Fraud Friday — Manipulative Borrower gets 18 Months for $736,000 Bank Fraud

August 21, 2015

By Bob Coleman
Editor, Fraud Friday

jailbars“Grady Fricks used his connection with a bank insider to obtain a fraudulently inflated loan. Fricks’ ability to manipulate people to further his scheme left the bank and its stockholders shouldering the loss,” says the US Attorney.

Who did he manipulate?

D.N, a Senior Vice President of Georgia-based Cornerstone Community Bank, J.L, a real estate appraiser, and E.R. a real estate closing agent of a title company.

In November 2004, Fricks contacted Cornerstone Community Bank and stated that he needed an $850,000 loan to purchase property in Ringgold, Georgia. Fricks did not reveal that he had already signed a contract to purchase the property for only $425,000. Fricks had done business with that senior vice president for many years before this, both at Cornerstone and at the bank where the employee had worked before joining Cornerstone. And Fricks had allowed the bank employee free use of his condominium at a beach in Florida, five to ten times.

D.N. violated Cornerstone’s policies and procedures by not obtaining a copy of the sales contract between Fricks and the seller of the property to verify the contract price. D.N. also allowed Fricks to select an appraiser to appraise the property. Fricks paid J.L.$1,000 to inflate the appraised value of the property so that Cornerstone would approve the $850,000 loan Fricks was seeking. In addition, Fricks gave the appraiser $100 in cash as a “tip.” The appraiser provided Fricks with a fraudulently inflated appraisal report, which stated that the market value of the property was $1,010,000.

Prior to the loan closing, Fricks contacted D.N.and asked, “Do you care if I get some money back at closing?” D.N. responded, “What the bank cares about is that the HUD-1 settlement statement shows a sales price of $850,000.”

At the direction of Fricks, a real estate closing agent created two HUD-l settlement statements: a correct one that listed the purchase price of the property as $425,000, and a fraudulent one that listed the purchase price of the property as $850,000.

Fricks caused someone to forge the seller’s signature on the fraudulent HUD-l settlement statement and then caused the fraudulent HUD-1 settlement statement and the fraudulent appraisal report to be submitted to Cornerstone.

Cornerstone relied upon the false information provided by Fricks and loaned Fricks $850,000 to purchase the property.

Two years later, in October 2006, Fricks contacted D.N. at Cornerstone and stated that he wanted to borrow more money against the property. Fricks paid the same appraiser $1,000 to reappraise the property and once again directed the appraiser to fraudulently inflate its appraised value. Fricks also gave the appraiser another $100 tip. The appraiser provided Fricks with a new appraisal report, which fraudulently stated that the market value of the property was $1,433,000. Fricks caused the new appraisal report to be sent to Cornerstone, knowing that it was fraudulent. The new appraisal was more than 40% higher than the previous appraisal conducted by the same appraiser just two years earlier.

As a result of this new appraisal, Cornerstone released the additional collateral pledged by Fricks when the loan was originated in 2004, consisting of five real properties and the guaranty of Fricks Properties, a company owned by Fricks. Cornerstone also loaned Fricks an additional $177,000.

Fricks did not repay the loans, and the bank foreclosed on the property.

Last week, Fricks was sentenced to 18 months in federal prison, ordered to perform 100 hours of community service, and pay restitution to Cornerstone of $736,000.