Twin Cities Duo Get 3+ Years In Mortgage Fraud Scam; Targeted Homeowners Facing Foreclosure w/ Sale-Contract For Deed Buyback, Equity Stripping Ripoff

From the Office of the U.S. Attorney (Minneapolis, Minnesota):

• The second of two men from the Twin Cities was sentenced today in federal court in connection with a real estate loan scam aimed at defrauding Associated Bank. In Minneapolis, United States District Court Judge Joan Ericksen sentenced Eric R. Krahnke, age 52, of Andover, to 37 months in prison. On February 3, 2010, Judge Ericksen sentenced Michael I. Striker, age 56, of Minnetonka, to 41 months in prison.

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• Although the loans(1) at the heart of this case were purportedly for construction rehab projects, Striker admitted he used some loan proceeds for unrelated expenses and debts. Furthermore, many of the properties subject to the loans were not rehab properties at all. Rather, they were homes in which financially distressed families still resided.(2)

For the U.S. Attorney press release, see 2 sentenced for orchestrating residential real estate loan scam.

(1) Accoding to the press release, Associated Bank disbursed more than $4 million in connection to the loans, with Striker receiving at real estate closings in excess of $724,000 in net loan proceeds. Krahnke, on the other hand, received commissions from Associated Bank for originating the loans. In addition, however, he received from Striker 3 percent of the net proceeds relative to each loan.

(2) According to the indictment (see Two Charged In Alleged Foreclosure Rescue Scam Involving $4M+ In Fraudulently Obtained Loans, Say Minnesota Feds):

• The homeowners had conveyed their title to Striker, or businesses that Striker was working with, under a contractual agreement whereby they re-purchased the residence on a contract for deed. At the same time these homeowners thought that Striker was helping them to stay in their homes, Striker was falsely representing to the bank an intention to rehab and re-sell these properties.

Go here for a comparison/contrast between a mortgage and a contract for deed in Minnesota. foreclosure rescue sale leaseback