Judge scolds mortgage fraud defendants - Odessa American: Courts

Judge scolds mortgage fraud defendants

BY JON VANDERLAAN jvanderlaan@oaoa.com | Posted: Friday, March 28, 2014 6:46 pm

Four defendants indicted in a federal mortgage fraud scheme were accused Friday of improperly using court staff and government attorneys to reassure banks and title companies that it was OK to do business with them despite the pending charges.

Attorneys also began sniping at each other during what was supposed to be a routine motions hearing.

The four defendants – Cynthia Gayle Hirsch, Michael Duraine Cowan, Stephen Mark Hilliard and Berta Laura McFaddin – were accused in a January indictment of defrauding unidentified banks of $27 million during an eight-year period by flipping more than 800 properties. Hirsch is a prominent realtor in the Permian Basin. Cowan and Hilliard are property investors and McFaddin worked for Stewart Title Company.

All four defendants were present at the motions hearing Friday morning and Magistrate Judge David Counts spoke with them about being bonded out of jail.

Counts said while the defendants had done a good job of abiding by the rules given to them, he said he was concerned with the calls his court staff was receiving from the defendants.

In order to continue with their property investment and real estate businesses, Counts said, he has heard from pretrial services staff that defendants requested the pretrial services staffers call banks and title companies to give updates on the case. The pretrial services staffers refused to do so.

Counts said it’s an unusual request, and the pretrial services staffers should not be required to advise bankers on whether they would incur liability by continuing to deal with the defendants.

He also said if the defendants continue to make such requests, it may be easier for them to be placed back in custody.

Assistant U.S. Attorney Austin Berry, who is prosecuting the case, then informed Counts that his office has also received numerous similar requests from the defendants.

“The defendants have asked me to call these banks and title companies to reassure them,” Berry said.

Berry specifically pointed out Hilliard as one who had called his office to provide the reassurances.

Hilliard’s attorney, Hal Brockett, didn’t deny that the requests had happened, but said there are certain properties that have been alleged to be involved in the accused fraudulent activity, and that some clarifications needed to be made about their status.

After receiving the requests, Berry said he conferred with his supervisors with the U.S. Attorney’s Office in San Antonio, who told him he was not to speak with bankers or investors about the case.

Counts agreed that it wasn’t proper for the defendants to be asking the government or his court.

“I don’t know how ever that’s been the court’s responsibility,” Counts said.

Attorneys also bickered over discovery in the case, or the process by which evidence is exchanged between attorneys prior to a trial.

Jason Freeman, a Dallas-based attorney who is one of three attorneys representing Cowan, presented several motions aimed at making the prosecutors provide organizational tools for the voluminous documents that would be used during the case.

Freeman said because this is a fraud case, it would be a high-document case, with 300 banker’s boxes containing about 2,400 documents each for starters.

And while the prosecutors allow for an open-file system, although Berry said that particular terminology is discouraged and instead he calls it “robust discovery.” Freeman said because of the large number of documents that prosecutors should pay for a database service to allow for searching of relevant documents.

He also said the prosecutors should provide “hot docs,” or reference to the most important documents that would be presented during the trial.

Berry vehemently argued against this, saying it would be requiring the government to go above and beyond what it’s required to provide by law.

During his argument, Berry said he was caught by surprise by the motion because it was not discussed in previous conversations with defense attorneys.

“What we’ve talked about is how are they going to get access to those documents,” Berry said.

He continued to claim that providing a database for defense attorneys would be helping defense attorneys to focus their case for trial and make the defense attorneys’ jobs “too easy.”

Freeman said he took offense to that, noting that the trial process was not a poker game.

“To say that these things would make the defense’s job too easy, this case has no place for that,” Freeman said.

Counts ruled that he believes access is being granted and the government need not pay for a database to be established in the case, noting that individual defendants can pay for a database to be created because of the open-file policy.

However, Counts also said Berry should provide any indexing material the prosecution has to allow for better and more expedient processing of the evidence for the defense attorneys.

“I would request that the government do what they can to assist the defense to figure out what’s there,” Counts said.

Although it wasn’t at issue during this hearing, Berry also alluded to another point of contention that may come up in the future of the trial.

Berry said at some point defense attorneys will want to present evidence that all the loans documented in the case have been or are currently being paid off.

The Headquarters

The prosecutors in the case have not released details of any specific properties that were part of the scheme except the ones listed in the indictment, which were identified in general terms instead of by the specific street address.

However, during the Odessa American’s reporting of the case, it became evident one specific property followed the scheme that is accused in the case.

Comeback Properties, owned by Hilliard, originally purchased the property at 1611 W. Texas Ave., in Midland, currently owned by CASA of West Texas, for $47,080 on May 15, 2003.

Comeback Properties was, according to the indictment, used in the flipping scheme by the defendants.

The property was then recorded as sold on July 15, 2003, from Comeback Properties to Property Pros of Texas LLC for a total of $77,800.

Property Pros is listed in the indictment as being owned by both Hilliard and Cowan.

This scheme, as accused in the indictment, was meant to defraud the bank by only submitting the second value for a mortgage so the first value was fully paid off without the need for an out-of-pocket down payment, and possibly even cash-in-pocket.

Berry has also confirmed that the West Texas Avenue property was used as Cowan’s and Hilliard’s headquarters. Property Pros sold the property on Nov. 15, 2011, for $265,000 to CASA of West Texas.

Because of the nature of the alleged scheme, CASA of West Texas is not listed as a victim in the case. It was not defrauded in any way, as the values of the property were not reported to be manipulated in the sale from Cowan and Hilliard to the final buyer.

According to the indictment, Cowan and Hilliard enlisted McFaddin to help them create a fraudulent sale of the property within their own companies at a much higher price than they would be purchasing the property from the legitimate seller.

They also had help from Hirsch, according to the indictment, who created a “broker’s price opinion” for the purchase to substantiate the higher price.

Licensing

Hirsch is still a licensed real estate broker with the Texas Real Estate Commission (TREC) and member of the National Association of Realtors and the Odessa Board of Realtors.

According to the laws in the Texas Occupations Code, Hirsch cannot be stripped of her license unless she pleads guilty or is convicted and her appeals have expired.

Connie Coots, with the Odessa Board of Realtors, said if Hirsch is convicted, the local board could request the removal of her membership with the Realtor boards, which would then trigger a hearing about the possible removal.

“There’s nothing at this point we would even take action on unless she’s convicted,” Coots said.

However, Coots also said that Hirsch notified the board immediately when she was aware of the investigation. Coots said Hirsch has never had a complaint filed against her with the Odessa Board of Realtors.

Cowan and Hilliard were previously licensed with the TREC. Hilliard surrendered his license on June 9, 2009, and Cowan’s expired May 31, 2012.

Neither Cowan nor Hilliard are members of the National Association of Realtors.

Upon searching the National Association of Realtors and TREC websites, McFaddin is not associated with either.