Mortgage schemer admits guilt He swindled $1.3 million from homeowners

November 07, 1996|By Scott Higham | Scott Higham,SUN STAFF

In the world of white-collar crime, Michael H. Clott was king.

Less than two years after serving a seven-year sentence for selling fraudulent mortgages to unsuspecting homeowners a decade ago, Clott was back in federal court yesterday, facing charges that he bamboozled a new batch of homeowners in Maryland and New York.

Dressed in ill-fitting, prison-issue work pants and shirt, Clott stood quietly in U.S. District Court in Baltimore, pleading guilty to swindling $1.3 million from dozens of homeowners who were trying to secure home-equity lines of credit.

He did it all within a year -- and all while he was on parole.

"How do you wish to plead?" a court clerk asked Clott, whom federal prosecutors and FBI agents call one of the most incorrigible white-collar criminals they've ever come across.

"Guilty of all the charges," Clott said before he was escorted back to federal prison in Petersburg, Va., where he's being held for violating his parole.

When Clott, 44, is sentenced by U.S. District Judge Frederic N. Smalkin on Feb. 7, he could get 30 years behind bars. He could be fined $2.9 million. Prosecutors plan to seize his $650,000 house in Potomac, his bank accounts, his Jeep Cherokee, and three pieces of jewelry -- a pair of diamond-studded earrings, a sapphire ring, and a 3.3-carat diamond.

But despite the potential penalties, Dennis Durity is still inconsolable.

A retired Washington firefighter, Durity, 55, trusted Clott and his company with his family's savings, and he lost. For the next 15 years, he and his wife, Susan, will be forced to write a monthly $734 check -- money to repay a loan they never received.

"This has just devastated us," Durity said yesterday. "He has screwed up my life for the next 15 years."

Dennis and Susan Durity were seething yesterday as they sat in the first row of the courtroom, listening to the latest charges against Clott.

When Clott was freed from prison in May 1994, he promised never again to work in the home mortgage business. But he couldn't resist the easy marks and the fast money.

Clott wasted little time setting up a new scheme. He aligned himself with a company called Phoenix Financial Services, a mortgage brokerage firm.

He began a 7.5-percent interest loan program, calling it the Magic Credit Line Home Equity Program.

"The only thing magic about it was it didn't exist," said Assistant U.S. Attorney Susan Ringler, one of the prosecutors in the case.

Sending out fliers and leaving them on car windshields in parking lots, Clott promised to provide homeowners with a 30-year, low-interest line of credit. He persuaded homeowners to refinance their mortgages through a legitimate loan company.

After that, nothing about the program was legitimate.

After closing on the first loan, the homeowners were promised that Phoenix would refinance the entire amount of the loan, plus an additional line of equity for 30 years at 7.5 percent interest.

Homeowners then went to a second settlement. They were told their original loans had been paid off, and the homeowners turned over checks to Phoenix for their "magic" line of equity.

Durity said he became suspicious when he tried to cash a check against his line of equity. It bounced. Then he started to receive notices from the bank that payments on his refinanced home in Upper Marlboro were late.

He thought Clott and Phoenix had repaid that loan. He was wrong. Durity now is repaying that loan -- at 16 percent interest over the next 15 years. Durity and his wife lost nearly $30,000 in the scheme.

Durity said he didn't realize what was happening until he spoke to a loan officer. When he mentioned Clott's name, the loan officer knew immediately that Durity had been swindled. Clott, he told him, was a well-known name in the mortgage business.

Clott was convicted in 1987 on mail fraud and racketeering charges for his role in a mortgage loan scheme involving a company he called First American Mortgage Co. The firm made high-interest loans to high-risk homeowners. Clott resold those mortgages over and over, pocketing the cash.

Clott was also convicted that year in another scheme, this one for forging securities and transporting them across state lines. And in 1989, he was convicted of passing $280,000 worth of bad checks.

Within months of his release from prison two years ago, Clott was back in business with his "magic" line of credit scheme -- even though he was on parole and had signed a court decree pledging to stay away from the home financing business.

Prosecutors said Clott's schemes should serve as a warning to consumers.

"If it sounds too good to be true," Ringler said, "it probably is."

Pub Date: 11/07/96

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