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.
Five people, including Abrams, await sentencing after pleading guilty to bank fraud and other charges. Fitzgerald, Babajian, Grasso and two others pleaded not guilty and are slated for trial next year.
Lehman sued them all in U.S. District Court in Los Angeles, but the lawsuit is on hold while the criminal cases play out. The bank, a subsidiary of the New York-based investment house, declined to comment.
Fitzgerald and Abrams popped onto the Beverly Hills real estate scene as the 1990s ended and the Westside market took off again after a long downturn. The median home price in the 90210 ZIP Code -- which includes most of Beverly Hills and the canyons to the north -- was $310,000 in 1992. A decade later, at the height of Abrams and Fitzgerald's alleged scam, it had shot to $1.16 million.
Houses were snatched up within days. Interest rates fell and lenders capitalized on the frenzy by writing anything-goes loans, some requiring no proof of borrowers' ability to repay them.
"The market was starting to levitate," recalled Christian Stevens, a Brentwood real estate agent. "We all did really well."
That included Fitzgerald, whose sister called him "the crowning jewel" of their large Utah family, and Abrams, who made headlines in 1979 as a Los Alamitos High School senior elected to the local school board.
Fitzgerald had moved to Southern California from Utah in the 1980s and later launched a residential development business in the Beverly Hills area.
Abrams also had gone into real estate, his early efforts culminating in a 1989 liquidation bankruptcy that listed 700 creditors with more than $30 million in claims. One creditor won a $2-million civil fraud judgment against Abrams in 1997 but recently said he had yet to be paid any of it.
In 1999, Fitzgerald and Abrams met through Babajian, whose big-name clients have included Ryan Seacrest, Oscar De La Hoya and British pop star Seal.
The two developers hit it off and became partners. They founded Beverly Hills Estates Funding Inc. in 2001 and "came to control various trusts, partnerships and corporations," according to records in the criminal case.
They based their companies in the heart of Beverly Hills, in a suite of offices at 9595 Wilshire Blvd., where other tenants remember them as low-key and cordial.
"They did not look ostentatious at all, except for the cars they drove," said real estate investor Max Baril, whose offices were next door.