Gaithersburg Man Admits to Equity-Skimming Scam

Maryland legislators tweaked the state's real estate laws in 2005 in an effort to protect people at risk of losing their homes, saying fraud and abuse in foreclosure transactions had become widespread. The message was lost on Nicholas D. McLeod, Montgomery County prosecutors say.

Shortly after the tighter rules for foreclosure consultants kicked in, McLeod bilked nine homeowners -- including his 83-year-old grandmother -- out of hundreds of thousands of dollars, authorities said. He spent the proceeds on a new house, a BMW, outings to strip clubs and trips to Thailand, Las Vegas and Miami, prosecutors said.

The homeowners were left with far greater problems than the ones they had entrusted him to solve. "Most of them, if not all of them, have lost their homes," Montgomery County Assistant State's Attorney Robert Hill said in court Tuesday as McLeod admitted scamming the homeowners. "This is a very serious and elaborate scheme."

Hill said McLeod told investigators that he "started out honestly but along the way began skimming the equity" from refinanced homes.

McLeod, 31, of Gaithersburg, pleaded guilty to felony theft, embezzlement and prohibited activities while acting as a foreclosure consultant. "He certainly accepts responsibility," defense attorney Brian K. McDaniel said at the plea hearing.

The 2005 overhaul of the law penalizes misconduct by foreclosure consultants, a growing field in a troubled real estate market. The type of transaction prosecutors say McLeod abused works like this: Homeowners facing foreclosure sell their homes to a third-party investor, typically located by a foreclosure consultant, but continue living in them for one year. The original homeowners use that time to build their credit or otherwise improve their financial position. Fees for the investor and the foreclosure consultant are paid from equity in the property, and at the end of the year the property is sold back to the original owner if that person can obtain a new mortgage.

The arrangement sounded like the perfect solution to Barbara Pringle, a 38-year-old mother of three, who in January 2006 was four months behind on her mortgage. Pringle met McLeod through a friend.

"He was very professional, very outgoing," she said. "He was pretty much on the money. I took the paperwork to my attorney, and everything seemed to be legit."

Then one day the woman who had invested in Pringle's property knocked on the door and told her she needed to move out. Pringle would soon learn that McLeod had been pocketing payments from the investor rather than forwarding them to the bank to keep the mortgage current. The new owner allowed her to stay in the house for six months, paying $1,500 in rent. Eventually, Pringle lost the house.

"Four bedrooms, three full baths, basement, deck, patio -- it was a townhouse. It was everything I needed," she said. "My dream is gone. This is what you work for. This is the American dream."

Pringle said her oldest son, Anthony, 20, dropped out of college as a result of the family's financial problems and joined the military. He has orders to be deployed to South Korea soon.

Most of the people McLeod defrauded were Maryland homeowners, but a few were in neighboring jurisdictions. Prosecutors were able to include in the indictment properties in the District and Virginia because the proceeds came back to Montgomery.