Alleged Scheme Caused Home Mortgages to Falsely Appear Paid
OAKLAND – 22 September – LAWFUEL – The Law News Network – The United States Attorney’s Office for the Northern District of California and the FBI announced that a federal grand jury in Oakland indicted Dale Scott Heineman, 45, Kurt F. Johnson, 42, and the Dorean Group in a 46-count indictment charging mail fraud, bank fraud, and conspiracy to commit wire fraud, mail fraud and bank fraud. The principals of the Dorean Group are Dale Scott Heineman of Union City, California, and Kurt F. Johnson, of Sunnyvale, California. They, along with the Dorean Group and entities associated with the Dorean Group, are charged with operating a debt elimination scheme whereby fraudulent documents are recorded as part of the title of their clients’ properties, causing home mortgage and equity loans to falsely appear satisfied when they actually had not been paid. With this fraudulently-generated free and clear title, certain clients, at the direction of the Dorean Group, obtained hundreds of thousands of dollars in home equity loans from independent lenders.
The charges in the indictment relate to 17 properties in California, Nevada, Texas, North Carolina, Florida, Colorado, Washington, Idaho, and South Carolina with a value of over $5 million. The FBI is continuing to investigate more than 480 properties throughout 35 states with a potential value of $88 million in loans that may have been affected by this alleged scheme. The FBI is investigating properties in 19 California counties affected by this alleged scheme.
U.S. Attorney Kevin V. Ryan stated, “Homeowners should be cautious of offers that sound too good to be true. This alleged scheme violates mortgage agreements between the lender and borrower and taints property titles by recording false documents on the title of a home. Manipulating property titles and interfering with mortgage loans with the intent to defraud is illegal and will result in prosecution.”
Joseph Ford, Special Agent in Charge of the FBI in San Francisco, stated, “Mr. Heineman and Mr. Johnson are accused of being con artists in a sophisticated telemarketing scheme. They are alleged to have incorporated the internet to further their criminal enterprise which is nationwide in scope and has significant impact on the housing market in the U.S. Because cyber space has no borders, the FBI is working with its law enforcement partners from around the world to address these growing crime problems.”
According to the indictment, the Dorean Group is an unlicensed and unincorporated entity that has been operating a purported debt elimination program since at least January 2004. The Dorean Group uses brokers to promote its program. On various websites, the Dorean Group and its brokers publically advertise that they have a “PROVEN, legal and moral way of eliminating your mortgage while adding $32K to your pocket (*based on a $200,000 mortgage).”
According to the indictment, the Dorean Group’s scheme to defraud operated as follows:
(1) Fee: The client pays an up-front fee of approximately $1,000 to $3,000 per loan to be eliminated and promises to make a “free-will offering of 50% of the REDEEMED mortgage.” The redeemed mortgage refers to a subsequent equity loan (inaccurately dubbed a refinance loan in websites promoting this scheme) that is obtained from a separate lender based upon the false premise that the initial mortgage loan secured by the property had been fully satisfied.
(2) Transfer of Title: Once the initial fee is paid, the Dorean Group forms a trust with its client, the trustees of which are Heineman and Johnson. The client records a quitclaim deed with the local county recorder’s office, which allegedly transfers the borrower’s title interests to this trust. However, mortgage agreements between a borrower and a lender generally require the lender’s consent before the borrower may transfer his/her title interests. According to the indictment, no lender has granted Heineman, Johnson, or the Dorean Group permission to act on behalf of the borrower under the applicable mortgage agreements.
(3) Self-Executing Presentment Packet: The Dorean Group subsequently mails a “self- executing presentment packet” to the lender of its client’s loan. In this packet, the Dorean Group claims to act on behalf of the borrower and demands the lender prove the validity of its loan “to the unilateral satisfaction of the Dorean Group” within 10 days. If the lender fails to take this opportunity, documents in the packet allege that, due to the lender’s “tacit assent” and “default,” Heineman and/or Johnson of the Dorean Group will act as the lender’s agent and attorney-in-fact as to the loan and the secured property. In addition, if the lender elects to prove the validity of the loan, but fails to meet this burden, the lender is purportedly liable to the Dorean Group for damages twenty times the amount of the loan.
(4) Substitution of Trustee: After 10 days has elapsed, Heineman, Johnson and the Dorean Group prepare a “Substitution of Trustee,” or, depending on jurisdiction, a “Specific Power of Attorney” or “Power of Attorney,” that is recorded as part of the title to its client’s property. This recordation claims that Heineman and/or Johnson is acting as agent and attorney-in-fact on behalf of the lender. According to the indictment, no lender has authorized Heineman, Johnson or the Dorean Group to act either as its agent or attorney-in-fact.
(5) Full Reconveyance: Under this false representation, Heineman, Johnson and the Dorean Group prepare a “Full Reconveyance” or, depending on jurisdiction, “Discharge of Mortgage” or “Satisfaction of Mortgage,” that is recorded as part of the title to its client’s property. In this document, Heineman and/or Johnson of the Dorean Group – allegedly acting on behalf of the lender – represents that the loan secured by the property has been fully paid, when the loan had not, in fact, been repaid. In this recordation, Heineman and/or Johnson purportedly transfers the lender’s secured interests in the client’s property to the client’s trust established by the Dorean Group, causing title of the property to falsely appear free and clear of any encumbrances.
(6) Subsequent Home Equity Loan: With what appears to be free and clear title, the Dorean Group directs its clients to obtain a subsequent “refinance” or home equity loan from a separate lender, with the property serving as the security underlying this loan. When the loan disbursement loan is made, the Dorean Group receives 50% of its proceeds, the Dorean Group broker receives approximately 10-25% of the funds, and the Dorean Group client keeps the remaining 25-40% of the loan. The refinance loan is expected to be subject to the Dorean Group’s debt elimination program and is not repaid.
Mr. Heineman and Mr. Johnson were previously arrested on state charges filed in Salt Lake City, Utah. They are currently being held in custody in Salt Lake County Metro Jail in Salt Lake City, Utah. No bail arrest warrants were issued as to both Mr. Heineman and Mr. Johnson as a result of this indictment and will be lodged with the Salt Lake County Metro Jail. An initial appearance on this indictment is not yet scheduled, as the Third District Court of the State of Utah, which has primary custody over Mr. Heineman and Mr. Johnson as a result of the pending state charges, must first determine when they can be made available for that purpose.
On July 6, 2005, the Civil Division of the United States Attorney’s Office filed a complaint for injunctive relief pursuant to 18 U.S.C. § 1345, and a motion for a temporary restraining order directing that Messrs. Heineman and Johnson, doing business as the Dorean Group, stop marketing and operating their mortgage elimination scheme. On July 6, 2005, Judge William H. Alsup granted the government’s motion for a temporary restraining order. On August 1, 2005, Judge Alsup converted the temporary restraining order to a preliminary injunction, restraining the Dorean Group from engaging in any activities related to its mortgage elimination scheme, pending final judgment in the civil action.
The maximum statutory penalty for each count of mail fraud in violation of 18 U.S.C. § 1341 and affecting a financial institution is 30 years imprisonment and a fine of $1,000,000, plus restitution. The maximum statutory penalty for each count of bank fraud in violation of 18 U.S.C. § 1344 is 30 years imprisonment and a fine of $1,000,000, plus restitution. The maximum statutory penalty for each count of conspiracy to commit mail fraud, wire fraud and bank fraud in violation of 18 U.S.C. § 1349 is 30 years imprisonment and a fine of $1,000,000, plus restitution. However, any sentence following conviction would be imposed by the court after consideration of the U.S. Sentencing Guidelines and the federal statute governing the imposition of a sentence, 18 U.S.C. § 3553.
An indictment contains only allegations against an individual and, as with all defendants, Mr. Heineman, Mr. Johnson and the Dorean Group must be presumed innocent unless and until proven guilty.
James Keller is the Assistant U.S. Attorney who is prosecuting the case and Steven Saltiel is the Assistant U.S. Attorney who handled the government’s application for a temporary restraining order and preliminary injunctive relief against the Dorean Group. The prosecution is the result of a nine-month investigation by the Federal Bureau of Investigation. Several state law enforcement entities, including the Alameda County District Attorney’s Office and the California Attorney General’s Office, among others, provided valuable assistance and information about this alleged scheme to the United States Attorney’s Office.
A copy of this press release and related court filings may be found on the U.S. Attorney’s Office’s website at www.usdoj.gov/usao/can.
Electronic court filings and further procedural and docket information are available at https://ecf.cand.uscourts.gov/ (click on the link for “to retrieve documents from the court”).
Judges’ calendars with schedules for upcoming court hearings can be viewed on the court’s website at www.cand.uscourts.gov.
All press inquiries to the U.S. Attorney’s Office should be directed to Luke Macaulay at (415) 436-6757 or by email at [email protected]List your legal jobs on the LawFuel Network