Real estate appraiser pleads guilty to mail fraud in flipping scheme

He admits bogus work cost lenders up to $800,000

July 13, 2002|By John B. O'Donnell | John B. O'Donnell,SUN STAFF

A Baltimore real estate appraiser pleaded guilty in federal court yesterday to mail fraud, admitting that his fraudulent appraisals enabled property flippers to sell houses at inflated prices.

David A. Katz, 55, acknowledged that mortgage lenders who financed the property flipping lost between $500,000 and $800,000 as a result of his bogus appraisals.

Katz signed a plea agreement with federal prosecutors in September and agreed to help them in other investigations. He was formally charged in March in a one-count criminal information.

Under terms of his plea deal and federal sentencing guidelines, Katz could be sentenced to between 24 months and 30 months in federal prison. If Katz gives prosecutors "substantial assistance," they promised to ask U.S. District Judge J. Frederick Motz to sentence him to between 12 months and 18 months.

Katz agreed to a statement of facts written by Assistant U.S. Attorney Joseph L. Evans, which said that from 1997 until mid-1999, Katz participated in a fraud scheme by doing appraisals that "intentionally overstated the fair-market value" of flipped houses.

Appraisals are a critical part of flipping schemes because lenders will not finance the deals unless a professional appraiser certifies that the value of the house equals or exceeds the sale price.

The statement of facts cited one transaction -- the 1997 purchase and sale of a house by Leon Wilkowsky, a speculator who pleaded guilty in November and admitted that he defrauded lenders of up to $2.5 million. Wilkowsky is scheduled to be sentenced next month.

In the 1997 deal, Wilkowsky bought a house in the 1200 block of W. Lombard St. for $10,500 and sold it the same day to an investor for $51,000. Using a Katz appraisal that "intentionally overstated" the property value at $51,000, Wilkowsky obtained a $35,700 loan from a California lender for his buyer.

Motz delayed setting a sentencing date for Katz while he cooperates with prosecutors on other investigations.

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