Scheme leads to value adjustments of 460 homes in Riverbottoms area

The forfeiture of millions of dollars in criminal assets and lengthy prison terms are among penalties sought by the U.S. Attorney's Office against six Utahns accused of running an illegal mortgage scheme to inflate the value of several high-end homes in the affluent Riverbottoms neighborhood in Provo, according to a federal court document unsealed Tuesday.

As a result of the mortgage fraud scheme, which artificially inflated home values in the area, 460 homes have had their property valuations adjusted, according to the Utah County Assessor's Office.

In what's been called the first federal indictment filed as part of a newly formed Utah Mortgage Fraud Task Force, Bradley Grant Kitchen of Provo, 40; David Bolick of Sandy, 51; Steve Wells Cloward of Orem, 40; Ron Clarke of Provo, 40; Jeffery David Garrett of Provo, 43; and Rebecca Ann Hadlock of Saratoga Springs, 31; were indicted on four counts of mail fraud, nine counts of wire fraud and one count of conspiracy to commit mail fraud.

The 15-count indictment, which was filed Dec. 5 and sealed in U.S. District Court in Salt Lake City, was unsealed on Tuesday.

Each count could carry a maximum sentence of up to 20 years in prison and a $250,000 fine on conviction. The U.S. Attorney's Office also seeks to forfeit $7.5 million jointly from Kitchen, Bolick, Cloward and Clark; $6 million from Garrett and $4.5 million from Hadlock.

The defendants will be arraigned in federal court in January.

The indictment alleged the defendants, functioning in various roles as mortgage brokers, investors, real estate agents, appraisers, straw buyers and escrow agents, formed a network to fraudulently obtain loans secured by real estate worth less than the loans themselves. The false statements were included in loan applications to divisions of Countrywide Home Mortgage and American Broker's Conduit in California and New York respectively.

The indictment charges that Kitchen and Bolick conducted property purchases through Bolick's company, Home Owners Group, which is no longer in operation. These purchases were backed up by another Bolick-owned company, Paragon Investment Group, also not in operation. Kitchen and others bought residential properties, and through false statements on loan applications and false appraisals, falsely inflated the properties' values to induce lenders to grant loans for amounts in excess of their fair market value, the indictment said.

Bolick disagreed. "I'm shocked, absolutely shocked. I've been aware of the investigation for a while, and both I and my attorney have worked very closely with the investigators who told me I'm a victim," he said.

"I don't know what I'm being charged with and I'm not aware of anything I've done wrong," he said.

Kitchen, Clarke, and Hadlock could not be reached for comment on the indictment. Garrett and Cloward declined to comment.

The scheme's fallout

Utah County Assessor Kris Poulson said that even though the illegal mortgage scheme targeted between 20 and 30 homes in the Riverbottoms area, ultimately it affected the valuations of 550 homes because the scheme drove up all home prices in the area.

Of the 550 affected homes, 460 had their property valuations adjusted in November. That took place after 200 residents in the Riverbottoms appealed their property tax valuations, which skyrocketed between 50 percent and 100 percent in just one year. The property valuations of most homes in other parts of Provo were up only 20 percent by comparison, Poulson said.

"Most of the sales done by the defendants took place in 2006. So we evaluated property taxes starting from Jan. 1, 2007, which are based on the 2006 property sales," Poulson said. "Seven of the affected homes were reduced by as much as $1 million in property valuations from around $3.5 million."

But the impact of this illegal mortgage scheme may be more far-reaching than expected, he said.

"Some of these homes could go into foreclosure, which will affect the value of the surrounding homes. That's because the perpetrators of the mortgage scheme created equity that didn't exist and borrowed from banks on equity that didn't exist. So the banks that made the loans may have to foreclose on the properties to recoup their losses," Poulson said.

In the end, the homebuyers in Provo will suffer because they will likely be charged a higher interest rate on home loans due to higher default rates, Poulson said. "A home loan in Provo is running 0.75 percent higher than the going rate on loans," he said, citing figures from the Utah Division of Real Estate.

How it was operated

The investigation by the U.S. Attorney's Office centered on several properties in the Riverbottoms area including those at 4272 N. Stone Crossing, 259 W. Stone Brook Lane, 3282 North Cottonwood Lane, 4311 North Vintage Drive and 515 Sheffield Drive.

"There were other homes involved in the scheme, but we picked these five transactions because we have the most appropriate evidence to go forward at this point," said Barbara Bearnson, criminal division chief of the U.S. Attorney's Office in Utah. She said more charges may be brought or made public later.

The indictment alleged Kitchen would execute the paperwork to buy the properties through Home Owners Group at near fair market values, then enter these pending sales transactions into the Multiple Listing Service as completed sales or sales at artificially inflated prices.

These inflated appraisals were used by Kitchen and Cloward to dupe Countrywide Home and American Broker's Conduit into thinking that the value of the Riverbottoms properties was sufficient to protect their loan investments in the event the loans went into default, according to the indictment.

Straw buyers

The indictment alleged Kitchen and Bolick then recruited "straw buyers" with "good credit ratings" to buy several of these Riverbottoms properties at inflated prices and apply for loans with Countrywide Home and American Broker's Conduit.

To recruit the straw buyers, Kitchen allegedly told them they didn't have to invest their own money to buy the homes and would not be obligated to make loan payments, that they would get a kickback fee for signing the loan papers. They also were told to inflate their income and assets in their loan applications, and to falsify their intent to occupy the home and make down payments, the indictment said.

Bearnson said there were four straw buyers involved but declined to identify them.

"Whether or not they will be penalized will depend on their degree of involvement, and that will be decided on a case-by-case basis," she said.

Kitchen, Garrett and Hadlock also were accused of falsifying the closing documents to hide the fact that neither Home Owners Group nor the straw buyers had made down payments on the original purchase and subsequent repurchase of the Riverbottoms properties.

These flip transactions yielded several millions of dollars in inflated loan proceeds, which were used for a period of time to make loan payments on the Riverbottoms homes to create false impression that the loans were performing, the indictment said.

In a related case, Channel 2 sports anchor Dave Fox, Mark Atkin and Verrell Blaisdell, who were connected to the illegal mortgage scheme, entered pleas in abeyance on communications fraud charges in 4th District Court in September, which means the cases will be dismissed if they meet certain requirements within a specified time period.

Court documents allege the men falsified home loan documents to make money on a quick resale. Fox and Atkin, in a plea bargain deal with prosecutors in September, promised to testify against the people involved in the scam, in exchange for their cases being dismissed. Those cases are still pending.