Monday finally came and I drove to FBI Headquarters. It is a three story office building like any other, with exception of the 10-foot high iron fence, blast gate and video cameras at the front gate. I pressed the button and told them who I was meeting, and they buzzed me in. I walked to the front door and was greeted by an armed guard. She told me the agents were on the way down. Once I spoke with the agents, they asked me to come back to the interrogation room. As we walked past the metal detectors, I asked the guard if I needed to go through one. She replied, “You are an agent, aren’t you? You don’t have to go through it.” I replied, “I am not an agent, I am an appraiser.”

We went to the interrogation room and discussed the conversations that I had with the various people involved with the transaction. Another agent came into the room with a camera and took a picture of me. The agents asked if I would be a confidential witness and gave me my code name.  It all went so fast I had no time to think about what was happening. We set a time to meet the next day before I did the inspection.

THE INVESTIGATION
Agent Shaffer and I met the next morning in the parking lot of a grocery store. He showed me a different recording device that took both audio and video and how to use it. I drove to the subject property and the real estate agent was waiting for me. I took a picture of the front of the home with him in the picture, then took a street scene with his car in the picture. The real estate agent was not going to be able to say he wasn’t there.

We went inside the house and the agent told me this group was going to buy between 40 and 50, one to two million dollar homes in Kansas City, and his group was doing the same thing in 10 different cities. They had money from overseas to invest and planned to rent out these houses to executives. I couldn’t believe it. This was turning out to be a multi-city international crime ring, not just one case of mortgage fraud.  I finished my inspection, then left to meet Agent Shaffer. I described the events that took place and gave him back the recording device.

Over the next three weeks, I taped conversations with people involved in the transaction. I hate to admit, but it turned into a full-time job. I was doing my appraisal work at night and on weekends since my days were spent undercover. I even had my children spend the nights at their mom’s house because I was worried about their safety.

The other appraiser called me and told me he was having a hard time appraising the property for $1,473,000. He explained that the highest he could get was $1,200,000. I thought, “You will over appraise it by $500,000 but not $743,000?” I guess he had partial ethics. We agreed to the value and completed the appraisals.

The FBI agents asked if I would drop off the appraisal to the mortgage company while wearing a wire. By this point, it seemed like the natural thing to do. I walked away from the mortgage company thinking my part was done.  If only that was the case.

My life went back to normal, for a while. I had not heard anything for three weeks. On November 24, 2006 I received a phone call from the second appraiser. He asked “did you hear what was going on?” I replied “no,” and he said “I received a call today from the FBI and I have an appointment at 9:00 AM in the morning to talk about mortgage fraud.” I thought to myself “it sucks to be you.” I told the other appraiser thanks for the heads up. He asked “What are you going to do?” I replied, “Tell them the truth. They know what is going on.”

Agent Shaffer called me later that day. He told me they tried to close the sale and financing the prior Friday, but the FBI had stopped it at the closing table at the title company. The FBI was now interrogating the individuals involved in the transaction. Agent Shaffer asked me not to talk with anyone about the case. Agent Shaffer said “The date of the Grand Jury has been set for January 4, 2007 and could I be there that day after lunch to testify?”

I thought to myself “Merry Christmas and Happy New Year Don!” 

Donald J Gossman SRA
Managing Director
IRR-Residential Metro Real Estate Services
www.irr-residential.com
dgossman@irr-residential.com

Part two of the series will describe the Grand Jury and the Trial that resulted in nine convictions of mortgage related fraud.