Key Figure in 'Staggering Swindle' Pleads Guilty

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Key Figure in 'Staggering Swindle' Pleads Guilty

The escrow officer in the mortgage fraud case admits to creating an alternative set of documents.

When my colleague Kelly Bennett and I were digging into the staggering swindle at three local condo complexes last year, we found something very strange.

We had asked the different parties in the condo sales we were investigating to provide us with documents stating how much money was paid in the sales, and who to. We wanted to understand why condos in Escondido and San Marcos had recently sold for much more than their market value.

But when we got the documents, we saw that the copies given to us by the buyers and the lenders were noticeably different from the copies provided by the sellers.

The documents provided by the sellers showed millions of dollars in payments being made to companies owned by Jim McConville. The documents from the buyers and banks showed that all the money had instead gone to the sellers. There were two different versions of documents that were supposed to be identical.

We now know why.

Donna Demello, McConville’s go-to escrow officer in San Diego, pleaded guilty on last week to falsifying the documents she provided to the lenders and the buyers.

Demello’s fraudulent conduct hid the fact that McConville was receiving the payments from the very people who needed to know about those fees.

When a lender loans someone money to buy a property, they need to be assured the property they will have in collateral for the loan is really worth what they’re lending out. If the lenders in these purchases had been given the real documents instead of the forgeries, they would have seen that McConville had snapped up the properties at prices much lower than what they were lending out, and was paying himself huge fees out of the loans.

By hiding the fact that McConville was receiving millions of dollars in payments, Demello committed wire and mail fraud and she now faces up to 30 years in prison and a fine of $1 million or more.

We originally uncovered the swindle last spring and we’ve been following the criminal case against the McConville team ever since.

If you’re familiar with how it worked, you can skip down a few paragraphs. If not, keep reading — it’s fascinating.

Here’s how it went:

Between 2006 and 2008, McConville arranged to buy scores of condos at three projects in San Diego from developers who had been struggling to sell the units. He arranged to buy the condos at discount prices because he was buying so many, and promised the developers a set price for each condo.

Meanwhile, McConville travelled the state rounding up people with good credit to act as straw buyers for his scheme. He promised to pay them between $5,000 and $10,000 for every condo he bought using their identities. McConville promised to make all the mortgage payments; all the straw buyers had to do was sign the loan paperwork, he said.

Once the straw buyers were on board, McConville’s team set about arranging for the buyers to purchase the properties he had already arranged to buy. But they set the purchases prices much higher than McConville had agreed to pay the developers. By approaching lots of different banks, McConville’s team arranged dozens of mortgages for the straw buyers at the inflated prices.

McConville’s team then used the loans to pay the developers at the reduced prices and directed the extra money from each loan directly to one of McConville’s business accounts.

The lenders were essentially loaning the straw buyers much more than they needed to buy the properties and all the extra money was being funneled to McConville.

But, in order to make the swindle work, McConville had to keep secret from the lenders the fact that he was landing millions of dollars.

In San Diego, that’s where Demello came in.

As the escrow officer for McConville’s three San Diego deals, it was Demello’s job to collect the paperwork relating to the loans that McConville’s team was arranging and to act as the go-between in the deals, collecting the money and passing it on to the sellers.

Every time someone buys a home using a mortgage, it’s the escrow officer’s job to create a document at end of the transaction that is essentially a receipt for the sale. It shows how much was paid and who got paid what from the transaction.

The forms that Demello sent to the mortgage lenders and to the straw buyers showed that all the money the lenders had loaned had been paid to the seller, a prolific local condo conversion company named Premier Coastal Development. This kept the lenders (and the straw buyers) happy, since they had a document showing that all the money that had been lent had, indeed, been used to pay for the properties.

However, the developers who had arranged to sell the condos to McConville knew how much he was really paying for them. And they knew that McConville’s buyers were borrowing much more than they really needed to pay the real purchase price.

(There’s nothing intrinsically wrong with a borrower agreeing with a lender to borrow more money than the property’s actually worth, as long as the lender is made aware of where that money is being spent and is still willing to make the loan. In other words, if all the money from the loan’s not going to the seller, then that’s OK as long as the lender knows where it is going.)

So, Demello sent the sellers copies of the forms that showed McConville had received what were labeled as “marketing fees” on each one of the sales, which made up for the difference between the purchase price paid to the developers and the total amount each bank had actually loaned out for each sale.

(As an additional step, and because the large payments to McConville were so unusual, the developers told us they also required the lenders and the buyers to sign disclosures stating that they knew the money was being paid to McConville. The developers provided voiceofsandiego.org with copies of those disclosures for several of the San Diego deals, though lenders subsequently told us they had never seen the documents and three of the straw buyers said their signatures on the documents had been forged. The man who signed those disclosures, Raymond Davoudi, has since pleaded guilty to fraud as well.)

On Friday, Demello admitted that she had created two “final” versions of the documents for the sale of the 80 condos in San Marcos and Escondido. Here’s a snippet from the press release issued by the Department of Justice:

 

In pleading guilty to count one of the Indictment, Demello admitted that she conspired with McConville and others to conceal from the lending institutions the “marketing fees” paid to McConville for the sale to straw buyers of approximately 80 condominiums in Escondido and San Marcos. Demello acknowledged that marketing fees paid to McConville averaged about $150,000 per loan transaction.

 

Demello’s guilty plea brings to four the total number of people who have pleaded guilty so far in connection to McConville’s scam. On Aug. 2, Araks Davoudi, a former Citibank employee, pleaded guilty to the same conspiracy as Demello and two other members of McConville’s team, Davoudi and Bahareh Shamlou have both also pleaded guilty to conspiracy to commit mail and wire fraud.

McConville was arrested in June. He remains in custody.

— WILL CARLESS

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