ING Bank claims racketeering by local real-estate professionals — and borrowers

ING Bank, the nation's second-largest thrift, has filed an unusual racketeering lawsuit in federal court, alleging a criminal conspiracy by an escrow agent, a mortgage broker and 10 couples to defraud the bank of at least $6 million through falsified mortgages.

The bank, an arm of the Netherlands-based ING Group, is also seeking a court order to foreclose on eight properties in King, Snohomish, Pierce and Grant counties because the borrowers have failed to pay their interest-only, adjustable-rate mortgages on time and allegedly made false statements in their loan applications.

Some of the borrowers received between $1,500 and $12,500 in cash from the loan proceeds, court documents filed by the bank suggest.

And ING contends two of the borrowers never lived in the houses they bought with the loans.

For their part, the borrowers, all Eastern European immigrants, say they are victims of the alleged fraud as well.

Legal experts said the suit may be one of the first in the nation in which a bank — unable to recoup its losses by selling the loans or the collateral properties — uses the racketeering law to collect money from borrowers and the real-estate professionals who helped them buy a house.

It is borrowers who usually bring racketeering suits against banks and real-estate professionals, not the other way around, said Seattle attorney John Devlin, of Lane Powell, a firm that defends major lenders such as Countrywide Home Loans, Wells Fargo and J.P. Morgan Chase.

"This is very rare," he said. "Depending on the success of this suit, it may become more prevalent."

The lawsuit, filed in Seattle, comes amid a financial crisis for global banks and increased vigilance for mortgage fraud. ING Bank, which reported $1.1 billion in losses at the end of 2008, is burdened with foreclosed houses worth less than the outstanding loans.

ING alleges this scheme targeted multiple financial institutions and involved a mortgage broker, an unlicensed escrow company, title insurers, tax preparers, accountants, appraisers, borrowers and shell corporations. Even an auto shop was involved, the bank alleges.

Nine loans

On at least nine loans made between November 2007 and June 2008, the conspirators misrepresented the borrowers' assets, income and employment to purchase or refinance properties whose value was inflated, according to the lawsuit.

The bank says it intended to sell the loans to investors and discovered the discrepancies only after the borrowers fell behind on payments.

The mortgage broker, Nationwide Home Lending of Bellevue, closed last fall. The escrow company, Emerald City Escrow, says in court documents that it has closed its offices.

Daniel Mosteller, an attorney for the Durham, N.C.-based Center for Responsible Lending, a nonprofit policy group monitoring foreclosures nationwide, said he hadn't heard of such suits before. But he was surprised by the bank's claim that it "justifiably relied" on the information submitted by the mortgage broker.

"There's lots of blame to go around, and ING is here not accepting some of the blame," he said. "Especially by November of 2007, they had a responsibility to do meaningful underwriting, and apparently they didn't."

An attorney for ING declined to comment on the lawsuit.

The Racketeer Influenced and Corrupt Organizations (RICO) law was originally intended to help the government prosecute cases against the Mafia and other organized-crime rings. But private parties have also used the law in civil suits.

Alleged leaders

The bank alleges the conspiracy was led by Bellevue criminal-defense attorney Jacob Korn of Emerald City Escrow, and loan originator Alla Sobol, of Nationwide Home Lending. (It's not affiliated with Nationwide Lending Corp. or Nationwide Mutual Insurance, large, out-of-state corporations.)

Sobol is listed in state records as the sole officer for Nationwide Home Lending, though it appears she employed others, according to court records.

According to the suit, Korn and Sobol duped the bank into funding loans based on inflated property appraisals and took excessive fees out of those loan proceeds at closing.

In one deal, the bank loaned a borrower $935,000 to buy a Tacoma house for $1.35 million — a house that, according to the real-estate Web site Zillow, is valued higher than 99 percent of homes in its ZIP code. Nationwide Home Lending was paid nearly $30,000 in fees on that loan.

It received a total of nearly $130,000 on all nine loans, according to the suit.

To keep these fraudulently gained fees out of creditors' reach, Alla Sobol, head of the mortgage brokerage, and David Sobol, an officer of the escrow company, formed a family limited partnership in February 2007, the bank alleges.

Korn, who has denied any wrongdoing, had no comment on the suit.

Leslie Drake, an attorney for the Sobols and Nationwide Home Lending, declined to comment on the allegations.

To make the scheme work, the bank alleges, Korn and Alla Sobol conspired with appraiser Eric Perrigo and his Redmond company, Appraisals Unlimited, to provide inflated property appraisals that would support at least eight of the loans.

Perrigo, who is not yet a named defendant in the racketeering case, was shielded from ING's lawsuit because he and his wife declared bankruptcy last fall. Last Tuesday, the bankruptcy court gave ING permission to pursue Perrigo in its suit.

Perrigo denied any wrongdoing. He said he was a victim of identity theft, and that a trainee appraiser who worked for him used his electronic signature to certify reports without his knowledge.

The state Department of Licensing, which oversees appraisers, says it has nine open investigations of Perrigo in connection with complaints received in 2007 and 2008.

The state Department of Financial Institutions says it investigated Perrigo's allegation of identity theft and didn't find sufficient evidence to take action.

The bank also alleges that on at least three loan applications, Viktor Mokhnach and his auto shop, Euro and Exotic Garage, of Woodinville, provided falsified paperwork to support borrowers' income and employment statements.

According to the suit, two borrowers were listed separately as financial directors of the auto shop with six-figure incomes. In fact, the bank states, one is a house painter whose income is far lower and the other is a housewife.

Through his attorney, Mokhnach denied any wrongdoing.

Most of the borrowers appear to have experience buying and selling homes.

Bruce Hull, a Bellevue attorney who represents four of the borrower couples, says his clients' first language is Russian or Ukrainian and that they were preyed upon by the mortgage broker and escrow company.

Korn and David Sobol both speak Russian, and Alla Sobol was born in Ukraine, court and state records show.

Hull said his clients applied for fixed-rate conventional loans but were unwittingly put into adjustable-rate loans by either the mortgage broker or the escrow company.

Sanjay Bhatt: 206-464-3103 or sbhatt@seattletimes.com