We investigated an alleged preforeclosure scheme involving 31 properties financed with Federal Housing Administration (FHA)-insured loans.  As a result, the U.S. Attorney’s Office of the Central District of California brought a civil case against Mr. Mario Menendez under the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA).

In August 2011, the U.S. Attorney’s Office filed a complaint in U.S. district court seeking civil money penalties against Menendez.  The complaint alleged that between January 2001 and December 2003, Menendez executed a scheme to defraud the U.S. Department of Housing and Urban Development (HUD) and lenders on 31 FHA-insured mortgages.  Menendez, a realtor, certified to the lender as part of HUD’s preforeclosure program regulations, that there were no hidden terms or special understandings concerning the transactions.  However, Menendez had allegedly prearranged the sale of the properties before the preforeclosure transactions had occurred and had not disclosed the prearranged sales and respective agreed-to sales prices to the lender.  Further, in 27 of the 31 transactions, Menendez purchased the preforeclosure properties through his various real estate companies at the sales prices that he helped set and negotiate with the lenders.  Menendez then resold them on the same day for a substantial gain.

The alleged scheme caused the preforeclosure lenders to submit claims to HUD for the 31 FHA loans, which HUD paid but which were not reduced by Menendez’s alleged fraudulent gains.  In March 2013, the U.S. District Court of the Central District of California ordered Menendez to pay a civil penalty in the amount of $40,000, based on the stipulations of FIRREA.