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Update: Was housing deal ‘setup from the get-go’ or banking mistake? A jury has ruled

FRESNO – One-time Modesto City Council candidate Robert Farrace, an attorney and real estate broker, was convicted Tuesday of three fraud counts after a five-day trial.

After deliberating about two hours, jurors agreed with federal prosecutors that Farrace illegally tricked lenders in order to keep two Modesto investment properties he otherwise would have lost to foreclosure.

Farrace held onto both homes by creating a company to buy them from himself, while concealing from lenders that he was on both ends of the deals in 2009 and 2010, according to evidence. In the process, Farrace traded one mortgage payment he could not afford with one much lower, and tried to with the second, which did not go through when investigators caught onto what he was doing, authorities said.

“Why did the defendant do this? For money,” Assistant U.S. Attorney Shelley Weger said to jurors. “He wanted to keep his properties, continue collecting rental income and reduce (his payments).”

Farrace, 53, has been out of custody after posting bail upon his arrest in 2015. He will be sentenced in February.

The criminal conviction will trigger charges in State Bar Court, potentially leading to a request that the California Supreme Court disbar Farrace, a bar spokeswoman said.

Farrace had advised “dozens, if not hundreds” of clients at risk of losing their homes during the real estate meltdown in 2008 and 2009, he wrote in a column printed in The Modesto Bee’s editorial section in late 2009. He was a finalist in a 2007 race for City Council, losing in a runoff to Dave Lopez.

Farrace also was a Bee community columnist in early 2010. He advocated for strategic defaults, where owners choose to lose their homes in foreclosure, in the 2009 column.

At that time, Farrace’s “marriage was falling apart, his law firm was in financial trouble, and he could not afford the mortgage payments” for properties in the 1500 block of West Roseburg Avenue and in the 2300 block of Scenic Drive, his attorney wrote in a pretrial court document.

Farrace then recruited an auto mechanic, a friend’s father, to pose as the manager of Dignitas LLC, a company Farrace controlled from top to bottom and created only to buy the two properties. Those facts were acknowledged by both sides at trial.

Prosecutors said that’s illegal because Farrace’s prime reason was getting around lenders’ rules requiring “arms-length transactions.” Lenders sometimes approve short sales involving relatives, witnesses said, but the banks in Farrace’s case didn’t know they were negotiating to sell his houses back to him, prosecutors said.

“This whole thing is a set-up from the get-go,” said Assistant U.S. Attorney Michael Tierney. The mechanic used by Farrace when he registered Dignitas with the secretary of state’s office didn’t even recognize the name “Dignitas” when asked on the witness stand, Tierney and Weger said.

Farrace would have walked away from negotiations if banks had probed enough to learn he was behind Dignitas, defense attorney Mark Broughton contended. He blamed lenders for not asking the right questions.

After the Roseburg sale, a bank asked Farrace to sign an affidavit confirming there was no relationship between buyer and seller; he of course refused, because doing so would have been fraudulent, Broughton said.

The document should have been part of a contract well before close of escrow, the attorney said.

“You can’t hold him accountable for (banks’) mistakes,” Broughton told the jury of five women and seven men.

They rejected that argument Tuesday afternoon. That morning, Weger had asked them to consider why Farrace “didn’t think it was important to disclose the truth? Because he knew it would have killed the deal. He knew that any reasonable lender would not do the deal if they knew he was the buyer.”

Farrace’s actions were uncovered by Glenn Gulley, investigator with the Stanislaus County District Attorney’s office, and the case was a joint effort with the FBI and other federal agencies.

Garth Stapley: 209-578-2390

Article source: http://www.modbee.com/news/article184627943.html

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