Life just got $31 million worse for First Mortgage Co. LLC and Ronald J. McCord, its founder and former chairman.
In a final judgment signed March 24 by Judge Jed Rakoff of the U.S. District Court for the Southern District of New York, First Mortgage Co. (FMC) and McCord have been ordered to pay $31 million plus interest in restitution to CapLOC LLC, a North Carolina-based mortgage lender.
Last week’s final judgment was the result of an agreement reached between FMC, McCord, and CapLOC following a series of lawsuits and counter-lawsuits that began between the three parties and Eli Global LLC in 2017.
Before the agreement, a trial in the case was set to begin this week over the remaining claims, including damages on CapLOC’s breach of contract claim, unjust enrichment claim, and fraudulent concealment claim against McCord and FMC; and damages on FMC’s breach of contract claim against Eli Global.
In issuing the final judgment, Rakoff dismissed with prejudice all of the claims against Eli Global asserted by FMC.
The judgment comes on top of a sentence handed down in November 2021, when McCord, of Oklahoma City, Okla., was sentenced to 104 months (eight years and eight months) in prison for defrauding locally based banks, Fannie Mae, homeowners, and others “through a broad range of fraudulent conduct,” according to the U.S. Attorney’s office. McCord was also ordered to pay more than $51.86 million in restitution to the victims of his schemes.
Combined with the judgment handed down last week, FMC and McCord now must pay a combined $82.86 million in penalties and restitution.
In the Oklahoma case, on June 3, 2020, a grand jury returned a 24-count Indictment against McCord. The charges included bank fraud, money laundering, and making a false statement to a financial institution.
McCord was chairman and founder of First Mortgage Co., an Oklahoma City-based mortgage-lending and loan-servicing company. In May 2021, he pleaded guilty to five counts of that indictment. He admitted to defrauding Spirit Bank and Citizens State Bank — two state-chartered financial institutions — as well as their respective residential mortgage subsidiaries, American Southwest Mortgage Corp. and American Southwest Mortgage Funding Corp.
According to the indictment, an independent audit discovered that McCord had sold more than $14 million in Spirit/Mortgage Corp. and Citizens/Funding Corp. loans "out of trust" by failing to repay Spirit/Mortgage Corp. when certain Spirit/Mortgage Corp.-initiated loans were refinanced or otherwise paid off.
At the time of this discovery, FMC carried outstanding balances of about $200 million and $140 million on the Spirit/Mortgage Corp. and Citizens/Funding Corp. lines of credit, respectively.
After learning of McCord’s conduct, Spirit/Mortgage Corp. and Citizens/Funding Corp. each terminated future warehouse lending to FMC, and imposed new notification requirements that required McCord to assign FMC-funded mortgages to Spirit/Mortgage Corp. and Citizens/Funding Corp., to ensure the title companies handling those mortgages sent payoffs directly to the banks.
McCord admitted that he filed the assignments as required, but then caused the mortgages to be released on two properties — in Leland and Denver, N.C. — after collecting the mortgage payoffs.
Spirit/Mortgage Corp. and Citizens/Funding Corp.’s refusal to fund new FMC mortgages prompted McCord to find a new warehouse lender. In early 2017, he began negotiating with CapLOC and offered to sell FMC’s mortgage lending business in exchange for quick funding. McCord admitted that he made a materially false statement and representation to CapLOC in the course of those negotiations, in order to influence CapLOC’s actions.
In 2017, FMC serviced approximately 12,000 loans worth a total of about $1.8 billion for Fannie Mae. During his plea hearing, McCord admitted that he defrauded Fannie Mae by diverting escrow money intended to pay homeowners’ taxes and insurance premiums to cover FMC’s operating expenses. He also admitted that he then laundered the proceeds by causing a wire transfer from FMC’s operating account to a custom home builder, as payment towards construction of his vacation home in Colorado.
During McCord's sentencing hearing, Judge Robin J. Cauthron found that McCord had caused a total loss of more than $95 million to local banks, other financial institutions, and borrower homeowners. In addition to the 104-month sentence, Cauthron also ordered McCord, 71 years old at the time, to serve three years of supervised release following the end of his prison term.
"This was a carefully calculated scheme by which the defendant defrauded local banks out of tens of millions of dollars, made false statements to a financial institution, diverted escrow monies intended to pay homeowners’ taxes and insurance premiums to cover his company's operating expenses, and then laundered the proceeds to fund his lavish lifestyle," Western District of Oklahoma Acting U.S. Attorney Robert J. Troester said following the sentencing "This sentence should serve as notice that those who defraud financial institutions for personal gain will be held accountable."
