COURTS: Feds file criminal charges in foreclose ring

By CHRIS BAGLEY - Staff Writer | Thursday, November 6, 2008 9:05 PM PST ∞

RIVERSIDE ---- Prosecutors are charging two Murrieta residents with mortgage fraud, the first criminal charges to follow a series of civil lawsuits by former clients and government regulators.

The felony charges of making false statements to mortgage lenders center on home purchases by Joetta Zimmer and Dow Duncan, who both have connections to a group of 120 Murrieta-area houses that fell into foreclosure in late 2006 and 2007.

Zimmer is accused of overstating her income and savings when applying in mid-2007 for loans totalling $1.75 million on a house on Calle de Lobo in La Cresta, according to a grand jury indictment that prosecutors filed Wednesday.

Zimmer bought the house for $1.95 million in July 2007, defaulted on at least one of the loans in February and lost the house in May, according to the foreclosure database. The house is now listed for $850,000, implying a potential loss of $900,000 for the lender, an arm of Washington Mutual Inc. The giant savings-and-loan institution collapsed in September and was purchased by J.P. Morgan with federal assistance.

Zimmer has several connections with Stonewood Consulting, a Murrieta mortgage brokerage whose clients bought 120 Murrieta-area houses in 2005 and 2006 and later abandoned the houses to foreclosure. In lawsuits, some three dozen of the clients have alleged that Stonewood's chief executive and several of his associates duped them into buying as many as five houses each in what the lawsuits call a complex pyramid scheme that resulted in mass foreclosures.

Zimmer was arrested Thursday and remained in custody after failing to post bail. She's scheduled to face trial Dec. 30.

Duncan was released Thursday on $350,000 bond. He's scheduled to be arraigned on Dec. 3.

Prosecutors said Thursday that Duncan, who is believed to be the father of one of those associates, made false statements in applying for loans on his house on Pumpkin Street in Murrieta. Prosecutors filed a criminal complaint against Duncan, an alternative to indictment, which was not available Thursday evening.

A database of legal real estate records shows that Duncan borrowed $595,000 from Centex Home Equity Co. in March 2006 when his wife, Sandra Duncan, deeded the house to him. The house fell into default in March of this year and is scheduled to be auctioned Nov. 20, according to the online database foreclosureradar.com.

Neither Zimmer's house nor Duncan's is among the 100-plus home purchases that Stonewood brokered in 2005 and 2006. But both appear to be connected to the group of foreclosed houses through a Web of family and business relationships.

Nearly all of the 120 houses have fallen into foreclosure at least once since late 2006, saddling subprime mortgage lenders with losses of $10 million to $30 million.

Separately, the U.S. Securities and Exchange Commission is pursuing civil charges against Duncan's son, former La Cresta resident James Duncan and Stonewood chief executive Hendrix Montecastro, alleging that the two men wrongly held themselves out as investment advisers for the homebuyers. The federal agency reached a settlement with a third defendant, Maurice McLeod, in September.

The FBI raided the homes of Duncan and Montecastro in late February, according to prosecutors and an attorney for Duncan. The FBI was after documents and computer data related to Stonewood and companies that Duncan and McLeod operated, according to a search warrant filed as evidence in a related case.

Several of the former clients have said they dealt with Zimmer in the course of their investments with Stonewood Consulting, Duncan and McLeod. She bought a house in Murrieta's upscale Bear Creek community through Stonewood in November 2006.

The indictment alleges that Zimmer falsely claimed to earn $60,000 a month as the chief financial officer for Ocean Ridge Equity, a real estate company that, like Stonewood, was once registered to Montecastro.

Anthony Contreras bought the Calle de Lobo house in April 2006 for $1.33 million, near the peak of southwestern Riverside County's housing bubble and sold it to Zimmer for a profit of $624,000. The SEC suit against Duncan and Montecastro named Contreras as a "relief" defendant, an assertion that he profited from illegal activity without necessarily breaking any laws.

Contact staff writer Chris Bagley at (951) 676-4315, ext. 5444 or cbagley@californian.com. Bagley blogs about local economic trends at http://www.sdbusinessnews.com.

See also:

FBI sought evidence in real estate probe

Feds take action against real estate group (Feb. 28, 2008)

Wheels of justice grind slowly (July 27, 2007)

State shuts down real estate player (June 30, 2007)

Sixth lawsuit alleges money laundering (May 23, 2007)

New player emerges in fraud suits (Feb. 21, 2007)

Scope of alleged scam grows (Feb. 14, 2007)

Investors' legal battles span 5 years (Feb. 11, 2007)

Renters latest victims of alleged scam (Feb. 10, 2007)

Real-estate investors bought on faith (Jan. 14, 2007)

High-ball offers raised flags in 2004 (Jan. 9, 2007)

Suit alleges massive mortgage scam (Jan. 6, 2007)

Agent's deals gut neighborhoods (Aug. 26, 2007)