California Man's Foreclosure Scam Targeted Tarp Banks: Prosecutors

A California man has been accused of running a scheme to prevent banks from foreclosing on properties.

Walter Bruce Harrell of Montara, Calif., has been indicted by a federal grand jury on charges of bankruptcy fraud and making false statements in bankruptcy proceedings, the Office of the Special Inspector General of the Troubled Asset Relief Program and the U.S. Attorney for the Northern District of California said Friday. Many of the creditors that were prevented from foreclosing were banks that had received Tarp funds, the special IG said.

Harrell's alleged scheme was a version of the so-called foreclosure-rescue scam, in which a troubled property owner hires someone who says he can forestall foreclosure proceedings.

Harrell's scheme involved transferring part of the interest in a foreclosed-on property to a third party, whom Harrell would then pay to file for bankruptcy, according to the indictment. The "automatic stay" clause in bankruptcy law would then halt foreclosure sales.

The indictment charges Harrell with running this scheme on six properties in 2011 and making false statements in two bankruptcy trials. The maximum penalty is five years in prison and a fine of $250,000.

A Tarp spokesman could not provide figures on the total number of properties involved in the scheme or the total value of the properties Harrell allegedly blocked from foreclosure. The FBI and the Alameda County police were also involved in the investigation, the spokesman said.

"Harrell is charged with exploiting Tarp banks and preying on vulnerable homeowners by promising to delay their foreclosures for a monthly fee," Christy Romero, the special IG, said in a news release.

"To obstruct creditors, including Tarp banks, from foreclosing on the homes, Harrell allegedly manipulated bankruptcy laws, making false statements and transferring interests in the properties to third parties whom he paid to file papers in court to hinder the foreclosure process," Romero said. "The exploitation of Tarp is unacceptable, and Sigtarp and our law enforcement partners will continue to pursue justice for such fraud."