Virginia Lawyers Weekly

A former Chester real estate lawyer was sentenced last week to two years in prison for his participation in a mortgage “rescue” program that scammed homeowners out of the equity in their homes.

Colin C. Connelly, 52, of Hopewell also agreed in a plea deal to pay $376,000 in restitution, although he claimed he received none of those ill-gotten gains. Connelly’s attorney said the crimes occurred as Connelly suffered from depression and his practice fell into disarray.

In sentencing arguments, the government pointed to the mortgage fraud crisis being fed by the economic downturn. “Connelly’s criminal conduct fueled this growing problem and has hurt the individual victims and lenders funding the loans,” wrote Assistant U.S. Attorney Michael R. Gill. Gill noted FBI statistics showing Virginia seventh among states with significant mortgage fraud problems.

Connelly surrendered his law license in February 2008 after being charged with disciplinary violations unrelated to the mortgage rescue scheme. According to records of the Virginia State Bar, Connelly had an unexplained $600,000 deficit in his CRESPA account and admitted to wrongdoing in connection with a real estate deal in Richmond.

In the mortgage scheme, Connelly assisted a Midlothian-based company that ran a real estate purchase program targeting homes in foreclosure. The company, Walkwood Properties, Inc., would offer to buy homes from distressed owners in order to save the homes from foreclosure, according to an agreed statement of facts filed in Richmond’s U.S. District Court.

Connelly handled six of the real estate closings for Walkwood in which “a significant portion of the equity in the victims’ homes was skimmed to Walkwood properties and other entities,” according to the fact summary.

Connelly maintained that he did not receive any of the $376,000 received by Walkwood and related companies but agreed on that figure for sentencing calculations. Connelly’s attorney, David L. Hauck of Richmond, said Connelly received only his normal fee for the real estate closings, a fact acknowledged by the government.

“Although he did not create or significantly profit from the transactions, he served as the Settlement Agent for these transactions – the final gatekeeper to make sure that all of the lender’s requirements are met and that the seller executes the documentation and understands the true nature of the mortgage transaction,” Gill, the prosecutor, wrote. “Connelly … completely ignored those responsibilities….”

Hauck said Connelly was one of the first lawyers participating in the Lawyers Helping Lawyers who was not chemically dependent but, rather, disabled by depression.

At the sentencing hearing, Connelly was supported by his program mentor, lawyer Jeffrey L. Mincks of the Chesterfield County Attorney’s office, and by therapist James Leffler, executive director of Lawyers Helping Lawyers.

Gill recommended a sentence no higher than 27 months. Chief U.S. District Judge James R. Spencer imposed a 24-month sentence, at the low end of the guideline range.

In December, former Virginia Beach lawyer Kristina Marie Cardwell pleaded guilty to wire fraud in connection with real estate swindles at the law office of disbarred attorney Troy Titus. Cardwell is scheduled to be sentenced in July.

Last week, FBI Director Robert Mueller told federal lawmakers the agency is “surging” to investigate mortgage fraud cases. He said the FBI’s mortgage fraud caseload has risen from 700 three years ago to more than 2,000 currently.

Peter Carr, a spokesman for the U.S. Attorney’s office in the Eastern District of Virginia said at least 10 individuals have been sentenced for mortgage-fraud activity since April 2008, and ordered to pay, collectively, more than $47 million in restitution. In the same period, two have pleaded guilty, at least five have been arrested, and one has been convicted, according to Carr.

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