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Case 2:06-cv-02426-JWL-DJW Document 1-1 Filed 10/04/2006 Page 1 of 82
IN THE UNITED STATES DISTRICT COURT
DISTRICT OF KANSAS
FIRST MAGNUS FINANCIAL
CORPORATION, doing business as
CHARTER FUNDING, an Arizona
corporation,
Plaintiff,
- vs - 06-2426 JWL
Civil No. _________________
STAR EQUITY FUNDING, LLC, GARY
SHARTZER, JAMIE FANKHAUSER,
WILLIAM WORLEY, JOE SAVAGLIA,
BRIAN LEE EATON, individually and dba
OLYMPIC MORTGAGE, VIRGIE SELF,
DANA SELF, DOUG CARRITHERS,
TOMMY REID, JOHN BLAIR, REIS
ENTERPRISES, INC., JUSTIN CAHOW,
KELLY GERRETY, SUSAN SHARTZER,
VINCENT RINEHART, VERERANDA
TOLEDO, DAVID VILLARREAL,
BARBARA HOLZENTHAL, ANGEL X.,
MICHAEL EVANS, JANE SANSON, J.S.
APPRAISALS, TERM INVESTMENT
GROUP, LLC, TERRELL FORD,
MAURICE RAGLAND, BILL LIMA,
MATTHEW WOODS, ROBERT BUNDY,
CHRIS TYLER, ADVANTAGE
APPRAISAL SERVICES, DEBRA J.
McGOWAN, AARON L. JAMISON and
DOES I - XX,
Defendants.
COMPLAINT AND JURY DEMAND
Plaintiff First Magnus Financial Corporation (“FMFC”), by and through its counsel of
record, complains against Defendants Star Equity Funding, LLC, Gary Shartzer, Jamie
Fankhauser, William Worley, Joe Savaglia, Brian Lee Eaton, individually and dba Olympic
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Mortgage, Virgie Self, Dana Self, Doug Carrithers, Tommy Reid, John Blair, Reis Enterprises,
Inc., Justin Cahow, Kelly Gerrety, Susan Shartzer, Vincent Rinehart, Vereranda Toledo, David
Villarreal, Barbara Holzenthal, Angel X., Michael Evans, Jane Sanson, J.S. Appraisals, Term
Investment Group, LLC, Terrell Ford, Maurice Ragland, Bill Lima, Matthew Woods, Robert
Bundy, Chris Tyler, Advantage Appraisal Services, Debra J. McGowan, Aaron L. Jamison and
Does I - XX, and seeks relief as follows:
PARTIES
1. FMFC is a privately held residential mortgage lender doing business throughout
the United States, including Kansas. FMFC is a corporation organized under the laws of the
State of Arizona with its principal place of business in Tucson, Arizona.
2. Star Equity Funding, LLC (“Star Equity”) is a Kansas Limited Liability Company
organized on March 16, 2000, with a Kansas State Business Entity ID Number of 2855500. Star
Equity is a mortgage broker that originated loans that are the subject of this Complaint.
3. On information and belief, Gary Shartzer was an owner, principal, member,
officer, manager, employee, and agent of Star Equity during the relevant time period. Shartzer
was the registered agent for Star Equity during the relevant time period. Shartzer signed a
brokerage agreement with FMFC on behalf of Star Equity as the “broker of record.” In addition,
upon information and belief, Shartzer was an owner, principal, member, officer, manager,
employee, and agent of Reis Enterprises, Inc. during the relevant time period. On information
and belief, Shartzer is a resident of Kansas.
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4. On information and belief, Jamie Fankhauser is an owner, principal, member,
officer, manager, employee and agent of Star Equity. On information and belief, Fankhauser is a
resident of Arizona.
5. On information and belief, William Worley is an owner, principal, member,
officer, manager and agent of Star Equity. On information and belief, Worley is the father of
Susan Shartzer and father-in-law of Gary Shartzer. On information and belief, Worley is a
resident of Kansas.
6. On information and belief, Joe Savaglia was an employee, agent and manager
of Star Equity during the relevant time period. On information and belief, Savaglia was also an
employee and agent of Reis Enterprises during the relevant time period. Savaglia was also an
employee and agent of American Residential Funding, Inc. during the relevant time period.
Savaglia was a loan officer who processed loans that are the subject of this Complaint. On
information and belief, Savaglia is a resident of Kansas.
7. On information and belief, Brian Lee Eaton was an employee, agent and manager
of Star Equity during the relevant time period. Eaton was also an employee and agent of
American Residential Funding, Inc. during the relevant time period. Eaton was a loan officer
who processed loans that are the subject of this Complaint. In addition, Eaton did business as a
mortgage broker under the dba Olympic Mortgage. Eaton signed a brokerage agreement with
FMFC as Brian Lee Eaton dba Olympic Mortgage as the “broker of record.” On information and
belief, Eaton is a resident of Missouri.
8. On information and belief, Virgie Self was an employee and agent of Star Equity
during the relevant time period. On information and belief, Virgie Self is Dana Self’s mother.
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Virgie Self was a loan officer who processed loans that are the subject of this Complaint. Upon
information and belief, Virgie Self is a resident of Kansas.
9. On information and belief, Dana Self was an employee, agent and manager of Star
Equity during the relevant time period. Self was also an employee and agent of Reis Enterprises
during the relevant time period. Self was a loan officer who processed loans that are the subject
of this Complaint. On information and belief, Self is a resident of Kansas.
10. On information and belief, Doug Carrithers was an employee and agent of Star
Equity during the relevant time period. Carrithers was a loan officer who processed loans that
are the subject of this Complaint. On information and belief, Carrithers is a resident of Kansas.
11. On information and belief, Tommy Reid was an employee and agent of Star
Equity during the relevant time period. Reid was a loan officer who processed loans that are the
subject of this Complaint. On information and belief, Reid is a resident of Kansas.
12. On information and belief, John Blair was an employee and agent of Star Equity
during the relevant time period. Blair was a loan officer who processed loans that are the subject
of this Complaint. Upon information and belief, Blair is a resident of Kansas.
13. On information and belief, Reis Enterprises, Inc. is a Kansas Corporation
incorporated on May 5, 2003, with a Kansas State Business Entity ID Number of 3466984, and
with its principal place of business in Kansas. Reis Enterprises is a mortgage broker that
originated loans that are the subject of this Complaint.
14. On information and belief, Justin H. Cahow was an owner, officer, manager,
employee, and agent of Reis Enterprises during the relevant time period. Cahow signed a
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brokerage agreement with FMFC on behalf of Reis Enterprises as the “broker of record.” On
information and belief, Cahow is a resident of Kansas.
15. On information and belief, Kelly Gerety was an owner, officer, manager,
employee, and agent of Reis Enterprises during the relevant time period. On information and
belief, Gerety is a resident of Kansas.
16. On information and belief, Susan Shartzer is the wife of Gary Shartzer. Susan
Shartzer is the borrower on a loan that is the subject of this Complaint. On information and
belief, Susan Shartzer is a resident of Kansas.
17. On information and belief, Vincent Rinehart was an owner, chief executive
officer, president, manager, employee, and agent of American Residential Funding, Inc.
(“American Residential”) during the relevant time period. American Residential is a mortgage
broker that originated loans that are the subject of this Complaint. Rinehart signed a brokerage
agreement with FMFC on behalf of American Residential as the “broker of record.” Rinehart
also served as the registered agent for American Residential during the relevant time period. On
information and belief, Rinehart is a resident of California.
18. On information and belief, Vereranda V. Toledo was an owner, chief financial
officer, secretary, manager, employee and agent of American Residential during the relevant time
period. American Residential is a mortgage broker that originated loans that are the subject of
this Complaint. On information and belief, Toledo is a resident of California.
19. On information and belief, David Villarreal was an owner, chief operating officer,
manager employee and agent of American Residential during the relevant time period. American
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Residential is a mortgage broker that originated loans that are the subject of this Complaint. On
information and belief, Villarreal is a resident of California.
20. On information and belief, Barbara Holzenthal was an employee and agent of
American Residential during the relevant time period. Holzenthal was a loan officer who
processed loans that are the subject of this Complaint. Upon information and belief, Holzenthal
is a resident of Missouri.
21. On information and belief, Angel X. was an employee and agent of American
Residential during the relevant time period. Angel X. was a loan officer who processed loans
that are the subject of this Complaint. The complete identity of Angel X. is not known at this
time. Therefore, FMFC alleges that all references to Angel X. in this Complaint also refer to
Does I-XX who are the actual individual or individuals who processed loans that are the subject
of this Complaint.
22. On information and belief, Olympic Mortgage is a fictitious registration filed in
Missouri, Charter Number X00523993, created June 2, 2003, or a dba used by Brian Lee Eaton
to do business as a mortgage broker during the relevant time period. Brian Lee Eaton dba
Olympic Mortgage is a mortgage broker that originated loans that are the subject of this
Complaint.
23. On information and belief, Michael Evans was an employee and agent of Brian
Lee Eaton dba Olympic Mortgage during the relevant time period. Evans was a loan officer who
processed loans that are the subject of this Complaint. On information and belief, Evans is a
resident of Missouri.
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24. On information and belief, Jane Sanson is a real estate appraiser, licensed in the
states of Kansas and Missouri during the relevant time period, who conducted, supervised or
reviewed several of the appraisals upon which FMFC detrimentally relied and that are the subject
of this Complaint. On information and belief, J.S. Appraisal is a dba sometimes used by Sanson
in her appraisal business. On information and belief, Sanson is a resident of Kansas.
25. Term Investment Group, LLC (“TIG”) is a Missouri Limited Liability Company
registered to do business in Missouri and organized on January 11, 2002, with a charter number
of LC0059645. TIG is an appraisal company that performed several fraudulent appraisals that
are the subject of this Complaint. Terrell Ford is TIG’s registered agent.
26. On information and belief, Terrell Ford is an owner, organizer, principal member,
officer, manager, employee, and agent of TIG. Terrell Ford conducted, supervised, or reviewed
some of the appraisals upon which FMFC detrimentally relied and that are the subject of this
Complaint. On information and belief, Ford is a resident of Missouri.
27. On information and belief, Maurice Ragland is an owner, organizer, principal
member, officer, manager, employee, and agent of TIG. On information and belief, Ragland is a
resident of Missouri.
28. On information and belief, Bill Lima is an employee of TIG that performed many
of the fraudulent appraisals at issue in this Complaint. In the alternative, on information and
belief, Bill Lima is a fictitious name or a victim of identity theft. On information and belief, TIG
principals and employees used Bill Lima’s name when conducting fraudulent appraisals as a
means to avoid detection. Therefore, FMFC alleges that all references to Bill Lima in this
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Complaint also refer to Does I-XX who are the actual individual or individuals performing the
appraisals under Bill Lima’s name.1
29. On information and belief, Matthew Woods is an employee of TIG that performed
some of the fraudulent appraisals at issue in the Complaint. On information and belief, Matt
Woods is a real estate appraiser, licensed in the states of Kansas and Missouri during the relevant
time period. In the alternative, on information and belief, Matt Woods is a victim of identity
theft. On information and belief, TIG principals and employees used Matt Woods’s name when
conducting fraudulent appraisals as a means to avoid detection. Therefore, FMFC alleges that all
references to Matt Woods in this Complaint also refer to Does I-XX who are the actual
individual or individuals performing the appraisals under Woods’ name.2 On information and
belief, Woods is a resident of Missouri.
30. On information and belief, Robert Bundy is an employee of TIG that performed
some of the fraudulent appraisals at issue in the Complaint. In the alternative, on information
and belief, Robert Bundy is a fictitious name or a victim of identity theft. On information and
belief, TIG principals and employees used Robert Bundy’s name when conducting fraudulent
appraisals as a means to avoid detection. Therefore, FMFC alleges that all references to Robert
1
This matter has not been confirmed as of the date of this Complaint and FMFC reserves its rights to
prosecute all claims against the individuals responsible for the appraisals in question, whether that be Bill
Lima or a currently unknown third-party.
2
This matter has not been confirmed as of the date of this Complaint and FMFC reserves its rights to
prosecute all claims against the individuals responsible for the appraisals in question, whether that be
Matt Woods or a currently unknown third-party.
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Bundy in this Complaint also refer to Does I-XX who are the actual individual or individuals
performing the appraisals under Bundy’s name.3
31. On information and belief, Chris Tyler is an employee of TIG that performed one
of the fraudulent appraisals at issue in the Complaint. In the alternative, on information and
belief, Chris Tyler is a fictitious name or a victim of identity theft. On information and belief,
TIG principals and employees used Chris Tyler’s name when conducting fraudulent appraisals as
a means to avoid detection. Therefore, FMFC alleges that all references to Chris Tyler in this
Complaint also refer to Does I-XX who are the actual individual or individuals performing the
appraisals under Tyler’s name.4
32. On information and belief, Debra J. McGowan is the supervisory appraiser on one
of the appraisals that is the subject of this Complaint. On information and belief, McGowan is a
resident of Missouri. Advantage Appraisal Services is a fictitious registration filed in Missouri,
Charter Number X00386279, created February 26, 2001, or dba for Debra McGowan.
33. On information and belief, Aaron L. Jamison is the appraiser on one of the
appraisals that is the subject of this Complaint. On information and belief, Jamison is a resident
of Kansas.
3
This matter has not been confirmed as of the date of this Complaint and FMFC reserves its rights to
prosecute all claims against the individuals responsible for the appraisals in question, whether that be
Robert Bundy or a currently unknown third-party.
4
This matter has not been confirmed as of the date of this Complaint and FMFC reserves its rights to
prosecute all claims against the individuals responsible for the appraisals in question, whether that be
Chris Tyler or a currently unknown third-party.
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34. Does I-XX are individuals and entities that have some actionable involvement
with the fraudulent loans that are the subject of this Complaint, but are unknown to FMFC at this
time. These individuals and entities will be added as parties as they are identified.
JURISDICTION AND VENUE
35. Pursuant to 28 U.S.C. § 1331, this Court has federal question jurisdiction of
FMFC’s claims under 18 U.S.C. § 1961 et seq., Racketeer Influenced and Corrupt Organizations
Act (“RICO”).
36. Pursuant to 28 U.S.C. § 1367, this Court has supplemental jurisdiction of FMFC’s
pendent state law claims as they form part of the same case or controversy.
37. As the judicial district in which a substantial part of the events or omissions
giving rise to FMFC’s claims occurred, venue is proper in the District of Kansas pursuant to 28
U.S.C. § 1391(b).
NATURE OF ACTION
38. FMFC alleges that Defendants entered into a mortgage fraud scheme to induce
FMFC into funding fraudulent loans so that Defendants could obtain unjustified fees,
commissions and kickbacks from loans that would not have been made but for Defendants’
fraudulent representations. Defendants’ scheme worked through the collusion of certain
mortgage brokers Star Equity, Reis Enterprises, Brian Lee Eaton dba Olympic Mortgage
(“Mortgage Brokers”), certain principals of those mortgage brokers, Gary Shartzer and Brian
Eaton (“Mortgage Broker Principals”), loan officers employed by both the Mortgage Brokers and
by American Residential, including Brian Eaton, Joe Savaglia, Virgie Self, Dana Self, Doug
Carrithers, Tommy Reid, John Blair, Barbara Holzenthal, Angel X. and Michael Evans (“Loan
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Officers”), appraisers hired by the Mortgage Brokers and their Loan Officers, including Jane
Sanson, TIG, by and through its principals and employees, Terrell Ford, Maurice Ragland, Bill
Lima, Robert Bundy, Matthew Woods and Chris Tyler and Advantage Appraisal Services, by and
through its employees Aaron L. Jamison and Debra J. McGowan (“Appraisers”), and, in at least
one instance, the borrower and wife of Gary Shartzer, Susan Shartzer.
39. The Mortgage Brokers, Mortgage Broker Principals, Loan Officers, Appraisers,
and, in one case, the borrower, Susan Shartzer, conspired to over-appraise and thus wrongfully
inflate the value of residential properties. In addition to procuring and using fraudulently inflated
appraisals, Mortgage Brokers, by and through their employees and agents the Loan Officers,
misrepresented borrower information in the mortgage loan applications and other documents in
the loan package, including, but not limited to, the borrowers’ monthly income and assets.
40. Relying on the Defendants’ acts, omissions and misrepresentations, FMFC funded
inflated loans that were not adequately collateralized by the subject property. FMFC then resold
the loans to third-party institutional lenders and investors (“Investors”) in its ordinary course of
business.
41. The Defendants benefited from the inflated loans via, among other things,
increased business and increased commissions and fees from the loan proceeds.
42. When the loans defaulted, due to the mortgage fraud committed by Defendants,
the amount of the outstanding obligation was greater than the value of the property upon which a
security interest had been entered. Because the loans were under-collateralized, the subject
properties foreclosed for significantly less than the amount of the outstanding mortgage. Because
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of the Defendants’ acts, FMFC was required to repurchase the subject loans from Investors and
to incur significant damages as a result.
43. In addition to the parties and actions described above, the scheme was further
made possible by the intentional disregard and neglect, willful inattention and otherwise
negligent supervision by additional mortgage broker principals charged with the oversight of
their respective businesses, co-principals and employees, including the additional principals of
Star Equity, Jamie Fankhauser and William Worley (“Star Equity Principals”), the principals of
Reis Enterprises, Justin Cahow and Kelly Gerety (“Reis Enterprises Principals”) and the
principals of American Residential, Vincent Rinehart, Vereranda Toledo and David Villarreal
(“American Residential Principals”).
44. These mortgage broker principals reaped the benefit of the fraudulent scheme
while intentionally turning a blind eye to the fraudulent activities that these individuals knew or
should have known were being perpetrated on FMFC by their respective businesses, co-
principals, employees and agents.
GENERAL ALLEGATIONS
45. The scheme originated at Star Equity with Gary Shartzer, the Star Equity Loan
Officers, most notably Joe Savaglia, Brian Eaton and Dana Self, and Appraisers Jane Sanson and
TIG.
46. As a means of increasing its business and the amount of revenue it could obtain,
Star Equity, acting through its principal Gary Shartzer, directed the Star Equity Loan Officers to
obtain appraisals of properties that were to secure loans it intended to broker at pre-determined,
over-stated values. These pre-determined values were inflated and not supported by the value of
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the subject property. By increasing loan amounts through unsupported appraisals, Star Equity,
through its principal Gary Shartzer and its Loan Officers, was able to manipulate the system to
obtain fees and commissions to which they were not entitled.
47. The Star Equity Loan Officers, in turn, directed Appraisers Jane Sanson and TIG
to complete appraisals to support a pre-determined but unjustified value.
48. To meet the pre-determined value arrived at by Star Equity, Appraisers Jane
Sanson and TIG altered and outright falsified comparables, misrepresented the features of the
subject property and used comparables that were inapplicable to the property. Further, on
information and belief, TIG, through its principals and employees, stole the identities of
legitimate appraisers and created fictitious appraiser identities to hide their participation in the
scheme. For their role, Appraisers Jane Sanson and TIG received increased business and
abnormally high appraisal fees from Star Equity and its Loan Officers.
49. Star Equity, through its principal Gary Shartzer and its Loan Officers, then
directed other Star Equity employees to assemble loan packages that the employees may or may
not have known contained fraudulent information, and to submit those loan packages to FMFC
for funding.
50. Twelve of the nineteen loans that are the subject of this Complaint were
originated by Star Equity and its Loan Officers. Jane Sanson completed the appraisal on nine of
those. Brian Eaton and Joe Savaglia were the Loan Officers on five of those loans.
51. When Star Equity stopped doing business in the Kansas and Missouri area, Gary
Shartzer continued the scheme he had employed at Star Equity at and through Reis Enterprises.
Shartzer kept the same Loan Officers, most notably Joe Savaglia and Dana Self, and continued to
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do business at the previous Star Equity location and used the Star Equity telephone number. On
information and belief, when members of the public contacted the Star Equity telephone number
they were told that “Reis Enterprises had taken over Star Equity Funding.”
52. While at Reis Enterprises, Shartzer, his wife Susan Shartzer, and Dana Self
directed Jane Sanson to create a fraudulent appraisal to justify an inflated loan amount on
Shartzer’s own property. Sanson did so and FMFC, in reliance on that appraisal and other false
information provided by the Shartzers and Self, funded the loan.
53. In addition to participating in the perpetration of fraudulent loans that are the
subject matter of this Complaint, on information and belief, Dana Self also committed loan fraud
when she refinanced her own home through FMFC. The Dana Self loan was made by FMFC in
reliance on a fraudulent appraisal prepared by Jane Sanson.
54. On information and belief, in 2005, the Kansas State Banking Commission
investigated Reis Enterprises, including Gary Shartzer and Joe Savaglia, for the submission of at
least 19 fraudulent or altered appraisals to lenders in violation of Kansas law. On information
and belief, Reis Enterprises’ license has been revoked pursuant to a cease and desist order and it
has been fined approximately $235,000. On information and belief, Gary Shartzer was fined
$35,000 and Joe Savaglia was fined $15,000.
55. Also in 2005, the Missouri Real Estate Appraisers Commission (“MREAC”)
brought a complaint against Jane Sanson for submitting six fraudulent or altered appraisals to
lenders during the 2000-2001 time period. On May 24, 2005, Sanson waived her right to a
hearing before the Administrative Hearing Commission and MREAC and admitted and
stipulated to the allegations against her, including that her conduct in preparing the appraisals
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demonstrated “fraud and misrepresentation in the performance of the functions and duties of a
certified real estate appraiser.”
56. After participating in the scheme at Star Equity and Reis Enterprises, key
employees and managers of those entities, most notably Brian Eaton and Joe Savaglia, went on to
perpetrate the scheme at and through American Residential.
57. At American Residential, Eaton and Savaglia continued to direct TIG to create
appraisals to support a pre-determined but inflated value in order to cause FMFC and perhaps
other lenders to make loans with insufficient collateral and based on fraudulent documents so
that Eaton and Savaglia could obtain commissions and fees to which they were not entitled, and
instructed other American Residential Loan Officers to do the same.
58. TIG continued to fulfill its role in the scheme by altering and falsifying
comparables, misrepresenting the features of the subject property and using comparables that
were inapplicable to the subject property, often through identity theft or the use of fictitious
identities.
59. On information and belief, during some time periods American Residential and
TIG shared an address.
60. On information and belief, TIG and its principals, Terrell Ford and Maurice
Ragland, are the subjects of an ongoing federal criminal investigation.
61. Of the nineteen fraudulent loans that are the subject of this Complaint, five were
originated by American Residential. TIG was the appraiser on all five of those loans. Brian
Eaton and Joe Savaglia were the Loan Officers on the majority of those loans.
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62. When Eaton stopped doing business as American Residential, he continued the
scheme as Brian Lee Eaton dba Olympic Mortgage. On information and belief, the American
Residential Lenexa, Kansas branch office became the site of Olympic Mortgage and the
American Residential telephone number became the telephone number for Olympic Mortgage.
63. While doing business as Brian Lee Eaton dba Olympic Mortgage, Brian Eaton
again directed his Loan Officers to direct appraisers to create appraisals to support a pre-
determined but inflated value. On information and belief, Michael Evans did direct Aaron L.
Jamison and Debra J. McGowan dba Advantage Appraisal Services to create a fraudulent
appraisal to support a pre-determined value, which direction Jamison and McGowan obliged, and
FMFC made a loan based on the fraudulent appraisal.
64. On information and belief, Brian Lee Eaton dba Olympic Mortgage has been the
subject of an investigation by the Kansas State Banking Commission.
65. On information and belief, during some time period Olympic Mortgage and
Advantage Appraisal Services shared an address.
66. The above allegations demonstrate a coherent and organized enterprise comprised
of mortgage brokers, certain principals and managers of those mortgage brokers, loan officers
and appraisers, each of which has a certain role that is critical to effectuating the scheme. A
purportedly legitimate mortgage broker that has entered into a Broker Agreement with FMFC is
required to submit the loan to FMFC in the first place. Mortgage broker principals and loan
officers arrive at a pre-determined value for the property that is to serve as collateral in order to
support the desired loan amount. They then ensure that the appraisers provide the appraisal in
the predetermined amount, even if based on false or manufactured evidence. Other employees of
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the mortgage broker compile the loan application materials and submit them to FMFC according
to its requirements and procedures. Finally, the appraisers provide the appraisal that purportedly
justifies the pre-determined loan amount. Each of these roles is required to effectuate the
fraudulent scheme.
67. FMFC has retained a neutral third party to review each of the appraisals in
question and to provide a property value contemporaneous in time to the original appraisals and
based on actual comparables and other evidence that existed at the time the original appraisal was
completed by the Appraisers. In each instance, the property value arrived at by the neutral third
party is substantially lower than the fraudulent property value provided by the Appraisers, as set
forth below with respect to each loan.
68. The Appraisers reached their pre-determined value for the subject properties by
manufacturing non-existent comparables, and fraudulently altering existent comparables. The
fact that the Appraisers had to manufacture non-existent comparables and alter existing
s
comparables demonstrates that at the time the loan was made, the collateralized property' market
value was substantially less than the purported value attributed to it by the Appraisers. If
accurate data had been used by the Appraisers in completing the appraisals, FMFC would not
have made the loans. Further, if the appraisals had been predicated on accurate data, no damage
would have been incurred when the loans defaulted and were foreclosed upon because the
collateralized properties would have been worth their appraised value and would have yielded
approximately that value in foreclosure.
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SPECIFIC ALLEGATIONS
69. The following sections summarize the loans at issue in this case and set forth with
particularity the fraudulent misrepresentations in each loan and the RICO predicate acts
associated with each loan.
Star Equity
Loan Officer: Joe Savaglia
The Daniels Loan
70. On or about June 17, 2002, Justin Daniels borrowed $71,950 from FMFC to
refinance a residence located at 1608 South 37th Street, Kansas City, KS 66106 (“Daniels
Property”).
71. Star Equity, by and through Joe Savaglia, acted as the mortgage broker. Jane
Sanson acted as the appraiser. Savaglia completed the loan application pertaining to refinancing
the Daniels property.
72. Approval of Mr. Daniels’ loan and the subsequent disbursement required an
appraisal to support the amount of the loan. On or about May 31, 2002, Jane Sanson performed
an appraisal on the Daniels property at the direction of Star Equity. In her appraisal, Sanson
materially misrepresented the market value of the Daniels Property to be $100,000. On
information and belief, Sanson’s appraised value is at least 2.43 times the actual value of the
property, which is approximately $41,000.
73. On information and belief, Sanson created the inflated appraisal by:
a. fabricating and using a non-existent comparable (“comp”);
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b. using comps with significantly larger sites, in superior areas and with more
and superior amenities;
c. inflating the sales prices for two comps; and,
d. ignoring more appropriate comps in the same area.
74. On information and belief, Star Equity and Joe Savaglia directed, induced, knew
of and supported Jane Sanson’s actions, omissions and her fraudulent appraisal of the Daniels
Property.
75. Star Equity, Joe Savaglia and Jane Sanson misrepresented that the market value of
the Daniels Property was $100,000. Each knew or should have known that the market value of
the Daniels Property was significantly below this appraised amount. This misrepresentation was
made in the appraisal and in the loan application completed and submitted to FMFC by Star
Equity and Savaglia. In addition, on information and belief, the loan application submitted to
FMFC contained fabricated and/or altered documents concerning the borrower’s income,
s
including, but not limited to W-2' and pay stubs.
76. In furtherance of this fraudulent scheme to obtain unjustified fees for loan
transactions that would not have been completed but for the fraudulent acts set forth above,
Defendants intentionally used the interstate wires in violation of 18 U.S.C. § 1343. Each of the
following acts was necessary to achieve the object of inducing FMFC to fund the fraudulent loan:
a. On April 30, 2002, the title commitment and other title documents were
faxed from PES Atlanta, in Atlanta, Georgia, to Star Equity, which is
located in Kansas;
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b. On April 30, 2002, Montgomery Home Title Company, which is located in
Missouri, faxed its wiring instructions to Star Equity in Kansas;
c. On June 10, 2002, a FMFC employee located in Kansas used the telephone
to contact Daniels’ employer, Summit Masonry in Missouri, to verify
Daniels’ employment; and,
d. On June 11 or June 12, 2002, the closing documents were e-mailed from
FMFC in Kansas to Montgomery Home Title in Missouri for purposes of
the loan closing.
77. In deciding to fund the Daniels loan, FMFC relied on the information in the loan
application and appraisal generally, and specifically relied on the misrepresented appraised value.
FMFC would not have funded the Daniels loan had it known that the represented market value
was significantly overstated. The Daniels Property foreclosed for considerably less than the
outstanding loan amount and FMFC incurred approximately $37,800 in losses, exclusive of
attorneys fees and costs associated with this action, when it was required to repurchase the
Daniels loan from the Investors.
The Davis Loan
78. On or around November 15, 2001, Patricia J. Davis borrowed $115,800 from
FMFC to refinance a residence located at 3912 South Delaware Avenue, Independence, MO
64055 (“Davis Property”).
79. Star Equity, by and through Joe Savaglia, acted as the mortgage broker. Jane
Sanson acted as the appraiser. Savaglia completed the loan application pertaining to refinancing
the Davis property.
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80. Approval of Ms. Davis’ loan and the subsequent disbursement required an
appraisal to support the amount of the loan. On or about October 17, 2001, Jane Sanson
performed an appraisal on the Davis property at the direction of Star Equity. In her appraisal,
Sanson materially misrepresented the market value of the Davis Property to be $150,000. On
information and belief, Sanson’s appraised value is at least 1.78 times the actual value of the
property, which is approximately $84,000.
81. On information and belief, Sanson created the inflated appraisal by:
a. using fabricated comps;
b. overstating the gross living area (“GLA”) of the subject property;
c. misrepresenting the age of the subject property;
d. inflating the sales prices for comps; and,
e. misrepresenting the neighborhood and predominant value range.
82. On information and belief, Star Equity and Joe Savaglia directed, induced, knew
of and supported Jane Sanson’s actions, omissions and her fraudulent appraisal of the Davis
Property.
83. Star Equity, Joe Savaglia and Jane Sanson misrepresented that the market value of
the Davis Property was $150,000. Each knew or should have known that the market value of the
Davis Property was significantly below this appraised amount. This misrepresentation was made
in the appraisal and in the loan application completed and submitted to FMFC by Star Equity and
Savaglia. In addition, on information and belief, the loan application submitted to FMFC
contained fabricated and/or altered documents concerning the borrower’s income, including, but
s
not limited to W-2' and pay stubs.
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84. In furtherance of this fraudulent scheme to obtain unjustified fees for loan
transactions that would not have been completed but for the fraudulent acts set forth above,
Defendants intentionally used the interstate wires in violation of 18 U.S.C. § 1343. Each of the
following acts was necessary to achieve the object of inducing FMFC to fund the fraudulent loan:
a. On October 7, 2001, Montgomery Home Title Company, which is located
in Missouri, faxed title documents to Star Equity in Kansas;
b. On October 7, 2001, Montgomery Home Title Company, which is located
in Missouri, faxed its wiring instructions to FMFC in Kansas;
c. On October 7, 2001, the title commitment and other title documents were
faxed from PES Atlanta, in Atlanta, Georgia, to Star Equity in Kansas;
and,
d. On October 24, 2001, Wells Fargo, located in Des Moines, IA, faxed a pay
off amount to Star Equity in Kansas.
85. In deciding to fund the Davis loan, FMFC relied on the information in the loan
application and appraisal generally, and specifically relied on the misrepresented appraised value.
FMFC would not have funded the Davis loan had it known that the represented market value was
significantly overstated. The Davis Property foreclosed for considerably less than the
outstanding loan amount and FMFC incurred approximately $46,400 in losses, exclusive of
attorneys fees and costs associated with this action, when it was required to repurchase the Davis
loan from the Investors.
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The Tunley Loan
86. On or around May 28, 2002, William L. Tunley borrowed $100,300 from FMFC
to refinance a residence located at 5425 Euclid Avenue (“Tunley Property”).
87. Star Equity, by and through Joe Savaglia, acted as the mortgage broker. Jane
Sanson acted as the appraiser. Savaglia completed the loan application pertaining to refinancing
the Tunley Property.
88. Approval of Mr. Tunley’s loan and the subsequent disbursement required an
appraisal to support the amount of the loan. On or about May 1, 2002, Jane Sanson performed an
appraisal on the Tunley property at the direction of Star Equity. In her appraisal, Sanson
materially misrepresented the market value of the Tunley Property to be $118,000. On
information and belief, Sanson’s appraised value is at least 2.36 times the actual value of the
property, which is approximately $50,000.
89. On information and belief, Sanson created the inflated appraisal by:
a. falsely inflating sales comps by more than $50,000 each;
b. understating the GLA of the comps significantly;
c. misrepresenting the average age, range and predominate price of the
subject neighborhood;
d. using comps that were recent remodels and in superior condition; and,
e. misrepresenting that the subject property had an attached garage.
90. On information and belief, Star Equity and Joe Savaglia directed, induced, knew
of and supported Jane Sanson’s actions, omissions and her fraudulent appraisal of the Tunley
Property.
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91. Star Equity, Joe Savaglia and Jane Sanson misrepresented that the market value of
the Tunley Property was $118,000. Each knew or should have known that the market value of
the Tunley Property was significantly below this appraised amount. This misrepresentation was
made in the appraisal and in the loan application completed and submitted to FMFC by Star
Equity and Savaglia. In addition, on information and belief, the loan application submitted to
FMFC contained fabricated and/or altered documents concerning the borrower’s income,
s
including, but not limited to W-2' and pay stubs.
92. In furtherance of this fraudulent scheme to obtain unjustified fees for loan
transactions that would not have been completed but for the fraudulent acts set forth above,
Defendants intentionally used the interstate wires in violation of 18 U.S.C. § 1343. Each of the
following acts was necessary to achieve the object of inducing FMFC to fund the fraudulent loan:
a. On March 14, 2002, Citifinancial, which is located in Missouri, faxed a
payoff amount to Star Equity in Kansas.
93. In deciding to fund the Tunley loan, FMFC relied on the information in the loan
application and appraisal generally, and specifically relied on the misrepresented appraised value.
FMFC would not have funded the Tunley loan had it known that the represented market value
was significantly overstated. The Tunley Property foreclosed for considerably less than the
outstanding loan amount and FMFC incurred approximately $82,400 in losses, exclusive of
attorneys fees and costs associated with this action, when it was required to repurchase the
Tunley loan from the Investors.
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The Ledbetter Loan
94. On or around October 26, 2001, Ogery Ledbetter borrowed $196,000 from FMFC
to refinance a residence located at 8115 North West Eastside Drive, Weatherby Lake, MO 64152
(“Ledbetter Property”).
95. Star Equity, by and through Joe Savaglia, acted as the mortgage broker. Jane
Sanson acted as the appraiser. Savaglia completed the loan application pertaining to refinancing
the Ledbetter Property.
96. Approval of Ms. Ledbetter’s loan and the subsequent disbursement required an
appraisal to support the amount of the loan. On or about October 10, 2001, Jane Sanson
performed an appraisal on the Ledbetter property at the direction of Star Equity. In her appraisal,
Sanson materially misrepresented the market value of the Ledbetter Property to be $248,000. On
information and belief, Sanson’s appraised value is at least 1.41 times the actual value of the
property, which is approximately $175,000.
97. On information and belief, Sanson created the inflated appraisal by:
a. misrepresenting the age, GLA and “views” of the comps used; and,
b. overstating the GLA of the subject property.
98. On information and belief, Star Equity and Joe Savaglia directed, induced, knew
of and supported Jane Sanson’s actions, omissions and her fraudulent appraisal of the Ledbetter
Property.
99. Star Equity, Joe Savaglia and Jane Sanson misrepresented that the market value of
the Ledbetter Property was $248,000. Each knew or should have known that the market value of
the Ledbetter Property was significantly below this appraised amount. This misrepresentation
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was made in the appraisal and in the loan application completed and submitted to FMFC by Star
Equity and Savaglia.
100. In furtherance of this fraudulent scheme to obtain unjustified fees for loan
transactions that would not have been completed but for the fraudulent acts set forth above,
Defendants intentionally used the interstate wires in violation of 18 U.S.C. § 1343. Each of the
following acts was necessary to achieve the object of inducing FMFC to fund the fraudulent loan:
a. On October 9, 2001, Montgomery Home Title, which is located in
Missouri, faxed wiring instructions to FMFC in Kansas;
b. On October 22, 2001, Montgomery Home Title, which is located in
Missouri, faxed information regarding the loan closing to FMFC in
Kansas; and,
c. On or around October 22, 2001, the closing documents were e-mailed
from FMFC in Kansas to Montgomery Home Title, which is located in
Missouri.
101. In deciding to fund the Ledbetter loan, FMFC relied on the information in the loan
application and appraisal generally, and specifically relied on the misrepresented appraised value.
FMFC would not have funded the Ledbetter loan had it known that the represented market value
was significantly overstated. The Ledbetter Property foreclosed for considerably less than the
outstanding loan amount and FMFC incurred approximately $64,000 in losses, exclusive of
attorneys fees and costs associated with this action, when it was required to repurchase the
Ledbetter loan from the Investors.
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Star Equity
Loan Officer: Brian Eaton
The Whitman Loan
102. On or around April 29, 2002, Marian I. Whitman borrowed $83,000 from FMFC
to refinance a residence located at 424 South Forest Avenue, Independence, MO 64052
(“Whitman Property”).
103. Star Equity, by and through Brian Eaton, acted as the mortgage broker. Jane
Sanson acted as the appraiser. Eaton completed the loan application pertaining to refinancing the
Whitman Property.
104. Approval of Ms. Whitman’s loan and the subsequent disbursement required an
appraisal to support the amount of the loan. On or about April 8, 2002, Jane Sanson performed
an appraisal on the Whitman property at the direction of Star Equity. In her appraisal, Sanson
materially misrepresented the market value of the Whitman Property to be $120,000. On
information and belief, Sanson’s appraised value is at least 2.52 times the actual value of the
property, which is approximately $47,500.
105. On information and belief, Sanson created the inflated appraisal by:
a. completely fabricating a comp, the address of which, based on tax
assessor’s records and MSL listings, does not exist; and
b. falsifying the sales prices and the site size of comps used.
106. On information and belief, Star Equity and Brian Eaton directed, induced, knew of
and supported Jane Sanson’s actions, omissions and her fraudulent appraisal of the Whitman
Property.
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107. Star Equity, Brian Eaton and Jane Sanson misrepresented that the market value of
the Whitman Property was $120,000. Each knew or should have known that the market value of
the Whitman Property was significantly below this appraised amount. This misrepresentation
was made in the appraisal and in the loan application completed and submitted to FMFC by Star
Equity and Eaton.
108. In furtherance of this fraudulent scheme to obtain unjustified fees for loan
transactions that would not have been completed but for the fraudulent acts set forth above,
Defendants intentionally used the interstate wires in violation of 18 U.S.C. § 1343. Each of the
following acts was necessary to achieve the object of inducing FMFC to fund the fraudulent loan:
a. On or around April 12, 2002, Assured Quality Title, which is located in
Missouri, faxed title documents to Star Equity in Kansas; and,
b. On April 12, 2002, Equity One, Inc., which is located in Moorestown,
New Jersey, faxed a payoff statement to Star Equity in Kansas.
109. In deciding to fund the Whitman loan, FMFC relied on the information in the loan
application and appraisal generally, and specifically relied on the misrepresented appraised value.
FMFC would not have funded the Whitman loan had it known that the represented market value
was significantly overstated. The Whitman Property foreclosed for considerably less than the
outstanding loan amount and FMFC incurred approximately $48,500 in losses, exclusive of
attorneys fees and costs associated with this action, when it was required to repurchase the
Whitman loan from the Investors.
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Star Equity
Loan Officer: Dana Self
The Williams Loan
110. On or around August 21, 2002, Sandra K. Williams borrowed $82,500 from
FMFC to refinance a residence located at 5504 East 101st Terrace, Kansas City, MO 64137
(“Williams Property”).
111. Star Equity, by and through Dana Self, acted as the mortgage broker. Jane Sanson
acted as the appraiser. Self completed the loan application pertaining to refinancing the Williams
Property.
112. Approval of Ms. Williams’s loan and the subsequent disbursement required an
appraisal to support the amount of the loan. On or about August 3, 2002, Jane Sanson performed
an appraisal on the Williams property at the direction of Star Equity. In her appraisal, Sanson
materially misrepresented the market value of the Williams Property to be $121,000. On
information and belief, Sanson’s appraised value is at least 1.92 times the actual value of the
property, which is approximately $63,000.
113. On information and belief, Sanson created the inflated appraisal by:
a. drastically and falsely inflating the sales prices for all three comps used;
and
b. failing to note detracting features of the subject property, e.g., asbestos
siding.
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114. On information and belief, Star Equity and Dana Self directed, induced, knew of
and supported Jane Sanson’s actions, omissions and her fraudulent appraisal of the Williams
Property.
115. Star Equity, Dana Self and Jane Sanson misrepresented that the market value of
the Williams Property was $121,000. Each knew or should have known that the market value of
the Williams Property was significantly below this appraised amount. This misrepresentation
was made in the appraisal and in the loan application completed and submitted to FMFC by Star
Equity and Self.
116. In furtherance of this fraudulent scheme to obtain unjustified fees for loan
transactions that would not have been completed but for the fraudulent acts set forth above,
Defendants intentionally used the interstate wires in violation of 18 U.S.C. § 1343. Each of the
following acts was necessary to achieve the object of inducing FMFC to fund the fraudulent loan:
a. On July 25, 2002, Federal Diversified Services, which is located in
Omaha, Nebraska, faxed a pay off statement to Star Equity in Kansas; and,
b. On August 14, 2002, State Farm Insurance Company agent John Williams,
located in Missouri, faxed a proof of insurance form to Star Equity in
Kansas.
117. In deciding to fund the Williams loan, FMFC relied on the information in the loan
application and appraisal generally, and specifically relied on the misrepresented appraised value.
FMFC would not have funded the Williams loan had it known that the represented market value
was significantly overstated. The Williams Property foreclosed for considerably less than the
outstanding loan amount and FMFC incurred approximately $64,300 in losses, exclusive of
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attorneys fees and costs associated with this action, when it was required to repurchase the
Williams loan from the Investors.
Star Equity
Other Loan Officers
The Carter Loan
118. On or around November 19, 2001, James D. Carter borrowed $62,900 from
FMFC to refinance a residence located at 9405 East 17th Street South, Independence, MO 64052
(“Carter Property”).
119. Star Equity, by and through Virgie Self, who, on information and belief, is Dana
Self’s mother, acted as the mortgage broker. Jane Sanson acted as the appraiser. Virgie Self
completed the loan application pertaining to refinancing the Carter Property.
120. Approval of Mr. Carter’s loan and the subsequent disbursement required an
appraisal to support the amount of the loan. On or about October 15, 2001, Jane Sanson
performed an appraisal on the Carter property at the direction of Star Equity. In her appraisal,
Sanson materially misrepresented the market value of the Carter Property to be $81,000. On
information and belief, Sanson’s appraised value is at least 1.39 times the actual value of the
property, which is approximately $58,000.
121. On information and belief, Sanson created the inflated appraisal by:
a. overstating the subject property’s GLA and providing a misrepresentative
sketch of the subject property’s layout;
b. misrepresenting the age of the subject property and the comps used;
c. falsifying sales prices, GLA and amenities of comps used; and
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d. misrepresenting condition and features of the subject property.
122. On information and belief, Star Equity and Virgie Self directed, induced, knew of
and supported Jane Sanson’s actions, omissions and her fraudulent appraisal of the Carter
Property.
123. Star Equity, Virgie Self and Jane Sanson misrepresented that the market value of
the Carter Property was $81,000. Each knew or should have known that the market value of the
Carter Property was significantly below this appraised amount. This misrepresentation was made
in the appraisal and in the loan application completed and submitted to FMFC by Star Equity and
Virgie Self.
124. In deciding to fund the Carter loan, FMFC relied on the information in the loan
application and appraisal generally, and specifically relied on the misrepresented appraised value.
FMFC would not have funded the Carter loan had it known that the represented market value
was significantly overstated. The Carter Property foreclosed for considerably less than the
outstanding loan amount and FMFC incurred approximately $36,700 in losses, exclusive of
attorneys fees and costs associated with this action, when it was required to repurchase the Carter
loan from the Investors.
The Wenger Loan
125. On or around February 11, 2002, Joey L. Wenger borrowed $145,000 from FMFC
to refinance a residence located at 1182 Raintree Park, Tonganoxie, KS 66086 (“Wenger
Property”).
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126. Star Equity, by and through Tommy Reid, acted as the mortgage broker. Jane
Sanson acted as the appraiser. Tommy Reid completed the loan application pertaining to
refinancing the Wenger Property.
127. Approval of Mr. Wenger’s loan and the subsequent disbursement required an
appraisal to support the amount of the loan. On or about January 18, 2002, Jane Sanson
performed an appraisal on the Wenger property at the direction of Star Equity. In her appraisal,
Sanson materially misrepresented the market value of the Wenger Property to be $185,000. On
information and belief, Sanson’s appraised value is at least 1.6 times the actual value of the
property, which is approximately $115,000.
128. On information and belief, Sanson created the inflated appraisal by:
a. using wholly fabricated, non-existent comps that purported to document
sales prices far above the norm for that area; and
b. misrepresenting the neighborhood price range, age and predominate value.
129. On information and belief, Star Equity and Tommy Reid directed, induced, knew
of and supported Jane Sanson’s actions, omissions and her fraudulent appraisal of the Wenger
Property.
130. Star Equity, Tommy Reid and Jane Sanson misrepresented that the market value
of the Wenger Property was $185,000. Each knew or should have known that the market value
of the Wenger Property was significantly below this appraised amount. This misrepresentation
was made in the appraisal and in the loan application completed and submitted to FMFC by Star
Equity and Tommy Reid. In addition, on information and belief, the loan application submitted
to FMFC also contained misrepresentations regarding the borrower’s employment.
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131. In furtherance of this fraudulent scheme to obtain unjustified fees for loan
transactions that would not have been completed but for the fraudulent acts set forth above,
Defendants intentionally used the interstate wires in violation of 18 U.S.C. § 1343. Each of the
following acts was necessary to achieve the object of inducing FMFC to fund the fraudulent loan:
a. On January 3, 2002, Bank One, which is located in Phoenix, Arizona,
faxed a payoff amount to Star Equity in Kansas;
b. On January 9, 2002, PES Atlanta, which is located in Atlanta, GA, faxed
title documents to Star Equity in Kansas; and,
c. On January 9, 2002, Montgomery Home Title, which is located in
Missouri, faxed wiring instructions to FMFC in Kansas.
132. In deciding to fund the Wenger loan, FMFC relied on the information in the loan
application and appraisal generally, and specifically relied on the misrepresented appraised value.
FMFC would not have funded the Wenger loan had it known that the represented market value
was significantly overstated. The Wenger Property foreclosed for considerably less than the
outstanding loan amount and FMFC incurred approximately $72,200 in losses, exclusive of
attorneys fees and costs associated with this action, when it was required to repurchase the
Wenger loan from the Investors.
The Lowery Loan
133. On or around December 17, 2002, Charles L. Lowery borrowed $118,000 from
FMFC to refinance a residence located at 5014 North Kensington Avenue, Kansas City, MO
64119 (“Lowery Property”).
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134. Star Equity, by and through Tommy Reid, acted as the mortgage broker. TIG, by
and through Bill Lima, acted as the appraiser. Tommy Reid completed the loan application
pertaining to refinancing the Lowery Property.
135. Approval of Mr. Lowery’s loan and the subsequent disbursement required an
appraisal to support the amount of the loan. On or about November 25, 2002, Bill Lima
performed an appraisal on the Lowery property at the direction of Star Equity. In his appraisal,
Lima materially misrepresented the market value of the Lowery Property to be $156,000. On
information and belief, Lima’s appraised value is at least 1.6 times the actual value of the
property, which is approximately $97,000.
136. On information and belief, Lima created the inflated appraisal by:
a. falsifying comps to reflect different sales dates and inflated sales prices;
b. providing pictures that do not represent the subject property;
c. providing pictures of comps that do not reflect those properties;
d. grossly overstating the GLA of the subject property;
e. inflating the predominate price range for the area; and,
f. misrepresenting purported improvements to the subject property and the
comps.
137. On information and belief, TIG, by and through Bill Lima, simply altered an
appraisal used to obtain an earlier loan for Lowery by falsely changing the sales dates to one year
later and falsely inflating the sales price in each comp by $30,000.
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138. On information and belief, Star Equity and Tommy Reid directed, induced, knew
of and supported Bill Lima’s actions, omissions and his fraudulent appraisal of the Lowery
Property.
139. Star Equity, Tommy Reid and TIG, by and through Bill Lima, misrepresented that
the market value of the Lowery Property was $156,000. Each knew or should have known that
the market value of the Lowery Property was significantly below this appraised amount. This
misrepresentation was made in the appraisal and in the loan application completed and submitted
to FMFC by Star Equity and Tommy Reid.
140. In furtherance of this fraudulent scheme to obtain unjustified fees for loan
transactions that would not have been completed but for the fraudulent acts set forth above,
Defendants intentionally used the interstate wires in violation of 18 U.S.C. § 1343. Each of the
following acts was necessary to achieve the object of inducing FMFC to fund the fraudulent loan:
a. On December 10, 2002, Johnston Insurance Agency, Agent Pat Hayden,
located in Missouri, faxed proof of insurance to Star Equity in Kansas;
and,
b. The same information was again faxed from Johnston Insurance Agency in
Missouri to Star Equity in Kansas on December 11, 2002.
141. In deciding to fund the Lowery loan, FMFC relied on the information in the loan
application and appraisal generally, and specifically relied on the misrepresented appraised value.
FMFC would not have funded the Lowery loan had it known that the represented market value
was significantly overstated. The Lowery Property foreclosed for considerably less than the
outstanding loan amount and FMFC incurred approximately $49,700 in losses, exclusive of
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attorneys fees and costs associated with this action, when it was required to repurchase the
Lowery loan from the Investors.
The Anderson Loan
142. On or around September 3, 2002, Linda G. Anderson borrowed $123,000 from
FMFC to refinance a residence located at 4913 NW Pennington, Blue Springs, MO 64015
(“Anderson Property”).
143. Star Equity, by and through Doug Carrithers, acted as the mortgage broker. TIG,
by and through Robert Bundy and Matthew Woods, acted as the appraiser. Doug Carrithers
completed the loan application pertaining to refinancing the Anderson Property.
144. In addition to participating in the perpetration of fraudulent loans that are the
subject matter of this Complaint, on information and belief, Doug Carrithers also committed loan
fraud when he refinanced his own home through FMFC. The Doug Carrithers loan was made by
FMFC in reliance on a fraudulent appraisal prepared by Jane Sanson.
145. Approval of Ms. Anderson’s loan and the subsequent disbursement required an
appraisal to support the amount of the loan. On or about August 21, 2002, Robert Bundy and
Matthew Woods performed an appraisal on the Anderson property at the direction of Star Equity.
In their appraisal, Bundy and Woods materially misrepresented the market value of the Anderson
Property to be $165,000. On information and belief, Bundy’s and Woods’s appraised value is at
least 1.65 times the actual value of the property, which is approximately $100,000.
146. On information and belief, Bundy and Woods created the inflated appraisal by:
a. misrepresenting the age of the subject property;
b. grossly overstating the GLA of the subject property;
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c. misrepresenting the subject property’s amenities;
d. using photos that do not depict the subject property;
e. omitting the previous sale of the subject property from only a year earlier
for a substantially lower amount; and,
f. ignoring more similar and appropriate comps.
147. On information and belief, based on an interview with the borrower, the appraisal
was actually created for a property located approximately ten miles from subject property.
148. On information and belief, Star Equity and Doug Carrithers directed, induced,
knew of and supported Robert Bundy’s and Matt Woods’s actions, omissions and his fraudulent
appraisal of the Anderson Property.
149. Star Equity, Doug Carrithers and TIG, by and through Robert Bundy and Matt
Woods, misrepresented that the market value of the Anderson Property was $165,000. Each
knew or should have known that the market value of the Anderson Property was significantly
below this appraised amount. This misrepresentation was made in the appraisal and in the loan
application completed and submitted to FMFC by Star Equity and Doug Carrithers.
150. In furtherance of this fraudulent scheme to obtain unjustified fees for loan
transactions that would not have been completed but for the fraudulent acts set forth above,
Defendants intentionally used the interstate wires in violation of 18 U.S.C. § 1343. Each of the
following acts was necessary to achieve the object of inducing FMFC to fund the fraudulent loan:
a. On August 27, 2002, State Farm Insurance Agent Douglas R. Shrout,
located in Missouri, faxed proof of insurance to Star Equity in Kansas;
and,
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b. On August 27, 2002, an FMFC employee in Kansas telephoned
Anderson’s employer, GSA, located in Kansas City, Missouri, to verify the
borrower’s employment.
151. In deciding to fund the Anderson loan, FMFC relied on the information in the
loan application and appraisal generally, and specifically relied on the misrepresented appraised
value. FMFC would not have funded the Anderson loan had it known that the represented
market value was significantly overstated. The Anderson Property foreclosed for considerably
less than the outstanding loan amount and FMFC incurred approximately $21,600 in losses,
exclusive of attorneys fees and costs associated with this action, when it was required to
repurchase the Anderson loan from the Investors.
The Preston Loan
152. On or around September 5, 2002, Brad J. Preston borrowed $66,000 from FMFC
to refinance a residence located at 6609 East 18th Street, Kansas City, MO 64126 (“Preston
Property”).
153. Star Equity, by and through John Blair, acted as the mortgage broker. TIG, by and
through Terrell Ford and Matthew Woods, acted as the appraiser. John Blair completed the loan
application pertaining to refinancing the Preston Property.
154. Approval of Mr. Preston’s loan and the subsequent disbursement required an
appraisal to support the amount of the loan. On or about August 5, 2002, Terrell Ford and
Matthew Woods performed an appraisal on the Preston property at the direction of Star Equity.
In their appraisal, Ford and Woods materially misrepresented the market value of the Preston
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Property to be $84,000. On information and belief, Ford’s and Woods’s appraised value is at
least 2.4 times the actual value of the property, which is approximately $35,000.
155. On information and belief, Ford and Woods created the inflated appraisal by:
a. misrepresenting amenities of the subject property, e.g., representing it had
central air and representing the foundation was concrete;
b. misrepresenting that the property was located in a single family zoning
area;
c. grossly overstating the GLA of the subject property;
d. omitting previous sale of subject property less than a year earlier and for
substantially less than appraised value;
e. omitting previous sale of comp property less than a year earlier and for
substantially less; and,
f. using comps of superior condition, construction and size from miles away,
while ignoring closer, more appropriate comps.
156. On information and belief, Star Equity and John Blair directed, induced, knew of
and supported Terrell Ford’s and Matt Woods’s actions, omissions and his fraudulent appraisal
of the Preston Property.
157. Star Equity, John Blair and TIG, by and through Terrell Ford and Matt Woods,
misrepresented that the market value of the Preston Property was $84,000. Each knew or should
have known that the market value of the Preston Property was significantly below this appraised
amount. This misrepresentation was made in the appraisal and in the loan application completed
and submitted to FMFC by Star Equity and John Blair.
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158. In furtherance of this fraudulent scheme to obtain unjustified fees for loan
transactions that would not have been completed but for the fraudulent acts set forth above,
Defendants intentionally used the interstate wires in violation of 18 U.S.C. § 1343. Each of the
following acts was necessary to achieve the object of inducing FMFC to fund the fraudulent loan:
a. On August 27, 2002, Mr. Preston’s employer, Power-Serv Inc., located in
Missouri, faxed a written verification of employment to Star Equity in
Kansas; and,
b. On August 30, 2002, an FMFC employee in Kansas telephoned Preston’s
employer, Power-Serv Inc., located in Missouri, to verify Mr. Preston’s
employment.
159. In deciding to fund the Preston loan, FMFC relied on the information in the loan
application and appraisal generally, and specifically relied on the misrepresented appraised value.
FMFC would not have funded the Preston loan had it known that the represented market value
was significantly overstated. The Preston Property foreclosed for considerably less than the
outstanding loan amount and FMFC incurred approximately $49,300 in losses, exclusive of
attorneys fees and costs associated with this action, when it was required to repurchase the
Preston loan from the Investors.
The Askew Loan
160. On or around November 19, 2002, Kelly A. Askew borrowed $168,700 from
FMFC to refinance a residence located at 5404 Tomahawk Road, Prairie Village, KS 66208
(“Askew Property”).
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161. Star Equity, by and through Don Maddux, acted as the mortgage broker. Don
Maddux completed the loan application pertaining to refinancing the Askew Property.
162. On information and belief, the loan application submitted to FMFC by Star Equity
contained misrepresentations concerning the borrower’s social security number and employment.
FMFC incurred approximately $24,700 in losses when it was forced to repurchase the loan from
Investors due to these misrepresentations. Star Equity is liable for these losses under the Broker
Agreement between Star Equity and FMFC.
Reis Enterprises
Loan Officer: Dana Self
The Shartzer Loan
163. On or around October 21, 2004, Susan Shartzer, the wife of Gary Shartzer, a
principal and “broker of record” for Star Equity and, on information and belief, an owner,
principal and agent of Reis Enterprises during the time period of this loan, borrowed $264,000
from FMFC to refinance a second residence located at Lake Road 7-9 Northeast 10, Camdenton,
MO 65020 (“Shartzer Property”).
164. Reis Enterprises, by and through Dana Self, who was first employed by Star
Equity and subsequently went to work with Gary Shartzer at Reis Enterprises, acted as the
mortgage broker. Jane Sanson acted as the appraiser. Dana Self completed the loan application
pertaining to refinancing the Shartzer Property.
165. On information and belief, the loan application materials submitted to FMFC by
Reis Enterprises on behalf of the Shartzers falsely represented that Susan Shartzer was a partner
in Parkway Title, earning $24,500 a month. On information and belief, this misrepresentation
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was made with the knowledge of both Shartzers and Dana Self, an agent and employee of Reis
Enterprises, to falsely inflate Ms. Shartzer’s income to qualify for the loan.
166. The Shartzer loan was a cash-out refinance that resulted in $85,500 cash back to
the Shartzers at closing.
167. Approval of the Shartzers’ loan and the subsequent disbursement required an
appraisal to support the amount of the loan. On or about September 29, 2004, Jane Sanson
performed an appraisal on the Shartzer property at the direction of Reis Enterprises. In her
appraisal, Sanson materially misrepresented the market value of the Shartzer Property to be
$330,000. On information and belief, Sanson’s appraised value is at least 1.77 times the actual
value of the property, which is approximately $186,000.
168. On information and belief, Sanson created the inflated appraisal by:
a. misrepresenting the age of the subject property;
b. falsifying all comps, including sale dates, GLA, site size (and
lakefrontage) and failing to disclose the comp properties’ additional
features;
c. grossly overstating the GLA of the subject property; and,
d. inflating the market range and predominate value range of the area.
169. On information and belief, Reis Enterprises, Dana Self and Susan and Gary
Shartzer directed, induced, knew of and supported Jane Sanson’s actions, omissions and her
fraudulent appraisal of the Shartzer Property.
170. Reis Enterprises, Dana Self, Susan and Gary Shartzer and Jane Sanson
misrepresented that the market value of the Shartzer Property was $330,000. Each knew or
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should have known that the market value of the Shartzer Property was significantly below this
appraised amount. This misrepresentation was made in the appraisal and in the loan application
completed and submitted to FMFC by Reis Enterprises, Dana Self and Susan and Gary Shartzer.
171. In furtherance of this fraudulent scheme to obtain unjustified fees for loan
transactions that would not have been completed but for the fraudulent acts set forth above,
Defendants intentionally used the interstate wires in violation of 18 U.S.C. § 1343. Each of the
following acts was necessary to achieve the object of inducing FMFC to fund the fraudulent loan:
a. On October 14, 2004, American Family Insurance, located in Camdenton,
MO, faxed proof of insurance to Reis Enterprises in Kansas.
172. In deciding to fund the Shartzer loan, FMFC relied on the information in the loan
application and appraisal generally, and specifically relied on the misrepresented appraised value.
FMFC would not have funded the Shartzer loan had it known that the represented market value
was significantly overstated. The Shartzer Property is worth considerably less than the
outstanding loan amount and FMFC incurred approximately $50,000 in losses, exclusive of
attorneys fees and costs associated with this action, when it was required to repurchase the
Shartzer loan from the Investors.
American Residential Funding
Loan Officer: Joe Savaglia
The Longhofer Loan
173. On or around September 16, 2002, Duane A. Longhofer borrowed $212,500 from
FMFC to refinance a residence located at 12470 South Acuff Street, Olathe, KS 66062
(“Longhofer Property”).
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174. American Residential Funding acted as the mortgage broker. TIG, by and through
Robert Bundy and Matthew Woods, acted as the appraiser. Joe Savaglia, previously employed
by both Star Equity and Reis Enterprises, acted as the loan officer and completed the loan
application pertaining to refinancing the Longhofer Property.
175. Approval of Mr. Longhofer’s loan and the subsequent disbursement required an
appraisal to support the amount of the loan. On or about August 15, 2002, Robert Bundy and
Matthew Woods performed an appraisal on the Longhofer property at the direction of American
Residential and Joe Savaglia. In their appraisal, Bundy and Woods materially misrepresented the
market value of the Longhofer Property to be $290,000. On information and belief, Bundy’s and
Woods’s appraised value is at least 1.87 times the actual value of the property, which is
approximately $155,000.
176. On information and belief, Bundy and Woods created the inflated appraisal by:
a. grossly overstating the GLA of the subject property;
b. misrepresenting the value range for the area; and,
c. misrepresenting the predominate value for the area.
177. On information and belief, Joe Savaglia directed, induced, knew of and supported
Roberty Bundy’s and Matt Woods’s actions, omissions and their fraudulent appraisal of the
Longhofer Property.
178. Joe Savaglia and TIG, by and through Robert Bundy and Matt Woods,
misrepresented that the market value of the Longhofer Property was $290,000. Each knew or
should have known that the market value of the Longhofer Property was significantly below this
appraised amount. In fact, in pleadings filed in Mr. Longhofer’s bankruptcy proceeding, Mr.
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Longhofer himself valued the Longhofer property at $170,000. This misrepresentation regarding
the Longhofer property value was made in the appraisal and in the loan application completed
and submitted to FMFC by Joe Savaglia.
179. In addition, on information and belief based on information provided in Mr.
Longhofer’s bankruptcy proceeding, the loan application package submitted to FMFC by Joe
Savaglia contained gross misrepresentations regarding the borrower’s income.
180. In furtherance of this fraudulent scheme to obtain unjustified fees for loan
transactions that would not have been completed but for the fraudulent acts set forth above,
Defendants intentionally used the interstate wires in violation of 18 U.S.C. § 1343. Each of the
following acts was necessary to achieve the object of inducing FMFC to fund the fraudulent loan:
a. On August 16, 2002, Homecomings in Texas faxed a payoff statement to
American Residential in Kansas;
b. On August 22, 2002, title documents were faxed from Assured Quality
Title in Missouri to Joe Savaglia at American Residential in Kansas; and,
c. On September 5, 2002, Articles of Organization and an Application for
Employer Identification Number were faxed from Integrated Contact
Technologies Group, LLC, Mr. Longhofer’s purported employer in
Missouri, to American Residential in Kansas.
181. In deciding to fund the Longhofer loan, FMFC relied on the information in the
loan application and appraisal generally, and specifically relied on the misrepresented appraised
value. FMFC would not have funded the Longhofer loan had it known that the represented
market value was significantly overstated. The Longhofer Property foreclosed for considerably
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less than the outstanding loan amount and FMFC incurred approximately $76,200 in losses,
exclusive of attorneys fees and costs associated with this action, when it was required to
repurchase the Longhofer loan from the Investors.
The Williams Loan
182. On or around August 23, 2002, Linda D. Williams borrowed $116,000 from
FMFC to refinance a residence located at 4025 South Lynn Street, Independence, MO 64055
(“Williams Property”).
183. American Residential Funding acted as the mortgage broker. TIG, by and through
Chris Tyler and Matthew Woods, acted as the appraiser. Joe Savaglia, previously employed by
both Star Equity and Reis Enterprises, acted as the loan officer and completed the loan
application pertaining to refinancing the Williams Property.
184. Approval of Ms. Williams’s loan and the subsequent disbursement required an
appraisal to support the amount of the loan. On or about July 26, 2002, Chris Tyler and Matthew
Woods performed an appraisal on the Williams property at the direction of American Residential
and Joe Savaglia. In their appraisal, Tyler and Woods materially misrepresented the market
value of the Williams Property to be $158,000. On information and belief, Tyler’s and Woods’s
appraised value is at least 1.92 times the actual value of the property, which is approximately
$82,000.
185. On information and belief, Tyler and Woods created the inflated appraisal by:
a. overstating the GLA of the subject property;
b. falsifying and inflating sales prices in comps by more than $50,000 each;
c. misrepresenting the physical characteristics of the subject property; and,
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d. using non-representative comps from a superior area.
186. On information and belief, Joe Savaglia directed, induced, knew of and supported
Chris Tyler’s and Matt Woods’s actions, omissions and their fraudulent appraisal of the Williams
Property.
187. Joe Savaglia and TIG, by and through Chris Tyler and Matt Woods,
misrepresented that the market value of the Williams Property was $158,000. Each knew or
should have known that the market value of the Williams Property was significantly below this
appraised amount. This misrepresentation was made in the appraisal and in the loan application
completed and submitted to FMFC by Joe Savaglia.
188. In furtherance of this fraudulent scheme to obtain unjustified fees for loan
transactions that would not have been completed but for the fraudulent acts set forth above,
Defendants intentionally used the interstate wires in violation of 18 U.S.C. § 1343. Each of the
following acts was necessary to achieve the object of inducing FMFC to fund the fraudulent loan:
a. On July 15, 2002, HomEq Servicing Corporation faxed a payoff statement
from California to Joe Savaglia at American Residential in Kansas;
b. s
On July 26, 2002, Ms. Williams’pay stubs and W-2' were faxed from a
Kinko’s in Independence, MO to American Residential in Kansas;
c. On August 13, 2002, title documents were faxed from Assured Quality
Title in Missouri to Joe Savaglia at American Residential in Kansas;
d. On or around August 19, 2002, the closing documents were e-mailed from
First Magnus in Kansas to Assured Quality Title in Missouri; and,
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e. On August 19, 2002, a fax was sent from First Magnus in Kansas to
Assured Quality Title in Missouri including the closing instructions and
instructing the title company closing agent how to access the closing
documents by internet.
189. In deciding to fund the Williams loan, FMFC relied on the information in the loan
application and appraisal generally, and specifically relied on the misrepresented appraised value.
FMFC would not have funded the Williams loan had it known that the represented market value
was significantly overstated. The Williams Property foreclosed for considerably less than the
outstanding loan amount and FMFC incurred approximately $26,600 in losses, exclusive of
attorneys fees and costs associated with this action, when it was required to repurchase the
Williams loan from the Investors.
American Residential Funding
Loan Officer: Brian Eaton
The Jordan Loan
190. On or around February 24, 2003, William and Linda Jordan borrowed $210,000
from FMFC to refinance a residence located at 1024 Pine, Ottawa, KS 66067 (“Jordan
Property”).
191. American Residential Funding acted as the mortgage broker. TIG, by and through
Bill Lima acted as the appraiser. Brian Eaton, previously employed by Star Equity, acted as the
loan officer and completed the loan application pertaining to refinancing the Jordan Property.
192. Approval of the Jordan’s loan and the subsequent disbursement required an
appraisal to support the amount of the loan. On or about February 5, 2003, Bill Lima performed
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an appraisal on the Jordan property at the direction of American Residential and Brian Eaton. In
his appraisal, Lima materially misrepresented the market value of the Jordan Property to be
$285,000. On information and belief, Lima’s appraised value is at least 1.9 times the actual
value of the property, which is approximately $150,000.
193. On information and belief, Lima created the inflated appraisal by:
a. using pictures that do not depict the subject property;
b. with the exception of the address and legal description, falsifying all data
with respect to the subject property;
c. grossly inflating the sales prices of comps;
d. providing a false drawing of the subject property; and,
e. using comps that have nothing in common with the subject property.
194. On information and belief, Brian Eaton directed, induced, knew of and supported
Bill Lima’s actions, omissions and his fraudulent appraisal of the Jordan Property.
195. Brian Eaton and TIG, by and through Bill Lima, misrepresented that the market
value of the Jordan Property was $285,000. Each knew or should have known that the market
value of the Jordan Property was significantly below this appraised amount. This
misrepresentation was made in the appraisal and in the loan application completed and submitted
to FMFC by Brian Eaton.
196. In furtherance of this fraudulent scheme to obtain unjustified fees for loan
transactions that would not have been completed but for the fraudulent acts set forth above,
Defendants intentionally used the interstate wires in violation of 18 U.S.C. § 1343. Each of the
following acts was necessary to achieve the object of inducing FMFC to fund the fraudulent loan:
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a. On February 19, 2003, an FMFC employee in Kansas telephoned Mr.
Jordan’s employer, Chief Logistics, Inc. in Iowa, to verify Mr. Jordan’s
employment; and,
b. On information and belief, the proceeds of the Jordan loan were
transferred to the loan closing by interstate wire transfer.
197. In deciding to fund the Jordan loan, FMFC relied on the information in the loan
application and appraisal generally, and specifically relied on the misrepresented appraised value.
FMFC would not have funded the Jordan loan had it known that the represented market value
was significantly overstated. The Jordan Property foreclosed for considerably less than the
outstanding loan amount and FMFC incurred approximately $100,600 in losses, exclusive of
attorneys fees and costs associated with this action, when it was required to repurchase the
Jordan loan from the Investors.
American Residential Funding
Other Loan Officers
The Harris Loan
198. On or around April 14, 2003, Jeffrey Harris borrowed $103,000 from FMFC to
refinance a residence located at 8109 East 92nd Terrace, Kansas City, MO 64138 (“Harris
Property”).
199. American Residential Funding acted as the mortgage broker. TIG, by and through
Bill Lima, acted as the appraiser. Barbara Holzenthal acted as the loan officer and completed the
loan application pertaining to refinancing the Harris Property.
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200. Approval of Mr. Harris’s loan and the subsequent disbursement required an
appraisal to support the amount of the loan. On or about March 10, 2003, Bill Lima performed
an appraisal on the Harris property at the direction of American Residential and Barbara
Holzenthal. In his appraisal, Lima materially misrepresented the market value of the Harris
Property to be $140,000. On information and belief, Lima’s appraised value is at least 1.51 times
the actual value of the property, which is approximately $92,500.
201. On information and belief, Lima created the inflated appraisal by:
a. grossly overstating the GLA for the subject property;
b. using comps from a superior area while ignoring several comps from the
same subdivision; and,
c. inflating the sales prices of comps.
202. On information and belief, Barbara Holzenthal directed, induced, knew of and
supported Bill Lima’s actions, omissions and his fraudulent appraisal of the Harris Property.
203. Barbara Holzenthal and TIG, by and through Bill Lima, misrepresented that the
market value of the Harris Property was $140,000. Each knew or should have known that the
market value of the Harris Property was significantly below this appraised amount. This
misrepresentation was made in the appraisal and in the loan application completed and submitted
to FMFC by Holzenthal.
204. In furtherance of this fraudulent scheme to obtain unjustified fees for loan
transactions that would not have been completed but for the fraudulent acts set forth above,
Defendants intentionally used the interstate wires in violation of 18 U.S.C. § 1343. Each of the
following acts was necessary to achieve the object of inducing FMFC to fund the fraudulent loan:
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a. On February 28, 2003, purported earnings statements and a W-2 in the
name of Jeffery Harris were faxed from Missouri to American Residential
in Kansas;
b. On or around April 1, 2003, proof of homeowners insurance was faxed
from American Family Insurance, Agent Keith L. Powell, in Missouri to
American Residential in Kansas; and,
c. On April 8, 2003, an FMFC employee in Kansas telephoned Mr. Harris’s
employer, the City of Kansas City in Missouri, to verify Mr. Harris’s
employment.
205. In deciding to fund the Harris loan, FMFC relied on the information in the loan
application and appraisal generally, and specifically relied on the misrepresented appraised value.
FMFC would not have funded the Harris loan had it known that the represented market value
was significantly overstated. The Harris Property foreclosed for considerably less than the
outstanding loan amount and FMFC incurred approximately $93,000 in losses, exclusive of
attorneys fees and costs associated with this action, when it was required to repurchase the Harris
loan from the Investors.
The Stewart Loan
206. On or around April 15, 2003, David and Shirley Stewart borrowed $201,000 from
FMFC to refinance a residence located at 1129 East Frontier Drive, Olathe, KS 66062 (“Stewart
Property”).
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207. American Residential Funding acted as the mortgage broker. TIG, by and through
Bill Lima, acted as the appraiser. Angel X. acted as the loan officer and completed the loan
application pertaining to refinancing the Stewart Property.
208. Approval of the Stewart’s loan and the subsequent disbursement required an
appraisal to support the amount of the loan. On or about April 4, 2003, Bill Lima performed an
appraisal on the Stewart property at the direction of American Residential and Angel X. In his
appraisal, Lima materially misrepresented the market value of the Stewart Property to be
$230,000. On information and belief, Lima’s appraised value is at least 1.54 times the actual
value of the property, which is approximately $149,000.
209. On information and belief, Lima created the inflated appraisal by:
a. falsely representing that the subject property had a pool;
b. falsifying the sales prices of comps;
c. failing to note proximity to highway that results in excess noise; and,
d. ignoring more proximate, appropriate comps.
210. On information and belief, Angel X. directed, induced, knew of and supported
Bill Lima’s actions, omissions and his fraudulent appraisal of the Stewart Property.
211. Angel X. and TIG, by and through Bill Lima, misrepresented that the market
value of the Stewart Property was $230,000. Each knew or should have known that the market
value of the Stewart Property was significantly below this appraised amount. This
misrepresentation was made in the appraisal and in the loan application completed and submitted
to FMFC by Angel X.
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212. In furtherance of this fraudulent scheme to obtain unjustified fees for loan
transactions that would not have been completed but for the fraudulent acts set forth above,
Defendants intentionally used the interstate wires in violation of 18 U.S.C. § 1343. Each of the
following acts was necessary to achieve the object of inducing FMFC to fund the fraudulent loan:
a. s
On April 2, 2003, pay stubs and W-2' for both Shirley and David Stewart
were faxed from Fuller Foundation in Kansas to American Residential in
Missouri;
b. On April 8, 2003, multiple documents intended to document the Stewart’s
assets were faxed from Fuller Foundation in Kansas to American
Residential in Missouri; and,
c. On April 8, 2003, proof of insurance was faxed from State Farm Insurance
Agent John Booth, located in Kansas, to American Residential in
Missouri.
213. In deciding to fund the Stewart loan, FMFC relied on the information in the loan
application and appraisal generally, and specifically relied on the misrepresented appraised value.
FMFC would not have funded the Stewart loan had it known that the represented market value
was significantly overstated. The Stewart Property foreclosed for considerably less than the
outstanding loan amount and FMFC incurred approximately $94,800 in losses, exclusive of
attorneys fees and costs associated with this action, when it was required to repurchase the
Stewart loan from the Investors.
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BRIAN LEE EATON dba OLYMPIC MORTGAGE
The Boese Loan
214. On or around January 12, 2004, Kevin G. Boese borrowed $108,500 from FMFC
to refinance a residence located at 205 South Chester Terrace, Olathe, KS 66061 (“Boese
Property”).
215. Brian Lee Eaton dba Olympic Mortgage acted as the mortgage broker. Advantage
Appraisal Services, by and through Aaron L. Jamison and Debra J. McGowan, acted as the
appraiser. Michael Evans acted as the loan officer and completed the loan application pertaining
to refinancing the Boese Property.
216. Approval of Mr. Boese’s loan and the subsequent disbursement required an
appraisal to support the amount of the loan. On or about December 12, 2003, Aaron L. Jamison
and Debra J. McGowan performed an appraisal on the Boese property at the direction of Brian
Lee Eaton dba Olympic Mortgage and Michael Evans. In their appraisal, Jamison and McGowan
materially misrepresented the market value of the Boese Property to be $148,000. On
information and belief, Jamison’s and McGowan’s appraised value is at least 1.4 times the actual
value of the property, which is approximately $105,000.
217. On information and belief, Jamison and McGowan created the inflated appraisal
by:
a. falsely inflating previous sale price of subject property;
b. falsely inflating the sales prices of comps;
c. misrepresenting the condition of the subject property; and,
d. using superior comps and misrepresenting the features and GLA of comps.
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218. On information and belief, Brian Lee Eaton dba Olympic Mortgage and Michael
Evans, directed, induced, knew of and supported Jamison’s and McGowan’s actions, omissions
and their fraudulent appraisal of the Boese Property.
219. Brian Lee Eaton dba Olympic Mortgage, Michael Evans, and Advantage
Appraisal Services, by and through Aaron L. Jamison and Debra J. McGowan, misrepresented
that the market value of the Boese Property was $108,500. Each knew or should have known
that the market value of the Boese Property was significantly below this appraised amount. This
misrepresentation was made in the appraisal and in the loan application completed and submitted
to FMFC by Brian Lee Eaton dba Olympic Mortgage and Michael Evans. On information and
belief, the loan application materials submitted to FMFC also contain falsified documentation
with respect to Mr. Boese’s income.
220. In furtherance of this fraudulent scheme to obtain unjustified fees for loan
transactions that would not have been completed but for the fraudulent acts set forth above,
Defendants intentionally used the interstate wires in violation of 18 U.S.C. § 1343. Each of the
following acts was necessary to achieve the object of inducing FMFC to fund the fraudulent loan:
a. On December 22, 2003, Farmers Insurance Agent Mike Dillon, located in
Missouri, faxed proof of property insurance to Olympic Mortgage in
Kansas;
b. On January 2, 2004, a FMFC employee in Kansas telephoned Mr. Boese’s
employer, Elk Composite Building Product, in Dallas, Texas to verify Mr.
Boese’s employment;
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c. On January 6, 2004, Farmers Insurance Agent Mike Dillon, located in
Missouri, faxed an insurance application for Mr. Boese to Olympic
Mortgage in Kansas; and,
d. On January 12, 2004, the Boese loan proceeds, $109,682.80, were wired
from Paine Webber, an FMFC warehouse bank in New York, wire
identification number Fed0112B1Q8052C000893, to the account of
Midwest Title at Bank of Blue Valley in Overland Park, Kansas.
221. In deciding to fund the Boese loan, FMFC relied on the information in the loan
application and appraisal generally, and specifically relied on the misrepresented appraised value.
FMFC would not have funded the Boese loan had it known that the represented market value was
significantly overstated. The Boese Property foreclosed for considerably less than the
outstanding loan amount and FMFC incurred approximately $54,800 in losses, exclusive of
attorneys fees and costs associated with this action, when it was required to repurchase the Boese
loan from the Investors.
FIRST CAUSE OF ACTION
RICO: § 1962 (c) and (d)
(Against Mortgage Brokers, Mortgage Broker Principals, Loan Officers, Appraisers and
Susan Shartzer)
222. FMFC repeats and incorporates by reference the allegations set forth in the
preceding paragraphs 1 through 221 of this Complaint.
223. Defendants Star Equity, Gary Shartzer, the Star Equity Loan Officers, Reis
Enterprises, the Reis Enterprises Loan Officers, Susan Shartzer, the American Residential Loan
Officers, Brian Lee Eaton, individually and dba Olympic Mortgage, the Olympic Mortgage Loan
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Officers and the Appraisers (“Defendants” for purposes of First Cause of Action) are each a
person under 18 U.S.C. § 1961(3) inasmuch as each is an entity or individual capable of holding
an interest in property.
224. Through their repeated use of interstate wires in violation of 18 U.S.C. § 1343 to
effectuate their scheme to obtain unjustified fees and commissions for loan transactions that
would not have been completed but for the Defendants’ fraudulent misrepresentations,
Defendants committed multiple acts of racketeering activity or predicate acts. The predicate acts
for each fraudulent loan are set forth above.
225. The predicate acts were required to effectuate the scheme, culminating in the loan
funding. Loan funding would not have occurred in some instances without the use of interstate
wiring of loan proceeds and loan approval would not have occurred without proof of property
insurance, payoff amounts, verification of the borrower’s employment and title related
documents in all instances.
226. The nineteen fraudulent loans known to FMFC at this time span approximately
three years, from 2001 through 2004.
227. Defendants’ ongoing criminal activity victimized not only FMFC, but additional
mortgage businesses such as Executive Mortgage, Inc. and Cornerstone Mortgage Company,
which, as expressly acknowledged by Jane Sanson and the MREAC in public filing, were also
victimized by Sanson’s fraudulent appraisals. FMFC’s subsequent investors may also be
considered victims of Defendants’ scheme notwithstanding that FMFC has repurchased the loans
in which they invested. Defendants’ scheme and fraudulent acts may also have victimized some
of the borrowers, who, if innocent, may not have borrowed but for Defendants’ fraud. Finally,
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Defendants’ scheme detrimentally affects the real estate market and consumers in general
inasmuch as fraudulent inflated real estate values decrease the number of persons capable of
purchasing a residence, contribute to increased property taxes throughout the region and
generally increase the costs associated with obtaining a mortgage-backed loan for all consumers.
228. Defendants committed numerous predicate acts with respect to each loan that is
the subject of this Complaint. In furtherance of their scheme to obtain fraudulently induced loan
proceeds from First Magnus, Defendants utilized the interstate wires by fax, phone and, most
significantly for the Defendants, wiring of the loan proceeds from outside Kansas and Missouri.
229. Each fraudulent loan funded by FMFC comprises a distinct and separate injury to
FMFC. On information and belief, Defendants would have continued in their scheme
indefinitely had FMFC not discovered their fraudulent scheme and terminated its relationships
with Defendants.
230. The scheme, originally conceived by Star Equity, through its principals and
employees, ultimately involved multiple mortgage brokers, loan officers, appraisers and other
mortgage broker employees that may or may not have known of the fraudulent information
contained in the loan applications.
231. As set forth above, this scheme was exported by Star Equity principals and
employees to various other mortgage brokers, though the appraisers and loan officers involved in
many of the fraudulent loans remained the same. The Defendants’ demonstrated ability to adapt
by moving from mortgage broker to mortgage broker evidences a threat of repeated criminal
conduct. Further, FMFC sells its loans in the stream of commerce. So long as the loan performs,
FMFC will not be alerted to the possibility of fraud or overvaluation. This creates the possibility
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of discovering Defendants’ predicate acts years after the fact and demonstrates a threat of
continuing injury.
232. The enterprise is an association in fact comprised of the Defendants set forth
above and the following categories of individuals who may or may not have known of the
fraudulent information contained in the loan applications, the predicate acts and the scheme to
cause FMFC to fund loans based on fraudulent documents:
a. loan processors employed by the mortgage brokers, whose role was to
gather documents and communicate with FMFC;
b. loan processors employed by FMFC, whose role was to gather documents
and communicate with the mortgage broker;
c. underwriters employed by FMFC, whose role was to draw up the final
documents and send them to the title company closing the loan;
d. title companies, whose role was to close the loan, confirm that all
requirements were met at closing, issue title insurance policies and ensure
that funds were disbursed in accordance with the HUD-1 form and closing
instructions;
e. closing agents employed by the title companies, whose role was to close
the loan, confirm that all requirements were met at closing, issue title
insurance policies and ensure that funds were disbursed in accordance with
the HUD-1 form and closing instructions; and,
f. title companies, whose role was to insure title to the fraudulently appraised
properties.
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233. The enterprise engaged in two separate businesses: one to perform the legitimate
function of originating legitimate loans, and one to perform the illegitimate functions connected
with the origination of fraudulent loans. Individuals that fall into any one of the categories
described above furthered the business of the enterprise and may or may not have knowingly
participated in the scheme to defraud FMFC into funding inflated and unsupported loans.
234. As set forth above, even though the Defendants switched the mortgage broker
title under which they operated, on information and belief to avoid or hinder detection by FMFC,
they continued to function as a continuing unit, and to use the same appraisers to effectuate the
fraudulent scheme.
235. Regardless of the different mortgage broker titles employed by the enterprise, the
core members of the enterprise remained the same and the basic decision making structure
remained the same. Mortgage brokers, acting through their principals and Loan Officers,
directed appraisers to complete appraisals to support a pre-determined value arrived at by the
mortgage broker. To meet that pre-determined value, appraisers falsified and misrepresented
comparables as well as the subject property. Mortgage brokers, through their principals and
Loan Officers, then directed other employees to assemble loan applications that the employee
may or may not have known contained fraudulent information. In that regard, mortgage brokers
directed the activities of both employees that may have been innocent and directed the activities
of employees and agents that participated in the criminal conduct or together arrived at decisions
to pursue the criminal conduct.
236. In the alternative, Defendants formed two separate enterprises, the latter having
splintered off from the original enterprise: One enterprise spanning Gary Shartzer’s involvement
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in Star Equity and Reis Enterprises, with the common elements being Gary Shartzer, Brian
Eaton, Joe Savaglia, Dana Self, Jane Sanson and TIG and its principals and employees; and, a
second enterprise spanning Brian Eaton’s involvement in American Residential and Brian Lee
Eaton dba Olympic Mortgage, with the common elements being Brian Eaton, Joe Savaglia and
TIG and its principals and employees.
237. Each of the nineteen loans that is the subject of this action have defaulted and the
collateralized properties have been foreclosed upon. In each instance, FMFC was required to
repurchase the loan from its investor due to material misrepresentations in the loan application
materials. FMFC has been damaged in a specific amount set forth above with respect to each
loan, exclusive of attorneys fees and other costs associated with this action.
238. At the other Defendants'direction, the Appraisers attributed a pre-determined
value to the collaterized properties to support the desired loan amount. This was done by
manufacturing non-existent comparables, and fraudulently altering existent comparables.
Comparables had to be manufactured and altered to support the desired loan amount because at
s
the time the loan was made, the collateralized property' market value was substantially less than
the purported value attributed to it by the Appraisers. If accurate data had been used by the
Appraisers in completing the appraisals, FMFC would not have made the loans. FMFC also
would not have made the loans in some instances absent misrepresentations regarding the
s
borrower' creditworthiness. Further, if the appraisals had been predicated on accurate data, no
damage would have been incurred when the loans defaulted and were foreclosed upon because
the collateralized properties would have been worth their appraised value and would have yielded
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s
approximately that value in foreclosure. FMFC' damages are directly and proximately caused
by the Defendants'actions and not the result of some intervening cause.
239. Accordingly, as a direct and proximate result of Defendants'pattern of
racketeering activity, FMFC has suffered damages under 18 U.S.C. 1962(c).
240. In addition, each of the Defendants identified in this Cause of Action knew about
and agreed to facilitate the commission of at least two of the predicate acts set forth above that
constitute a pattern of racketeering activity. In many cases, each Defendant agreed to facilitate
the wiring of loan proceeds across state lines, as that was the very essence and purpose of the
scheme. Accordingly, Defendants are also liable to FMFC pursuant to 18 U.S.C. § 1962(d).
SECOND CAUSE OF ACTION
BREACH OF CONTRACT
(Against Mortgage Brokers)
241. FMFC repeats and incorporates by reference the allegations set forth in the
preceding paragraphs 1 through 240 of this Complaint.
242. On October 3, 2001, Star Equity entered into a “Broker Agreement” with FMFC
by which Star Equity could originate loans that could be submitted for potential funding (“Broker
Agreement,” attached as Exhibit A). The agreement was signed on behalf of Star Equity by Gary
Shartzer as a broker of record.
243. Pursuant to the Broker Agreement, Star Equity agreed to:
indemnify and hold [FMFC] harmless from any and all loss, injury, and damage
s
resulting, or claimed to have resulted from any breach of Broker' covenants,
representations or warranties under this Agreement or which otherwise arise from
or relate to any acts or omissions, whether willful, negligent, or otherwise, by
Broker, its employees or Broker-selected-third-party affiliates (such as appraisers,
credit agencies, Realtors, and/or borrowers) in connection with any loan to be
originated by Broker hereunder. Such indemnification shall include, but not be
s
limited to, reasonable attorneys fees by counsel of [FMFC]' choice, appraiser' s
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s s
costs, investigator' fees, expert' fees, and such other costs and disbursements as
may be incurred by [FMFC] in connection with such matters subject to
indemnification by Broker.
Ex. A, Broker Agreement, Part J at 2.
244. Star Equity also agreed to “comply strictly with, and [to] cause all personnel
employed by Broker to comply with all applicable laws, regulations, rules and ordinances of
government authorities in connection with all activities of Broker and [FMFC].” Ex. A, Broker
Agreement, Part B at 1. Star Equity also warranted and agreed to comply with “all other
applicable real estate, banking, and other laws and all regulations thereunder.” Id.
245. In the Broker Agreement, Star Equity agreed that it would:
make prompt, timely, full, accurate, and truthful disclosure to [FMFC] of all facts,
information, and documentation which Broker may know, suspect, or have notice
of, which could or has affected the validity, collectability, and security or
enforceability of any loan originated by Broker for funding by [FMFC].
Ex. A, Broker Agreement, Part F at 1.
246. Star Equity also agreed that it would “make no misrepresentations or any
misstatements of any material facts, whether by act, statement, concealment, or omission, in
connection with any loan origination by Broker for funding by [FMFC].” Ex. A, Broker
Agreement, Part F at 2.
247. The Broker Agreement contains a separate attorneys’ fees provision that provides:
“If any action at law or in equity is brought to enforce the provisions of this Agreement, the
prevailing party shall be entitled to reasonable attorneys fees, in addition to any other relief to
which it may be entitled.” Ex. A, Broker Agreement, Part O at 4.
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248. On April 29, 2004, Reis Enterprises entered into a Broker Agreement with FMFC
by which Reis Enterprises could originate loans that could be submitted for potential funding, a
copy of which is attached at Exhibit B. The agreement was signed on behalf of Reis Enterprises
by Justin Cahow as a broker of record and contains the same or substantively similar provisions
as those described above.
249. On April 27, 2004, Brian Lee Eaton dba Olympic Mortgage entered into a Broker
Agreement with FMFC by which Brian Lee Eaton dba Olympic Mortgage could originate loans
that could be submitted for potential funding, a copy of which is attached as Exhibit C. The
agreement was signed on behalf of Brian Lee Eaton dba Olympic Mortgage by Brian Lee Eaton
as a broker of record and contains the same or substantively similar provisions as those described
above.
250. FMFC fully performed its obligations under the Broker Agreement.
251. The actions of Star Equity, Reis Enterprises and Brian Lee Eaton dba Olympic
Mortgage (“Mortgage Brokers”) in originating the subject loans, as described above, breached
the promises, covenants, representations, and warranties made by Mortgage Brokers to FMFC
because the information provided in the loan packages was false, misleading, and/or inaccurate
as set forth in detail with respect to each loan. As a result of Mortgage Brokers’ breaches of the
Broker Agreements, FMFC suffered damages, including extending loans on fraudulent
documents, obtaining inadequate collateral, being obligated to repurchase bad loans from
Investors, and suffering consequent losses on these fraudulently induced loans.
252. Under the indemnification provision of the Broker Agreements, Mortgage Brokers
are liable to FMFC for FMFC’s losses, injuries, and damages suffered as a result of the acts and
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omissions of their employees and of the Appraisers. First Magnus suffered damages as a result
of the Mortgage Broker employees’ and Appraisers’ acts and omissions in inflating their
appraisals.
253. Under the indemnification provision of the Broker Agreements, Mortgage Brokers
are also liable to FMFC for all losses suffered by FMFC resulting from the defaults on the
subject loans, including FMFC’s actual damages, reasonable attorneys’ fees, and all costs
associated with foreclosure and the marketing and sale of the subject properties after foreclosure,
as well as for the costs of this lawsuit.
THIRD CAUSE OF ACTION
BREACH OF CONTRACT: BREACH OF THE IMPLIED COVENANT OF GOOD
FAITH AND FAIR DEALING
(Against Mortgage Brokers)
254. FMFC repeats and incorporates by reference the allegations set forth in the
preceding paragraphs 1 through 253 of this Complaint.
255. Kansas law implies a covenant of good faith and fair dealing into every contract.
This implied covenant imposes upon each party to a contract the duty to do nothing destructive of
the other party’s right to enjoy the fruits of the contract and to do everything that the contract
presupposes they will do to accomplish its purposes.
256. The actions of Star Equity, Reis Enterprises and Brian Lee Eaton dba Olympic
Mortgage (“Mortgage Brokers”) in originating the subject loans, as described above, breached
this implied covenant in that the information provided in the loan packages was false,
misleading, and/or inaccurate. FMFC had the right to enjoy the fruits of its contract–truthful and
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accurate loan applications to consider for funding–and Mortgage Brokers’ acts and omissions
prevented First Magnus from enjoying those fruits.
257. Mortgage Brokers acted in bad faith in order to increase their respective fees and
earnings under the contract. Mortgage Brokers knew that any increase obtained as a result of
their bad faith actions would come at FMFC’s expense.
258. FMFC suffered damages as a result of Mortgage Brokers’ interference with
FMFC’s right to enjoy the fruits of the respective contracts.
FOURTH CAUSE OF ACTION
BREACH OF FIDUCIARY DUTY
(Against Mortgage Brokers, Loan Officers and Appraisers)
259. FMFC repeats and incorporates by reference the allegations set forth in the
preceding paragraphs 1 through 258 of this Complaint.
260. As mortgage loan brokers originating loans on behalf of FMFC, Star Equity, Reis
Enterprises and Brian Lee Eaton dba Olympic Mortgage (“Mortgage Brokers”) and the Loan
Officers owed FMFC a fiduciary duty of the highest good faith. As a result of this fiduciary
relationship, Mortgage Brokers and the Loan Officers were charged with a duty of the fullest
disclosure of all material facts concerning the loan transactions that might have affected FMFC’s
decision to fund the loan.
261. As appraisers performing appraisals on the subject properties in order to complete
mortgage loan applications, the Appraisers owed FMFC a fiduciary duty of the highest good
faith. The Appraisers knew their appraisals would be relied upon by the lender in making its
decision on whether to fund the loan. FMFC, as the lender that funded the subject loans, was a
foreseeable and intended third-party beneficiary of the contract between Mortgage Brokers and
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the Appraisers, such that the Appraisers owed FMFC a duty of the fullest disclosure of all
material facts concerning the appraisals and loan transactions that might have affected FMFC’s
decision to fund the loan.
262. Mortgage Brokers and the Loan Officers breached their fiduciary and contract
duties owed to FMFC by providing information they knew or should have known to be false, by
failing to disclose material information to FMFC, and by failing to obtain accurate appraisals of
the subject properties on which FMFC could rely.
263. The Appraisers breached their fiduciary and contract duties owed to FMFC by
providing information they knew or should have known to be false, by failing to disclose material
information to FMFC, and by failing to perform accurate appraisals of the subject properties.
264. FMFC suffered damages as a result of the Mortgage Brokers’, the Loan Officers’,
and the Appraisers’ breaches of their respective fiduciary and contract duties when the
fraudulently induced loans defaulted and the subject properties foreclosed for significantly less
than the outstanding mortgage amount and FMFC was forced to repurchase the bad loans from
its Investors.
FIFTH CAUSE OF ACTION
FRAUDULENT MISREPRESENTATION
(Against Mortgage Brokers, Mortgage Broker Principals, Loan Officers, Appraisers and
Susan Shartzer)
265. FMFC repeats and incorporates by reference the allegations set forth in the
preceding paragraphs 1 through 264 of this Complaint.
266. For each loan transaction described above, Defendants involved therein made
false representations of fact in the loan applications, the appraisals, the loan packages, and other
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communications with FMFC. Specifically, the loan applications and the appraisals
misrepresented the market value of the subject properties. In some instances, the loan
applications and documents in the loan packages also misrepresented the borrowers’
creditworthiness, income, assets and employment status.
267. Defendants made the misrepresentations with the intent to induce FMFC to fund
the loans at inflated prices. FMFC’s decisions to fund the loans were based on the
misrepresentations that the values of the properties sufficiently collateralized the loan value and
that the borrowers were capable of repaying the loans based on their creditworthiness, income,
assets and employment. Had FMFC known the true facts including the actual value of the
subject properties, or the true borrower information, such as income, assets and employment
status, it would not have funded the loans in question. The misrepresentations were reasonably
relied upon by FMFC in determining to fund the subject loans.
268. FMFC suffered damages as a direct and proximate result of its reliance on
Defendants’ misrepresentations when the loans defaulted, the subject properties foreclosed for
significantly less than the outstanding mortgage amount and FMFC was forced to repurchase the
bad loans from its Investors.
SIXTH CAUSE OF ACTION
FRAUDULENT OMISSION
(Against Mortgage Brokers, Mortgage Broker Principals, Loan Officers, Appraisers and
Susan Shartzer)
269. FMFC repeats and incorporates by reference the allegations set forth in the
preceding paragraphs 1 through 268 of this Complaint.
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270. The relationship between FMFC and the Mortgage Brokers, Mortgage Broker
Principals, Loan Officers, Appraisers and Susan Shartzer (“Defendants” for purposes of the Sixth
Cause of Action) rested upon the trust and confidence between the parties necessitated by the
type of business in which they were engaging. FMFC placed confidence and trust in Defendants’
honesty, integrity, and ability to skillfully and capably perform the services requested. Moreover,
Defendants had superior knowledge of the subject properties, the local real-estate market, and the
true market value of the residences in which a security interest was to be taken.
271. However, for each loan transaction described above, Defendants involved therein
made fraudulent omissions of fact and fraudulently concealed material facts in the loan
applications, the appraisals, the loan packages, and other communications with FMFC.
Specifically, the loan applications and the appraisals omitted the true market value of the subject
properties, other important factors such as location and more accurate and appropriate
comparables which would have indicated that the collateral was over-valued, and, in some
instances, borrower information, such as income, assets and employment status, which would
have indicated that the borrower did not qualify for a loan in the amount requested.
272. Defendants’ concealment of material facts and other omissions was intended to
induce FMFC to fund loans for which there was not adequate collateral or a reasonable prospect
of repayment. FMFC’s decisions to fund the loans were based on its belief that the information
in the loan packages and appraisals was accurate and that no material information had been
omitted. Had FMFC known the information and material facts that were omitted from the loan
packages and appraisals by the Defendants, it would not have funded the loans.
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273. FMFC suffered damages as a direct and proximate result of its reasonable reliance
on the purported accuracy of the loan packages and its reasonable belief that no material facts or
information had been omitted from the loan packages. FMFC suffered damages when the loans
defaulted, the subject properties foreclosed for significantly less than the outstanding mortgage
amount and FMFC was forced to repurchase the bad loans from its Investors.
SEVENTH CAUSE OF ACTION
NEGLIGENT MISREPRESENTATION
(Against Mortgage Brokers, Mortgage Broker Principals, Loan Officers, Appraisers and
Susan Shartzer)
274. FMFC repeats and incorporates by reference the allegations set forth in the
preceding paragraphs 1 through 273 of this Complaint.
275. In the course of conducting business, the Mortgage Brokers, Mortgage Broker
Principals, Loan Officers, Appraisers, and Susan Shartzer in the course of obtaining a loan for
herself and her husband Gary Shartzer (“Defendants” for purposes of the Seventh Cause of
Action) provided or withheld material information relevant to determining whether the loan
application should be approved by FMFC and whether the loan should subsequently be funded.
The information provided was not correct. The Defendants providing the information did so
directly or indirectly to influence FMFC to approve the subject loans.
276. Mortgage Brokers, Mortgage Principals, the Loan Officers and Susan Shartzer
failed to exercise reasonable care in obtaining and communicating the true market value of the
subject properties and accurate borrower information for FMFC to evaluate in processing the
subject loan application.
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277. The Appraisers failed to exercise reasonable care in obtaining and communicating
the true market value of the subject properties. The Appraisers knew that their appraisals would
be relied upon by a mortgage loan lender in making the ultimate decision of whether to fund the
requested loan.
278. As a result of the Defendants’ failure to exercise reasonable care, false
information was obtained and communicated by the Defendants to FMFC. This information was
necessary for FMFC to evaluate the loan applications, to determine whether the applicants met
the funding criteria, and to determine whether to fund the loans. Defendants knew FMFC would
rely on the information they supplied, and FMFC, in approving and funding the subject loans, did
in fact rely on the false information resulting from the Defendants’ lack of reasonable care.
279. FMFC suffered damages as a direct and proximate result of its reasonable reliance
on the information communicated to it by Defendants when the loans defaulted, the subject
properties foreclosed for significantly less than the outstanding mortgage amount and FMFC was
forced to repurchase the bad loans from its Investors.
EIGHTH CAUSE OF ACTION
PROFESSIONAL NEGLIGENCE / NEGLIGENCE
(Against Mortgage Brokers, Mortgage Broker Principals, Loan Officers, Appraisers and
Susan Shartzer)
280. FMFC repeats and incorporates by reference the allegations set forth in the
preceding paragraphs 1 through 279 of this Complaint.
281. In the course of conducting business, Mortgage Brokers, Mortgage Broker
Principals, Loan Officers and Appraisers, and Susan Shartzer in the course of obtaining a loan for
herself and her husband Gary Shartzer (“Defendants” for purposes of the Eighth Cause of
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Action) owed FMFC a duty to exercise reasonable care when performing their respective
functions and roles in relation to the subject loans. The Defendants also owed FMFC a duty to
exercise reasonable care in their interactions with FMFC.
282. Further, with the exception of Susan Shartzer, each Defendant is a professional
and had a duty to act according to a heightened standard of care. Specifically, each was required
to exercise the requisite degree of learning, skill, and ability of others in the same profession.
283. Defendants owed FMFC a duty to provide it with accurate loan information,
including, but not limited to, accurate appraisals and accurate borrower information. The
parameters of this duty are further demonstrated by the terms of the Broker Agreements.
284. Defendants knew or should have known that appraisals would be used in the
origination of loans based in part on the value of the subject properties and that the appraisals
would be relied upon by the lender in making its decision on whether to fund the loan. FMFC, as
the lender that funded the subject loans, was a foreseeable and intended third-party beneficiary of
the contract between Mortgage Brokers and the Appraisers, such that the Appraisers owed FMFC
a duty to perform the appraisals for the subject properties exercising the requisite degree of
learning, skill, and ability typically found in the appraisal business.
285. The Defendants’ acts and omissions fell below the applicable standards of care for
individuals within their respective professions when they provided FMFC with false and
incorrect information, and when they concealed or failed to provide material information which
was material to FMFC’s decision of whether to approve and fund the subject loans. Specifically,
the Defendants had a duty to exercise reasonable care in providing FMFC with, among other
things, the accurate market values and descriptions of the subject properties, the borrowers’
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actual monthly income and employment, and accurate certified appraisals of the subject
properties’ market values.
286. Mortgage Brokers, Mortgage Principals and the Loan Officers breached their duty
to FMFC when they failed to exercise reasonable care in ascertaining and providing information
they knew or should have known to be false, failing to disclose material information to FMFC,
and failing to hire appraisers who would appraise the subject properties accurately using the
ordinary care and skill exercised by other licensed appraisers.
287. Susan Shartzer breached her duty to FMFC when she failed to exercise reasonable
care in ascertaining and providing information she knew or should have known to be false,
failing to disclose material information to FMFC, and failing to hire appraisers who would
appraise the Shartzer property accurately using the ordinary care and skill exercised by other
licensed appraisers.
288. The Appraisers breached their duty owed to FMFC when they failed to exercise
ordinary care and skill in preparing the appraisals of the subject properties as evidenced by their
presenting FMFC with grossly inflated estimates of the market value of the subject properties.
289. But for the negligence of the Defendants, FMFC would not have approved and
funded the subject loans.
290. FMFC suffered damages as a direct and proximate result of Defendants’
negligence when the loans defaulted, the subject properties foreclosed for significantly less than
the outstanding mortgage amount and FMFC was forced to repurchase the bad loans from its
Investors.
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NINTH CAUSE OF ACTION
RECKLESS NEGLIGENCE / NEGLIGENT SUPERVISION
(Against Mortgage Broker Principals, Star Equity Principals, Reis Enterprises Principals,
American Residential Principals and Terrell Ford and Maurice Ragland)
291. FMFC repeats and incorporates by reference the allegations set forth in the
preceding paragraphs 1 through 290 of this Complaint.
292. As owners, principals and managers of Star Equity, Reis Enterprises, American
Residential, Brian Lee Eaton dba Olympic Mortgage and TIG, the Mortgage Broker Principals,
Star Equity Principals, Reis Enterprises Principals, American Residential Principals and Terrell
Ford and Maurice Ragland (“Defendants” for purposes of Ninth Cause of Action) had a duty to
supervise and control their co-principals, employees and agents.
293. Defendants breached their respective duties by failing to supervise their co-
principals, agents and employees named in this action. Defendants knew or should have known
that their co-principals, employees and agents were fraudulently and negligently originating loans
under the Broker Agreements with FMFC, and knew or should have known that those acts would
result in harm to FMFC. In particular, Terrell Ford and Maurice Ragland knew or should have
known that TIG principals, employees and agents were stealing identities and/or creating
fictitious identities to avoid detection of their own fraudulent acts.
294. Upon information and belief, the American Residential Principals and Brian Lee
Eaton dba Olympic Mortgage should have been particularly aware of the fraudulent activities by
American Residential agents and employees as American Residential, which employed Brian Lee
Eaton and later turned over its physical location for Eaton to operate his own mortgage
brokerage, Olympic Mortgage, at one time shared an address with TIG, the company owned and
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operated by Terrell Ford and Maurice Ragland, which produced approximately half of the
fraudulent appraisals that are the subject of this Complaint.
295. In addition, on information and belief, the American Residential Principals
engaged in a pattern of willful neglect, inattention and lack of supervision over its various branch
offices as demonstrated by the multitude of mortgage fraud complaints recently filed against
American Residential across the country. See, e.g., Mairs v. American Residential Funding, Inc.,
et al, Case No. 1:05CV0444, W.D. Michigan, filed June 28, 2005; McGhee v. American
Residential Funding, Inc., et al, Case No. CV2006-35-2, Circuit Court of Saline County, State of
Arkansas, filed March 10, 2006; Balzer v. American Residential Funding, et al, Case No.
PIG05236511, Superior Court of California, County of Alameda, filed October 11, 2005; Brown
v. American Residential Funding, Inc. et al, Case No. 1:05CV0837, W.D. Michigan, filed
December 16, 2005; Flagstar Bank, FSB v. American Residential Funding, et al, Case No. 05-
068001-CK, Circuit Court for the County of Oakland, State of Michigan, filed July 26, 2005;
Johnson v. American Residential Funding, Inc., et al, Case No. 2006-34-3, Circuit Court of
Saline County, State of Arkansas, filed January 17, 2006; Purtle v. American Residential
Funding, Inc., et al, Case No. 2005-1324-3, Circuit Court of Saline County, State of Arkansas,
filed December 5, 2005; Sharpe v. American Residential Funding, Inc., et al, Case No. 2005-
050282, Superior Court of Arizona, County of Maricopa, filed March 31, 2005; Brown v.
American Residential Funding, Inc., et al, Case No. 05-04082-CH, State Court of Michigan, 17th
Circuit Court for the County of Kent, filed April 22, 2005; Roper v. American Residential
Funding, Inc., Case No. 04-07309-CK, State of Michigan, Circuit Court for the County of Kent,
filed July 30, 2004; Walker v. American Residential Funding, Inc., et al, Case No. C112005-
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15502, Circuit Court of Pulaski County, State of Arkansas, filed December 2, 2005; and, Old
Towne Financial, Inc. v. American Residential Funding, Inc., Case No. 06CC05415, Superior
Court of California, County of Orange, filed April 25, 2006.
296. FMFC suffered damages as a direct and proximate result of Defendants’ willful
neglect and negligent supervision over their respective businesses, co-principals, agents and
employees when the loans defaulted, the subject properties foreclosed for significantly less than
the outstanding mortgage amount and FMFC was forced to repurchase the bad loans from its
Investors.
TENTH CAUSE OF ACTION
BREACH OF CONTRACT
(Against Susan Shartzer)
297. FMFC repeats and incorporates by reference the allegations set forth in the
preceding paragraphs 1 through 296 of this Complaint.
298. FMFC loaned Susan Shartzer $264,000 on October 21, 2004.
299. Susan Shartzer agreed to pay FMFC the loan amount with interest. See
Promissory Note, attached hereto as Exhibit D.
300. FMFC performed its obligations under the agreement. When Susan Shartzer
defaulted on the loan, she breached her agreement with FMFC.
301. FMFC has been damaged in an amount to be proven at trial.
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ELEVENTH CAUSE OF ACTION
CIVIL CONSPIRACY
(Against Mortgage Brokers, Mortgage Broker Principals, Loan Officers, Appraisers and
Susan Shartzer)
302. FMFC repeats and incorporates by reference the allegations set forth in the
preceding paragraphs 1 through 301 of this Complaint.
303. As described above, the facts establish that Mortgage Brokers, Mortgage Broker
Principals, Loan Officers, Appraisers and Susan Shartzer (“Defendants” for purposes of Eleventh
Cause of Action) entered into agreements and understandings to act unlawfully or use an
unlawful means to do an act which is lawful in providing false information and failing to disclose
material facts related to the fraudulently originated loans to FMFC.
304. Defendants entered into civil conspiracies with the unlawful objective of
deceiving and defrauding FMFC. There was a meeting of the minds among the Defendants
concerning how to achieve their fraudulent goals and the role each individual needed to play in
order to effectuate the mortgage fraud scheme.
305. Defendants conspired and worked together to use fraudulent appraisals and
fraudulent borrower information in order to originate and obtain residential mortgage loans that
did not meet FMFC’s guidelines and that subsequently defaulted causing losses to FMFC.
306. Each of the Defendants committed at least one act in furtherance of the
conspiracies, including, but not limited to, providing false, misrepresentative, and inaccurate
information to FMFC and withholding and concealing material facts and information from
FMFC.
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307. As a result of these civil conspiracies, FMFC suffered damages when the loans
defaulted, the subject properties foreclosed for significantly less than the outstanding mortgage
amount and FMFC was forced to repurchase the bad loans from its Investors.
TWELFTH CAUSE OF ACTION
UNJUST ENRICHMENT
(Against All Defendants)
308. FMFC repeats and incorporates by reference the allegations set forth in the
preceding paragraphs 1 through 307 of this Complaint.
309. FMFC conferred a benefit upon all Defendants in the form of loan proceeds,
commissions, fees, and increased business when it approved and funded the subject loans. The
Defendants recognized that the benefits had been conferred; indeed, acquisition of the benefits
was one of the driving forces underlying the Defendants’ mortgage fraud scheme. The
Defendants accepted and retained the benefits and continued their fraudulent, reckless, and
negligent conduct so that they could continue to receive the benefits conferred upon them by
FMFC.
310. Because the benefits conferred upon Defendants resulted from Defendants’
fraudulent actions in violation of federal, state, and common law, it would be unjust to allow
Defendants to retain the benefit conferred upon them by FMFC, and said benefit should be
returned to FMFC.
RELIEF REQUESTED
WHEREFORE, FMFC petitions the Court to enter judgment in its favor and against
Defendants as follows:
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1. For judgment in favor of FMFC and against Defendants for damages in an amount
that would fully compensate FMFC for all losses resulting from Defendants’ conduct, including
treble damages as provided by 18 U.S.C. § 1961 et seq., and attorneys fees and costs as provided
by law and by contract.
2. For judgment in favor of FMFC and against Defendants for prejudgment interest
and postjudgment interest as provided by law.
3. For judgment in favor of FMFC and against Defendants for punitive damages in
an amount that would punish Defendants for the willful, wanton, and reckless misconduct
alleged in this Complaint and that would effectively deter Defendants from future unlawful
behavior.
4. For judgment in favor of FMFC and against Defendants for damages in an amount
that would prevent Defendants from being unjustly enriched as a result of their fraudulent
conduct and violations of federal, state, and common law.
5. For judgment in favor of FMFC and against Defendants awarding FMFC its costs
and attorneys’ fees.
6. For judgment in favor of FMFC and against Defendants that Defendants are
jointly and severally liable for the damages suffered by FMFC.
7. For such other and further relief as the Court determines to be just and proper.
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JURY DEMAND
FMFC requests trial of this matter by jury.
DATED: October 4, 2006 SHOOK, HARDY & BACON L.L.P.
By: /s/ Jason E. Pepe_______________
Mark Moedritzer, Ks. Fed. #70179
Jason E. Pepe, Ks. Bar #19240
2555 Grand Blvd.
Kansas City, Missouri 64108-2613
816.474.6550
FAX: 816.421.5547
and
Brent V. Manning (pro hac vice admission pending)
Sammi V. Anderson (pro hac vice admission
pending)
MANNING CURTIS BRADSHAW & BEDNAR,
LLC
Third Floor Newhouse Building
10 Exchange Place
Salt Lake City, Utah 84111
801.363.5678
FAX: 801.364.5678
ATTORNEYS FOR PLAINTIFF FIRST MAGNUS
FINANCIAL CORPORATION
Plaintiff designates Kansas City, KS as place of trial.
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