By Ken Alltucker
The Cincinnati Enquirer

FBI agents look at documents and photograph the interior of Premier Land Title Services in Glendale on Tuesday. (Glenn Hartong photo)

The FBI raided the offices of four Greater Cincinnati lenders and title firms Tuesday to compile more evidence on what it describes as an elaborate multimillion-dollar mortgage fraud scheme thriving in many of Cincinnati's poor and working-class neighborhoods.

Agents were mum on their findings as they carted off boxes of documents from Premier Land Title in Glendale, Global Title in Sharonville and two Fairfield firms, Charter First Banc and Oaktree Financial (also known as TR Funding Inc.). Managers and owners of the targeted firms didn't return phone calls.

Raids also were conducted on a Centerville, Ohio, firm, Knab Mortgage, and the home and car of a Beavercreek, Ohio, resident.

The FBI and other federal and state investigators took the unusual step of publicly announcing the searches. They view it as an opening volley in what they promise will be a sustained pursuit to arrest and prosecute crooked investors, appraisers and mortgage brokers engaged in a scheme called mortgage, or property, flipping.

"We are taking this step because many of these people believe they can continue this fraud with impunity," said Kevin R. Brock, FBI special agent in charge of Cincinnati. "That's not the case."

Authorities admit that they don't know the full scope of the mortgage scam, but they've identified at least 500 property "flips" in Greater Cincinnati. One unidentified lender estimates it unknowingly generated or purchased $100 million in fraudulent loans in Cincinnati, said Amul Thapar, assistant U.S. attorney.

How does it happen?

Flipping typically involves selling a run-down house or apartment building at an inflated price. Participants pocket the extra mortgage dollars and often leave behind a house worth far less than the loan. A common result: foreclosure.

INFOGRAPHIC

• How "flipping" works

A key part of this scheme often involves a fraudulent property appraisal that tricks a lender into approving a loan that exceeds a property's value.

Such was the case for a longtime Blue Ash firm, Midas Mortgage, recently forced out of business by a mortgage-flipping scheme.

Midas chief executive Michael Bowen said his firm unknowingly approved more than two dozen flipped loans based on phony property appraisals. He said the investors pulled off the trick by cutting and pasting photos of more valuable homes to appraisal reports of junk properties. So his firm thought loans were made on much nicer homes.

The scam was detected after Midas Mortgage sold the loans to a secondary investor, Indiana-based Trustcorp Mortgage, which conducted a routine audit of the loans it bought from Midas. Trustcorp detected fraudulent flipping in at least 27 Midas-approved loans, so it filed a lawsuit with U.S. District Court in South Bend, Ind., seeking repayment of those loans.

The two sides settled the suit in June, with Midas Mortgage agreeing to pay Trustcorp $2.6 million for the loans and more than $82,000 in lawyer fees.

Bowen said the court judgment forced him to dissolve Midas Mortgage, which sold its assets to a new entity, Midas Financial Group. Bowen admits that his company should have better scrutinized the appraisals.

The unscrupulous investors "managed to drive my company out of business," Bowen said. "I operated this company for 17 years with an impeccable reputation. Now, I'm losing the company, and there's nothing I can do about it."

Flipping has been detected by the FBI, state and city police departments in Minneapolis, Indianapolis, Cleveland and other Midwest and East Coast cities. The FBI, the Hamilton County prosecutor's office and state authorities said Monday that they've noticed a rapid increase in complaints in the past few months in Southwest Ohio.

In May, Ohio state Rep. Steve Driehaus urged Hamilton County Prosecutor Mike Allen to investigate dozens of suspected property flips in East and West Price Hill and other west-side communities.

Driehaus said Tuesday's raids are a good start.

"I hope this is just the beginning of an ongoing investigation," he said. "If nothing else, I hope this puts the fear of God into investors who think they can get rich quick off the demise of neighborhoods."

Gregory Lockhart, U.S. attorney for the southern district of Ohio, said a group of more than 50 state and local investigators will comb through evidence, interview suspects and make arrests. He expects flipping participants could face criminal charges within a month.

Other agencies participating in the investigation include the Internal Revenue Service's criminal investigations unit, Secret Service and Ohio Department of Commerce. The Montgomery County prosecutor's office helped execute search warrants Tuesday on a Centerville firm, Knab Mortgage, and the home and car of Beavercreek resident Randall A. Davidson.

Lockhart emphasized that flipping can have devastating consequences for neighborhoods. It can cut off opportunity for first-time home buyers who are unable to afford the inflated prices. And unsuspecting buyers who buy a flipped house often face large repair bills because the property is in such disrepair.

Consumers should use common sense to make sure they're not tricked into buying a flipped house.

"It comes down to the old adage 'If it seems too good to be true, it probably is,' " Lockhart said.

E-mail kalltucker@enquirer.com. If you feel you've been a victim of this fraud, please call Alltucker at 768-8384 to share your story.