Related fraud case seeks class action status
By SAM GARCIA
2/19/2002

Chase Manhattan Mortgage Corp. is considering reducing the value of more than 200 Poconos-area mortgages after appraisal reviews performed by Lenders Service Inc. (LSI) on about 25 loans indicated the homes were sold at inflated prices, according to the Poconos Record. The "Write Downs," which could reportedly cost Chase between $10 and $20 million, would be on loans originated by Chapel Creek Mortgage Banker, Inc. based in Mount Poconos, Pennsylvania. If enacted, victims would see the balances of their mortgages reduced.

Freddie Mac announced last August that it began its own investigation of serious allegations made in lawsuits and by the local media of loan origination improprieties and fraud in areas of the Poconos mountains of eastern Pennsylvania.

The law firm of Seeger Weiss LLP is currently seeking class action certification for a complaint filed last June against Chapel Creek and other defendants, including Chase Vice President William Spaner and Chase itself. The plaintiff's attorney, Steve Weiss, told MortgageDaily.com that he anticipates a ruling later this year on the class action certification and on a motion to dismiss filed by the defendants.

All the defendants say they have not been involved with inflating appraisals or defrauding customers, according to the Poconos Record.

According to the complaint, Gene Percudani -- the owner of Chapel Creek Mortgage Banker -- began perpetrating fraud through Chapel Creek Homes, Inc. until May 1998, at which point he formed Raintree Homes, Inc. to continue the activity. He allegedly ran hundreds of ads each week in the newspaper, on the radio and on television, and appeared in TV commercials pitching potential home ownership for only "$1,000 down and What You Pay In Rent."

The complaint said that a "Gold Key" promotion was used where the customer paid Raintree 12 monthly payments -- which Raintree said was the amount of time it took to build the home -- and was refunded the entire amount through payments from Raintree to the customer's landlord or directly to the customer. By doing this, Raintree was allegedly able to satisfy HUD down payment requirements.

During the 12-month construction period, Chapel Creek Mortgage Banker and/or Raintree allegedly manipulated the credit histories of the customers, ensuring approval from Chase for every customer. The complaint also said that customers were not notified of the relationship between the builder and the mortgage companies.

According to the complaint, the appraiser in the transactions, Dominick P. Stranieri, overvalued homes by 35% to 45% in return for "enormous appraisal fees." One reappraisal done for a refinance by another Chase-approved appraiser valued the property at $80,000, even though the buyer purchased the home for $143,913 more than two years earlier. The Poconos Record story said that the sampled homes, which were sold for $150,000 to $180,000, were valued by LSI at $80,000 to $110,000.

The complaint said that Stranieri entered into a Consent Agreement and Order with Pennsylvania's Bureau of Professional and Occupational Affairs as a result of complaints due to his failure to conform to the Professional Appraisal Practice Standards. The fine in that agreement was $10,000, but Stranieri apparently did not lose his appraisal license. The Poconos Record recently reported that Freddie Mac placed Stranieri and his company, Appraisals Ltd. Enterprises, on its exclusionary list, along with Percudani and Chapel Creek Mortgage Banker.

The complaint also accuses the defendants of not informing customers of future property tax increases -- which allegedly increased the monthly payments enough to force many customers into bankruptcy or foreclosure.

Chase is alleged to have learned about the inflated values no later than April 1999, when another Chase approved appraiser stated in a refinance appraisal that he did not consider these home sales to be arm's length transactions, However, the complaint said Chase chose to ignore the warnings.

Weiss, the class action attorney, told MortgageDaily.com that Spaner, Chase's Vice President, was the "pivot" person at Chase responsible for the loans and was aware of the fraud from the beginning.

While the complaint alleges Chase somehow profited by "flipping" the loans to government sponsored housing enterprises (GSE's) Fannie Mae and Freddie Mac, it acknowledges that Chase repurchased these same loans from the GSE's. Chase ended its relationship with Raintree in December 2000, according to the complaint.

The Poconos Record says it published an investigative series in last April linking a rising foreclosure rate in the Pennsylvania County where the homes are located to the practice by some home builders of selling new homes through the use of inflated appraisals and phantom financing. The newspaper says that hundreds of people responded to the series, complaining to local and state officials and resulting in a task force investigation by the Monroe County district attorney and state attorney general. There have reportedly been six separate investigations, including probes by Freddie Mac, the U.S. Department of Justice, the Federal Reserve Board, the Internal Revenue Service, the Monroe County district attorney and the Pennsylvania Attorney General.

In a written response to MortgageDaily.com, Chase spokeswoman Charlotte Gilbert-Biro said, "Chase does not comment on pending litigation." However, she did say, "Chase is continuing to work on a solution to keep borrowers in their homes."

Chase is itself a plaintiff in a lawsuit filed against Advanta Corporation. Last July, Advanta announced that Chase filed a complaint against it relating to the sale of the mortgage business to Chase which closed effective February 28, 2001.

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