In 2004, Phillip Coon, the Vice-President of Lending for Coast Bank of Bradenton, and John Miller of American Mortgage Link, a Tampa mortgage brokerage firm, hatched a scheme which they marketed nationwide through 2006 to entice investors to purchase Southwest Florida single-family home flip deals. Eventually over 600 investors from 40 states signed on to the program. Coon and Miller recruited small homebuilders, including CCI of St. Petersburg, to provide the lots and build the homes. Coast Bank was to reap high interest rates on the construction loans and American Mortgage Link earned millions in mortgage brokerage fees and arguably illegal "finder's fees." The selling points on the deal were no money down (other than the arguably illegal "finder's fees"), no out-of-pocket closing costs and interest payments during the life of the construction loan and the delivery of a home at 90% of appraised value. Of course, the deal in actuality was far from what was represented. The builders chosen, primarily CCI, were not capable of delivering homes at the pace the deals were being sold. Building departments in the counties where the homes were supposed to be built often took six months or more at the height of the boom to even issue building permits. Closing costs and interest carry eroded the loan in progress balances to the point where there was not enough money left to build the homes. Coon and Miller knew by 2005 that builders like CCI as a result were losing millions on these contracts. Jesse Battle of CCI admitted in his bankruptcy proceeding that as of January of 2006 his company was over six million dollars in the red. Yet, Coon and Miller continued to actively and aggressively market these deals and collect huge fees for their companies well into 2006. Only a small percentage of homes were completed. Some were left half-finished. Most borrowers ended up with bare lots with mortgage balances of $80,000 or more. The other problem with the deals is that the appraisals were "cooked." Expert testimony in federal court revealed that rather than the homes being priced at 90% of appraised value, they were actually priced at 110% or more of appraised value. John Miller had secured the services of an appraiser who is currently in line to lose his license who magically produced appraisals at exactly 10% above contract price on each deal. Consequently, for the few borrowers to whom homes were actually delivered, what they got was a home that was upside down loan to value from the get go. Of course, Coon and Miller were not satisfied with the huge fees and interest payments the bank and the brokerage company were receiving on these deals (in Coon's case, he was heavily bonused by the bank for the loan volume generated). So they decided to bump the mortgage brokerage fee on each new loan by a point and split that point between them. Overall, 1.5 million dollars was skimmed from the loans by them. The FBI caught wind of the scam and eventually Miller agreed to wear a wire and implicate Coon. Despite the fraudulent nature of the overall scheme, the feds in charging Miller and Coon focused solely upon the skimmed point. More astounding to the borrowers from whose mortgages the point was skimmed was the fact that the feds and Coon and Miller agreed in their plea agreements that Coast Bank and not the borrowers was the victim of the skimming scheme. This despite the skimmed point having been funded from the construction loans which Coast Bank ended up declaring in default and pursuing the borrowers for. What was convenient for the government in structuring the plea agreements in this manner is that Coast Bank was defunct and thus the government was in line to keep the full 1.5 million dollars being forfeited as part of the plea deal by Coon and Miller. What was convenient for Coon and Miller is that by pleading to a crime with only one victim (Coast Bank) they escaped the enhanced sentencing guidelines which would have been in place for a crime with multiple victims (ie: the 600 plus borrowers whose loans they looted). The borrowers learned of the plea deals through a press conference held by the federal prosecutor in Tampa. Our firm quickly intervened, eventually on behalf of 150 of the borrowers, to establish the borrowers' status as victims of the skimming scheme and to seek restitution of the point skimmed from each of their construction loans. The district court denied victim status to the borrowers. This was appealed to the 11th Circuit Court of Appeals. The 11th Circuit Court of Appeals in In re Stewart, 552 F.3d 1285 (11th Cir. 2008) reversed the district court and declared the borrowers to be victims of the crime entitled to rights under the federal Crime Victims' Rights Act (CVRA). The district court in the Coon prosecution then held a trial to determine the borrowers' right to restitution of the point skimmed. The district court a year ago decided against the borrowers. This was in turn appealed to the 11th Circuit. On May 25th, the 11th Circuit issued its ruling affirming the district court finding that the borrowers' gripe was with the builders not the bank and thus they were not entitled to restitution. What is totally ignored in the new opinion is that Coon and Miller solicited CCI and the other builders (not the borrowers who were scattered across the country), conceived and executed the marketing plan to bring customers to the builders, cooked the appraisals to support loans exceeding the value of the properties and continued to have Coast Bank fund these deals well after it was apparent that CCI and the other builders could never perform. An appeal to the U.S. Supreme Court is not being considered. However, the borrowers are exploring the possibility of petitioning the U.S. Attorney General to be awarded a portion of the assets being forfeited to the government as part of the plea deal. The district judge in the Miller prosecution has stated that he would follow the lead of the 11th Circuit in the Coon matter in determining the course of the borrowers' restitution claims in the Miller prosecution. As a consequence, the 11th Circuit's decision in the Coon case for all intents and purposes forecloses the borrowers' restitution claims in the Miller prosecution too. Sentencing of Phil Coon and John Miller will now be set. The borrowers are entitled to a say at the sentencing hearings. They intend to argue for the maximum sentences for Coon and Miller. Contact us if you would like copies of either of the opinions issued by the 11th Circuit.
Alan Tannenbaum was recently a guest speaker on America's Premier Lawyers Series on ABC RADIO, along with Jeff Raizner, of Doyler Raizner LLP.
Sarasota Herald Tribune Continuing Media Series: Mortgage Fraud and Victim Rights, comments by Alan E. Tannenbaum, Managing Partner, Levin Tannenbaum.
Court Victory for Borrowers: At stake is $3 million in restitution