Letters of credit (L/Cs) were employed in an unusual alleged conspiracy to defraud in Freeport in the US state of Illinois according to officials involved in the case.

The scam essentially aimed to dupe the US Department of Housing and Urban Development (DHUD) into extending property loans to people who may not be able to repay them, thus exposing the government to potential losses that could add up to as much as US$2 million.

Suspicions

Freeport residents apparently noticed and reported to the authorities some unusual patterns in the sale of houses. Some homes appeared to sell to buyers who the residents suspected could not afford them, while others were sold quickly for seemingly very high prices.

The residents eventually reported their suspicions to the police who launched a two-year investigation resulting in the indictment of 12 Freeport area residents. They allegedly conspired to obtain loans from DHUD by making it appear to the lender that the buyers were more creditworthy than they really were.

Insured loans

Investigators say that Douglas Hastings, his wife and others bought cheap houses in the city. Subsequently, Phillip Miskimon and Edward Martins made a few minor repairs to the houses before recruiting prospective buyers.

Once a potential buyer agreed to a property,Miskimon and Martins allegedly then arranged insured loans for the purchaser, even though many of the eventual buyers were unemployed or did not earn sufficient money to qualify for the home loans.

False documents

To make it seem that the potential buyers could afford to repay the loan, the central conspirators recruited several local businesses willing to provide documentation that made it seem as if the would be purchasers could afford the home loan.

Amongst the false documents allegedly provided by local businesses were L/Cs, credit agreements and wages records. In return for providing these documents, the local business owners were paid US$100 to US$500 per document according to the investigators.

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