His partner Tisdale was indicted this summer on federal fraud and conspiracy charges and is accused of leading a ring that stole millions using the stolen identities of the recently deceased. (See "Grave Robbers," by Thomas Korosec, November 6.)
One of his former key employees, a Dallas mortgage broker named Kurt Davis, is being sued by a Houston lender for allegedly carrying out "quick flip" real estate transactions designed to rip off lenders.
Those matters are not tied directly to Lockhart, but the Houston lender is curious about a flip sale of an East Dallas house in which Lockhart, Tisdale and Smith profited directly and in which Davis was involved with the mortgage.
The story of Lockhart's new venture begins last fall, when he formed two partnerships with Tisdale and Smith. One, KLT Properties, is involved in buying and selling houses. The other, America's Team Mortgage, was formed to broker mortgages. A mortgage broker typically lines up a homebuyer with a lender and can handle matters such as hiring appraisers and inspectors.
Davis, the mortgage broker, says he wanted to become the fourth owner/partner in America's Team, but when that didn't happen, he signed on as a contract employee working on commission.
"The idea was to capitalize on their names and get a mortgage business going," says Davis of his former employers, who set up shop on Preston Road in North Dallas.
But in an October 2002 memo to Lockhart, Smith and Tisdale that is included in a court filing, Davis complained that several lenders suspected America's Team Mortgage was a "flip shop" and that the loans it generated contained "fraudulent information or are merely loans to facilitate flip profits instead of arm's length transactions." In a flip sale, someone buys a property and immediately sells it at an inflated price.
Davis' relationship with Lockhart's company quickly soured, and they parted company earlier this year. They are currently suing each other over money owed.
Despite the tone of his memo, Davis was no stranger to flipping properties. Separate from his work with the ex-Cowboys, he engaged in a number of transactions in which he was both the flip seller and the mortgage broker, according to a civil suit filed in July by Home Loan Corp., a Houston home-lending company that did a lot of business with him.
In some cases, the lawsuit alleges, the homebuyers in Davis' deals were "straw buyers" who for a fee were paid to buy houses, took out large mortgages in their own names using false information and in short order defaulted on their loans.
"These are people who are about to go into bankruptcy, or they have some credit that they're willing to use and ruin," says Cecil Miskin, a Fort Worth lawyer representing Home Loan Corp.
In most cases, the buyers swore--as is required for the loan to be federally insured--that they would use the home as their residence, the suit alleges.
Davis, who talked to the Dallas Observer twice and referred further inquiries to his lawyer, denies the lawsuit's claims.
In general, without talking about specific cases, Miskin says this scheme can be employed to make quick profits at a lender's expense because "it's done in conjunction with a bogus appraisal."
"The person selling the house is the one who makes all the money," he says. It's made at the closing table the second the lender hands the seller the check.
"At some point, of course, this game of musical chairs has to stop," Miskin explains. That comes when the buyer defaults on the note. The lender takes a loss because the true market value of the home is far less than the amount of the loan.
Miskin says his client, which sells its loans to even larger lenders, has been forced to take back a number of loans brokered by Davis. The houses listed in the suit are all over the area, in Dallas, The Colony, Richardson, Rowlett and Plano.
One mortgage loan that has not foreclosed but is likely to soon because the homebuyer declared bankruptcy two weeks ago involves a homely wood-sided house at 5917 Reiger Ave. in the Junius Heights section of East Dallas. Its empty hulking presence has been a curiosity to neighbors for more than a year.
"Something strange has been going on over there, but we haven't known what," says next-door neighbor Robert Ackerman, echoing the sentiments of several other neighbors. "It's been empty now for a year and a half."
The house, which had been owned by a wealthy Southern California man who bought it for his daughter's use while she attended SMU, went up for sale after she graduated in May 2002. The asking price started at $220,000, then dropped to the low $200s. On December 23, 2002, the ex-Cowboys' KLT Properties bought it for $185,000, according to real estate industry records.
Eight days later, on New Year's Eve, they sold it to Benjamin Osifo, who paid KLT at least $270,000 for the property. That's how much he took out in a mortgage brokered by Kurt Davis and funded by Miskin's client, Home Loan Corp, deed records show. In eight days, the Cowboys' KLT made at least $85,000 on the house.
For some reason, the title company that closed the transaction didn't file the deed and mortgage records in Dallas County until late January. In the meantime, Osifo bought a second house with a pile of borrowed funds, and that transaction made the Cowboys' flip look foot-slow.
It was flipped in a single day.
On January 27, a man named Brent Brasher bought a brand-new brick house in a McKinney subdivision for $201,000. The same day, deed records show, Brasher sold the house to Osifo for at least $279,900, which is the amount of the mortgage Osifo signed and took out in a loan. The flip had to have been set up weeks in advance because Osifo signed the mortgage note on the same day Brasher purchased the house.
The Observer could not determine who brokered that loan, if anyone, or whether Brasher has any relationship with the people involved with KLT.
So who was this buyer who in less than a month bought two flipped houses and was able to secure more than half a million dollars in mortgages?
Osifo did not respond to several messages left at houses in McKinney and Garland, and another left last weekend at his store Benji's, a clothing shop that just had its "grand opening" in The Shops at Willow Bend mall. Benji's sells clothes with labels by Italian designers such as Dolce & Gabbana and Versace.
Public records show Osifo filed for Chapter 7 liquidation bankruptcy on October 31.
In addition to the $550,000 he owes on the two mortgages, Osifo ran up $66,190 on a stack of credit cards before he pulled the bankruptcy trigger. He listed his total monthly income as "$0.00," so for everyone who lent him money, they are likely facing a total loss. The lender on the hook for the McKinney house--which is worth about $201,000, not $279,900--began foreclosing on that loan last month.
Lockhart, whose mortgage company is defending itself in two lawsuits alleging bad business practices and fraud, declined to return several phone calls over the past month. On Friday, a woman who answered his phone at the company said he is no longer working there. William Tisdale, who she said was presently in charge, said he would "check the file" when asked about KLT's involvement with the Reiger house. He declined to return further calls.
What's interesting about the quick-flip scheme outlined by Miskin is the way it parallels a house sale federal authorities suggest was engineered by Tisdale two years ago.
On February 1, 2001, a company owned by Tisdale and his brother, insurance agent Michael Tisdale, bought a stone bungalow in the 6100 block of Anita Street for $172,000. The same day, deed records show, they sold it for at least $265,000.
The buyer was someone using the stolen identity of a California computer software consultant, who took out two mortgages for $265,000 using the man's credit and a fake drivers license.
The flip netted the Tisdales $93,000.
Evidence listed for use in the Tisdales' upcoming ID-theft trial suggests the fake buyer was either the Tisdales or someone working with them. Authorities found the deed to the Anita Street house in the brothers' possession. Michael Tisdale sold the fake-ID buyer a homeowners insurance policy, taken out in the California victim's name.
The holder of those mortgages, Countrywide Home Loans, took its loss and moved on without filing any civil or criminal complaints, records show.
That is not uncommon, Miskin says. "The mortgage market is so huge, a lot of these very large companies don't see fit to waste time on smaller frauds." Unless the figures start adding up to millions, he says, it is difficult to get investigators with the Department of Housing and Urban Development interested, either. "My client is one of the few who are aggressively going after mortgage fraud," he says.
