Kathy Moore's loan application sailed through the mortgage desk at Lehman Bros. Bank, and little wonder.
With sterling credit, deep pockets and two appraisals pegging the value of the Benedict Canyon house she wanted to buy at $2.5 million, she seemed a perfect fit for a $1.47-million loan.
Had the bankers taken a closer look, they might have discovered that the home was worth just $775,000 and that Moore's borrowing power existed only on paper.
They also might have derailed a burgeoning real estate fraud that authorities say grew into one of the biggest and boldest in California history, and one that sheds light on the wave of foreclosures now sweeping the country.
As home values skyrocketed earlier this decade, "banks gave money to anybody with a pulse," said UCLA economist Ryan Ratcliff.
That included first-time buyers who couldn't afford the payments, speculators looking to flip property for a fast profit and, as authorities are increasingly discovering, con artists.
"Everything was more lax," said Jack Guttentag, a finance professor emeritus at the University of Pennsylvania's Wharton School. "It was just easier to commit fraud."
Evidence of that can be found in FBI reports of mortgage fraud, which increased eightfold from 5,623 in 2002 to 46,717 this year. But of all those cases, few compare with an alleged three-year scam that used trumped-up appraisals to fraudulently secure $142 million in loans from Lehman Bros. and another lender.
The Beverly Hills-based ring followed a simple plan: Buy inexpensive houses in exclusive areas at market value, fabricate paperwork showing them to be worth two or three times as much, and then secure loans based on the inflated numbers, authorities say.
The masterminds were developers Mark Alan Abrams, 46, who had a previous $2-million civil fraud judgment against him, and Charles Elliott Fitzgerald, 47, a bigamist who fled the country in 2003 and was later arrested in Samoa, according to interviews, federal prosecutors and a civil lawsuit filed by Lehman Bros. Bank.
They allegedly were assisted by star real estate agents Joseph Babajian, 54, and Kyle Grasso, 36, who earlier this year shared the listing for a $22-million Beverly Hills mansion bought by soccer star David Beckham and his wife, Spice Girl Victoria Beckham.
Abrams and Fitzgerald are accused of reaping millions, spending some of the cash on private jet flights and vintage wines -- and much of the rest to buy more houses to keep the alleged scam alive from 2000 to 2003.
