Minnestoa Mortgage Fraud Spreads Across State
Federal investigators are probing a possible rash of Minnesota mortgage fraud in the Twin Cities in response to reports of a large number of unusual real estate transactions in north Minneapolis and elsewhere.
“The FBI has identified Minnesota as an area significantly affected by mortgage fraud,” U.S. Attorney Rachel Paulose said. She said that a multi-agency task force will be key to breaking “a serious criminal issue.”
Suspicions about illegal “property flipping” were aroused by sales that attracted the attention of North Side neighborhood leaders. Minneapolis City Council President Barbara Johnson brought their concerns to federal, state and county investigators.
“The reason we started looking at these purchases was to see if anything illegal was occurring,” said Sen. Linda Higgins, DFL-Minneapolis.
Some of those properties are now in foreclosure, according to Johnson, leaving the city with unpaid water bills and delinquent property taxes.
Property flipping involves the purchase and resale of property for a big gain in price. It’s often done legally by home rehab specialists whose work justifies a jump in price.
But flipping in the 1990s, especially in north Minneapolis, sometimes was accompanied by fraudulent means of obtaining mortgage loans, such as inflated appraisals and phony income verifications. Federal prosecutors charged 20 people on fraud and money laundering charges, with resulting prison terms of up to 57 months.
Federal agents interviewed Johnson recently about concerns she raised about one company, TJ Waconia, which has purchased hundreds of properties from Anoka County to Dakota County.
“What they do is they buy the property at a normal price from a willing seller and they flip it within their own limited liability company and they do it at an inflated price,” Johnson said.
The company often held onto properties for several months, according to property records.
But according to Johnson, many of the properties lacked any evidence of improvements that would justify the gain in prices. Higgins said that many of the resold properties in the Minnestoa housing market continue to use the same property manager.
Those listed as partners in the company, Jon Helgason of Chisago City and Thomas Balko of Rogers, did not respond to repeated requests for comment. Neither they nor their company has been charged with any wrongdoing.
A Web site linked to the company said that TJ Waconia was formed because real estate broker Helgason and appraiser Balko saw an upside to real estate beginning in 2000. The site states that the two prospected for properties on their lunch hours, and own and manage more than 400 units.
The company began to buy Minneapolis housing in mid-2003, peaked in 2005, and appeared to stop last summer. Some of the houses have been resold to out-of-state investors.
A federal mortgage fraud task force involves representatives of the U.S. attorney’s office, FBI, Internal Revenue Service, Secret Service and postal inspectors.
Johnson also forwarded her concerns to the task force and the Minnesota Department of Commerce, which licenses many of the players in real-estate transactions. Also taking an increased role in mortgage fraud cases is Hennepin County Attorney Mike Freeman’s office.