U.S. v. Hill

• Decision Date: 14 June 2011
• Docket Number: No. 07–14602.,07–14602.
• Parties: UNITED STATES of America, Plaintiff–Appellee,v.Phillip E. HILL, Marcus Alcindor, a.k.a. Christopher Alcindor, Robert Powers, Christine Laudermill, David Van Mersbergen, Fred Farmer, David Thomas, Leslie Rector, Barbara Brown, a.k.a. Barbara Eubanks, Defendants–Appellants.
• Court: U.S. Court of Appeals — Eleventh Circuit

643 F.3d 807

85 Fed. R. Evid. Serv. 714

22 Fla. L. Weekly Fed. C 2181

UNITED STATES of America, Plaintiff–Appellee,

v.Phillip E. HILL, Marcus Alcindor, a.k.a. Christopher Alcindor, Robert Powers, Christine Laudermill, David Van Mersbergen, Fred Farmer, David Thomas, Leslie Rector, Barbara Brown, a.k.a. Barbara Eubanks, Defendants–Appellants.

No. 07–14602.

United States Court of Appeals, Eleventh Circuit.

June 14, 2011.

Lynn Gitlin Fant (Court–Appointed), Waco, GA, Paul S. Kish, Kish & Lietz, P.C., L. Burton Finlayson (Court–Appointed), Thomas Jake Waldrop, Fed. Pub. Def., R. Gary Spencer (Court–Appointed), Jerome J. Froelich, McKenney & Froelich, Sandra Michaels (Court–Appointed), Martin Brothers, P.C., Richard Brooks Holcomb, Fed. Pub. Def., Atlanta, GA, Dovre Christian Jensen (Court–Appointed), Tucker, GA, Thomas C. Rowsey (Court–Appointed), Roswell, GA, for Appellants.Steven D. Grimberg, Lawrence R. Sommerfeld, U.S. Atty., Richard E. Reed, Atlanta, GA, for Appellee.Appeals from the United States District Court for the Northern District of Georgia.Before EDMONDSON, CARNES and ANDERSON, Circuit Judges.CARNES, Circuit Judge:

When Phillip Hill was a young man growing up in the small town of Sumatra, Florida he helped tend his grandfather's beehives. He would, as his lawyer would later tell the jury, “get the honey out of the hives.” And he was good at what he did, being named “Florida beekeeper of the year” when he was twenty years old. Three decades later, Hill got involved in the busy hive of Atlanta's high-end residential real estate market. His goal was still to get out as much honey as he could. From 2000 to 2003 Hill and his associates scooped out of the market almost $22 million in illicit gain. They did it by fraudulently obtaining over 300 mortgage-backed loans for buyers who used the loans to purchase Atlanta-area houses and condominiums from Hill and his associates at more than market value. Almost all of those loans, totaling $110 million, went into default causing lenders and guarantors to be stung with over $38 million in losses. Innocent homeowners in neighborhoods that were hit with foreclosures and distorted property values caused by the scheme also felt the pain, and many people who were used as straw buyers suffered ruined credit and a number of them went bankrupt.

Big fraud schemes generally give rise to big prosecutions, and this one is no exception. In this trial alone there were a dozen defendants, and the 187–count indictment against them involved more than 300 transactions. The government's exhibit list, which was 178 pages long, included 1,135 exhibits that filled 8 filing cabinets. The government also presented more than 100 witnesses, either through live testimony or the parties' stipulation about what that testimony would be. The presentation of the evidence took 31 trial days. In the end, all but two of the twelve defendants were convicted of at least some charges, and they were sentenced to terms of imprisonment ranging from 5 months to 28 years.

Big multi-defendant prosecutions generally give rise to big appeals and long opinions. Regrettably, this one is no exception.

I. Factual Background

A. The Scheme

Hill or entities he created purchased properties that they sold to straw buyers for substantially more than the cost or value of those properties. The sales were financed with mortgages based on property values that were inflated by various fraudulent representations that Hill orchestrated. The buyers ultimately defaulted on the loans and the mortgages were foreclosed, but by then Hill and his associates had gotten their profits from the sweet deals they had made by selling the properties at inflated prices.

The higher the property value the larger the loan, the larger the loan the higher the sales price, and the higher the sales price the larger the profit. In order to obtain loans for the highest possible property value, and reap the highest possible profit, Hill and his associates made a multitude of misrepresentations to lenders. They lied a lot. They lied about the true buyers, and they lied about the source of the down payments, and they lied about the value of the properties, and they lied about the income and employment of the buyers, and they lied about whether the buyers would occupy the properties, and they lied about whether any other properties owned by the buyers were being leased.

Hill and his associates lied about the true owners of the properties in order to disguise the fact that Hill-owned entities were behind all of the transactions and were actually selling the properties to themselves. Unbeknownst to the lenders, Hill had recruited people with good credit scores to serve as straw buyers of the properties. He even had some of them purchase several properties from him using loans from different lenders, all of which were obtained within a short period of time so that each successive lender would not find out about the other loans to that borrower. Once multiple loans or mortgages showed up on the buyer's credit report, which typically took a few weeks, it became difficult for that buyer to qualify for new loans. At that point, the buyer's usefulness to Hill was at an end and he would recruit a new buyer.

Hill and his associates lied about the source of the down payments to cover up the fact that Hill had supplied most or all of that money to the straw buyers. Lenders want to know that money for a down payment actually comes from the buyer because a buyer who has a substantial stake in the property is considered a better credit risk. That is why they inquire about the source of a down payment before making a loan. Hill circumvented that safeguard in a variety of ways. Sometimes Hill or an associate would give a borrower money to park in her bank account just long enough for the lender to verify the money's presence, then they would take it back. Other times they falsified the HUD–1 settlement statements¹ that were signed at the closings to show “cash from borrower” when the money had actually come from Hill, an entity he controlled, or one of his associates. Yet other times cashier's checks were forged or altered to show earlier earnest money payments from the buyers to Hill as seller, when in fact that money had come from other sources. The false checks were created by altering actual checks from the bank account of a straw buyer. With most or all of the loans, the borrowers signed documents at closing falsely representing that they were supplying the down payment money.

Hill and his associates lied about the value of the properties to circumvent lenders' loan-to-value requirements and increase the selling price. Those lies were told through fraudulently inflated property valuations that Hill procured. For example, a bank would make a loan for $200,000 under the assumption that it was lending 80% on a property worth $250,000, when in reality the bank was lending 133% on a property worth only $150,000. To pull this off Hill needed the cooperation of appraisers, and he bought what he needed. The appraisers supported their inflated valuations by cherry-picking inappropriate comparative sales; by concealing recent prior sales of the same property for far lower amounts; by including upgrades that had not actually been done; and by neglecting to report conditions that would depress property values, such as a property's proximity to railroad tracks or a landfill or its infestation with black mold.

Hill and his associates lied about the straw buyers' income on the loan applications in order to qualify the buyers for loans of the size they were seeking. And those lies in turn required lies about the buyers' employment and positions to avoid arousing suspicions about the reported income. As part of the lies some borrowers got “promoted” on their loan applications. For example, Eddie Blanchard, a postal clerk in a small Louisiana town, became “Postmaster of Atlanta” on his application. Other buyers acquired impressive-sounding executive titles at companies where they had never worked or at companies that did not even exist. If the lenders tried to verify the employment and income information, Hill's associates would generate fake W–2s and pay stubs, or they would answer phone calls posing as the borrower's employer.

Hill and his associates lied about the intended use of the properties in order to get the better loan terms and interest rates available for owner-occupied properties. Lenders operate on the assumption that a borrower will be more motivated to make payments on his own home than on an investment property, which is why investment loans require higher interest rates and larger down payments. As for condominiums, some developments had restrictions on the percentage of units that could be rented out, and many lenders would not lend on condominium units if the complex's owner-occupancy rate was below a certain level. Carrying out Hill's instructions, straw buyers represented on each loan application that they intended to use the property as their “primary residence,” even though they actually were buying multiple properties and had no intention of moving into any of them. Some of the buyers slipped up and pointed this out at closings. Most of them were told by those conducting the closing (who were being paid by Hill) that they had to say they were going to occupy the property in order to get the loan. Other buyers signed their name to blank application forms, leaving Hill and his associates to generate whatever false information was necessary to meet the lender's underwriting standards.

Hill and his associates lied about whether any residences that the buyers already owned and occupied would be leased in order to cover up the fact that the new properties would not be used as residences. Again, owner-occupied housing attracts better loan-to-value ratios than investment property does. And the straw buyers who did disclose to lenders that t...