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365 Days of Fraud a Year? 

Bend has always touted its beauty, its charm, its “healthy outdoor lifestyle” and its mythical “300 days of sunshine a year.” But we may be on our way to inadvertently becoming famous as something else: the real estate fraud capital of the United States.

Today a federal grand jury in Eugene handed up indictments against 13 people in connection with the Desert Sun Development company. The indictments charge that fraudulent activities by DSD’s principals – Tyler Fitsimons, 31, of Prineville; Shannon Egeland, 35, of La Grande and Jeremy Kendall, 33, of Redmond – and others associated with the company and its developments caused financial institutions to lose $9 million. The crimes alleged include conspiracy, bank fraud, making false loan applications to banks and money laundering, according to a news release issued by federal prosecutors.

In its story on the case today, The Oregonian notes that in May 2008 it published an exposé of "Desert Sun’s controversial employee home ownership program, in which the company assisted employees [to] get financing to build or buy homes. Many of the employees got nothing but vacant lots or partially built homes and a half-million dollar mortgage.”

In addition to the home ownership deals, today’s indictments charge fraud in connection with financing of commercial projects.

“The indictment alleges that the defendants sought construction financing for five commercial buildings in Bend and Redmond Oregon which were never built,” the news release says. “As part of the scheme, the defendants are alleged to have made representations that construction was underway when it was not.”

Besides the three principals, those indicted include John Partin of Bend, owner of Advance Steel; Robert Brink of Junction City, a construction loan officer at Umpqua Bank; DSD employee Garret Towne of Culver; mortgage brokers Shaun Little and Del Barber, both of Bend; bank loan officer Jeffrey Sprague of Bend; loan processor Barbara Hotchkiss of Redmond; building materials supplier Kevin Palotay of Bend; Teresa Ausbrooks of Bend, alleged to have made false statements about her income in applying for a bank loan to pay for a house DSD was building for her; and Michael Wilson of South Carolina, alleged to have been DSD’s residential construction superintendent.

Speaking of lifestyles, the release also mentions that the indictment “seeks forfeiture of a Ferrari, two Viper automobiles, and other assets related to the fraud and money laundering allegations.”

(I would just like to note in passing that all but one two of the alleged perps are good old Central Oregon boys and girls, not the stereotypical greasy California developer with a Lamborghini, a silicone-inflated trophy wife and 20 pounds of gold chains on his chest. We grow plenty of our own crooks here – no need to import ‘em.)

“The economic hit that a community like Bend takes in a case like this one is very real,” said Arthur Balizan, special agent in charge of the FBI in Oregon. “When a development company collapses under the pressure of fraud - as is alleged in this case - we are left with millions of dollars in losses, empty lots and abandoned buildings. Everyone loses.”

The real crime is that during the bubble days the local news media largely ignored the possibility that real estate fraud was happening in Central Oregon, including warnings from appraisal expert Richard Hagar, who began giving seminars here about fraud and how to avoid it way back in 2005.

Another crime is that, though the Desert Sun case is probably just the proverbial tip of the iceberg, the great majority of the scam artists who brought about Bend’s bubble and catastrophic bust most likely will skate.

“Off the top of his head, Hagar can think of at least 30 Bend residents who would deserve to be indicted, tried, and convicted for their role in the fraudulent activities that artificially inflated the local community's housing bubble,” Christina Davidson wrote in The Atlantic in early October. “However, he says, ‘The reality is only about 5% will ever be caught.’”

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