16 charged in flipping properties

Prosecutors say scheme cost FHA nearly $4 million

58 area deals examined

Perry Hall agent said to have grossed $1.4 million in deals

April 27, 2001|By John B. O'Donnell | John B. O'Donnell,SUN STAFF

Sixteen people have been charged in federal court for involvement in an alleged property flipping scheme that was orchestrated by a Perry Hall real estate broker and cost the government nearly $4 million.

William Otto Schmidbauer, the real estate broker, and 10 others were named in an 11-count indictment handed up by a federal grand jury on Wednesday and unsealed yesterday. An additional five defendants waived indictment and were charged in criminal informations, a step that usually means defendants are cooperating with prosecutors.

The defendants include a Schmidbauer employee, three mortgage loan officers, two operators of a title company that conducted property settlements for Schmidbauer, and nine people who signed mortgages, including Steven Todd Schmidbauer, William Schmidbauer's son.

The indictment centers on 58 Baltimore-area real estate transactions in which the government alleges that loans worth $4.4 million were obtained fraudulently.

Prosecutors said William Schmidbauer's gross profit was $1.4 million. Lenders foreclosed on 48 of the properties after buyers defaulted and the Federal Housing Administration, which insured the loans, paid the lenders $3.9 million, the indictment said.

All the defendants were charged with conspiracy to make false statements and making false statements in various loan documents. William Schmidbauer is the only defendant named in all 11 counts.

The case involves the largest number of defendants who have been charged to date in federal investigations of flipping in Baltimore. Since August, 11 defendants have been convicted, mostly through guilty pleas, and two have been acquitted.

An Eastern Shore woman, Marcia K. McNeil, was sentenced Wednesday to 33 months in federal prison and ordered to pay $288,000 in restitution after her conviction by a jury in February.

The charges were announced by Acting U.S. Attorney Stephen M. Schenning yesterday at a news conference with the inspector general for the Department of Housing and Urban Development and the acting head of the U.S. Postal Inspection Service's Washington division. Their agents conducted a nearly yearlong probe.

Officials made it clear that they expect additional defendants to be charged in the Schmidbauer case and others.

"We have identified at least a dozen additional illegal flipping schemes operating in Baltimore," said William Kezer, the acting head of the U.S. Postal Inspection Service's Washington metro division, which includes Baltimore.

Property flippers and those who aid them "may be as culpable for damage done to Baltimore neighborhoods as any drug dealer on the street corner."

Schenning said, "This kind of conduct has an impact on communities. Where houses go into default and they become vacant, they become destabilizing in neighborhoods."

Susan Gaffney, the HUD inspector general, said a special fraud unit she started in Baltimore over the vociferous objections of former Mayor Kurt L. Schmoke and his housing commissioner, Daniel P. Henson, worked with postal inspectors and prosecutors.

Schmidbauer, 62, and his son, 39, were arrested by federal agents late Wednesday. William Schmidbauer was released on his own recognizance yesterday afternoon by Magistrate Judge Susan K. Gauvey. His son was ordered to stay for a week at the Volunteers of America, a federal halfway house in East Baltimore, pending further evaluation of his case.

Neither would comment after their appearance before Gauvey.

At that hearing, Steven Schmidbauer, who signed several mortgages, said, "I'm a minor character in this case."

Prosecutors charge that William Schmidbauer, the owner of Schmidbauer Realty, would buy low-cost houses or list them for sale for others and then seek to sell them to buyers with poor credit histories or to people he asked to pose as investors. The buyers typically could not qualify for mortgages based on their credit and employment histories.

In some cases, according to charging documents, buyers assumed false identities.

Schmidbauer would offer the houses for little or no down payment and would offer to obtain financing of the balance of the price and closing costs through various programs of the U.S. Department of Housing and Urban Development, usually an FHA first-time buyers program.

Prosecutors allege that Schmidbauer, sometimes aided by an employee, would create false documents for purchasers, including phony identification, employment information, rent verification, bank documents and letters falsely claiming that relatives were giving some of the money to the buyers.

According to prosecutors, the loan officers would falsely state that they had met with the purchasers face-to-face and would certify as true documents that they had never seen.

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