indicted 24 people 10-block stretch of the neighborhood in Spring Valley contains at least 14 of the 220 houses that were subjected to foreclosure

Federal prosecutors indicted 24 people in a massive mortgage fraud scheme that they said was led in part by a gang member from San Diego and netted participants $11 million in profits.

In an indictment unsealed yesterday, prosecutors laid out a wide-ranging racketeering conspiracy that ran from 2005 to 2008 and targeted homes across the county. Among the identified leaders was Darnell Bell, a documented member of the Lincoln Park street gang.

Bell, 38, used his status in the gang to recruit other members for the scheme and "maintain discipline," according to the indictment. The sweeping conspiracy involved almost every element in the real estate transaction chain. The defendants include a real estate broker, a group of straw buyers, an escrow officer, an appraiser, tax preparers and a notary.
Prosecutors allege the network used fake buyers to purchase homes for more than the asking price, with the defendants pocketing the overage. Lenders were duped into funding mortgages for the inflated price and later suffered losses when the buyers walked away and the property was foreclosed. The value of the properties involved is estimated at $100 million. The ring allegedly netted at least $11 million while defrauding mortgage lenders of an estimated $100 million. The 220 homes they bought around the county ended up in foreclosure.
10-block stretch of the neighborhood in Spring Valley contains at least 14 of the 220 houses that were subjected to foreclosure as a result of the scam that a San Diego gang member organized, authorities say. The steep streets of the neighborhood, north of Jamacha Boulevard and east of state Route 125, are a rare location where a moderate income can buy a home with views of the city or the Sweetwater Reservoir. But like other San Diego County communities in which incomes are modest and where predatory lending was common during the real estate boom, the neighborhood continues to suffer through a wave of vacancies and foreclosures.
Today, most of the homes involved in the mortgage fraud case are occupied by new owners, some of whom found them to be particularly good deals as lenders struggled to get rid of the properties. Newly planted flowers are blooming in some front yards. Still, the community is pocked with vacancies, including foreclosures not connected with the scheme.
“Every block has at least two homes for sale,” said Susan Wos, 62, who bought one of the foreclosed homes involved in the scam, a four-bedroom house on San Miguel Avenue, for $242,000 in January. A real estate Web site lists its last sale price in 2006 at $550,000.
For a while, neighbors on her street say, it seemed like nearly every other home on the block was empty. The house next door to Wos was empty when she moved in, and remains so, though a sign in front says it is in escrow. Across the street a few doors down hangs a “for rent” sign. Another house nearby was in foreclosure last year and since sold, a neighbor said.
“There were a lot of them that were empty,” said Lisa Chance, who rents a home with her husband and three children, and for a while was looking across at two empty houses before Wos moved in.
According to a federal indictment, the fraud scheme that victimized the neighborhood involved 24 defendants, including a real estate broker, an escrow officer, an appraiser, tax preparers and straw buyers. The ring members overbid on homes between 2005 and 2008, duped lenders into giving them excessive mortgages, then walked away from the properties and pocketed the extra money, authorities said.
San Diego County communities that have been hit hardest by foreclosures overall include Chula Vista, parts of southeastern San Diego, Spring Valley, El Cajon, Oceanside, Vista and Escondido, said Gabe del Rio, vice president of lending and home ownership for Community HousingWorks, a nonprofit affordable-housing agency in San Diego.
“These are sort of working-class neighborhoods,” del Rio said. “A lot of predatory lending practices occurred within those communities.”
Many of the homeowners in these communities who found themselves in over their heads as the interest rate on their loans rose had low to moderate incomes, and others were people not fluent in English, del Rio said.
Having multiple foreclosures in a neighborhood hurts a community in several ways, said Michael Stepner, a former San Diego city planning director who teaches at the NewSchool of Architecture and Design. Problems can include break-ins, vandalism and squatters in vacant properties, depressed property values and other issues.
“It brings down the whole neighborhood,” Stepner said. “You feel uncomfortable, you feel unsafe. You may not even feel like taking care of your house because of the return on investment, because the neighborhood might go downhill so fast. It spreads.”
Neighbors who watched as the foreclosed homes involved in the fraud case sat vacant say that while they were empty a while – some longer than others – they didn't feel particularly unsafe.
“We didn't have a problem with people coming in and hanging out or anything,” said Chance, who is in her mid-30s. “It's really quiet around here at night.”
On Maria Avenue a few blocks away, where two houses next door to one another were affected, neighbors also said there were no problems, and that only one of the homes was empty for several months.
The neighborhood is recovering, said Tadele Bayou, 49, an engineer who in October bought the house that sat empty the longest. There were about a half-dozen vacancies on the street when he moved in with his wife and two children; there are now only a couple, he said. Though there are still signs of wear in the house Bayou bought, marigolds, jasmine and other flowers have been meticulously planted in the front yard, and the interior is now nearly immaculate. In the evening, the family watches the sun set over an expansive panorama that reaches to the Coronado Islands off Baja California – all for about $310,000. He had been surprised, and pleased, to learn the three-bedroom house sold for almost twice that amount in 2006. “The view is just the best,” he said. “We see the sunset, we see the ocean. It worked out.”