Real Estate Pros Accused of Running Fraud Scheme
The Minnesota Department of Commerce announced Tuesday that it has uncovered an elaborate kickback and mortgage fraud scheme that allegedly defrauded lenders in the sale of at least 45 properties.
Civil charges made public on Tuesday by Commerce Commissioner Mike Rothman allege that Michael Stephen Hyland-a licensed real estate broker for Excelsior-based Split Rock Realty (SRR)-and the firm's real estate salespeople illegally diverted funds from the sellers of various properties back to the buyers. The scheme included cooperation among real estate companies, real estate closers, appraisers, mortgage brokers, and numerous buyers, according to the Commerce Department.
Between October 2006 and November 2007, Hyland, several SRR employees, and buyers involved in the scheme allegedly purchased 45 properties with help from Robert Aslesen-owner of Options Plus Realty and Split Rock Title-who completed transactions for fees ranging from $25,000 to $70,000. Aslesen would keep $1,450 and kick the remainder of each fee back to the buyer after closing.
The kickbacks in the alleged scheme routinely exceeded the down payment required to purchase the property, leaving the buyer with a profit after the purchase, according to the Commerce Department. Hyland's salespeople allegedly worked with other parties, including mortgage broker Amri Elsafy, to inflate appraisals.
Elsafy allegedly overstated income and assets and understated liabilities on the mortgage applications. He's also accused of altering documents to make the borrowers appear credit-worthy. In nearly every one of these transactions, the property fell into foreclosure, was sold in a shortsale, or was otherwise not paid for.
On September 2007, Hyland and his allies allegedly changed the scheme to cover their tracks. They began running the kickbacks through a shell company called Eastwind Construction Consulting instead of Options Plus, the Commerce Department said. The fees paid to Eastwind-which was owned by Aslesen- for “construction consulting” ranged from $36,000 to $50,000, and Aslesen kept $500 from each.
In addition to Aslesen and Elsafy, the case allegedly involved several other co-conspirators, including Thomas Rosensteel, owner of Split Rock Realty; Sean Rosensteel, a salesman for Split Rock Realty; Jonathan Neal Roman, who appraised properties involved in the scheme; and Justin Joseph Christenson, a real estate salesman who worked under Hyland.
A pre-hearing conference for Hyland is scheduled for October 13. The Minnesota Department of Commerce has already revoked all of Aslesen's licenses and ordered him to pay a penalty of $100,000.
The department also barred Elsafy from mortgage origination in Minnesota-and Elsafy pleaded guilty to one count of conspiracy to commit wire fraud in connection with the scheme. Additionally, licenses of several other people involved in the scheme have been revoked.
Hyland and Aslesen have not been criminally charged, according to the Star Tribune.
“Our investigation uncovered a carefully-orchestrated system of fraud,” Rothman said in a statement. “These weren't just ordinary crooks. These were industry professionals who knew the system, and willfully took advantage of it.”