SECOND MAN SENTENCED IN DAYTON AREA MORTGAGE FRAUD SCHEME
Selling Personal Credit to Investment Brokers Results in Fraudulent Home Loans

DAYTON - Nicholas St. Nichols, age 54, of Dayton, was sentenced in United States District Court here to one year and one day in federal prison for his role in a mortgage fraud scheme to sell homes at inflated prices to a buyer who believed she was merely selling him her credit. Nichols was also fined $4,000 and ordered to pay restitution to victims.

Gregory G. Lockhart, United States Attorney for the Southern District of Ohio, and J. Mark Batts, Acting Special Agent in Charge, Federal Bureau of Investigation, Cincinnati Field Division, announced the sentence handed down yesterday by Senior United States District Judge Walter H. Rice.

St. Nichols and Todd Armstrong, a 43 year old Bellbrook resident sentenced in July to twelve months and one day imprisonment, were originally indicted for the scheme in July 2005. Eventually, each entered guilty pleas to one count of mail fraud.

The victims in both cases included financial institutions that were conned into making loans in excess of the true market value of the homes, along with individual buyers who were scammed into believing they were merely selling their credit for investment purposes rather than actually buying homes or taking out mortgages in their names.
As part of the scheme, financial institutions were provided false information about the properties and the buyers. This included submitting a forged lease designed to make non-income generating property seem more valuable than it was as a rental investment. This lease, used in more than one deal, made a rental home for sale appear more valuable in order to secure a greater loan from the lender, and later made the new owner of that property appear more creditworthy in order to secure additional money with another loan.

Buyers were usually given $1,000 and led to believe they were merely selling their credit when, instead, they were unknowingly purchasing homes and left holding the bag on under-secured loans. Most of the buyers ended up in foreclosure actions and at least two of the victims in Armstrong's case filed bankruptcy.

A buyer who fell prey to St. Nichols was surprised when she began receiving non-payment notices from mortgage companies several months after completing her transactions with St. Nichols. It was then that she first learned she had purchased two properties and was now solely responsible for more than $100,000 in home loans. St. Nichols was the previous owner of one of the homes and profited over $70,000 from the sale. The second property was owned by a friend of St. Nichols who paid St. Nichols a commission for selling the home. The new loans on the properties were more than double their previous sales price. Foreclosure actions were filed in both instances.

Armstrong acted as the mortgage broker in 14 fraudulent sales, according to the plea entered in his case. In order to get high-dollar loans approved, Armstrong falsified information typically used by lenders in determining the creditworthiness of an applicant. This included showing that the buyer had more money in his or her bank account than was actually on deposit, or the buyer providing a down payment that came from another source. Knowing the buyers could not afford to pay the loans they were generating without income from rent, Armstrong told them he would be responsible for the loan payments and their role was merely selling him their credit for two years. Though Armstrong did make some of the loan payments, he failed to fulfill his guarantee and the buyers were all left to bear full responsibility for the loans.

"Mortgage fraud is every bit as corrosive to American society as street crime," Lockhart said. "It leaves communities with inflated home values, financial institutions with uncollectible loans, and individuals with credit damage they spend years trying to overcome." Lockhart also commended the efforts of the FBI for their investigation into this matter, and Assistant U.S. Attorney Anne Fehrman who prosecuted the cases.