At play in the fields of the county recorder's office

Part 2 of 2: Rory the foreclosure fraud lizard king


By Annette Simmons-Brown, CFE
career-steps

In part one of this article, we examined the variety-pack approach of one Trevor "Bam-Bam" Baker, who used the county recorder's office as part of his playground to commit mortgage fraud and identity theft. In part two, we examine the more singular approach to fraud taken by one Rory Sykes.

RORY THE FORECLOSURE FRAUD LIZARD KING

Rory Sykes was about a foot shorter than Bam-Bam Baker but just as clever. He briefly operated as a traditional real estate agent before opening his own business, Sykes Real Estate Services, in 1999, which focused on the acquisition of residential properties in the late stage of foreclosure and quick-turnaround sales. "Buy low, sell high" was Rory's secular mantra.

Rory had a deep understanding of the complex minutiae of the foreclosure process and an equally deep understanding of the lack of scrutiny exercised on the contents of documents filed in the county recorder's office. Rory wanted to gain an advantage over his numerous competitors in acquiring specific properties after a sheriff's foreclosure sale, and to enhance the likelihood of owning these properties at the end of the redemption periods at the least possible expense. So he filed documents — affidavits, lien notices, documents of conveyance — containing one or more false statements designed either to discourage redemption by others or to minimize the cost of his acquisition of the properties. He also timed the filings of these fraudulent documents so that no others could have a good chance at redeeming.

FALSE FILINGS GALORE

The Hennepin County Attorney's Office detailed Rory's acquisitions of seven properties in its case against him. In three of these acquisitions, Rory filed Notices of Lien for Payment of Property Taxes, Notices of Intent to Redeem Under Property Tax Lien, an Affidavit of Amounts Owed and a subsequent Corrected Affidavit of Additional Amounts, all falsely stating he or Sykes Real Estate Services had paid property taxes on the parcels.

In five of these acquisitions, Rory filed other Affidavits of Amounts Owed on Redemption or on the Sheriff's Certificate, which falsely claimed expenses that were never incurred, that were misstated as to type of expense (certain expenses incurred in the acquisition of a foreclosed property are allowed, others are disallowed) and/or that were grossly inflated.

In two of these acquisitions, Rory filed quitclaim deeds (QCD) conveying the properties from the owners to him after he had directly paid each of these owners $2,500 and $6,250 respectively. (A quitclaim deed transfers the owner's interest in a parcel of real estate to another with no warranties of the status of the property title.) A false statement was printed on each of these QCDs — "total consideration is less than $500" — which resulted in the minimum deed tax assessment of $1.70 rather than an accurate deed tax calculated on the actual consideration paid to the owners.

In one acquisition, Rory filed an Assignment of Sheriff's Certificate for the benefit of and on behalf of Sykes Real Estate Services, falsely stating "[t]he total consideration for this transfer of property is $500 or less," for which a deed tax of $1.70 was again assessed. This property was being foreclosed based on a default of townhome association dues of a fairly minimal amount.

In one acquisition, Rory filed a mortgage that falsely stated that it had been issued "in consideration of the sum of $5,000 to Mortgagor in hand paid by Mortgagee" rather than the accurate figure of $6,250, and filed a Notice of Intention to Redeem upon the mortgage containing the false statement. In another acquisition, Rory filed a mortgage from himself to his corporate alter ego, Sykes Real Estate Services, and a subsequent Mortgage and a Notice of Intent to Redeem from the Mortgage, signed by Rory, resulting in an issuance of a Sheriff's Certificate of Redemption to Sykes Real Estate Services.

BUY LOW, SELL HIGH

While the false statements in these documents may seem picayune to the outside observer, they had their desired effect. Rory acquired certain properties at amounts significantly beneath their true market value and cost — after he'd discouraged others from redeeming or buying them — and shortly afterward resold the properties at substantial profits. Owners or estate heirs redeemed back other properties or competitors acquired them after they paid inflated amounts back to Rory. One of the property owners was in prison, another was suffering from profound lung problems that required him to use an oxygen tank, another was dead, two were elderly and one was being foreclosed upon for default on a $15,000 second mortgage that would have been forgiven had she been able to remain in the property for a few more years. Buy low, sell high.

ATTENTION TO DETAIL SOLVES THE PUZZLE

A sharp-eyed analyst at the Hennepin County Sheriff's office discerned the scheme when he routinely saw Rory's name pop up on properties in foreclosure. The investigation was a painstaking combination of accumulating and reviewing public records, executing search warrants on Rory's office and bank account records and interviewing owners, heirs, attorneys and real estate professionals.

When I was pawing through the quagmire of evidence seized from Rory's office, I located a critical document: a business description for Sykes Real Estate Services, prepared for credit line applications, which detailed five "income streams" for the company. One income streams was an "Affidavit of Additional Amounts … filed for cost acquired during the six-month redemption period." The document also described several items for which Sykes Real Estate Services incurred little or no cost but for which it would submit false claims in foreclosures for "market costs" including claims on Affidavits of Amounts Owing for attorney fees, title search fees, property inspection fees and appraisal fees. Based on this methodology, the document claimed, "it is virtually impossible not to make an income even if Sykes Real Estate Services is redeemed out."

Rory was charged with one count of racketeering, 12 counts of recording/filing of a forged instrument and six counts of perjury — all felonies. Interestingly, he wasn't charged with any form of theft, and the prosecutor in the case repeatedly had to remind the court and defense that the gravamen of the charges was the falsity of the documents and not the actual acquisitions or subsequent sales of the involved properties. The case went to a bench trial, at which I, among others, testified at length.

Rory was convicted on all 19 counts and sentenced to 37 months in prison. In a Memorandum Of Law, the judge best captured the totality of Rory's conduct when he wrote: " … real estate ‘insiders' have utilized their knowledge of a complex system to undermine the integrity of important public processes, and thereby, to gain substantial profits for themselves … While (earlier) cases present (their) own unique characteristics, none involved more perversion of insider knowledge, more abuse of a system dependent almost entirely on personal honesty, or more disregard for vulnerable, suffering persons than the case at bar."

PROVERBIAL MEANS TO AN END

Fraudulent filings of real estate documents are always a means to an end: the facilitation of a greater fraud with a monetary payoff. It's practically impossible to require county recorder's offices to verify the assertions of all documents submitted for filing given the sheer volume of documents filed. Hopefully, the foregoing can serve as yet another cautionary tale to any agency that relies, at least in part, on the honesty of the public for which it serves to: 1) keep its eyes and ears open to subtle but suspicious activity 2) perhaps keep a CFE or two on staff and 3) remember that the predators are always out there — and they have great imaginations.


Annette Simmons-Brown, CFE, is a senior paralegal in the Hennepin County Attorney's Office in Minneapolis, Minnesota.









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