Zimmerman v. U.S.A
| Decision Date | 23 February 2011 |
| Docket Number | CIVIL CASE NO. 3:07cv295,Criminal Case No. 3:02cr156-3 |
| Court | U.S. District Court — Western District of North Carolina |
| Parties | PAUL ZIMMERMAN, JR., Petitioner, v. UNITED STATES OF AMERICA, Respondent. |
THIS MATTER is before the Court on the Petitioner's Motion to Vacate, Set Aside or Correct Sentence by a Person in Federal Custody (Motion Under 28 U.S.C. §2255) [Doc. 1] and the Government's Motion for Summary Judgment [Doc. 12].
On September 13, 2002, the Petitioner and six co-defendants were charged in a 66 count superseding bill of indictment with participating in a wide ranging scheme to defraud investors in the secondary mortgage market. [Criminal Case No. 3:02cr156, at Doc. 45]. The indictment charged that the Petitioner conspired with his wife, Debbie Zimmerman, and five other co-defendants to defraud the Federal National Mortgage Association (Fannie Mae) by selling to it bogus mortgage notes, to defraud the United States by pooling fictitious mortgage notes into securities to be issued by the Government National Mortgage Association (Ginnie Mae), and to launder the proceeds of their fraud, all in violation of 18 U.S.C. § 371 (Count 1) [Id., at 116]. Counts 2 through 10 charged the Petitioner with using interstate wire transmissions to sell false mortgage notes to Fannie Mae, aiding and abetting the same, in violation of 18 U.S.C. §§1343 and 2. [Id., at 16-17]. Counts 42 through 44, 47, 51 and 52 charged the Petitioner with making and passing false statements to HUD, aiding and abetting the same, in violation of 18 U.S.C. §§1010 and 2.
In November 2002, the Petitioner, his wife and two of his co-defendants, James and Macy McLean, went to trial. The Government's evidence established:
James and Macy McLean were officers and owners of First Beneficial Mortgage Corp (FBMC), a mortgage company based in North Carolina. As a qualified Federal Housing Administration (FHA) lender with direct endorsement authority, FBMC had the authority to approve mortgage loans for federal FHA insurance. An FHA-insured mortgage loan, in turn, is "readily saleable" on the secondary mortgage market. FBMC was also an approved Fannie Mae lender, meaning FBMC could originate a mortgage loan with the borrower and then Fannie Mae would immediately buy the mortgage on the secondary market without doing its own underwriting evaluation.
FBMC created a subsidiary company, First Beneficial Homes(FBH), which was in the business of building modular homes financed by FBMC. [The Petitioner and his wife], both of whom were employed by FBMC, were officers in FBH, as was Macy McLean. In order to obtain funds for FBH to build homes, the McLeans, Zimmermans and a third couple... recruited individuals, primarily friends and relatives, to sign mortgage loan notes purporting to secure funds advanced by FBMC for homes that, in fact, did not exist or were owned by someone other than the "borrower" named on the note. The McLeans and Zimmermans induced these individuals to sign the mortgage notes by paying them various amounts to participate in an "investment" opportunity and representing that, by signing, the "investors" did not actually incur any repayment obligation. The McLeans and Zimmermans also signed similar fictitious mortgage notes themselves. None of the individuals signing these documents ever acquired or possessed any ownership interest in the properties listed on the notes.
FBMC would then sell these "instruments" to Fannie Mae on the secondary market, representing by the terms of the note that the borrowers signing the note had an ownership interest in the listed property, that FBMC had a security interest in the property, and that the property was of sufficient value to protect the lender-or any secondary purchaser of the loan such as Fannie Mae-in the event of default. As an approved Fannie Mae lender, FBMC... [e]ssentially... was empowered to make underwriting decisions on behalf of Fannie Mae.
Eventually, Fannie Mae detected irregularities in FBMC underwriting practices and conducted an audit of the loans it had purchased. A physical inspection of the properties for which FBMC had purportedly financed the purchase of a completed home revealed that [ ] many of the lots were either vacant or contained a partially completed house. Additionally, some of the lots that ostensibly secured mortgage loans already purchased by Fannie Mae were being offered for sale. James McLean claimed that he incorrectly assumed that Fannie Mae would purchase construction loans, which disburse funds in piecemeal fashion as each new phase of construction begins. Fannie Mae, however, does not purchase construction loans, which FBMC was not authorized to sell. And, FBMC had not sold the loans as construction loans to Fannie Mae in any event. In November 1998, when FBMC could not account for all of the irregularities, Fannie Mae suspended FBMC as an approved lender.
Faced with the collapse of the Fannie Mae scheme, James McLean agreed to repurchase the loans FBMC sold to Fannie Mae. Although he told Fannie Mae that he had secured investors willing to fund the repurchase of these loans, he refused to divulge the identity of the investors. In fact, FBMC secured funds to repurchase the loans by simply continuing the Fannie Mae "investor" scheme with Ginnie Mae. Ginnie Mae, which is owned by HUD, sells mortgage-backed securities which are created from "pools" of mortgage loans. A qualified mortgage lender originates several FHA-insured mortgages, "pools" them together, and sells them-without any review-to Ginnie Mae. Ginnie Mae, in turn, sells an interest in the mortgage pool to investors. FBMC was qualified as a Ginnie Mae lender and issuer, meaning that not only did Ginnie Mae implicitly approve of any mortgage loan extended by FBMC, but FBMC could actually issue Ginnie Mae securities.
The McLeans and Zimmermans used the same lots and "investor scheme" with Ginnie Mae that they had used for Fannie Mae, and the overall process was essentially the same. James McLean paid a commission to the Zimmermans for each "investor" they recruited. The Zimmermans brought their investors to Macy McLean. Macy then gave her assistant these names, along with an address and a purported loan amount, which the assistant inserted into a mortgage note. Ginnie Mae would not accept mortgage loans that were not federally insured, so one of FBMC's loan officers was directed to "supply" an FHA number for the note. The mortgage notes were then signed by the "investors, " and, as required by Ginnie Mae, delivered to FBMC's document custodian, BB & T Bank, for initial certification. [The McLeans] also had to file certain information electronically. FBMC then issued securities which were sold to Ginnie Mae investors. The purchase price was wired to FBMC's account at BB & T.FBMC also obtained a line of credit at BB & T to fund loans to its customers. As collateral to secure the line of credit, FBMC supplied BB&T with fictitious mortgage notes signed by "investors" who had no ownership interest in the property purportedly secured by the note. Although the line of credit was to be used by FBMC strictly for funding mortgage loans to FBMC clients, FBMC used line of credit money to pay down the fictitious loans sold to Ginnie Mae as well as to repurchase loans from Fannie Mae.
[O]nly seven percent of the proceeds from the sale of fictitious notes to Ginnie Mae went to fund legitimate expenses such as construction and land for FBH's business. One million dollars was allocated to the growing monthly payments on the increasing number of false mortgage notes, and approximately $340,000 was paid out to the Zimmermans and [the third couple] for commissions. The Zimmermans used structured transactions to deposit half of this into their personal accounts. And $7.5 million of the Ginnie Mae funds were simply transferred to Fannie Mae to repurchase the false notes.
United States v. McLean, 131 Fed.Appx. 34, 36-38 (4th Cir. 2005) (emphasis in original).
On November 22, 2002, the jury returned a special verdict, convicting the Petitioner of Count 1, conspiracy to defraud the United States in violation of 18 U.S.C. §371, and of Counts 47, 51 and 52, making false statements in violation of 18 U.S.C. §§1010 and 2. [Criminal Case No. 3:02cr153-3, at Doc. 147]. On December 22, 2003, the Petitioner was sentenced to 132 months imprisonment. [Id., at Doc. 222].
On appeal, the Petitioner argued the trial court committed error by giving the jury a willful blindness instruction, refusing to give a good faith instructionin connection with the charges that he passed false mortgage notes, and refusing to charge the jury that the Petitioner's reliance on the expertise of James McLean was a defense to the charges. McLean, 131 Fed.Appx. at 3840 n.1. In addition to errors assigned to the Court, the Petitioner argued that the evidence was insufficient to support his convictions. Id., at 41. Finally, the Petitioner challenged his sentence pursuant to United States v. Booker, 543 U.S. 220, 125 S.Ct. 738, 160 L.Ed.2d 621 (2005). Id.
The Court of Appeals rejected the Petitioner's argument that the willful blindness instruction was improper, noting that there was evidence to permit the jury to find actual knowledge and to conclude that "if [the Petitioner was] not specifically aware that [he was] defrauding the government, [he was] willfully blind to that fact." McLean, 131 Fed.Appx. at 39.
Evidence of [the Petitioner's] actual knowledge of the scheme to defraud the government included [the Petitioner's] testimony that he and his wife heard James McLean say that FBMC was "HUD-supported" and that he understood the mortgage notes that they were having executed bore an FHA number and other FHA markings. It also included the testimony of Eric Brown, who explored the possibility of financing a family-owned real estate venture through FBMC in the early part of 2...
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