Legal News

Lawyers and Sub-Prime: A Tale from the Heartland

By Dan Slater

While Raymond Zwego was on probation from a bank fraud conviction, he decided to try his hand at mortgage fraud, purchasing 61 Missouri properties by, in many cases, using straw buyers and falsified paperwork. He racked up $16.9 million in mortgages, almost all of which eventually fell into foreclosure. Here’s the story from the Kansas City Star.

Zwego’s scheme collapsed, reports the Star, when he tried to purchase a home from Katheryn Shields and her husband, lawyer Philip Cardarella. In that deal, Zwego obtained an inflated $1.2 million appraisal of the Shields home, which had been listed for about $700,000. While Shields and Cardarella were promised their asking price, Zwego sought to obtain the difference in “management fees.” The FBI stopped the deal before it went through.

Why do we bring you this provincial story of mortgage-fraud? For starters, we wanted to round out our legal coverage of the sub-prime fallout, which typically focuses on the bigger fish. But mainly, we were intrigued by the argument that Zwego’s lawyer, Daniel Harrington, put forth at Zwego’s sentencing hearing yesterday.

According to the Star, Harrington, appearing before U.S. District Judge Fernando Gaitan, acknowledged that the bygone days of anything-goes mortgage lending contributed to Zwego’s crimes. “If the mortgage industry was then what it is now, this wouldn’t have happened,” Harrington said.

Judge Gaitan, noting that Zwego’s conduct has had a “long-range and devastating impact on our community,” didn’t seem all that sympathetic. He sentenced Zwego to 10 years in prison and an additional three years for violating probation on his bank fraud conviction. Gaitan also ordered Zwego, 60, to pay $5.6 million in restitution.

“I’m sorry, your honor, for the things I have done that have brought me here today,” said Zwego, whose rap sheet also contains federal convictions for wire fraud and interstate transportation of forged securities.

In addition to Zwego, eight other co-defendants pleaded guilty or were convicted at trial. They reportedly included straw buyers, a loan officer, a title company closer, an appraiser, a real estate agent, a certified public accountant and Zwego’s office help.

Full post as published by Law Blog - WSJ.com on September 24, 2008 (boomark / email).