Case Study:
House Savings Investment and AA House Savings Financial
Fraudulent Mortgage Scheme Stopped by Regulators
The two receivership entities were mortgage processing companies in Houston, Texas, or “Money Service Businesses” (as defined by Texas Statute), with approximately 18,000 customers. Both companies were sued by the Texas Attorney General and the Texas Department of Banking for failing to account for millions of dollars of consumer trust funds and operating a money service business without a license. Funds that should have been paid to customers’ mortgage holders were instead diverted for the personal benefit of the principals.
The Solution
The Texas Attorney General filed a lawsuit in State District Court to have the entities placed into receivership.
Harney's Greg Milligan was appointed as State Court Receiver.
After running both businesses, it was determined that rehabilitation was not possible if the companies were to operate within the requirements of all relevant regulations.
As such, an orderly wind down was conducted of both companies in a manner that insured all active customers’ mortgage payments were timely remitted during the transition.
A forensic investigation was conducted to identify defrauded customers, the sources and uses of embezzled consumer trust funds, the location and liquidation of recoverable assets, and an equitable claims and distribution process was developed and approved by the Court.
The Results
Customer funds were traced through 32 different insider bank accounts to the purchase of eight (8) real properties with misappropriated customer funds.
These properties were recovered from the insiders and sold for the benefit of defrauded customers.
All 18,000 customers were successfully transferred out of the mortgage payment program without any customer missing a mortgage payment or creating a default with any mortgage holder.
Services & Roles
Fiduciary Services
State Court Receiver
Interim Management
Visibility Analysis
Forensic Accounting
Fraud Investigation
Liquidation/Wind Down
*Some engagements may have been performed by team prior to joining Harney Partners.
