My New Client: The FBI
The Case
You might ask why a residential real estate appraiser from Kansas City has the FBI as a client. Many appraisers were approached in the frenzy of the sub-prime mess to over value properties. To hit the number that the lenders needed. We are finding the damage that this is causing our economy and our country.
On October 10, 2006 I received a phone call that changed my life and sent it in directions I could not have imagined. It was a sub-prime lender wanting to know if I appraised high-end properties in the Kansas City Country Club District. I replied yes and quoted them a fee. I instructed the lender to place an order on my website and to fax me a copy of the contract. I reviewed the contract for $1,473,000, and then ran MLS to search for comparables and the subjects listing history.
The MLS for the subject property showed it as an active listing for $699,000. I called the lender and asked if I had the wrong address or if this was a construction rehab loan. I stated, “Did you know this house was listed for $699,000?” The lender said yes. I was told they were selling it for the higher value, and if I wanted my fee I had to appraise it for that amount. They wanted me to jeopardize my reputation and 28 years in business for $1,200. I declined the order and called the listing agent to warn her. The realtor noted she knew nothing about the contract. The sellers had excluded this buyer when she received the listing and were cutting her out of the commission.
I was enraged because I knew the mortgage system was broken and someone needed to act. I had attended the Appraisal Institute’s Mortgage Fraud Seminar the week before and met an agent with the FBI, Julia Jensen. I decided to call and let her know what was going on so she could put the property on a watch list.
Agent Jensen called me back the next day. I discussed the details with her about what was happening. She asked who the buyer was and I told her the names. She informed me they were part of a mortgage fraud group operating in Kansas City and she would be interested in the information. She also asked who the sellers were. I gave their names. She replied, “Let me grab another agent and we will see you in 20 minutes”. That was not the reply I was expecting.
I was at my office waiting for two FBI agents. I kept wondering what I have gotten myself into? They arrived at my office and I showed them the information that I had obtained. They asked if I was familiar with the sellers’ names, which I wasn’t. The agents told me the seller’s dad was allegedly a made member of the mob. He was executed in the 1970’s and stuffed in the trunk of a car. This information grabbed my attention. They assured me not to worry about the son, as far as they knew he was not a member of the mob. They asked if I knew who his wife was, and I said no. They said I might know her professional name, which they told me. I knew that name. She had been the Jackson County Executive for the last 12 years and was going to run for Mayor of Kansas City.
The agents asked if I could assist them with their investigation. I told them I would. Next, they asked me to call the lender and tell them I would complete the appraisal. Then the agents asked the million dollar question. “Would you tape the conversation?” The moment of truth had arrived. If I said no, then they would leave and I would go back to appraising as if nothing happened. If I said yes, I might be the next person they find in the trunk of a car.
They pulled out a recording device and showed me how to use it. They noted the date and time of the call, who was in the office, who I was calling and the case. I called the processor and told her I would complete the appraisal. I tried to act normal when talking with her. I am a real estate appraiser, not an undercover agent.
The Investigation
After the agents left my heart was pounding. I tried to imagine out how this might work out. They had left another recording device to use while talking with the other people involved in the transaction. I called the selling agent to schedule a time to appraise the home, which we set up for the next Tuesday. I then spoke with the loan officer and processor to let them know the inspection had been set. The processor mentioned that the loan was over 1 million dollars so they would require another appraisal in addition to mine. She asked if I would call the other appraiser and work together to make the appraisals similar to pass underwriting guidelines. Apparently, committing mortgage fraud was no big deal for them.
I called Agent Shaffer and confirmed the time and date was set. He asked if I could drop off the recording device to him on Monday at FBI Headquarters and trade him for a new one.
Monday finally came and I drove to FBI Headquarters. It was a three story office building like any other, with exception of the 10-foot high iron fence, blast gate and video cameras at the front gate. I pressed the button and told them who I was meeting with and they buzzed me in. I walked to the front door and was greeted by an armed guard. She told me the agents were on the way down. Once I spoke with the agents, they asked me to come back to the interrogation room. As we walked past the metal detectors, I asked the guard if I needed to go through one. She replied, “You are an agent, aren’t you? You don’t have to go through it”. I replied, “I am not an agent, I am an appraiser.”
We went to the interrogation room and discussed the conversations that I had with the various people involved with the transaction. Another agent came into the room with a camera and took a picture of me. The agents asked if I would be a confidential witness and gave me my code name. It all went so fast I had no time to think about what was happening. We set a time to meet the next day before I was to complete the inspection.
Agent Shaffer and I met the next morning in the parking lot of a grocery store. He showed me a different recording device that took both audio and video and how to use it. I drove to the house and the realtor was waiting for me. I took a picture of the front of home with him in the picture, and then took a street scene with his car in the picture. The realtor could not say he wasn’t there.
We went inside the house and the realtor told me this group was going to buy between 40 and 50 homes in Kansas City ranging in value from $1,000,000 to $2,000,000, and his group was doing the same thing in 10 different cities. They had money from overseas to invest and planned to rent out these houses to executives. I couldn’t believe it. This could possibly be a multi-city international crime ring, not just one case of mortgage fraud. I finished my inspection, then left to meet Agent Shaffer. I described the events that took place and gave him back the recording device.
Over the next three weeks, I taped conversations with people involved in the transaction. I was doing my appraisal work at night and on weekends since a lot of my time was spent working on the case. I even began to worry about my children’s safety.
The other appraiser called me and told me he was having a hard time appraising the property for $1,473,000. He explained that the highest he could get was only $1,200,000. I thought, “You will over appraise it by $500,000 but not $743,000?” I guess he had partial ethics. We agreed to the value and completed the appraisals.
The FBI agents asked if I would drop off the appraisal to the mortgage company while wearing a wire. By this point, it seemed like the natural thing to do. I walked away from the mortgage company thinking my part was done and it was all over for me. If only that was the case.
My life went back to normal. I had not heard anything for three weeks. On November 24, 2006, I received a phone call from the second appraiser. He asked, “Did you hear what was going on?” I replied “No”. He said, “I received a call today from the FBI and I have an appointment at 9 a.m. to talk to them about mortgage fraud.” I thought, “Sucks to be you”. I told the other appraiser thanks for the heads up. He asked, “What are you going to do”. I replied, “Tell them the truth; they know what is going on”.
Agent Shaffer called and told me the closing had tried to occur the prior Friday and they had stopped it at the closing table, at the title company. The FBI was interrogating the individuals involved in the transaction. He asked me not to talk with anyone if they called. He informed me the Grand Jury was set for January 4, 2007, and verified I could be there that day after lunch to testify.
The Grand Jury
I was contacted by the Assistant U.S. Attorney Linda Parker Marshall. She asked me to come in so she could describe the events that would take place in the Grand Jury Room. I meet with her and the FBI agents at the U.S. Courthouse in late December 2006. It was finally sinking in that this was really going to happen. I was hoping for a lot of guilty pleas so I wouldn’t have to testify, but that would not be the case.
The date arrived. I went through my morning like it was any other day. I completed two inspections then went home to put on a suit and tie. I wasn’t hungry for lunch for some reason. I drove to the court house and parked in the FBI lot where Agent Shaffer had instructed me to. I took a deep breath and said to myself, “Let’s do this”. I walked into The U.S. Courthouse knowing if the Federal Grand Jury believed me, they would hand down indictments on 11 people and charge them with Federal crimes.
I waited for almost an hour until Mrs. Marshall came to get me. I walked into the room and told my story. I cannot reveal anything about what happened in that room or the people that were there. This was our government working at the basic level of the criminal justice system. I was in there for about an hour and then left. I walked out to my car knowing I had made the right choice when I called Agent Jensen that first day.
On my way home, I turned on the radio and switched channels to talk radio. The announcer broke in with a news update. He stated, “A Federal Grand Jury in Kansas City has handed down Mortgage Fraud charges against 11 people including the Jackson County Executive and her lawyer husband.” When I arrived home I turned on the television. The charges were being reported on all of the local stations. I’ve always watched the news, but have never been part of the news.
The trial was set for February, but delayed until June after the election. The County Executive did go on to run for the Mayor’s office and received 1.5% of the Vote. The same day her TV ads for Mayor debuted was the same day the mortgage fraud indictments were brought against her. Interestingly enough, no one was talking about the buyers. The fed alleged that the buyers were part of the larger fraud team, which had committed over 100 cases of mortgage fraud in the Kansas City area. Furthermore, the feds also alleged that in the prior 18 months, this mortgage fraud team caused millions of dollars in losses.
In May, the Assistant U.S. Attorney contacted me to prepare for the trial. We met with the two FBI agents at the U.S. Court House. We listened to the tapes that I had made which was the first time that I had heard them. I can never explain the thoughts that were going through my head. “I AM AN APPRAISER”. I am not supposed to be sitting in the Federal Court House with the Assistant U.S. Attorney and two FBI agents listening to tapes of myself and individuals committing mortgage fraud. But I was. The trial was delayed again until November 2007.
The Trial
After the trial was postponed for the second time, the legal maneuvering started between the U.S. Government lawyers and the defense lawyers. Seven people in the transaction pleaded guilty to the charges against them, and four people were left to be tried. I was the lead witness in the U.S. Government’s case that was expected to last two weeks.
The jury was to be seated on Monday morning with opening statements to be made late in the morning. The U.S. Attorney asked me to be at the Federal Court House at 1 p.m. on November 6, 2007. I showed up during the lunch break and found out the jury had not been seated thanks to publicity the trial had received which led to larger than normal numbers in the jury pool. I sat waiting in the witness room for four hours. The jury was set and the opening arguments were made. The judge said, “That is enough for today. We will reconvene at 9 a.m.”. I walked out of the court house with everyone else. No one knew how the trial would play out.
The investigation had been portrayed by the local media as a political witch hunt by the new U.S. Attorney office against a local politician. I knew nothing about that. All I knew was someone tried to defraud a lender, and I did my job by protecting their interest in the property that they hired me to appraise. They were buying inflated values not appraising houses.
I was back in the witness room the next morning feeling confident knowing I was going to tell the truth. After walking down the hall to get a drink, I heard the Judge say, “Mrs. Prosecutor, call your first witness”.
The courtroom doors opened and I walked inside. I felt all eyes in the room follow me on my way to the witness stand and while I was being sworn in. Once seated, I looked out over the courtroom. To my right were the 14 jurors, 12 on the jury and 2 alternates. To my left the U.S. Federal Judge and the court reporter. At the defense table were the four defendants, their three lawyers and three assistants. At the prosecutors table were two FBI agents, two Assistant U.S. Attorneys and their support staff. There were four rows of seats for the public. The newspaper, TV and radio stations from the all across the Midwest were in the audience.
Linda Parker Marshall, the Assistant U.S. Attorney, lead my questioning. She asked me my name, address and occupation. She then asked me to describe how I became part of the case. When I was explaining the events that unfolded over the course of many months, I could hear the reaction from the audience. It seemed they were surprised by the actions that I had taken. There is no way that I could ever have imagined how things would play out. After almost two hours, the prosecutor was finished with my questioning. The judge called for a 15 minute break, which I was ready for. They didn’t make the witness seat for comfort.
The break was over and the first defense lawyer questioned me for over an hour. His questioning was the toughest as he was questioning MY ethics and the motive behind my actions. He tried to rattle me and succeeded on a few occasions. The judge warned me twice to limit my answers to the questions asked. The second lawyer only asked me two questions and I was done. The third lawyer was less aggressive towards me compared to the first lawyers. The third lawyer even talked about how I had such a good reputation and could not have been involved in mortgage fraud. I replied, “They called the wrong appraiser to commit mortgage fraud this time”.
After four hours on the stand, my part of the trial was complete. The trial would go on for another eight days. The jury deliberated for four days and came back with two guilty and two not guilty verdicts.
The mortgage and financial markets are a mess. The industry made it through the high interest rates of the early 1980’s, the recession of 1991, the first and second gulf wars and the effects of 9/11.
We need the separation of the origination of mortgages from the valuation of the properties. Enforcement of national and state laws. Prosecution of fraudulent lenders, insurers, bankers, brokers and appraisers. We, the mortgage business, need to rebuild the trust in our banking and mortgage systems.
February 4, 2008
Donald J Gossman SRA
IRR-Residential
Managing Director
Metro Real Estate Services
dgossman@irr-residential.com